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@Home cuts deals with three cable companies

Three major cable companies announce that they had reached agreements with Excite@Home, ensuring high-speed Internet access to more than 1.7 million customers.

    Three major cable companies announced Monday that they had reached agreements with Excite@Home, ensuring high-speed Internet access to more than 1.7 million customers.

    Email us about the
collapse of Excite@Home But the short-term agreements may also seal the fate of the Redwood City, Calif.-based high-speed Internet access provider. Because of the new contracts, some industry insiders say, Excite@Home will likely be sold for pennies on the dollar--if any buyer at all steps forward.

    Philadelphia-based Comcast Cable Communications and Atlanta-based Cox Communications each agreed to pay $160 million to Excite@Home for three months of high-speed Internet service. Those agreements will replace the existing contracts, which had the cable partners paying Excite@Home monthly subscriber fees.

    The agreements, announced late Monday afternoon, mean that roughly 800,000 Comcast customers and 555,000 Cox customers will have high-speed Internet access through Excite@Home's network until they are switched to Comcast's and Cox's own networks.

    Toronto-based Rogers Cable also announced Monday that it reached a three-month "transitional agreement" with Excite@Home in the United States. Rogers has converted about 70 percent of its 422,000 Excite@Home customers to its own network, and it will convert the remaining 30 percent "as quickly as possible."

    Charter Communications is still in negotiations with Excite@Home for 14,000 customers in the Medford, Ore., and Kennewick, Wash., regions. Those customers still have Excite@Home service, but Charter is in the process of switching them to Charter Pipeline, its independent network. Charter has already switched 131,000 former Excite@Home customers to Charter Pipeline.

    Smaller Excite@Home partners, such as Mediacom Communications and Adelphi Cable Communication in the United States and Canadian companies Cogeco and Shaw, have not yet reached agreements with Excite@Home. Many say they are still in negotiations, and service to customers continues uninterrupted.

    The agreements come two days after Excite@Home terminated service with AT&T when contract negotiations broke down. With 850,000 customers, AT&T was one of Excite@Home's largest cable partners.

    AT&T said in a statement Monday that it has switched about 40 percent of those customers to its own network, and it is promising the remaining customers a transfer to the AT&T network as soon as Friday.

    Chain of events follow ruling
    Like other cable partners of Excite@Home, AT&T has been preparing for the possibility of a switch for its Excite@Home customers for months. But it didn't begin transferring the first customers--about 86,000 subscribers in Oregon and Washington--until early Saturday morning.

    The initial transfer came less than 24 hours after a judge ruled that Excite@Home could renegotiate the contracts with its cable partners. That decision was a victory for creditors, who argued that the cable companies weren't paying enough for the service.

    Although the original contracts varied widely depending on the cable see Special report: Excite@Home marriage doomed at the altar?partner, the agreements were weighted in the cable companies' favor: The cable companies would collect roughly 65 percent of revenue while Excite@Home would collect 35 percent. With the average cost of service around $46, cable companies paid Excite@Home about $16 per month for each customer.

    Attorneys for Excite@Home bondholders, the largest and most vocal group of creditors, said the cable companies should pay at least $50 a month per subscriber for nine months. Excite@Home was losing about $6 million per week because of the contracts, according to bondholders' lawyers.

    The new contracts are relatively lucrative, even from the bondholders' perspective. For example, Cox will pay $160 million for three months of service, which calculates to about $96 per month for each of its 555,000 customers.

    Although that may seem like a windfall for Excite@Home, the new contracts are short-term provisional deals to ensure service while cable companies switch customers to their own networks.

    Cox could complete the switch within a month, cable industry experts say, and even Comcast shouldn't take longer than three months. It's highly unlikely that any of the largest providers will strike new contracts after that.

    'It's the end'
    The new short-term deals with Comcast and Cox, as well as the swift migration of customers to independent networks, cast grave doubt over the long-term viability of Excite@Home.

    Less than one week ago, the company had 4.1 million customers, controlling about 45 percent of U.S. households with broadband access. Now it has about half that as the cable companies transfer customers to independent networks.

    "It's the end of Excite@Home," said Mark Kersey, a broadband analyst for La Jolla, Calif.-based ARS. "Obviously this is a transitional thing until Cox and Comcast can get their own networks going. The only question is what happens to the Excite@Home assets."

    The demise of Excite@Home has been almost as swift as its meteoric rise to fame during the Internet stock boom of the late 1990s. Only two years ago, @Home's $6.7 billion merger with Excite--the largest of two Internet companies--appeared to have all the makings of an industry leader: heavy traffic, popular technology, major-league financing and a head start over would-be competitors.

    But the marriage of the Web portal and high-speed Internet service fell disastrously short of expectations largely because of a series of management blunders. In particular, Excite@Home board members clashed with more conservative executives from AT&T, and a series of management blunders and sloppy contracts with self-interested cable partners sealed the company's fate.

    Excite@Home filed for bankruptcy protection on Oct. 1, part of a deal crafted between Excite@Home and AT&T, which controls a 79 percent voting interest in the company. When the company filed for bankruptcy, AT&T offered to buy its cable assets for $307 million, and it maintained that bid for weeks--despite fierce protests from unsecured creditors and bondholders, who insisted the company was worth as much as $1 billion.

    Given Excite@Home's shrinking customer list, sources say AT&T is likely to withdraw its bid altogether.

    "With all the cable partners creating their own networks, what's left of Excite@Home?" Kersey asked. "Excite@Home had a very small window of opportunity to get a decent sale price...It seems like that window is now closed."