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PSINet playing catch-up

PSINet meets revised estimates as its third quarter is hit with delays in devices used to connect dial-up customers to its network.

Commercial Internet service provider PSINet (PSIX) met downward-revised estimates today, as its third quarter was hit with delays in devices used to connect dial-up customers to its network.

The net loss for the quarter was $10.7 million, or 26 cents per share, compared with a net loss of $12.5 million or 31 cents per share for the same quarter a year ago. Analysts were expecting a loss of 26 cents a share, according to First Call.

Analysts had been expecting a smaller per-share loss of 21 cents before the company warned that expected growth in the wholesale network services business was being constrained by delivery delays for primary rate interface (PRI) telecommunications facilities required to meet customer demand, the company said earlier this month. Dial-up customers connect to the company's network using PRIs via ISDN lines, for example.

Revenue for the third quarter was $32 million, a 33 percent increase over the $24.2 million reported a year ago. That fell in the range the company set earlier this month of $31 million to $33 million for the quarter.

More expenses are on the way as the company builds out its services. But Ed Postal, company chief financial officer, said it is just part of the process of a growing business. "We have determined that we need to spend some more money on the PRI area to accelerate and catch up on where we fell behind," he added.

Postal explained that PSINet also needs to spend money expanding its marketing focus. Because of its high rate of growth, the company has to keep upgrading the network as well as increase the number of customer service representatives.

Changes during the third quarter in the customer administration, information services, and the Web services and electronic commerce divisions are expected to result in $3 million to $5 million in additional fourth-quarter expenditures as the company adds staff and improves support systems.

PSINet attributed part of the third-quarter shortfall to lower-than-anticipated sales during the summer season from retail corporate services. However, PSINet said growth in international revenue remained on track.

The company noted it is working to remedy the factors that contributed to the shortfall of initial expectations.

PSINet said that it has been working with its telecommunications suppliers since September to expedite orders on PRIs in the United States. The company said solving that problem, along with the installment of 56-kbps modems, will more than double the company's current modem capacity.

The company added those improvements would allow it to accelerate the growth of the wholesale network service and corporate customer accounts.

Corporate accounts at September 30 totaled 23,000, up 53 percent from the 15,100 from a year ago. The company said it continued to expand its customer base with higher contract values as it focuses on the value of accounts added, instead of just the number of accounts.