Genuity: Big IPO, Big Losses

Think of Genuity as the forced IPO. Why?
Because of regulatory circumstances, it must be spun-off from GTE. You
see, GTE is merging with Bell Atlantic to create Verizon. In the deal,
Genuity must go away.

The offering is definitely huge, with 173.9 million shares planned. The
price range is $12-$15 and the deal is jointly led by Morgan Stanley and
Salomon Smith Barney. The proposed ticker symbol is GENU.

Genuity is an infrastructure play: It has its own Internet backbone. With
it, the company offers Net access, hosting, e-commerce, virtual private
networks, security, voice-over IP and so on.

Genuity has an extensive system. There is a state-of-the-art global fiber
optic network with over 17,5000 route miles. There are also ten data
centers. In all, the company has 750 engineers and 1,100 technicians.

The customer list is extensive, with over 5,000 companies. Of course, there
are many well-known brands on the list, such as Microsoft and Sun.

But beware. There are serious risk factors. AOL represents about 52% of
all revenues. Although, Genuity recently signed a deal to extend this
relationship to December 31, 2006. Nonetheless, this is still risky. If
Genuity cannot perform, AOL will definitely look elsewhere.

There is also fierce competition. Players include AT&T, Sprint and WorldCom
(which owns UUNet).

Oh, there are huge losses. In the past quarter, the company hemorrhaged an
astounding $209.8 million. Revenues? About $247.9 million. The
accumulated deficit is $1.5 billion. These expenses are primarily due to
the fact that Genuity is allocating substantial amounts of capital for its
infrastructure build-out.

However, expect this IPO to have a decent performance. IPO investors still
have an appetite for infrastructure plays. But because of the large
spending and competition, Genuity will not likely be a super-fast performer.

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