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Metromedia shutters data centers

The bankrupt telecommunications company is shutting down data centers in Los Angeles and San Francisco as it undergoes Chapter 11 restructuring.

Bankrupt telecommunications company Metromedia Fiber Network is shutting down data centers in Los Angeles and San Francisco as it undergoes Chapter 11 restructuring, a company representative said Monday.

The data centers are two of the more than twenty that Metromedia Fiber Network (MFN) operates as part of its Web hosting business. The company, which also operates an optical-fiber network, entered the Web hosting market with the acquisition of AboveNet in 1999.

MFN is shutting down the data centers by the end of June because they are underutilized, said spokeswoman Kara Carbone. She said MFN notified the centers' customers of the shutdown and offered to move them to the company's San Jose, Calif., facilities.

The company also said the San Francisco center was losing millions of dollars every month. Fifty-six customers in Los Angeles and San Francisco will have to relocate or find a new service provider.

MFN plans to continue operating its Web hosting business and emerge from bankruptcy with the unit still intact, said Carbone. The company had said it would reduce costs by closing "non-productive properties (including idle data centers)" when it filed for Chapter 11 in May with $3.3 billion in debt.

The recent loss of key customers, including eBay, may have hastened the consolidation of data centers in California. Ebay spokesman Kevin Pursglove said the online auctioneer stopped using MFN's services a few months ago in an effort to diversify its Web hosting providers. Ebay signed a Web hosting deal with Qwest Communications International in May.

Whether MFN can emerge from bankruptcy with its marquee Web hosting customers--including AOL Time Warner and Microsoft--still in the fold remains to be seen. The company is also under investigation by the Securities and Exchange Commission related to restated 2001 earnings, and its stock has been delisted.

MFN is not alone in its struggle with the economics of running a Web hosting business, which, at a basic level, offers to host and maintain the equipment and networks for Web sites.

Marc Andreessen's Loudcloud agreed to sell its Web hosting operations last week to Electronic Data Systems and turned itself into a software company called Opsware.

Chip giant Intel, which once boasted of spending billions on its nascent Web hosting business, also decided to pull the plug on its unit last week, leaving few survivors in the business.

In 2001, Exodus Communications filed for bankruptcy. Exodus is by far the largest Web hosting operation in the world, yet it was plucked by network operator Cable & Wireless early this year for $750 million.

The demise of these ventures mirrors the rise and fall of Internet-related companies over the past few years. In the heady days of the late 1990's, Web hosting companies were viewed as valuable pieces in a larger Internet-based telecommunications industry, filling the pipes of network operators building global fiber-optic networks. But as large telecom firms such as Sprint and AT&T edged into the market, start-ups have struggled to compete with their scale.

News.com's Ben Heskett contributed to this report.