C&W Says It May Buy Parts of Bankrupt PSINet

But Chief Executive Graham Wallace said he would remain careful with the cash for the next year because he expected further turbulence in the telecoms industry.

U.S. Web site hosting company PSINet went bankrupt in June and Wallace said C&W was looking at buying its assets in Japan and Panama.

The price of such deals would not be high, Wallace said. "It's a buyer's market at the moment."

He refused to say whether he would bow to pressure to return money to investors angry over two profit warnings and a collapse in the international telecom group's share price.

"Now is the time to be careful about cash," he told journalists on a conference call. "It has been the right strategy over the last 12 months and it will be the right one for the next 12 months.

"I think there's still a lot of financial stress in this industry, because we see it in both customers and suppliers, so I think we've still got a period of turbulence to come."

C&W shares had risen as much as 6.3 percent to 285 pence before the comments, amid broad gains in the sector, but remain near the 10-year lows they hit after the company warned investors of falling revenues in its core data business two weeks ago.

Wallace said it was too early to say whether C&W would buy parts of hosting company Exodus Communications, which filed for Chapter 11 bankruptcy protection last week.

Analysts are wary about C&W expanding its Internet services division further and question whether it made the right decision in focusing on the sector after selling off its Hong Kong telecoms company.

Wallace said he expected the market for advanced Web hosting services, as provided by C&W's recent $340 million Digital Island acquisition, to grow by 45 percent a year until 2005.

Digital Island announced deals on the conference call to run Web sites for Walt Disney, Cisco Systems and Pearson.

C&W plans to invest $1 billion in Digital Island, including the acquisition cost, to take it into profit. The company expects revenues of $140 million for the year ended September 30, and C&W says Digital Island will enhance group earnings per share after three years.

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