Global Crossing

Global Crossing Limited was an international telecommunications company created during the late-1990s expansion of the commercial Internet. Founded in 1997 by Gary Winnick and former colleagues associated with Drexel Burnham Lambert and CIBC, the company pursued an ambitious strategy: construct and operate a global fiber-optic network and sell capacity and higher-value communication services to businesses, carriers, governments, and, in some markets, individual users. Its legal domicile was Bermuda, while its administrative headquarters were in New Jersey. The company’s network strategy combined undersea cables, terrestrial links, carrier interconnection, and metropolitan facilities. At its peak, the network reached more than 700 cities in over 70 countries. Offerings included leased lines, Internet connectivity, private networks, virtual private networks, long-distance telephony, audio and video conferencing, colocation, dial-up access, managed services, Web hosting, and voice over Internet Protocol. Global Crossing emphasized layered services such as managed networking and VoIP rather than relying only on the resale of raw bandwidth. It also promoted the native deployment of IPv6 across both private and public network environments, describing itself as the first global communications provider to do so. Global Crossing expanded exceptionally rapidly during the dot-com boom. It acquired Global Marine Systems, Frontier Communications, and Racal Telecom; invested in submarine-cable ventures; and created Asia Global Crossing with SoftBank and Microsoft to develop an Asian fiber network. It also entered a Hong Kong joint venture with Hutchison Whampoa and purchased or developed assets in Latin America and Europe. These transactions gave the company a broad international footprint but also created a capital-intensive business with substantial debt and exposure to falling telecommunications prices. The company never recorded a profitable year. The collapse of technology and telecommunications valuations, excess fiber capacity, declining prices, and weak demand undermined its financial model. A proposed transaction involving Enron’s fiber assets did not proceed, and Global Crossing’s attempt to sell its GlobalCenter hosting operation to Exodus Communications produced far less value than initially anticipated when the transaction closed. The company reported a loss of approximately $1.4 billion for 2000 and lost $3.4 billion on $793 million of revenue in the fourth quarter of 2001. Global Crossing filed for bankruptcy protection in January 2002, listing approximately $22.4 billion in assets and $12.4 billion in debt. The bankruptcy became one of the largest of its era and generated investigations and litigation concerning accounting practices, executive stock sales, political activity, compensation, and alleged securities fraud. The company emerged from bankruptcy in December 2003 and returned to public trading in April 2004 after restructuring and new investment. Its Asian subsidiary, Asia Global Crossing, separately filed for bankruptcy in 2002 and sold assets to Asia Netcom. After reorganization, Global Crossing continued operating as an international carrier and expanded selectively, including the acquisitions of Fibernet in the United Kingdom and Impsat in Argentina. On October 3, 2011, Level 3 Communications acquired Global Crossing for approximately $3 billion, including the assumption of about $1.1 billion in debt. Global Crossing subsequently ceased to exist as an independent corporate brand, with its network and services integrated into Level 3’s communications business.

Global Crossing was founded in March 1997 by Gary Winnick, Abbott L. Brown, David L. Lee, and Barry Porter. The founders raised approximately $35 million, including money from Winnick and CIBC-related investment funds. The initial concept was to build a worldwide telecommunications backbone at a time when Internet usage, international data traffic, and demand for private business networks were expanding rapidly. The company’s first major growth phase occurred during the late-1990s technology boom. In 1998 it hired Lodwrick Cook as co-chairman and John Scanlon as its first chief executive. Robert Annunziata replaced Scanlon in 1999 after leaving AT&T’s business-services organization. Global Crossing attempted to acquire US West but was outbid by Qwest. It then bought Global Marine Systems, the submarine-cable maintenance division of Cable & Wireless, for approximately $885 million. Later in 1999 it acquired Frontier Communications for about $9.9 billion, acquired Racal Telecom for approximately $1.65 billion, and formed Asia Global Crossing with SoftBank and Microsoft. The Asian venture was intended to connect Japan, China, Singapore, Hong Kong, Taiwan, South Korea, Malaysia, and the Philippines through a new fiber network. In 2000 Global Crossing formed a Hong Kong fiber-network joint venture with Hutchison Whampoa. The company also operated GlobalCenter, a Web-hosting and data-services division. Leo Hindery Jr. became chief executive after Annunziata’s resignation. Global Crossing announced the sale of GlobalCenter to Exodus Communications for $6.5 billion in stock, but by the time the transaction closed in January 2001 the consideration was reportedly worth only about $1.95 billion because Exodus’s share price had fallen sharply. Hindery left, and Thomas Casey became chief executive, followed later in 2001 by John Legere. The business environment deteriorated rapidly. Telecommunications carriers had built large amounts of fiber capacity, while demand and prices weakened after the dot-com bubble burst. Global Crossing sold its local telephone operations and the Frontier name to Frontier Communications in 2001 for approximately $3.65 billion in cash. A proposed reciprocal arrangement with Enron involving fiber capacity was discussed but never completed. Global Crossing reported a loss of approximately $1.4 billion for 2000 and a fourth-quarter 2001 loss of roughly $3.4 billion on revenue of $793 million. In January 2002 the company filed for bankruptcy protection. It reported approximately $22.4 billion in assets and $12.4 billion in debt, and faced annual interest obligations of about $600 million. The bankruptcy was accompanied by allegations concerning accounting practices, executive stock sales, political influence, and compensation. Between 1998 and 2001, Winnick and other executives sold substantial amounts of company stock. Executives also received bonuses and loan relief while employees faced layoffs, unpaid obligations, and canceled pensions. In 2004 Winnick and other former executives settled investor and employee lawsuits alleging that improper accounting had inflated reported revenue. Global Crossing emerged from bankruptcy on December 9, 2003, and returned to public ownership in April 2004. Its Asian subsidiary had separately entered bankruptcy in November 2002, while Hutchison Whampoa purchased Global Crossing’s interest in the Hong Kong venture. The reorganized company continued operating its international carrier network and added selected assets, including Fibernet in the United Kingdom in 2006 and Impsat in Argentina in 2007. On October 3, 2011, Level 3 Communications acquired Global Crossing for approximately $3 billion, including assumed debt. The transaction ended Global Crossing’s independent corporate existence and folded its infrastructure and services into Level 3.

