EUR 850.00 For Business Accounts Only

Morningstar | GTT Has Merged Its Way to a Sizable Global Business, but It’s Time to Prove It Can Grow Organically

GTT operates a global network to meet the communications needs of large companies, governments, and communications carriers. The firm doesn't own most of the fiber that makes up its network but rather leases it, often on one-year agreements that allow GTT to benefit from deflationary forces that prevail throughout the industry. GTT also refrains from leasing any "last mile" networks that connect directly to customer locations, instead controlling only its long-haul network and then partnering with local carriers.In addition to the leased network--which results in relatively low capital spending needs--and lack of a metro footprint, GTT distinguishes itself from its bigger competitors by focusing exclusively on large entities with global interconnection needs that a single carrier's network is unlikely to meet. This strategy, which mirrors that of the past era's long-distance carriers, eliminates ulterior motives in trying to gravitate toward "on-net" connections, instead freeing GTT to select the best connectivity options in each market. Also, with no on-net footprint, GTT gives its full attention to off-net customers, which can translate to better customer service.Despite GTT's positioning, we question its potential for long-term success. We suspect other firms don't focus on large multinationals because that generally doesn't make for an attractive business. Multinationals typically have substantial bargaining power—especially with numerous global network alternatives—and resources to employ sophisticated personnel, allowing them to play a part in managing their own networks and leading to lower-margin revenue. Perhaps due to the difficulty we see in achieving large-scale organic growth, GTT has relied on acquisitions to expand, historically acquiring multiple companies each year. While we believe GTT realizes synergies as it brings smaller networks into a global one, we don't think it makes up for only modest industry growth and lack of sustainable competitive advantages. If GTT proved this is a lucrative business, we don't see a reason why legacy providers, with their robust networks, couldn't provide a similar customer experience.