The Woburn-based company operates one of the key components of the Internet's backbone, a 17,500-mile network of high-capacity lines that are part of the nerve center of the Internet.
The capacity of such lines has raced ahead, but demand has taken a more leisurely pace, contributing to the downfalls of Internet carriers WorldCom, Global Crossing and PSINet, to name just a few.
Genuity may be next on the list.
Verizon Communications backed out of a takeover of the company on July 25, putting Genuity in default of a $2 billion line of credit and leaving it with two weeks to renegotiate debts.
The company still has cash, though it is at the mercy of the banks. It has yet to use the "b" word.
"Senior management and the board of directors are looking at several different options," spokesman John Vincenzo said. "It's a little premature to discuss any one specific one."
Genuity used to be the Internetworking unit of GTE, and is descended from another company that helped build a forerunner of the Internet for the Pentagon in the 1960s.
Federal regulators required GTE and Bell Atlantic to spin off Genuity as part of their merger agreement two years ago, but said the new company, Verizon, could maintain a stake and take back Genuity by 2005 under certain conditions.
"They always expected they would be assimilated back into Verizon," said Lydia Leong, a principal analyst at Gartner Dataquest in San Jose, Calif. "That was always part of their strategy."
But Verizon backed out. It could have acquired Genuity's network capacity, but that would have entailed taking on almost $2 billion in debt and a company that in its most recent quarterly SEC filing reported losses ($258 million) nearly as high as revenues ($282 million).
For Verizon, leasing network capacity in a glutted market would be cheaper, and it has already paid plenty for its stake in Genuity -- the company accounted for more than half of $4.2 billion charge on Verizon's last earnings report.
Overcapacity is largely to blame for Genuity's problems. But uncertainty over its relationship with Verizon didn't help.
"[There was] uncertainty with respect to whether Verizon would take them over, then as the economy softened, that uncertainty became an even bigger problem," said Courtney Quinn, a senior analyst at the Yankee Group.
Part of the plan was a customer list that fed on itself. Once a company was connected to the Net through Genuity, it could route traffic to and from other Genuity customers more quickly.
But Genuity's backbone never established itself as the indispensable one.
Besides Verizon, Genuity's biggest customer is America Online, which uses Genuity's network for both its dial-up and high-speed DSL service. But the share of Genuity's total revenue from AOL has fallen, from 52 percent in 1999 to 35 percent last year.
An AOL spokesman said the company is monitoring the situation.
"Over the years we've developed a number of contingency programs that would ensure any impact to members is minimized when it comes to network providers," said AOL spokesman Nicholas Graham, adding that the company now uses a variety of network companies.
Genuity has tried to branch out to complement its basic business of selling access to its network. Customers may remember ads for its "Black Rocket" service, which allows businesses to run all their Internet services from one platform, and Genuity tried to market add-on services like voice-over IP.
But Leong said Black Rocket, though a solid product, was ahead of its time, and Genuity never backed up its businesses with strong customer service.
All along, access remained its core business -- accounting for 76 percent of the company's $1.2 billion in revenues last year -- and that business has collapsed due to the glut. The company lost $4 billion last year, or $19.74 per share.
Analysts say that even if Genuity does file for bankruptcy, it is unlikely to significantly change an industry that is shaking itself out and waiting for demand to catch up.
Genuity would likely continue to operate under Chapter 11 protection, just as WorldCom has.
"I think the landscape will look like it has been, despite the bankruptcy filings, at least in North America," Leong said, adding that, eventually, some of the players will emerge from bankruptcy, leaving little danger of a lack of players to go around.
"There's a lot of fiber owned by a lot of different people," she said. "There will definitely be competition."
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