November 6, 2000 9:00 PM PST

PSINet assailed as spam contract surfaces

Troubled Internet service provider PSINet acknowledged providing access to a sender of bulk unsolicited commercial email, bolstering critics' claims that some of the world's largest ISPs knowingly do business with spammers in violation of stated anti-spam policies.


Gartner analyst Maurene Caplan Grey says PSINet's so-called pink contract allowing spam shows poor business judgment--and will likely turn out to be a costly decision.

see commentary

PSINet said it was providing Internet service to Cajunnet, a marketing firm based in Slidell, La., after CNET obtained an unsigned electronic copy of an addendum to a contract between the two companies. The addendum is an example of a so-called pink contract, in which an ISP signs a special provision permitting a client to send spam or put up spam-related Web sites.

Cajunnet reviewed CNET's copy of the addendum and said it was authentic.

PSINet senior account executive Patrick Beard, who said he handled the Cajunnet account, acknowledged the existence of the addendum and confirmed its essential points. But he declined to examine CNET's copy for authenticity.

"My general understanding is that we have a general anti-spamming policy that applies to all customers, but we had to sign some additional paperwork saying they were going to do things above and beyond it," Beard said in an interview. "In their case, we signed a contract saying they were going to handle customer complaints, and if the complaints were too much, we would discontinue" the arrangement.

John LoGalbo, PSINet's vice president of public policy, said CNET's copy of the addendum was a draft and that its provisions differed from the one ultimately signed by the companies. He would not say whether the differences were material and declined to comment further on PSINet's relationship with Cajunnet.

CNET's copy of the addendum stipulates that PSINet would permit Cajunnet to send unsolicited email "in mass quantity" through PSINet's lines. It went on to say that PSINet would receive a nonrefundable, up-front payment of $27,000 "for PSINet's increased risks associated with this Agreement."

The relationship between PSINet and Cajunnet aroused the ire of anti-spam advocates, who have long suspected that ISPs do business with spammers through pink contracts. Last week, AT&T acknowledged the existence of one such contract it had signed with the spam outfit NevadaHosting.com and vowed to crack down within the company's sales force on the practice of cutting deals with spammers.

"We have known of this PSINet contract for a number of days, and as with the AT&T one we know there are more of these contracts in existence between spam gangs and large U.S. backbones," Steve Linford of the Spamhaus Project wrote in an email interview. "We urgently need this problem stopped but are finding more and more that the very same world providers who profess to be doing the most to stop the problem are the ones knowingly profiting off it behind their customers' backs."

Whatever the specifics of PSINet's contract with Cajunnet, any relationship between the two companies in which PSINet was aware of Cajunnet's spamming practices would appear to violate PSINet's spam policy, which threatens to discontinue service to anyone found sending unsolicited email.

Cajunnet is candid about its email practices.

"We are very up front about what we do and how we do it," said Cajunnet general manager Eugene Wanless. "I think a lot of people consider it spam. We'll send out between 5 (million) and 20 million emails at a time and take a lot of heat from people whining and complaining. Eventually our ISPs wind up turning us off."

Wanless said Cajunnet's previous providers included AT&T and Sprint, and that UUNet had just discontinued service Friday.

AT&T declined to comment on whether it had provided service to Cajunnet. Sprint and UUNet--a division of WorldCom--did not respond to telephone queries.

Wanless confirmed that Cajunnet had paid PSINet the $27,000 fee described in the copy of the contract obtained by CNET. He said the payment compensated the ISP for the risk involved in providing service to spam senders.

"As we have told them, when we start mailing on a Monday afternoon and we send out 20 million emails, if, say, one-half of 1 percent complains, that's a lot of folks," Wanless said. "So they're going to take a hit. It puts a lot of pressure on their abuse departments, and we understand."

ISP's pains
PSINet has come under increasing pressure to boost revenues of late. Last week the company reported a loss of $1.4 billion, or $7.34 per share, partly because of the discontinuation of its Xpedior unit, and pledged to reduce spending by $100 million to $200 million. Analysts had expected the company to lose $1.28 per share, according to First Call/Thomson Financial.

Along with its earnings announcement, the company lowered its expectations for the fourth quarter; announced a corporate restructuring, which included the resignation of president, chief operating officer and director Harold Wills; and said it would examine "strategic alternatives."

Since that announcement the ISP has weathered a deluge of downgrades from equity analysts at 15 securities firms, according to Bloomberg News, and is the target of a class-action lawsuit alleging the company made false statements to the market.

The company's stock is down more than 90 percent for the year. The issue now trades around $2, down from a 52-week high of $61.92.

Cajunnet launched in February to provide bulk-email marketing services. The company designs advertising campaigns, tests and fine-tunes them with mailings a few thousand strong, and then sends out its mass email, typically charging per million emails sent.

Business is "hectic," Wanless said.

"When UUNet went down on Friday, we had a situation where a bunch of mail went out for a customer and there was no place for people to respond to because the Web site went down," Wanless said. "Now I have to put the site up with somebody else and re-mail the list again, which is annoying for the customer because (he) gets the mail twice.

"But when our circuits are up and everything runs smooth, everything's wonderful."

 

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