GTE Buys Hosting ISP Genuity Inc.
By Todd Spangler
Deal overshadowed by MCI-WorldCom merger
GTE Internetworking last week announced its acquisition of Genuity Inc., an Internet access provider and hosting company, from Bechtel Corp.--a move that will more than double the space of GTE's current hosting facilities.
The deal, however, was dwarfed by news that GTE Corp. apparently lost its bid for MCI Communications to WorldCom. If approved, the MCI-WorldCom union, at $37 billion the largest in U.S. history, would create the world's largest public Internet backbone provider. GTE had made a competing $28 billion offer for MCI last month and said last week its offer remains on the table.
Analysts said that while the Genuity acquisition--the terms of which were not disclosed-- strengthens GTE Internetworking's business-oriented high-availability hosting offerings, it does not greatly affect the competitive landscape in the ever-changing Internet access industry.
"It adds some network and some points of presence, but it doesn't seem like a major strategic move," said Joel Maloff, principal of the consulting firm Maloff Group International (MGI).
For GTE to be competitive with MCI-WorldCom, Sprint, and AT&T, the telecom will need the facilities of an interexchange carrier, which provides interstate communications services, Maloff said.
In fact, GTE in May negotiated a $500 million deal with fiber-optic network provider Qwest Communications International Inc. for 15,000 miles of fiber connecting 100 metropolitan areas--expected to be completed by the end of 1998--that would give them that very capability.
"Logically, it's likely that Qwest might themselves be an acquisition target for GTE," Maloff said.
GTE Internetworking's acquisition of Genuity came after Bechtel actively sought to sell the ISP it had purchased in November 1996 [see "ISP That Aimed High Now Said To Be for Sale," Nov. 10].
GTE Internetworking was formerly BBN Corp., which itself was purchased by telecommunications company GTE Corp. in May for more than $600 million.
Last week, some analysts speculated that GTE Corp.'s purchase of Genuity was a reflexive attempt to keep pace with acquisition-hungry WorldCom. In less than a year's span, WorldCom has made deals for obtaining Uunet Technologies Inc., ANS, and CompuServe Network Services.
"GTE is looking at WorldCom and going, 'Wow, we need to do something to compete with these guys!'" noted Carl Howe, the director of network strategies at Forrester Research.
Doubling Data Centers
With the purchase of Genuity--expected to be completed by the end of the year and subject to regulatory and shareholder approval-- GTE Internetworking will bring the number of its data centers to 12, with more than 50,000 square feet of space. GTE's existing five data centers are located in Cambridge, Mass.; Palo Alto, Calif.; Chantilly, Va.; Dallas; and Leeds, U.K. Genuity operates six data centers in the United States and one in London.
"The long-term goal is to support our existing customers and begin to provide the high- quality infrastructure to offer global e-commerce," said Mike Shull, vice president and general manager of GTE Internetworking's Network Centric Solutions group. The transaction benefits GTE most through its immediate access to Genuity's data centers, said Forrester's Howe.
"You can build as fast as you can, but some degree of your growth has to be through acquisition," he said. "Getting the fully networked data centers ratchets up GTE's credibility [for high-end hosting]."
GTE Internetworking will also obtain Genuity's load-balancing technology, Hopscotch, which routes client requests to the optimal server to deliver the best performance for end users. Other hosting companies have developed similar load-balancing services, including GlobalCenter's Digital Distribution and CERFnet's Web Chorus.
Hopscotch, for which Genuity has applied for a patent, is a more advanced load- distribution technology than competing techniques, said Geir Ramleth, president and CEO of Genuity. "We see Hopscotch as being the main difference between us and the [hosting services] that are on the market," he said. "It brings the experience to the level the end user wants."
The Hopscotch technology has the potential to provide a powerful, distributed hosting service for customers, but Genuity hasn't promoted it effectively, said MGI's Maloff. "They haven't been aggressive in marketing themselves," he said.
Others in the industry said Genuity has not attracted new business at the same rate as other hosting companies, although a company representative denied that business has suffered recently.
Genuity's customers, which number in the hundreds, according to James Freeze, Genuity's senior vice president of sales and marketing, include c|net, CMP Media, Excite, and MCA/Universal. Those customers will be added to GTE Internetworking's client roster, which has more than a thousand Web hosting customers, including ZDNet, Four11, NBC, and the Tribune Co.
Currently, Genuity operates its own backbone network with bandwidth supplied by Sprint and MCI. However, GTE Internetworking eventually will merge Genuity's network operations into a single infrastructure, said GTE's Shull.
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