PSINet
Encyclopedia
PSINet was one of the first internet service providers (ISPs), based in Northern Virginia
, and a major player in the commercialization of the Internet
until the company's bankruptcy in 2001 during the dot-com bubble
and acquisition by Cogent Communications
in 2002.
, the corporation that had created the first regional Internet network under Schrader's leadership, an acquisition that gave PSINet commercial access to what would come to be known as the Internet
.
The company met with early success, capitalizing on the growing potential of the growing global network, an expansion in which the company played an active role. In 1991, PSINet, UUNET
(AlterNet) and General Atomics
(CERFnet) co-founded the Commercial Internet eXchange
(CIX), a trade association
of Internet Service Providers. By 1995, the company had revenues of $32.9 million.
Pressured by increasing competition in the dial-up internet market, the company restructured in 1996 to focus on its commercial Internet business, selling its retail ISP accounts to MindSpring
in June of that year, and began its expansion into Europe
. Co-founder Schoffstall left the company that year. As a leader in the ISP arena, PSINet was frequently mentioned in trade publications for its accomplishments and reputation. In 1997, the company raised $1 billion in bond capital and undertook a series of rapid acquisitions, making 76 acquisitions between January 1998 and December 2000. Regional ISPs were a frequent purchase, and according to Congressional testimony by CEO Schrader, the company was by 1999 the largest independent facilities-based ISP in the United States, the second largest ISP in Japan, and had more than 500 points of presence around the world.
In an attempt to generate more brand recognition, in 1999 PSINet committed $100 million dollars for naming rights of the Baltimore Ravens
' new stadium in Baltimore, Maryland. Following PSINet's insolvency, naming rights were renegotiated and the stadium is now called M&T Bank Stadium
.
The company's largest acquisition came in March 2000 with the purchase for more than $1.3 billion in stock of Houston-based Metamor Worldwide
, a consulting services conglomerate it purchased in an effort to become a "single-source provider" for IT outsourcing services. The company also invested heavily in its fiber-optic network, anticipating strong demand, and planned in early 2000 to invest $1.4 billion over three years to build to expand its services and operations.
Internet foundation
Industry milestones
Internet technology
Internet products
Internet commercialization
because of its rapid revenue growth and aggressive expansion plans, but by 2000, PSINet was beginning to struggle. The company lost more than $5 billion in 2000 despite having close to doubled annual revenues to $995 million. Some analysts point to the Metamor
acquisition as the turning point for the company, burdening it with the demands of integrating business operations while it was already struggling with significant debt from its earlier acquisitions, and facing a general slowdown in the computer services industry. However, the company had missed earnings estimates the year before, and was said to be looking to sell parts of its operation in late 1999.
A portion of it was spun out into the independent company, Inter.net (the Canadian subsidiary of which is now part of Uniserve); and another portion, ShellTown, was sold to Saugus.net.
A wave of senior officers, including the company's president
, chief operating officer
, and an executive vice president departed the company in early 2001, and Schrader left his CEO job on April 30. In the internal email sent to staff announcing his departure he likened the company's situation to a building in a lightning storm and, referring to his decision to resign as CEO, said "I am that lightning rod". The company's stock price plunged in response to the departures and to wider-than expected losses: the stock, which had traded as high as $60.94 a share in 2000 (after a split), closed at 18 cents in late March, 2001.
In May 2001, the company was delisted from NASDAQ
because the company's stock had traded below one dollar for 30 consecutive days. The company delayed filing its quarterly 10-Q filing with the U.S. Securities and Exchange Commission. Finally, overwhelmed by debts in excess of $3.7 billion and with dwindling cash reserves, the company announced on June 1, 2001, that it had filed for Chapter 11 bankruptcy protection along with 24 of its US subsidiaries, and that four of its Canadian subsidiaries had filed for protection under Canada's Companies' Creditors Arrangement Act
(CCAA).
Most of the PSINet United States's assets were acquired by Cogent Communications
in April 2002. PSINet Canada was acquired by TELUS Communications
.
Northern Virginia
Northern Virginia consists of several counties and independent cities in the Commonwealth of Virginia, in a widespread region generally radiating southerly and westward from Washington, D.C...
, and a major player in the commercialization of the Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
until the company's bankruptcy in 2001 during the dot-com bubble
Dot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
and acquisition by Cogent Communications
Cogent Communications
Cogent Communications is a multinational internet service provider whose network spans more than 53,300 intercity fiber route miles and 15,800 metro fiber miles. Cogent provides service in over 165 markets across 31 countries in North America and Europe...
in 2002.
Growth
PSINet was founded in 1989 by Martin L. Schoffstall and by William L. Schrader, who initially funded the company using credit cards and by selling the family car. In May 1991, the company acquired NYSERNetNYSERNet
NYSERNet is an non-profit internet service provider in New York State. It mainly provides internet access to universities, colleges, museums, healthcare facilities, primary and secondary schools, and research institutions.NYSERNet's network reaches from Buffalo to New York City...
