PSINet Backbone Most Desirable Asset

Now that all of PSINet's assets are on the block, industry watchers are speculating about which company will buy the pieces of the fallen telecom empire.

Now that all of PSINets assets are on the block, industry watchers are speculating about which company will buy the pieces of the fallen telecom empire.

The crown jewel is the companys backbone, one of the largest in the world. PSINets Web hosting assets are also impressive, though the last few turbulent months have taken a toll.

"We hear stories all day long about customers fleeing. Is there a customer base there? I dont know," said Eric Dorsch, founder of PSINets hosting division and now vice president of global Web hosting at competitor Cable & Wireless.

Britains Cable & Wireless is rumored to be interested in the backbone and also to be looking for a big U.S. acquisition. The range of targets most often mentioned includes PSINet, as well as Exodus Communications and Genuity. But Cable & Wireless would face steep regulatory hurdles in attempting to acquire PSINets backbone.

Other observers have pointed to British Telecommunications and carrier Velocita as potential buyers of the PSINet backbone. Velocitas chairman is Global Crossings former chief Bob Annunziata, and Velocita is backed by natural gas and pipeline construction giant Koch Industries, a $35-billion-per-year operation. Velocita operates a nationwide fiber-optic network jointly with AT&T and would benefit the most from PSINet assets, observers said. A Velocita spokeswoman refused to comment, as did a PSINet spokesman.

Meanwhile, the end for PSINet as a corporate entity is near. It has defaulted on $36.7 million in bond payments and equipment leases.

People close to Cameron Poetzscher,the banker in charge of the asset sale for The Goldman Sachs Group, said the plan is to sell off holdings piecemeal in developing regions like Latin America, and look for one buyer for assets located in the more lucrative regions of Asia, Europe and the U.S.

With regard to individual international units, PSINet should be able to get more than what it paid to acquire them, because most owners want their companies back. Its Lebanon unit, for example, reportedly has been sold for $5 million to the same businessmen that initially sold it to PSINet for $3 million.

"PSINet is a great company that did a strategic mistake of getting into IT [information technology] consulting, and it was the acquisition [of Metamor Worldwide] that killed the giant," said Imad Tarabay, one of the owners of Fiberlink Networks, formerly PSINet Lebanon.

PSINet founder William Schrader stepped down from the helm of the company last week and was replaced by Harry Hobbs. It remains to be seen just how amicable his departure will be. Pete Wills, PSINets ex-chief operating officer, is suing the company for $2 million in back pay.