Part I of this two part series focused on my own impressions of glbc. In Part II, we hear from the company directly. Recently, I had the opportunity to ask Gary Breauninger, Chief Administrative Officer of Global Crossing, a series of questions. Gary has been with Global Crossing for many years, serving previously as chief marketing officer, senior vice president for planning and business finance, and a number of other executive roles. In January of 2009, Gary shifted over to his current position as Chief Administrative Officer.
TR: Congratulations on a strong 2008 performance for Global Crossing. How does it feel to watch the financial crisis from the bleachers this time?
GB: Thanks. We’re proud that Global Crossing met guidance targets for 2008 and had double-digit revenue growth. We also increased full-year Adjusted Gross Margin by approximately 400 basis points and improved full-year Adjusted Cash EBITDA by 89 percent. We’ve headed into 2009 with positive momentum, strong financial progress, a world-class network, leading customer satisfaction scores, and a team with deep bench strength that can execute in this challenging global economy. We are not saying we are shielded from what is happening in the economy. What we are saying is that we have developed a business with strong fundamentals and as you see from our guidance for 2009, one that can continue to perform.
Actually, today’s challenges are fundamentally not all that different from what we successfully navigated years ago. Today, like then, you need to keep customers, anticipate their needs, position yourself as a resource – not just as a vendor – control costs, and invest in your employees.
TR: What does Global Crossing see as its biggest challenge in 2009?
GB: For 2009, Global Crossing has set a course with four main objectives that are our challenges for the year. First, our biggest objective is to create Free Cash Flow in 2009. In that vein, we anticipate continuing to grow revenue (on a constant currency basis, ie if fx rates were applied consistently from year to year), we’re managing our costs with a laser-like focus, creating increased financial flexibility. Second, as we invest capital this year we’re being more demanding in the returns we expect. The combination of these first two objectives will get us toward the goal of generating Free Cash Flow for 2009 – which is key for us. Third, we’ll continue to focus passionately on customer loyalty, by driving process enhancements and measurements to ensure superior customer service wherever we do business. Our dedicated account support differentiates us and makes us a strategic business partner, not just a vendor. Finally, we’ll continue to focus on our people, who are critical to our differentiation, by continuing to add seasoned salespeople over time to capitalize on existing demand trends.
Overall, we’re no stranger to rocky roads and challenges. We have a team of seasoned executives who know how to manage in difficult times and we’re confident that we have the right IP-based solutions and management expertise to help our customers become more efficient and save money.
TR: Global Crossing has good metro coverage in the UK and in South America, and therefore good margins in those markets. But in the US and continental Europe, lower metro coverage seems to be holding you back. What plans do you have to rectify this?
GB: Global Crossing has a global network, and as you point out through strategic acquisition we have dense metro coverage in the UK and Latin America.
Organically, our strategic focus is to grow higher margin products that will have a less reliance on costs associated with access, which includes continuing to manage our access costs outside of the UK and Latin America. This includes access network optimization, use of competitive access alternative providers, and increased end office versus tandem switch termination. We also believe there are broader strategic opportunities given the investment we’ve made, analytical tools, and global provider relationships to improve on our cost of access. We announced plans to extend the reach of our Ethernet service and introduced Global Crossing EtherExtend(sm) Flex Service to provide our customers with cost-effective and flexible Ethernet access to IP-based services. EtherExtend Flex lowers a user's cost of access and matches the access Level of Service to the application's needs.
Inorganically, we always evaluate opportunities to expand our services, reach, and coverage.
TR: Where does Global Crossing see demand coming from in 2009?
GB: Our experience is consistent with the observations of several industry analysts. IDC recently reported that in 2009, enterprises “will continue to look seriously at convergence, which translates into faster migration to IP.” Other industry analyst estimates suggest that IP VPN, our flagship product, is among the fastest growing in enterprise telecom services. And, despite the current economic environment, telecom budgets are expected to grow in 2009. I’ll add that with less than 30 percent of our target market having completed MPLS migration, there remains a significant market opportunity for the ongoing adoption of our services. We have seen this in our funnels, and in the types of deals we’ve closed.
