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Cable allies to leave Excite@Home

The financially troubled ISP foresees an end to its relationship with Comcast and Cox, and hires an investment bank to oversee restructuring options.

Financially troubled Excite@Home said Friday that cable partners Comcast and Cox Communications have decided to end their long-term relationships with the high-speed Internet service before next summer.

see special report: A broken home Under their existing pact, Cox and Comcast, two of the nation's largest cable TV companies, will exercise their rights to dissolve their partnerships June 4, 2002. Excite@Home continues to negotiate with the cable operators, a spokeswoman said.

In the meantime, Excite@Home broadband Net access customers served by Cox and Comcast must wait for a new or updated agreement, or consider other options. It is conceivable that Comcast and Cox could continue working with Excite@Home after next June, but likely not on the exclusive basis Excite@Home currently enjoys.

Excite@Home has been scrambling on a number of fronts. On Thursday, its board of directors authorized the company to hire an investment banking firm to serve as a financial adviser to oversee potential restructuring scenarios. No particular bank was specified.

Among a variety of potential outcomes for Excite@Home's financial situation--some of which are more likely than others--is additional investment by AT&T, a cash infusion by outside investors, a sale of some of its assets or even the entire company, or a bankruptcy filing with a preplanned restructuring proposal. The company could also outline further cost-cutting proposals.

Stock in Excite@Home, which has been battered over the past two years, fell more than 19 percent to 42 cents by market close Friday. Shares in the company have traded as high as $18.56 and as low as 37 cents in the past year.

Excite@Home, the nation's largest high-speed Internet service provider with about 4 million customers, is in a perilous financial situation. Ernst & Young, dismissed as the company's auditor last week, recently said that it doubts Excite@Home will be able to continue its operations. The company may be in danger of being delisted from the Nasdaq Stock Market.

Short on cash, Excite@Home faces an investor, Promethean Investment Group, that is demanding repayment of a $50 million loan as early as Friday. But Excite@Home, which is continuing talks with Promethean, believes the investor's demand is not within its right and has hinted that it is unlikely to repay the loan to meet that deadline.

A Promethean executive wasn't immediately available for comment.

As for Cox and Comcast, the two cable operators since the mid-1990s have been part of a complex partnership between rival cable companies to offer high-speed Internet access over their cable networks. Excite@Home, backed primarily by AT&T but also by other cable companies, uses these networks to deliver broadband Net service to consumer customers under exclusive agreements with these cable investors.

But Cox and Comcast earlier this year opted to exchange their equity stakes and voting control in Excite@Home for AT&T stock. However, the companies continued to work with Excite@Home.

"We terminated our partnership with them effective June 4, 2002. What that means is we'll wind down our business partnership between now and then, though we'll continue to talk to Excite," said Cox spokeswoman Laura Oberhelman. "Ultimately, we anticipate we'll acquire greater control of our network for many of the functions that Excite@Home now controls.

"Our No. 1 priority is making sure our customers have fast, reliable Internet access," Oberhelman added.

With Friday's announcement, the two cable companies will be free in June to work with other ISPs, such as EarthLink and MSN, unless a new agreement with Excite@Home is reached.

"I do consider it a large negative," said Drake Johnstone, a telecommunications equity analyst at Davenport & Co., a Virginia-based regional brokerage firm. "I could see UUNet and Level 3 and Qwest all tripping over themselves to provide the Internet backbone to Cox and Comcast."

Johnstone, who maintains a "sell" recommendation on Excite@Home stock, said Cox and Comcast together accounted at the end of June for about 1.3 million of Excite@Home's 3.7 million customers.

"It's obviously a huge impact," he said.

Clouding the situation are two factors, including Excite@Home's financial fate and the pending purchase offer by Comcast for AT&T Broadband, the cable unit of AT&T and Excite@Home's largest investor.