Global Crossing Is Back

From the files of "things the telecommunications industry doesn't need": Global Crossing (Pink Sheets: GLBCF) recently emerged from bankruptcy, and it's set to compete again with a whole host of carriers -- some that also have gone through the "balance sheet carwash" of bankruptcy, and others that have not... yet.

Global Crossing, you may recall, collapsed after the piles of revenues it claimed to be generating during the telecommunications boom in the late 1990s turned out to be partially based on phantom capacity swap transactions. The company thus turned $80 billion in market cap into pennies, and descended into scandal and recriminations when it was found that insiders had been selling massive amounts of shares, pulling more than a billion out prior to the company's collapse.

Shareholders who held on until the end saw their shares cancelled, rendered worthless. Somehow Global Crossing's management escaped the ignominy that the folks who ran Enron and WorldCom into the ground achieved. I can't really explain it, because the fraud was nearly as brazen.

Those owners and that management are long gone, still sadly free from some "opportunity for reflection" that a jail cell would provide. But the company itself has survived -- its creditors agreeing to accept pennies on the dollar -- allowing Global Crossing to be reincarnated with newly issued shares and a clean balance sheet. The company once again should be recognized for its excellent timing: It has won some contracts to provide backbone services for companies engaging in Voice Over the Internet Protocol (VOIP).

Client companies are praising Global Crossing's ability to provide pure end-to-end VOIP, rather than the cobbled-together solutions offered by AT&T (NYSE: T), Sprint (NYSE: FON), MCI, and other backbone carriers. The biggest competitor for Global Crossing in this regard seems to be Level 3 (Nasdaq: LVLT). Equipment vendors such as Sonus (Nasdaq: SONS), Lucent (NYSE: LU), and Nortel (NYSE: NT) have seen a substantial ramp-up in VOIP revenues associated with its official status as "the next big thing."

Ah, but all of this excitement over VOIP doesn't mask something else in the telecommunications industry. There is still way too much competition, and far too much capital being spent for the size of the present and appreciable future markets. What the emergence of Global Crossing and later MCI will do is simply make it easier for them to compete against companies that haven't gotten a do-over on their debts.

VOIP is a new market, but it's only cannibalizing existing ones for the carriers. That doesn't strike me as a scenario to get that excited about.