Deal puts @Home at $1 billion
In a sign of the hype and promise of high-speed Net access, a new investment deal will set a value of $1 billion for @Home Network.
The fledgling company that got off to a rocky start less than two years ago has sold a 4.5 percent stake to a group that includes Sun Microsystems, Motorola, Bay Networks, Rogers Cablesystems, and Shaw Communications for $48 million.
That puts a hefty overall value of $1.07 billion on the start-up, which provides high-speed Internet access over cable systems.
@Home's launch was dogged by delays, but it has been on a tear of late, signing up new customers and new partners. Last week, it struck a deal to launch its product in Canada with Rogers and Shaw.
Motorola and Bay Networks, which provide cable modems used for this kind of service, are new investors. So is Sun. Deutsch Morgan Grenfell assisted with the financing, which represents a private placement of preferred stock.
@Home has an eye toward going public. But today's valuation, while impressive, does not guarantee the company's future worth.
The new round of financing lets the company continue to expand its service both in homes and at the workplace.
On the consumer side, @Home has been rolled out in Baltimore; Arlington Heights, Illinois; Fremont, California; Hartford, Connecticut; Orange County, California; Sarasota, Florida; and Union County, New Jersey.
@Home also caters to businesses. It is launching in major metropolitan areas that include Northern California, Los Angeles, New York, and Boston through a partnership with Teleport Communications Group.
Last week, CNET reported that a new round of financing for @Home was in the works. Other investors include cable TV giants Tele-Communications Incorporated, Cox Communications, and Comcast, as well as venture capitalist Kleiner Perkins Caufield and Byers.
@Home is not alone in this market. Time Warner offers a service called Road Runner, which is being offered nationally. Other cable operators, such as Continental Cablevision, also offer high-speed Net access with cable modems.
Telecommunications carriers such as Pacific Bell and Bell Atlantic are offering high-speed Net access through regular phone lines. Their offerings include fast connections using ISDN and ADSL technology.
Last week, a study contended that nearly one in five U.S. households is willing to fork out $40 a month for high-speed Internet access. The Strategis Group, an industry consulting firm, based its findings on a national survey of 500 households.
But the market has a ways to go to meet these lofty expectations. By the study's own admission less than 150,000 homes will subscribe to high-speed services by year's end. It forecasts that nearly 8 million homes will subscribe by 2001, generating sales of $4 billion a year.
"It strikes me as phenemonal, and I can't imagine it's sustainable," said Emily Green, an analyst with Forrester Research, a high-tech market research firm, of the valuation. "I guess people are getting comfortable with the idea that the cable modems might win in the consumer bandwidth race."
Added an executive who has worked with @Home, who asked not to be identified, "That's a big valuation for a company that hasn't done anything yet," at least in terms of turning a profit or dominating the business. "There's a tremendous potential market, [but] the success largely depends on how quickly the cable operators upgrade their systems" to handle the high-speed Net access.
He added: "You can say the same thing about Netscape or anyone who comes out of Silicon Valley with a new technology."
The valuation also should make Kleiner Perkins Caufield & Byers, @Home's original investor, "quite happy," at least for now, he said. KPCB Partner John Doerr has been instrumental in launching both Netscape and @Home.
The analysts say @Home is being rewarded for ramping up quickly, after getting off to a slow start. They cited this spring's deals to launch @Work, as well as expand in Canada.
In addition, the company is assembling a well-regarded management team and is turning to technologies, such as "telephone-return path," that can run high-speed Net access on one-way, not two-way, cable systems.
The jury is still out, however, on whether the company can out-muscle telephone companies in providing high-speed Net access. The telcos, they note, are well entrenched and have better brand recognition.
"Motorola believes its investment in @Home Network will help develop the broadband industry overall," John Battin, senior vice president of Motorola, said in a statement. "@Home Network and Motorola have worked very effectively together in the past."