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From baby steps to a Global Crossing

In just two years, the Bermuda-based telecom company has swept from obscurity to the top ranks of the international communications business.

In just two years, Bermuda-based telecom company Global Crossing has swept from obscurity to the top ranks of the international communications business.

Founded in March 1997, the company originally planned to become a "carriers' carrier," building an extensive network of undersea fiber-optic cables and selling space wholesale on its network to firms focusing on voice or data traffic.

Reminiscent of WorldCom's acquisitive rise to power, Global Crossing has vaulted itself into the top ranks of world telecommunications carriers with the US West deal.

Led by former AT&T and Teleport Communications Group executive Robert Annunziata, the company has become something of a Wall Street darling. The operation went public in August 1998, in the middle of building out a extensive undersea network linking Europe, North and South America, and Asia.

The company's stock has risen from its initial price of about $15 to more than $60, valuing Global Crossing at more than $26 billion. This financial success has led the firm to expand its already-dramatic telecom vision.

In March, Global Crossing announced that it would buy long distance company Frontier, in a stock transaction worth about $11.2 billion dollars. That suddenly turned the "carrier's carrier" into a carrier itself, which will eventually directly compete with the other telcos it still sees as customers.

Today's US West merger takes the company's ambitions a step further, and underlines how completely the telecommunications market has turned on its head in just a few short years. US West, one of the original local phone monopolies to be carved out of AT&T in 1984, will bring Global Crossing a strong local phone component, experience and infrastructure with high-speed Internet access and other cutting-edge consumer technologies, and a steady revenue source.

But Global Crossing is still looking to expand its offerings.

"Along the way, if we see somebody that makes sense, I wouldn't rule out another acquisition," Annunziata told reporters today.

The quick rise to prominence has startled many in the telecommunications world. "I am very surprised that they've been able to do what they've done so quickly," said Blaik Kirby, a principal with the Renaissance Worldwide management consulting firm.

The company is looking to merge with more established companies, as did WorldCom, to catapult it into a solid telecommunications brand, Kirby said.

When the pending mergers close, however, the new Global Crossing will be left initially with a series of assets that some analysts call more of a "holding company" than a genuinely integrated telecommunications company.

Global Crossing brings undersea fiber-optic connections linking Europe, North and South America, and Asia, along with a substantial network across Europe. Frontier will contribute its national long distance business, along with a local phone business that encompasses 34 cities along the Eastern seaboard.

US West brings to the table its role as the dominant local phone provider in 14 Western and Midwestern states, including nearly 40 percent of the existing DSL high-speed Internet subscribers in the United States.

The new company will be split into two tracking stocks, one for the high-growth Internet, data, wireless and long distance business, and one for the more stable local phone business, executives said today.

That makes good business sense, but underlines the fact that the new companies' assets don't fit together seamlessly, analysts said.

"There are areas where there are strategic synergies," said Boyd Peterson, a telecommunications analyst with the Yankee Group. But US West is unable to link its local customers directly to Frontier's long distance services, since federal law bars this until the company's local markets are completely open to competition.

Until Global Crossing, like MCI WorldCom, is able to offer customers this full end-to-end network package, it remains largely "an interesting amalgam, or almost a holding company of different functions," Peterson said.

The company may now have its eyes on European partnerships or acquisitions, to round out the long-term end-to-end network strategy, some analysts said.

But the company needs to focus on integrating its recent acquisitions, they added--no small charge given the huge cultural differences between the entrepreneurial Global Crossing and the traditional, regulated pace of US West.

"Is this an ideal fit? In the short term, it probably isn't," Kirby said. "But this is clearly more of a long-term merger. The values are farther out. They're securing their position in the US market."