Small Backbones Are Belles Of The Data Ball
Monday August 10 11:42 PM ET
By Randy Barrett, ZDNet
The market is hot for small Internet backbone companies.
With national networks and paying customers, companies are getting snapped up fast by larger
communications players eager to expand their long-haul data capacity.
Level 3 Communications Inc., for instance, likely will buy GeoNet Communications Inc., based
in Redwood City, Calif.; a final deal is expected within the week, sources familiar with the
negotiations said. GeoNet has 400 dedicated business customers and 30 employees.
Level 3 Chief Executive James Crowe said only: "Our policy is neither to confirm nor to deny
such rumors."
The acquisition would make sense for the new and well-heeled communications company
because it has no network of its own. Level 3 will spend $10 billion to construct its own fiber
network on railroad rights of way; it is leasing capacity from Frontier Corp. as a stopgap but isn't
offering any services, company officials said.
CRL Network Services also is close to a sale, possibly to competitive local exchange carrier
(CLEC) GST Telecommunications Inc., sources close to the company said.
To date, six smaller Internet backbone companies have been purchased by CLECs or larger
communications companies, including GlobalCenter by Frontier, GoodNet by WinStar
Communications Inc. and TCG Cerfnet by AT&T Corp. Industry sources said most of the
cherries have been picked, and only a few choice companies remain - with DataXChange
Network Inc., Epoch Internet and Exodus Communications Inc. among them.
The urge to merge is based on cold, hard cash - smaller players must pay more for the leased
lines they use to run their networks and therefore are at a competitive disadvantage. CLECs and
long-haul carriers own fiber in the ground and have big bucks to grow large Internet access
businesses.
"In a facilities-based business, scale is everything," said Hilary Mine, Internet analyst at Probe
Research Inc.
Level 3 can be reached at www.l3.com
GeoNet can be reached at www.geo.net
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