The Internet VoIP arena is getting vee--r-ry interesting! Wonder if DGIV can garner an alliance here?
Diana (still holding baby DGIV)
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Network Advances PSINet's Prospects 08/19/98
Newsbytes, Wednesday, August 19, 1998 at 11:17
WASHINGTON, D.C., U.S.A., 1998 AUG 19 (NB) -- By Bob Starzynski,
Washington Technology. PSINet's [NASDAQ:PSIX] new high-speed
fiber links connecting London, New York, Los Angeles and Tokyo
are the latest testament to the turnaround of an Internet
services company that experts doubted would make it alone.
The completion of the network, scheduled for the week of Aug. 10,
gives PSINet customers an end-to-end Internet connection
stretching halfway around the globe -- a network owned and
operated entirely by the company.
The international fiber connection PSINet has pieced together
rivals -- and in some cases beats -- the networks constructed by
much larger companies, such as AT&T, WorldCom and GTE, according
to analysts.
"Our sentiment is, 'We told you so,' " said Pete Wills, chief
operating officer of the 1,200-employee business in Herndon, Va.
"It is very possible that we are the first in the industry to
offer such a connection. We are confirming that independence is
possible."
One year ago, most analysts who followed the company doubted
PSINet Inc. could thrive on its own. The Internet services
company should let itself be acquired by a telephone company like
nearly all of its competitors, the critics argued.
Competitors UUNet Technologies, Digex Inc. and BBN Corp. were all
sold to large telecommunications providers for top dollar in 1996
and early 1997. Industry executives then thought they could offer
cheaper and better service if large telecommunications companies
that already had infrastructure supplied the networks. Prices of
Internet services would come down, and independent ISPs would not
be able to stay competitive, touted the experts.
At the beginning of this year, PSINet's stock sank as low as
$4.25 on the Nasdaq National Market. But the tides have turned,
and in the past month, the stock price has peaked at $21.94 and
closed at $16.88 Aug. 7.
Several other factors besides the latest network advances have
contributed to PSINet's turnaround on Wall Street:
In the last eight months, the company has purchased eight
companies with combined revenues of $50 million. One is based in
the United States; the rest are in Europe, Canada and Hong Kong.
Additionally, the company announced plans late in July to buy
Interlog Internet Services Inc., another Canadian ISP. When that
deal closes, PSINet will have more Canadian customers than any
other Internet company, according to company officials.
In April, the company raised $600 million through a debt offering
-- only slightly less than PSINet's equity market capitalization.
The money is earmarked for acquisitions, facility upgrades and
network expansion.
Last month, PSINet launched a telephony service over its Internet
network that undercuts long-distance prices offered by more
traditional telephone companies. Customers, primarily businesses,
will be able to pool the new telephone service with their
existing Internet service, with the only additional cost being
the installation of a couple of pieces of equipment, Wills said.
Internet stocks have come into much greater favor in recent
months, according to Ulric Weil, an analyst with Friedman,
Billings, Ramsey & Co., Arlington, Va., and PSINet has enjoyed
the ride. Companies like Mindspring Enterprises Inc. of Atlanta
and Earthlink Network Inc. of Pasadena, Calif., have seen their
stock prices ratchet up eightfold in the last year.
While PSINet's stock price has not risen as dramatically,
investors have a more favorable opinion of ISPs as a whole. And
William Schrader, PSINet's unyielding founder and chief
executive, is beginning to look smarter to some of the naysayers.
"After talking with management, we are increasingly confident
that (PSINet) has found a strong and forward-looking business
model that maximizes both organic and acquisitive growth," Miles
Russ, an analyst with Wheat First Union in Richmond, Va., wrote
late last month in a report.
Ten months ago, Russ' image of PSINet was considerably different.
"They are getting beaten on sales and marketing," Russ said at
the time. "It's going to be a struggle to get the stock price
up."
Weil echoed Russ last year: "It's not easy to re-acquire
credibility once it is lost. One can only say good luck on
getting the price up."
But Weil's story is different today.
"PSINet has crafted a strategy people can understand," he said
this week. "They are building global infrastructure. They have
added new services. And they've bought some strong (Internet
service providers) in foreign markets."
Weil now has a "speculative buy" rating on PSINet's stock.
Looking forward, Wills said the company continues to seek
acquisitions in Europe and Asia.
Once PSINet acquires a company, there is usually a one- to three-
quarter transition period for upgrading networks and retraining
employees. The company buys other ISPs for employees and
customers, seldom for infrastructure, he said.
As for the new telephony service, Wills does not expect large
telecommunications companies to follow suit in offering low-
priced voice service over Internet systems. "They would be
cannibalizing their own revenue base," he said.
But Weil does not think PSINet will stand alone with such an
offering.
"I think it's pretty clear to the other players there are two
choices," he said. "You can stick with what you have and milk it
for all its worth. Or you can fight fire with fire. The smart
ones will fight fire."
Reported by Washington Technology: wtonline.com . |
