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April 4, 2003 — (WEB HOST INDUSTRY REVIEW) — Level 3 Communications (level3.com) said today it would exit the managed hosting portion of the business it acquired through its recent acquisition of Genuity.
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Level 3, an international telecommunications firm, acquired Genuity, which provides managed Internet services, earlier this year. The company said it has signed an agreement under which its hosting customers and operations will be served by Computer Sciences Corporation, a publicly traded company based in El Segundo, California.
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Aside from servicing Level 3′s managed hosting customers, the company said CSC will assume certain lease obligations for data centers in Chantilly, Va., and Cambridge, Mass., and will use Level 3′s network services to serve hosting customers. CSC expects to offer employment to approximately 125 of Level 3′s hosting employees.
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Level 3 said hosting operations were expected to generate revenues of approximately $40 million, and EBITDA of negative $5 million in 2003. Hosting operations account for about two percent of the approximately 5,000 customer contracts acquired by the Genuity purchase, the company said.
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“Hosting was not profitable for us, and as a result the agreement we are announcing today will improve Level 3′s cash flow,” said Jack Waters, group vice president of managed services and chief technology officer for Level 3. “Genuity’s hosting operations lack sufficient scale on a stand-alone basis to achieve profitability in an appropriate time frame. Additionally, hosting does not fully leverage the investment we have made in our network infrastructure. Consequently, we sought a partner like CSC that already has the scale required to make this line of business profitable and, importantly, the expertise to ensure a smooth transition for customers.
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Level 3 and CSC expect the transaction to close by the end of Q2 2003.