Carriers, content providers, and social networking companies have seen increases in traffic volumes in the form of large object video file transfers and other IP traffic-dense applications. They are managing capacity additions carefully while seeking to achieve the balance of high quality user experiences and good economics. We expect continued demand for bandwidth following these trends as we move through 2009. To meet that demand, we recently announced expansion of our capacity on certain undersea routes.
TR: Even upgraded, your transatlantic cables AC-1 and AC-2 only have so much capacity and seem likely to be full in a few years. Will you ever lay another transatlantic cable, or are those days forever in the past?
GB: While there are certain routes which are running hotter than others, we stay ahead of that and have been expanding capacity in line with demand through electronics rather than laying new cable. We still have plenty of opportunity to do that as needed. Our network was built well before its time and is dynamic and modular and thus we can expand it, real time as need to match revenue/demand growth.
During the first half of 2009, Global Crossing will increase transport capacity to the Atlantic Crossing 1 (AC-1®) Northern and Southern routes. We’ve announced large-scale upgrades to our South American Crossing (SAC®) subsea network and, in January of this year, completed a 126 km fiber optic network expansion in the interior region of the state of São Paulo, Brazil.
However, when it comes to laying new cable you should never say never in this business. Just look at the fiber optic cable landing on Costa Rica's Pacific Coast that we inaugurated just last year. Ultimately, Global Crossing will make responsible investments that keep pace with customer demand.
TR: Lately the ascendancy of Asian bandwidth is causing all carriers to shift some focus there. I know Global Crossing leases some assets in the region, but it has not been a focus for a long time. Do you have any plans to return to Asia in force?
GB: Asia Pacific is a fast-growing region for us in both customers and revenue. We’re bringing in Asia-originated revenue and establishing the Global Crossing brand with customers like Sing Tel, PCCW, Chunghwa Telecom, and others. In addition, our Enterprise and Collaboration and Global Account Management Teams are also establishing strong relationships with clients in the region.
We have a total of 11 POPs in the Asia Region – Japan, Hong Kong, Singapore, Australia, Korea, Taiwan, Philippines, Malaysia, Thailand, Indonesia, and Vietnam and we’re focusing on the Tier-1 carriers in Asia Pacific countries with demand for international connectivity.
We’re seeing increasing demand for IP transit driven by broadband penetration especially in developing countries. Asian carriers are also building cables to the U.S., which drives more demand for infrastructure in the U.S. for IP transit, backhaul, and collocation. We’re focusing on high-margin enterprise networking business, which require partners liked Global Crossing to complement their geographic reach.
Will we be there in force? We scale our footprint based on customer demand. If demand keeps growing, our presence will as well.
TR: Recently you began selling CDN services from Edgecast and Limelight.
Some people, myself being one, see content distribution eventually being integrated into the fabric of the internet over time rather than remaining as an overlay service. What does Global Crossing see as the future for CDN services?
GB: With rich media quickly becoming more prevalent on the Internet among most enterprises, along with the demand for higher bandwidth, Global Crossing sees the market growing faster than some anticipate. We see CDN as a value-added service gaining momentum and a link in the value chain of the end to end solutions we provide.
That’s why we launched a CDN offer that combines our traditional IP transit products, with our hosting and co-location services. We see Global Crossing providing complete IP solutions, including bandwidth, data center, and content delivery services -- a one-stop shop. This may be perceived as a better value than what other CDN players can offer.
We think our CDN offer will appeal to our IP Transit/Direct Internet Access and Virtual Private Network (VPN) customers, as well as international enterprises in global manufacturing, media and entertainment, government and education, and IP-centric customers.
TR: Thank you for taking the time to talk with Telecom Ramblings, Gary!