Level 3 Sells Hosting Unit to CSC

Level 3 Communications is exiting its unprofitable managed hosting business (a holdover from its Genuity acquisition) and sending customers to Computer Sciences Corp. .

In addition to customers, CSC will gain data centers in Chantilly, Calif., and Cambridge, Mass., and about 125 employees. Financial terms of the deal, which is expected to close by the second quarter, were not disclosed.

“It makes sense for us to support those Genuity services that do leverage the inherent efficiency and operational capabilities of the Level 3 network,” said Jack Waters, CTO of Broomfield, Colo.-based Level 3.

When Level 3 bought Genuity, it was after its wholesale Internet access business, which included lucrative longterm contracts with AOL and Verizon. It was also bullish about Genuity’s virtual private networks and security offerings.

Hosting operations were expected to generate revenues of approximately $40 million, and a net loss of $5 million during 2003, Level 3 said. In addition, they represent only 2 percent of the 5,000 contracts it picked up with Genuity.

El Segundo, Calif.-based CSC provides of IT services for large corporations and government agencies. It believes it has the scale to make the managed hosting turn a profit. The company already has hosting centers in San Diego, Newark Delaware, Copenhagen and Sydney.

CSC also offers IT and business process outsourcing, systems integration and consulting/professional services.

The news came one day after Computer Sciences announced it had won part of a 10-year contract to provide IT services to the British Ministry of Defence (MOD).

On Thursday, DynCorp International, which Computer Sciences Corp. acquired in December for $950 million, said it secured a 10-year IT services contract with the ministry that is valued at over $948 million over the life of the pact. Through a joint venture with Interserve called Landmarc Support Services, DynCorp will help provide IT services and outsourcing work for the ministry’s army divisions.

The MOD said under the award, Landmarc will manage all of the nonmilitary support for Britain’s Army Training Estate (ATE) and Defence Estates (DE) at 130 locations throughout England, Scotland and Wales.

The ATE and DE jointly provide the land and facilities required for the country’s armed forces training. The companies said about 2,000 personnel would be employed on the contract.

CSC, which just raised $300 million in a debt offering this week, said it holds 50 percent of the voting shares in the joint venture and would recognize half of the joint venture’s profits.

Stephen Cannon, president of CSC’s DynCorp International, called the contract one of the largest support services contracts the MOD has ever awarded.

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