With a creditors' deadline looming, debt-saddled Internet services firm Genuity (Quote, Company Info, News) is shopping some or all of its business to Level 3 Communications, internetnews.com has learned. An announcement could come as soon as tomorrow.

A deal between the infrastructure companies could speed the pace of consolidation in the troubled telecommunications industry and give Level 3 a strong presence in managed hosting services. It could also help Genuity avoid a potential bankruptcy filing as its debts pile up. The Woburn, Mass., company's latest credit extension expires tomorrow.

Paul Lonnegran, a Level 3 spokesman, declined to comment, as did John Vincenzo, a Genuity spokesman.

Broomfield, Colo.-based Level 3 has stated publicly its intention to use a $500 million investment from Warren Buffett's Berkshire Hathaway Group and other investors for acquisitions.

Level 3 CEO James Q. Crowe has also cited in previous statements "extraordinary opportunities" with the ongoing shakeout in the telecommunications industry, as "network assets and customer bases become available."

The requirements of using what Crowe called "financial dry powder" for "acquisitions relating to industry consolidation" could help Level 3 pick up some choice assets from Genuity, which provides dial-up and high-speed Internet access, co-location, Web hosting and network services.

An analyst said the move would make sense.

"Both (Level 3 and Genuity) have AOL as a customer (in their managed modem bases) so there would be potential synergies," said Counse Broder, principal analyst at Current Analysis. "It could also help Level 3 go upmarket into managed hosting services, which we think would be a plus."

During the last two months, Genuity has paid a total of $75 million for a extension with lenders who extended a $2 billion credit line.

Genuity was formerly the Internet division of GTE Corp. and spun out as part of GTE's merger with Bell Atlantic, now Verizon, in 2000.

Following the merger, Genuity spent millions of dollars on advertising and corporate sponsorship of golf tournaments and other events to raise the profile of the company and its Black Rocket service.

But as large customers delayed or canceled orders for IT infrastructure, Genuity suffered. Then Verizon decided not to reintegrate the company, which underlined the company's debt problem.

A Verizon spokesman said it extended a $1.15 billion loan to Genuity. Though he wouldn't comment further, it's likely that creditors would have to sign off on any large deal.