1. 2011Acquired by Level 3 Communications

   Level 3 completes the acquisition, ending Global Crossing’s independent corporate operations.

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2. 2007Impsat acquired

   Global Crossing acquires Argentine telecommunications provider Impsat, strengthening its Latin American operations.

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3. 2004Return to public ownership

   Global Crossing becomes a public company again after restructuring.

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4. 2003Emergence from bankruptcy

   The reorganized company exits bankruptcy protection in December.

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5. 2002Bankruptcy filing

   Global Crossing files for bankruptcy protection amid severe losses, debt burdens, and the collapse of telecommunications valuations.

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6. 2001Frontier operations sold

   The company sells its local telephone operations and the Frontier name back to Frontier Communications.

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7. 2000Hong Kong network venture formed

   Global Crossing and Hutchison Whampoa establish a 50/50 venture to develop a fiber-optic network in Hong Kong.

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8. 1999Major international expansion

   Global Crossing acquires Global Marine Systems, Frontier Communications, and Racal Telecom, while launching the Asia Global Crossing joint venture.

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9. 1997Global Crossing is founded

   Gary Winnick and former Drexel and CIBC colleagues establish the telecommunications company and raise initial investment capital.

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A global, carrier-grade communications provider focused on international fiber infrastructure, enterprise networking, wholesale capacity, and higher-margin managed communication services.

• Global Crossing IP and fiber backboneCarrier network

  The company’s core international network used submarine and terrestrial fiber systems to connect more than 700 cities in over 70 countries. It served enterprises, other carriers, and service providers with international connectivity, Internet backbone access, and transport capacity. Global Crossing also promoted native IPv6 deployment across its public and private networks.

• Managed services and virtual private networksEnterprise networking

  Global Crossing supplied managed networking, private connectivity, and virtual private network services to business customers. These offerings were intended to provide more recurring and higher-margin revenue than the sale of undifferentiated bandwidth alone.

• Leased lines and international bandwidthWholesale and enterprise telecommunications

  Dedicated leased lines and international bandwidth connected corporate sites, carriers, and data facilities across Global Crossing’s backbone. The company sold transport capacity to both end-user organizations and other telecommunications providers.

• Voice, conferencing, and VoIP servicesVoice and collaboration

  The portfolio included long-distance telephone services, voice over Internet Protocol, and audio and video conferencing. These products extended the company’s infrastructure business into managed communications and collaboration services.

• GlobalCenterWeb hosting and data services

  GlobalCenter was Global Crossing’s Web-hosting and data-services division. It was announced for sale to Exodus Communications in 2000; the transaction closed in January 2001, when the value of the stock consideration had fallen substantially from the announced figure.

• South American CrossingSubmarine cable network

  South American Crossing was the company’s Latin American network, supported by submarine connectivity and regional points of presence. Impsat maintained a commercial relationship with Global Crossing in connection with this regional infrastructure before its acquisition in 2007.

• 2000Global Crossing political convention sponsorships

  United States

  Global Crossing contributed $250,000 to each of the 2000 Republican and Democratic national conventions and made additional contributions to politicians from both parties.

