Global Crossing 2007 results: steady growth continues

Last week Global Crossing announced its results for 2007, demonstrating its continued growth. Consolidated revenues were up 21% year-on-year to €1.427 billion/US$2.26 billion. Operating losses improved by a third from €133.8 million/$212 million a year ago to €89 million/US$141m in 2007. Net losses also fell, but only by 5.6% to €193 million/US$306 million. The company's adjusted gross margin for the full year was €0.07 billion/US$1.12 billion (or 49%), up an impressive 48% year-on-year.

Comment: Most of Global Crossing's growth is attributable to its 2006 acquisitions of Impsat in Latin America and Fibernet in the UK. Earnings from these two businesses have boosted Global Crossing's primary "˜invest and grow' segment, which now accounts for 79% of all revenues and 94% of adjusted gross margins (up from 67% and 90% respectively in 2006). The company's invest and grow revenues grew by a rather more modest 20% when revenues from Impsat and Fibernet are excluded.

In previous comments on Global Crossing we have drawn attention to the company's need to keep tight control on costs. At first glance, 2007 access costs rose by a mere 2.3% compared with 2006. However, access costs associated with the invest and grow segment grew by 29% - still significantly less than revenues from this segment. The 22% rise in sales, general and administrative costs was attributed to a combination of restructuring, retention incentives and increased salaries and commissions, which are understandable immediately after well-targeted acquisitions.

Global Crossing's diversification away from over-reliance on its wholesale voice revenues (down 25% in line with much of the rest of the industry) is clearly a success story, and its acquisitions are paying their way. Actions to limit cost increases are starting to take effect, but management must be careful to keep the reins tight.

Although Global Crossing achieved positive operating and net income figures in Q4, it needs to work harder if it is to record positive results for a full year.

David James, Principal Analyst and Service Manager

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