Teleglobe prepares turnaround strategy

Teleglobe Inc. Wednesday announced a much-anticipated reorganization strategy that includes an exit from the hosting market, new executive appointments, court-ordered creditor protection and 850 job cuts.

Former Teleglobe

executive vice-president and chief administrative officer John Brunette, who was appointed CEO, said about the half of the cuts will be in the United States, most of those at the company’s Reston, Va. office. Montreal will absorb the majority of the 127 job cuts slated for Teleglobe’s Canadian operations. The firm laid off approximately 170 people as part of a previous round of layoffs last August.

Speculation about a possible restructuring at Montreal-based Teleglobe has been swirling since BCE Inc. cut the long distance carrier’s funding last month. Wednesday’s announced reorganization moves are part of shift back to Teleglobe’s core wholesale voice business, which serves telecom carriers around the world with voice and data services.

Serge Fortin, Teleglobe’s new COO, said this voice business accounted for more than half of the company’s US$1.3 billion 2001 revenues.

“”Our core business is both strong and viable,”” Fortin said. “”Our reorganization strategy allows us to turn a new page.””

But according to Mark Quigley, director of research for the Yankee Group in Canada, the wholesale voice market is drowning in an excess of capacity. He said while voice will still generate $1 billion for Teleglobe each year for the foreseeable future, wholesale voice is not a huge growth market.

“”If you look at wholesale voice and data products across the board, you’ve seen a tremendous downturn in revenues because competition is so intense,”” he said.

Fortin said a growth in international traffic and a paring down of Teleglobe infrastructure, including rationalization of its integrated Internet, voice, data and video GlobeSystem network, will offset the falling prices for voice and data services.

“”The volume in growing,”” he said. “”We are in a very good position to reduce our costs at the same speed as the decrease in revenues.””

Quigley said in the long term, wholesale voice will face a challenge from voice over Internet protocol (VoIP) services, but that Teleglobe could simply transition that revenue by layering VoIP over data services as a value-add.

“”Wholesale data services have the ability to change in that you have the ability to bring in more than just pipe,”” he said.

At any rate, he said, Teleglobe did not really have the ability to hold on to its ancillary businesses.

“”Quite clearly, some of the businesses they have, they had to get rid of, the hosting in particular,”” he said. “”At the end of it, they aren’t left with that many options.””

Quigley said Teleglobe’s decision to immediately exit the hosting business is the result of lower than expected revenues, the same malaise that befell Exodus Communications Inc., PSINet Inc. and other industry players.

Osama Arafat, CEO of Q9 Networks Inc., said the hosting market failures experienced by Teleglobe and others are the product of expanding wildly to meet predictions of 10-fold year-over-year growth.

“”There was a feeling that there was going to be huge growth,”” Arafat said, noting that his company has expanded according to more modest growth projections. “”But when you expand to accommodate this growth, you leave no margin for error. If there’s slowness in the growth, you’re going to lose everything.””

Teleglobe has not lost everything, though it is not far from bankruptcy either. Saddled with $4 billion in total liabilities (as of the end of last year), Teleglobe was in court in Toronto Wednesday in the hopes of getting court approval for $100 million of debtor-in-possession financing from BCE. The Ontario Superior Court of Justice did grant Teleglobe an Order providing creditor protection under the Companies’ Creditors Arrangement Act (CCAA) Wednesday, and Teleglobe said it will make ancillary filings in the United States and the United Kingdom.

Teleglobe is also continuing discussions with potential buyers of the company’s core business. Brunette would not name any of the potential buyers, but did say there are Canadian companies in their ranks.

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