  Outcome. The political activity later became part of public scrutiny of the company’s lobbying and relationships with policymakers.

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• 2000Kursk submarine rescue support

  United Kingdom · Russia

  Global Crossing’s undersea-cable division was involved in an attempted rescue effort following the Kursk submarine disaster. Under an arrangement with the British Ministry of Defence, the company was connected with operation of the LR5 rescue submersible.

  Outcome. The rescue effort did not save the submarine crew, but the episode illustrated the capabilities and emergency role of the company’s marine infrastructure division.

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• 2011Acquisition by Level 3 CommunicationsM&A

  Global Crossing remained an international network operator after restructuring but was ultimately combined with another major backbone carrier.

  What changed. Level 3 Communications acquired Global Crossing and assumed a substantial portion of its debt.

  Aftermath. Global Crossing ceased operating as an independent company and its network was integrated into Level 3.

  Transaction value including assumed debt. $3 billion, including approximately $1.1 billion of assumed debt (October 2011)

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• 2002File for bankruptcy protectionOther

  Falling bandwidth prices, excess network capacity, weak demand, high debt, and large operating losses made the original expansion model unsustainable.

  What changed. Global Crossing filed for bankruptcy protection in January 2002.

  Aftermath. The company reorganized, received proposed investment from Hutchison Whampoa and ST Telemedia, and emerged from bankruptcy in December 2003.

  Reported assets and debt at filing. $22.4 billion in assets and $12.4 billion in debt (January 2002)

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• 2001Sell local telephone operationsStrategy

  The company needed to reduce complexity and raise liquidity as the telecommunications market deteriorated.

  What changed. Global Crossing sold its local telephone operations and the Frontier name to Frontier Communications.

  Aftermath. The transaction provided cash but did not prevent the company’s subsequent bankruptcy filing.

  Sale proceeds. $3.65 billion in cash (2001)

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• 2000Form Asia Global CrossingProduct launch

  Global Crossing wanted to extend its global fiber model into fast-growing Asian markets.

  What changed. It formed a joint venture with SoftBank and Microsoft to build a fiber-optic network linking multiple Asian markets.

  Aftermath. Asia Global Crossing later entered bankruptcy and sold its assets to Asia Netcom.

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• 2000Sell GlobalCenter to Exodus CommunicationsM&A

  Global Crossing attempted to monetize its Web-hosting division while concentrating on network infrastructure and communications.

  What changed. The company announced a stock transaction to sell GlobalCenter to Exodus Communications.

  Aftermath. When the transaction closed in January 2001, the value of the stock consideration was approximately $1.95 billion rather than the initially announced $6.5 billion because Exodus’s stock had declined.

  Announced consideration versus closing value. $6.5 billion in stock → $1.95 billion in stock (2000-2001)

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• 1999Acquire Frontier CommunicationsM&A

  Global Crossing sought scale and local access in North America during the telecommunications expansion of the late 1990s.

  What changed. It acquired Frontier Communications, the former Rochester Telephone Corporation, and renamed the business Global Crossing North America.

  Aftermath. The local telephone operations and Frontier name were sold back to Frontier Communications in 2001.

  Acquisition value. $9.9 billion (1999)

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• 2002Accounting and securities-fraud allegationsControversy

  During and after the bankruptcy, executives were accused of using improper accounting to inflate reported revenue and support the company’s market valuation. Investors and former employees filed lawsuits, and former executives later reached settlements.

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• 2002Executive compensation during bankruptcyControversy

  The company faced criticism because executives received substantial bonuses and loan relief while employees experienced layoffs, unpaid obligations, and canceled pensions.

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• 2002Political influence and lobbying scrutinyControversy

  Global Crossing’s political contributions and its reported engagement of lobbyist Anne Bingaman to oppose competing cable licensing arrangements attracted scrutiny during the company’s collapse.

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• 2002BankruptcyControversy

  The January 2002 bankruptcy became one of the largest corporate failures of its period and exposed the risks of the company’s debt-funded global fiber expansion.

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• 2011Global Crossing acquired by Level 3 Communications

  Level 3 Communications completed the acquisition of Global Crossing in a transaction valued at approximately $3 billion, including assumed debt.

  M&A
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• 2004Global Crossing returns to public markets

  Following its restructuring, the company again became a public company.

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• 2003Global Crossing emerges from bankruptcy

  The company completed its bankruptcy restructuring and emerged as a reorganized telecommunications carrier.

  Bankruptcy
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• 2002Asia Global Crossing files for bankruptcy

  Global Crossing’s Asian subsidiary entered bankruptcy and later sold its assets to Asia Netcom, a China Netcom subsidiary.

  Bankruptcy
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1. Global Crossing