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Level 3 To Leave Genuity Hosting Business

Level 3 Communications said Friday that it plans to exit the managed hosting business it acquired earlier this year from Internet backbone firm Genuity.

Under a new agreement, Level 3, based here, is slated to transfer those hosting customers and operations to IT services giant Computer Sciences Corp. (CSC), El Segundo, Calif.

The pact, expected to close by the end of the second quarter, calls for CSC to assume certain lease obligations for data centers in Chantilly, Va., and Cambridge, Mass., as well as service Level 3's managed hosting customers. Also as part of the deal, CSC plans to use Level 3's network services to serve hosting customers and offer employment to about 125 Level 3 hosting employees.

Level 3 acquired Genuity's managed hosting business as part of a deal reached late last year, when the Woburn, Mass.-based company filed for Chapter 11 bankruptcy protection and agreed to sell most of its assets to Level 3. The hosting operations--which serve about 2 percent of the roughly 5,000 customer contracts that Level 3 acquired through the Genuity transaction--were projected to generate revenue of about $40 million and EBITDA of negative $5 million for full-year 2003, according to Level 3.

"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 CTO at Level 3, in a statement. "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."

Waters added that Level 3 plans to continue to support Genuity services that "leverage the inherent efficiency and operational capabilities of the Level 3 network," including dedicated Web access, remote-dial access, VPNs and security services.

The changes will not impact Level 3's approximately 73 U.S.-based colocation facilities, a company spokesman said.

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