Mass Genuity Shutdown Cleared

Representatives handling the transition of Genuity Inc. (Nasdaq: GENU) will shut off service to more than 300 customers that have not been included in the merger with Level 3 Communications Inc. (Nasdaq: LVLT).

In two separate orders last week, U.S. Bankruptcy Court for the Southern District of New York, which has been handling part of Genuity's Chapter 11 proceedings, granted motions requesting that contracts with the customers, which include a variety of enterprises, hosting providers, ISPs, and vendors, be "rejected."

In other words, it's curtains. That's no go, lights out.

Spokespeople at Level 3 say approximately 8 percent of Genuity's customers weren't picked up in the acquisition, which closed early this month (see Level 3 Posts Loss, Closes Genuity Deal). There were various reasons, they say, chiefly that many of the contracts involved services at cut rates.

"It did not make economic sense to continue services below cost," says Josh Howell, group VP of corporate marketing at Level 3. The cutoff date is February 28, he says.

Included on the two lists of rejected contractees is Blue Cross Blue Shield, the Boston Stock Exchange, BP America, the City of Los Angeles, the State of Missouri, Exar Corp., Honeywell International Inc., Nokia Corp., PricewaterhouseCoopers, Tektronix Inc., Telstra Corp., and Verizon Federal Network Systems, to name just a few.

In most cases, it's clear Genuity isn't the only provider of services. Still, the inconvenience rankles. "This won't affect us that badly, but if we're going to be shut off I'd like to know when, so I can negotiate a new contract," says Chuck Goolsbee, VP of technical operations at Digital Forest, which provides hosting services and is headquartered in Bothell, Wash.

Howell is aiming to help folk like Goolsbee do just that. He says Level 3 has made an all-out effort to reach the customers who'll be affected by the stoppage. "We've emailed each and every one, and we're trying to talk to all of them in person," he says.

Level 3 is offering the rejected sites two options, Howell says: First, a new contract, albeit one that's not below cost; and two, an extension of service for 60 days, at or close to cost (although the fee will vary according to the customer's present arrangements). The phone number for information is 1-800-GENUITY, per a letter that was mailed to the affected customers on Valentine's Day.

Goolsbee, contacted earlier today than Howell, said he hadn't heard from Level 3. Instead, he says a "mountain of legal documents," largely inscrutable, were delivered to him early this week. With the help of his wife, an attorney, Goolsbee was able to determine that his service was threatened. He subsequently contacted his Level 3 representative, who wasn't aware of the problem but promised to get him an answer soon.

The confusion isn't surprising, given that the debtors of Genuity have been acting on their own, despite Level 3's attempts to reach affected parties. Also, Level 3 has been rumored to be undergoing its own set of adjustments to the transition, which reportedly have included layoffs (see Level 3's In Genuity).

At least one competitor sees an advantage in Level 3's transition hassles with Genuity. Cogent Communications Group Inc. (Amex: COI), tipped off by an initial article on the situation in the Boston Globe and armed with the court's list of rejected customers, issued a press release last week offering a five-day installation of new service for anyone facing Genuity cancellation (see Cogent Picks Up Genuity's Scraps).

— Mary Jander, Senior Editor, Light Reading

capolite 12/5/2012 | 12:36:18 AM
re: Mass Genuity Shutdown Cleared Given the creative accounting and acquisitions of Level 3 it is ironic to see them unplugging people for below cost contracts. Given their central premise of "Silicon Economics" and fully depreciated balsa wood and baling wire network then Genuity must have been paying these people to use their network. Or maybe Jim and the boys just need to cover the increased cost of gas for their two corporate jets.
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