, the corporation that had created the first regional Internet network under Schrader's leadership, an acquisition that gave PSINet commercial access to what would come to be known as the Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
.
The company met with early success, capitalizing on the growing potential of the growing global network, an expansion in which the company played an active role. In 1991, PSINet, UUNET
UUNET
UUNET founded in 1987, was one of the largest Internet service providers and one of the nine Tier 1 networks. It was based in Northern Virginia and was the first commercial Internet service provider...
(AlterNet) and General Atomics
General Atomics
General Atomics is a nuclear physics and defense contractor headquartered in San Diego, California. General Atomics’ research into fission and fusion matured into competencies in related technologies, allowing the company to expand into other fields of research...
(CERFnet) co-founded the Commercial Internet eXchange
Commercial Internet eXchange
The Commercial Internet eXchange was an early interexchange point that allowed the free exchange of TCP/IP traffic, including commercial traffic, between ISPs. It was an important initial effort toward creating the commercial Internet that we know today.- Goal :The goal of the CIX was to be an...
(CIX), a trade association
Trade association
A trade association, also known as an industry trade group, business association or sector association, is an organization founded and funded by businesses that operate in a specific industry...
of Internet Service Providers. By 1995, the company had revenues of $32.9 million.
Pressured by increasing competition in the dial-up internet market, the company restructured in 1996 to focus on its commercial Internet business, selling its retail ISP accounts to MindSpring
MindSpring
MindSpring Enterprise was a major Internet service provider headquartered in Midtown Atlanta, Georgia. Mindspring merged with EarthLink on February 4, 2000, with the company retaining the EarthLink name...
in June of that year, and began its expansion into Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
. Co-founder Schoffstall left the company that year. As a leader in the ISP arena, PSINet was frequently mentioned in trade publications for its accomplishments and reputation. In 1997, the company raised $1 billion in bond capital and undertook a series of rapid acquisitions, making 76 acquisitions between January 1998 and December 2000. Regional ISPs were a frequent purchase, and according to Congressional testimony by CEO Schrader, the company was by 1999 the largest independent facilities-based ISP in the United States, the second largest ISP in Japan, and had more than 500 points of presence around the world.
In an attempt to generate more brand recognition, in 1999 PSINet committed $100 million dollars for naming rights of the Baltimore Ravens
Baltimore Ravens
The Baltimore Ravens are a professional football franchise based in Baltimore, Maryland.The Baltimore Ravens are officially a quasi-expansion franchise, having originated in 1995 with the Cleveland Browns relocation controversy after Art Modell, then owner of the Cleveland Browns, announced his...
' new stadium in Baltimore, Maryland. Following PSINet's insolvency, naming rights were renegotiated and the stadium is now called M&T Bank Stadium
M&T Bank Stadium
M&T Bank Stadium is a multi-purpose football stadium located in Baltimore, Maryland. It is the home of the Baltimore Ravens of the National Football League. The stadium is immediately adjacent to Oriole Park at Camden Yards, the home of the Baltimore Orioles. Served by the Hamburg Street station of...
.
The company's largest acquisition came in March 2000 with the purchase for more than $1.3 billion in stock of Houston-based Metamor Worldwide
Metamor Worldwide
Metamor Worldwide was an IT services and consulting company based in Houston, Texas, which grew rapidly in the late 1990s before it was acquired by internet service provider PSINet in 2000, and ultimately split up in the wake of the latter company's bankruptcy....
, a consulting services conglomerate it purchased in an effort to become a "single-source provider" for IT outsourcing services. The company also invested heavily in its fiber-optic network, anticipating strong demand, and planned in early 2000 to invest $1.4 billion over three years to build to expand its services and operations.
PSINet firsts
PSINet often publicized its firsts in the market, most of these accomplishments were truly significant from a technological or business perspective.Internet foundation
- Built first civilian backbone (NSFNETNational Science Foundation NetworkThe National Science Foundation Network was a program of coordinated, evolving projects sponsored by the National Science Foundation beginning in 1985 to promote advanced research and education networking in the United States...
) - Founded first regional network (NYSERNET) 1985
- Co-founder of FARNET
- First in Japan with dedicated ISP facilities
- First foreign telecom company to operate in Korea
Industry milestones
- First ISP to surpass 100 POPs
- First ISP to surpass 200 POPs
- Largest international web-hosting provider
- First ISP to surpass 300 international POPs
Internet technology
- Founders co-authored Simple Network Management Protocol (SNMP)
- First ISP to offer large-scale white pages service (x.500)
- First to collocate with interexchange carrier POPs
- First to use T1 in network
- First to use ATM/frame relay architecture
- First to use ISDN
- First to use cable TV systems
- First ISP to design and use automatic online registration
- First to offer three-continent WWW mirroring
- First to use SMDS - Metropolitan Area Network (MAN) nationwide
- First ISP to be ISDN-compatible system-wide
- First ISP to fully integrate Windows 95
- First 100% uptime guarantee for Web hosting services
- First Tier 1 backbone ISP to offer free peering
Internet products
- First to provide commercial Internet access to companies
- First nationwide ISP to introduce T1 service
- First LAN-based dial-up TCP/IP service
- First individual dial-up TCP/IP service
- First to offer guaranteed commercial quality of service
- First to offer commercial-strength PPP individual service (PSINet Remote Access)
- First ISP to offer an on-line service (The PipelineThe PipelineThe Pipeline was one of the earliest American Internet service providers. It was founded in December 1993 in New York City by the science and technology writer James Gleick and computer programmer Uday Ivatury, who had met at the Manhattan Bridge Club and shared an interest in online bridge...
