In a bid to capture some of the burgeoning Internet market in Asia, Global Crossing Ltd. today announced plans to construct an 11,000-mile land-and-undersea cable network that will offer video and other high-speed services to Japan, China, Singapore, Hong Kong, the Philippines and South Korea.
Joining the two-year-old Bermuda-based communications company in creating the $1.3 billion venture will be two dominant high-tech operations: Microsoft Corp., which has been searching for Internet-infrastructure investments, and Softbank Corp., a Japanese firm that owns significant stakes in more than 100 Internet companies.
Microsoft and Softbank will each invest $175 million in what will be called Asia Global Crossing. They have also committed to buy a total of $200 million of service from the new network. In return, they will each get a minimum ownership stake of 3.5 percent in Asia Global Crossing, which will likely be spun off into a public company.
While the investments are relatively small--Microsoft put nearly 30 times as much money into AT&T this spring--they illustrate the increasingly interconnected way the high-tech world works. Having a stake in someone else's operation helps protect and extend your core franchise, the logic goes.
"It's not as if making an investment eliminates all partnership difficulties and challenges," said Greg Maffei, Microsoft's chief financial officer. "It doesn't make better software or something like that. But it does make people work more closely together."
In this case, Microsoft, which has the third-most-popular Internet service, had been talking with Softbank, which owns part of the portal company Yahoo Inc., about the need for "broadband" telecommunications systems in Asia.
While Internet use is soaring in the region--one forecast is that the number of paying customers will go up nearly tenfold this year alone--investments have been lagging in the sort of high-speed services that can carry video, industry analysts said.
The potential partners came together through Eric Hippeau, chief executive of the Ziff-Davis publishing empire, which is partly owned by Softbank. Hippeau is also a board member at Frontier Corp., a New York-based phone firm that has agreed to be sold to Global Crossing.
"The next thing you know," said Global Crossing chief executive Bob Annunziata, "we had a deal." He added that Microsoft and Softbank, in addition to helping finance the network, "will bring more traffic to it. They'll be both clients of the network and developers of it, as well as plugging into the Global Crossing network worldwide."
Global Crossing's stock price, which hit $64.25 in May, has fallen so steeply that the terms of its Frontier deal had to be renegotiated last week. It rebounded somewhat today, leaping 25 percent to close at $25.56 1/4.