Save your seat for Streaming Media NYC this May. Register Now!

Life After Excite@Home

In just two years, broadband access provider Excite@Home went through a massive devaluation, eventually leading to its filing for bankruptcy last fall. Consider that in January 1999, @Home purchased the Web portal Excite.com for $7.8 billion in cash and stock, while just last November the company sold Excite's portal assets to iWon for a mere $10 million. The tremendous devaluation underscored just how susceptible the company was to slow broadband adoption, a lagging economy and the softening Internet ad market.

But perhaps more surprising has been the rapid devaluation of the company’s network assets. When Excite@Home filed for bankruptcy, AT&T offered $307 million to purchase the company – a figure that stockholders and creditors balked at while saying that @Home’s network assets were worth more than $1 billion. However when AT&T withdrew its offer, there was not a single suitor waiting in the wings for the financially beleaguered company.

With no acquisition in sight, Excite@Home threatened to pull the plug on its approximate 3.5 million customers. Cox, Comcast, Mediacom, Rogers and other smaller cable companies struck deals with @Home through the bankruptcy court to continue offering broadband service to their customers until February 28, at which time their own proprietary networks will theoretically be built. The deals were worth $355 million -- $48 million more than the original AT&T offer – which some bondholders allege was a strategic move by AT&T to buy time to create its own network.

Unfortunately for the 850,000 Excite@Home customers located in AT&T Broadband markets, no deal was struck to continue their service while AT&T scrambled to transition them over to its network.

Further showing the skewed economics of network assets, Cox later said it would spend only between $100 to $150 million to construct its own network, or about the same amount of money it paid @Home to continue service for three months.

"If I’m a cable company and its only going to cost me half as much to construct my own network, then that’s a pretty easy choice," says Mark Kersey, a broadband analyst with research firm ARS (www.ars1.com). Kersey predicts that the Excite@Home's network assets will ultimately be sold to a second-tier, regional cable company for $100 million or less.

Excite@Home Taken To Court

The events that led up to the Excite@Home financial debacle have at times played out like a daytime drama, with rumors flying on message boards and reports of bounced severance checks. But while rumors on message boards can hardly be taken as supreme truths, some are seeking to take the matter of Excite@Home’s alleged mismanagement to court.

A group of disgruntled stockholders, led by Bob Garrity, one of Excite@Home’s first employees, recently filed a lawsuit. In late October 2001, the stockholder group made quite a splash in the press protesting AT&T’s $307 million offer to buy the broadband company, with claims that AT&T’s handpicked management had violated fiduciary duty. The disgruntled stockholders said in October that they hoped to align with the bondholders, who have filed a suit of their own, but this has not come to fruition.

"We’re still in the stages of development. We are currently talking to attorneys and looking to find someone to take the case where we want it to go," said Garrity in early January.

DSL Offers Galore

But a more immediate problem for many is that customers are losing their e-mail and residential broadband access. Fortunately, there has been no shortage of DSL companies offering promotions in an attempt to snag new customers, who are now red-hot commodities — that is, former broadband users that may not want to go back to dial-up.

One such suitor is DirecTV Broadband, which offered customers two free months of DSL service and waived a $49 activation fee. Bill Chandler, VP of corporate communications at DirecTV Broadband, said that call volume and Web traffic quadrupled in the days after the Excite@Home fiasco. And while DirecTV's Broadband unit currently shows no profit for Hughes Networks Systems (which Hughes acquired in April 2001) Chandler said the company is meeting its announced financial numbers. He also said DirecTV Broadband is helping to keep the DirecTV brand competitive by offering both entertainment and network services bundled together.

"We offer a strategic approach to combating cable bundles. For example, customers can receive only one bill from us for both digital satellite service and DSL," added Chandler.

Streaming Covers
for qualified subscribers
Subscribe Now Current Issue Past Issues