) - First managed Internet security service (SecureConnect)
- First commercial ISP to offer electronic commerce services (PSINet eCommerce)
- First ISP to offer private IP network service (PSI IntraNet)
- First ISP to offer worldwide Internet-based faxed service (PSINet Fax)
- First ISP to offer secure multi-currency e-commerce solution (PSINet Worldpay)
- First commercially available hosted multimedia streaming service (PSINet Stream)
- First commercially available live audio-video streaming service (TV on the Web)
Internet commercialization
- Co-founder of Commercial Internet Exchange (CIX)
- Co-founder of Internet Society (ISOC)
- Co-founder of the Internet Operators Group (IOPS.ORG)
- First to become commercial (for-profit) ISP
- First ISP/on-line provider to offer flat-rate pricing
- First ISP to report customer retention rates
- First independent facilities-based ISP
Collapse
Despite its rapid growth and significant position in the commercial Internet services market, the company was never profitable. A management team of inexperienced, young people was replaced by a more seasoned team of professional managers from companies like MCI, but its acquisition spree was too overwhelming for them to manage. It was a popular stock with analysts during most of the dot-com boomDot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
because of its rapid revenue growth and aggressive expansion plans, but by 2000, PSINet was beginning to struggle. The company lost more than $5 billion in 2000 despite having close to doubled annual revenues to $995 million. Some analysts point to the Metamor
Metamor Worldwide
Metamor Worldwide was an IT services and consulting company based in Houston, Texas, which grew rapidly in the late 1990s before it was acquired by internet service provider PSINet in 2000, and ultimately split up in the wake of the latter company's bankruptcy....
acquisition as the turning point for the company, burdening it with the demands of integrating business operations while it was already struggling with significant debt from its earlier acquisitions, and facing a general slowdown in the computer services industry. However, the company had missed earnings estimates the year before, and was said to be looking to sell parts of its operation in late 1999.
A portion of it was spun out into the independent company, Inter.net (the Canadian subsidiary of which is now part of Uniserve); and another portion, ShellTown, was sold to Saugus.net.
A wave of senior officers, including the company's president
President
A president is a leader of an organization, company, trade union, university, or country.Etymologically, a president is one who presides, who sits in leadership...
, chief operating officer
Chief operating officer
A Chief Operating Officer or Director of Operations can be one of the highest-ranking executives in an organization and comprises part of the "C-Suite"...
, and an executive vice president departed the company in early 2001, and Schrader left his CEO job on April 30. In the internal email sent to staff announcing his departure he likened the company's situation to a building in a lightning storm and, referring to his decision to resign as CEO, said "I am that lightning rod". The company's stock price plunged in response to the departures and to wider-than expected losses: the stock, which had traded as high as $60.94 a share in 2000 (after a split), closed at 18 cents in late March, 2001.
In May 2001, the company was delisted from NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
because the company's stock had traded below one dollar for 30 consecutive days. The company delayed filing its quarterly 10-Q filing with the U.S. Securities and Exchange Commission. Finally, overwhelmed by debts in excess of $3.7 billion and with dwindling cash reserves, the company announced on June 1, 2001, that it had filed for Chapter 11 bankruptcy protection along with 24 of its US subsidiaries, and that four of its Canadian subsidiaries had filed for protection under Canada's Companies' Creditors Arrangement Act
Companies' Creditors Arrangement Act
The Companies' Creditors Arrangement Act is a statute of the Parliament of Canada that allows insolvent corporations owing their creditors in excess of $5 million to restructure their business and financial affairs.-Eligibility:...
(CCAA).
Most of the PSINet United States's assets were acquired by Cogent Communications
Cogent Communications
Cogent Communications is a multinational internet service provider whose network spans more than 53,300 intercity fiber route miles and 15,800 metro fiber miles. Cogent provides service in over 165 markets across 31 countries in North America and Europe...
in April 2002. PSINet Canada was acquired by TELUS Communications
TELUS
Telus is a national telecommunications company in Canada that provides a wide range of telecommunications products and services including internet access, voice, entertainment, video, and satellite television. The company is based in Burnaby, British Columbia, part of Greater Vancouver...
.