Peering Controversy Clouds PSINet Asset Sale

Great Britain's Cable & Wireless and Sweden's Telia are viewed by experts as the most likely suitors for the U.S. assets of bankrupt carrier PSINet.

Great Britains Cable & Wireless and Swedens Telia are viewed by experts as the most likely suitors for the U.S. assets of bankrupt carrier PSINet.

Long-troubled PSINet filed for bankruptcy June 1 on behalf of 24 of its American and all of its Canadian units. The company is leaving out operational units in Asia, Europe, and Latin America, as well its U.S. consulting arm, Metamor.

While Canadian carrier Telus signed a letter of intent with PSINet to acquire all of the fallen carriers assets in that country, no buyer has yet emerged for any of the U.S. assets — mainly the companys backbone and Web hosting facilities.

Events following PSINets Chapter 11 filing suggest that those assets will be significantly devalued by the time any offer materializes.

Last week, Cable & Wireless temporarily disconnected from PSINets pipes, claiming that PSINet is not holding up its end of their peering bargain, which calls for equal bandwidth exchanges. "We notified PSINet 60 days ago that we have seen a precipitous drop in the amount of traffic hosted in the network, the flow becoming unequal," said Chad Couser, a spokesman at Cable & Wireless.

The move is a prelude to PSINets loss of tier 1 status for its backbone, a somewhat nonscientific category applicable mostly to large carriers that barter their long-distance Internet Protocol traffic. If PSINet cant peer with Cable & Wireless as an equal, its traffic requirements are likely not up to par with other backbones, which means it would have to buy transit from larger carriers.

Its likely that the move could cost PSINet some big customers such as EarthLink, which buys PSINets wholesale dial-up service. EarthLinks connection with PSINet was down for two days recently before being restored, with PSINet signing a letter of intent saying it would meet Cable & Wireless peering criteria by increasing traffic flows.

Cable & Wireless itself has been pegged by many in the financial community as a potential acquisitor of PSINet assets. Another potential buyer is Telia, which put together a bid on ZipLinks backbone last year, according to financial industry sources. Another potential buyer of PSINet assets is U.S. up-and-comer Velocita. UUnet founder Rick Adams is also rumored to be interested in the companys Web hosting assets.

When PSINet filed for bankruptcy, it listed $2.1 billion in assets and $4.3 billion in debt. Most of the debt — $2.8 billion — is in company bonds. The main creditor is Wilmington Trust.

PSINet founder William L. Schrader retains a board seat despite stepping down from management.

PSINet executives were not available to comment. Cable & Wireless Couser declined to comment on takeover speculation.