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@Home shareholders cite AT&T "fraud"

Aggrieved investors in the defunct Excite@Home cable modem service say an investigation has uncovered new evidence that AT&T engaged in fraud and corporate "technology theft."

Aggrieved investors in the defunct Excite@Home cable modem service said a months-long investigation has uncovered new evidence that AT&T engaged in "fraud" and corporate "technology theft."

Shareholders suing AT&T and former company directors filed an amended complaint in New York federal court last Thursday, with new details of alleged wrongdoing based largely on interviews with former Excite@Home employees, including ex-CEO Patti Hart.

The amended complaint claims that top AT&T executives engineered a plan to steal key intellectual property that was used to develop a competing broadband network. According to the complaint, AT&T created its own cable Internet experiments called the "Steamboat Project" as early as February 2000, and by the next month, the company "had a plan to copy and convert Excite@Home's technology."

Attorneys representing the plaintiffs said the amended complaint includes crucial new evidence in the case.

"We did not feel like we should go to court without having a lot of hard evidence we could point to," said Frank Thomas, chairman of the shareholders' group legal subcommittee. "We all talked about (AT&T's role) and had theories about it, but now we're able to substantiate it."

AT&T declined to comment on the pending suit.

The shareholders' class-action suit is just one still pending over the company?s demise, which played out as one of the dot-com years' most dramatic Icarus stories. Even a year after customers have found their way to other service providers, the company's story remains a magnet for critics convinced that parts of the dot-com free fall could have been avoided.

Excite@Home, once the largest broadband Internet service provider, collapsed into insolvency a year ago amid allegations by shareholders and bondholders that AT&T had helped engineer, or had at least profited by, the company's failure.

As Excite@Home went into bankruptcy last year, AT&T offered to buy the assets of the struggling company. Bondholders and shareholders cried foul, saying that it wasn't a good deal and that AT&T had pushed Excite@Home into accepting bargain-basement prices. The deal ultimately fell through in part as a result of the opposition. As the company collapsed, AT&T, Comcast and Cox Communications all said they were transferring subscribers to their own cable modem networks--in AT&T's case, built in just a few weeks, the company said.

According to the shareholders' complaint, AT&T's network was actually the result of much more than a year's worth of effort, in which the company systematically extracted critical proprietary networking information from Excite@Home with the aim of constructing its own competing network.

Siphoning out knowledge?
According to last week?s amended complaint, AT&T concealed a plan to raid Excite@Home technology under the auspices of an "open access" experiment aimed at letting rival ISPs offer service over its cable network. A network designer working on the so-called Steamboat Project had warned Excite@Home management in July 2000 that AT&T was using the trial "as a means to take and convert Excite@Home's proprietary technology and that Steamboat posed a direct threat to Excite@Home's business."

The complaint cites specific instances, beginning in January 2001, in which AT&T personnel asked for and copied key Excite@Home software and data, including provisioning databases and engineering and planning documents. Some of these efforts met with protests by Excite@Home employees, which were ultimately overridden, the shareholders allege.

By spring and early summer, well before the service providers had reached the early throes of bankruptcy, AT&T was already rerouting some Excite@Home traffic through AT&T servers, a change that made the ultimate transition of customers to AT&T's network a simpler task, the shareholders said.

Much of this later action happened under the guidance of Hossein Eslambolchi, installed by AT&T in February 2001 as Excite@Home's "interim vice president of broadband services" and tasked with strengthening a network that was prone to failure.

Eslambolchi's role had previously been questioned by critics who charged he helped build AT&T's own network with knowledge gleaned from Excite@Home.

"Once we got in and started to investigate, we found there was corroboration for virtually every part of the speculation" about AT&T's role in Excite@Home's collapse, said Rick Rayle, a Lovell & Stewart lawyer serving as the chief investigative attorney for the shareholders' group.

However, AT&T and some Excite@Home insiders have previously said Eslambolchi's work simply brought badly needed stability to a shaky network. The experienced AT&T engineer--now the head of AT&T Labs--had no need to tap Excite@Home for networking knowledge, AT&T insiders have previously said.

Shareholders also alleged, based on interviews with former CEO Hart, that Excite@Home's financial strength had been badly overstated in the final months before bankruptcy. The complaint cites Hart as saying that subscriber and revenue growth projections--largely those made by AT&T--were inflated by as much as 30 percent over what the company could justify internally.

The group leading the class-action suit comprises about 200 individual shareholders who have incorporated themselves to pursue the action. They allege that the actions outlined in their complaint are evidence of securities fraud on the part of AT&T, directors and former executives of Excite@Home.

No court date has been set for hearing the allegations laid out in the complaint. The case is being heard in the New York Southern District federal court.