Fading PSINet has users in limbo

By Denise Pappalardo, Network World |  Networking

Just over a year ago, PSINet announced a $1 billion program to help fund Internet start-ups. Now it looks as though the company should have squirreled away some of that cash for itself.

Experts say the once mighty ISP is most likely headed for bankruptcy protection and that customers should prepare contingency plans. PSINet is carrying a debt load of $3.6 billion and has watched its stock plummet from $60 a year ago to a mere 13 cents last week.

If the next part of the PSINet story is Chapter 11 and creditors take ownership of its network, it's unlikely creditors will manage and operate the network, says Steven Harris, an analyst at market research firm IDC.

"Creditors will want to sell the network," he says. "The buyer could be a service provider that may resume services, but there could be a period where the network will be shut off."

While PSINet is trying to avoid defaulting on payments to creditors, the ISP's thousands of small and midsize business customers are left with a heavy dose of uncertainty.

"We've had network contingency plans in place for over a year," says Glenn Botkin, IS engineer at Galaxy Scientific, an Egg Harbor Township, N.J., engineering firm. But the company isn't making any changes just yet.

"They're not going to shut the network off overnight. At least that's what they've implied," says Botkin, whose company is using PSINet's managed IntraNet service to link its seven corporate sites.

PSINet has struggled as a result of many of the same problems of other competitive local exchange carriers, ISPs and even traditional telecommunications companies. It's costly to build and maintain multinational networks while trying to drum up new business. Some say the company's headstrong CEO, Bill Schraeder, probably could have sold the company months ago but never thought any price was high enough. That left PSINet as the only national ISP serving business customers that was not owned by a larger, better-heeled telecommunications company.

Others say PSINet stretched itself too thin, starting the venture fund and going on an international ISP buying spree. The company spent nearly $2 billion on consulting firm Metamore Worldwide and forked over another $720 million for a credit card processing company called Transaction Network Services (a business PSINet turned around and sold earlier this month for $300 million). Though PSINet brought in $353 million in service revenue during its third quarter, the most recent period for which it has reported results, that was offset by a loss of $1.4 billion.

"My personal view is that PSINet's network infrastructure is too valuable of an asset to just go away," says Galaxy's Botkin. "While the company's debt outweighs its worth, I think they will be able to restructure or that another company would come in and buy the network."

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