Excite@Home's largest shareholder will restructure by spinning off several business units into standalone companies. Ma Bell's cable unit, AT&T Broadband, is expected to go public within the next year. This new company will own AT&T's stake in Redwood City, Calif.-based Excite@Home.
Although these drastic changes look as if they might muddle the broadband landscape even further, some analysts say the decision may be a blessing in disguise.
"It probably will be an improvement. I think the focus will be better," said Abhishek Gami, an analyst at Chicago, Ill.-based investment banking firm William Blair, who recommends a long-term "buy" rating on the stock. "If Excite@Home was X percent of AT&T before, they'll be a larger percent of AT&T Broadband," Gami said. "I don't think they lose any power."
Excite@Home has had an eventful history. Stock in the company has been tossed about, the result of executive changes and infighting among the company's shareholders. But Excite@Home has worked hard to address issues to quickly become the world's largest high-speed Net access provider.
The company, controlled by AT&T, has navigated a complex ownership structure that involves stakes by several of the nation's largest cable operators, including Cox Communications and Comcast.
Rather than dealing with the internal strategic bickering of yesteryear, Excite@Home may now find that AT&T is suddenly preoccupied with its own internal problems. Others say the AT&T changes could improve the giant's focus on Excite@Home's goals. Indeed, Excite@Home executives believe the moves by Ma Bell will benefit their operation.
"In a world where they're choosing to rethink their strategy, it's very clarifying for us and keeps us out of any swirl surrounding them," said Byron Smith, executive vice president for consumer broadband services at Excite@Home. "This moves us out of that fray and aligns us with the people who most care about our success."
Ma Bell has watched profits from its core consumer long-distance voice business slide. AT&T also is scrambling to upgrade its cable networks for local telephony service. The company has a huge task ahead to split up its operations, convince shareholders and regulators of its wisdom, and find strong executives to run the new independent units.
"I think the restructuring was a precipitator of even more bad news for Excite@Home," said one industry executive familiar with the companies, speaking on condition of anonymity. "They get lost in the shuffle."
Some suggest AT&T chief executive C. Michael Armstrong was critical of the close-knit cable industry for failing to support his strategy of acquiring cable operators to provide local phone service, which could strain relations further between Ma Bell, Cox and Comcast. The three cable operators are Excite@Home's three largest shareholders and partners, but they have clashed in the past over strategy decisions and other issues.
In January, Cox and Comcast will have the right to sell their stakes in the company to AT&T for $48 per share. Excite@Home stock is valued around $10 per share.
Analysts and executives are mixed over whether Cox and Comcast, which have 18 months to do so, might exercise their right to sell their Excite@Home stakes.
But most industry experts agree a sellout by either company could rekindle the once negative perceptions about Excite@Home, which--via a management makeover and strong subscriber growth--the company has worked so hard to overcome.