PSINet is betting that bigger is better
(IDG) -- With jaws wide open, PSINet is biting off an Internet expansion plan that will either choke the company or let it thrive.
The Herndon, Va., ISP has announced plans to expand its network with physical and wireless infrastructure, build 20 new data centers around the world and offer business users an integrated global Internet access service.
"This is the culmination of PSINet's ongoing buying spree, and it's move away from low-margin ISP business services," says Mark Zohar, senior analyst at Forrester Research, a consulting firm in Cambridge, Mass.
In the past 20 months, PSINet has acquired 50 ISPs from around the world to offer business users a global network footprint that's unmatched by the likes of UUNET or AT&T, says William Schrader, PSINet's CEO. PSINet last week marked its 50th ISP acquisition with the purchase of Zircon in Sydney, Australia. PSINet has been secretive about how much it has spent on these acquisitions, but Schrader puts the total figure at more than $1.7 billion in cash for all 50 buys.
While PSINet has been offering business users Web hosting, e-commerce and managed virtual private network (VPN) services for two to three years, Zohar points out that the ISP is better known as an Internet access provider for small to midsize customers. Schrader, who disagrees with that assessment of PSINet, has something different in mind for his company: becoming what he calls an "Internet super carrier."
Being an Internet super carrier means owning your own facilities and infrastructure around the world, Schrader explains. "Experience has taught us that joint ventures with dim-witted monopolies just don't work," he says, referring to incumbent local exchange carriers and companies such as AT&T, British Telecom or NTT. "To win in a global Internet business you need to be bold and strike out on your own or not at all," he says. By owning its own facilities in countries such as Brazil, where PSINet has acquired five ISPs, the service provider believes it can offer business users unmatched quality of service, customer service and global reach, Schrader says.
Business users should look at PSINet's plans to offer e-commerce and Web hosting services around the world as a positive move because it will offer them another choice, but Zohar still questions the long-term success of the plan. Besides dealing with network integration problems when interconnecting multiple networks with new dark fiber, PSINet will also be dealing with many cultural issues with each of its 50 international ISP acquisitions.
If PSINet can get through the integration and cultural hurdles, it is still faced with very large expenses its generating to complete such an endeavor. "PSINet is hemorrhaging due to huge quarterly losses," he says. And the company is only going to incur additional expenses based on its expansion plans. PSINet reported net losses totaling $57.8 million last quarter and $58.7 million in the previous quarter.
Schrader says becoming an Internet super carrier is the only way to succeed in the long term, which speaks to his willingness to spend more than $1 billion on acquisitions. PSINet's network expansion plans include buying 16 dark fibers from IXC Communications. This is the company's largest dark fiber acquisition. PSINet plans to bring four fibers online by the end of 2000, which will equal nearly 14,000 route fiber miles. PSINet also announced it is deploying Nortel Networks' dense wave division multiplexing equipment to maximize the amount of traffic it can support.
In an unconventional move, PSINet is also acquiring an 11-node OC-48 SONET ring in Manhattan from an unnamed major carrier. This deal is subject to regulatory approval and will provide PSINet with direct, local access to most of Manhattan's business users.
PSINet is also acquiring two fiber pairs on a trans-Atlantic cable that will link its domestic network to London and Paris. And it is buying transponder and earth station equipment from Loral Orion to link its Latin American networks via Loral's satellite systems to its U.S. facilities. The deal will also include linking up PSINet's South African and European terrestrial networks via satellite.
Today, PSINet has two data centers in the U.S., but by the end of next year, the ISP expects to have 20 data centers in locations such as Brazil, Germany, Japan and Hong Kong. By the beginning of 2000, PSINet plans to offer business users a global Internet access service that will include one price regardless of where users are located.
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