Posted on: Tuesday, August 6, 2002

Genuity could be next network provider to fall

By Justin Pope
Associated Press

BOSTON — Genuity helped bring the Internet into the world, but now its baby is grown up, and the company may soon join the line of telecom bankruptcies.

The Woburn-based company operates one of the key components of the Internet, a 17,500-mile network of high-capacity lines that are part of the nerve center of cyberspace.

The capacity of such lines has raced ahead, but demand has grown more slowly, contributing to the downfalls of Internet carriers WorldCom, Global Crossing and PSINet, to name a few.

Genuity may be next. Verizon Communications backed out of a takeover July 25, putting Genuity in default of a $2 billion line of credit, with two weeks to renegotiate debts. The company has cash, but is at the mercy of banks.

"Senior management and the board of directors are looking at several different options," said spokesman John Vincenzo.

Genuity was the Internet unit of GTE, and is descended from a company that helped build a forerunner of the Internet for the Pentagon in the 1960s.

Federal regulators required GTE and Bell Atlantic to spin off Genuity as part of their merger agreement two years ago, but said the new company, Verizon, could maintain a stake and take back Genuity by 2005 under certain conditions.

"They always expected they would be assimilated back into Verizon," said Lydia Leong, a principal analyst at Gartner Dataquest in San Jose, Calif.

But Verizon backed out. Acquiring Genuity's network capacity would have entailed taking on almost $2 billion in debt and a company with losses last quarter of $258 million, nearly as high as its revenues of $282 million.

Analysts say that even if Genuity does file for bankruptcy, it is unlikely to make significant change in an industry that is still shaking itself out. Genuity would likely continue to operate under Chapter 11 protection.