Excite@Home pulls plug on AT&T; more could go dark

AT&T and Excite@Home confirmed Saturday afternoon that most of the 850,000 AT&T cable modem subscribers around the country were without high-speed Internet access.

AT&T said it had transfered about 10 percent of its Excite@Home customers--all of them in Oregon and southwest Washington state--to an independent AT&T service, but it didn't have immediate alternatives for the remaining 90 percent.

"AT&T continued negotiations with At Home Corporation late into Friday evening and early Saturday morning only to see the Excite@Home service cut off," AT&T Broadband said in a statement. In a separate statement, Excite@Home said it was continuing to negotiate with all its remaining cable partners, including Cox Communications and Comcast.

The announcement came as no surprise to AT&T Broadband customers, most of whom woke up Saturday morning to find that they couldn't send e-mail or surf the Web from their high-speed connections. Many had to rely on slower dial-up connections to access information on AT&T's Web site, but it contained no service updates.

AT&T representatives staffing a toll-free hotline--which was bombarded with callers and often busy or unavailable--told customers who could get through that service was disconnected at 2:15 a.m. PT. Call center agents also told subscribers that their service would not be restored for "a few weeks," possibly until AT&T can provide Internet access without the help of Excite@Home's infrastructure.

According to AT&T, customers in Chicago, Dallas, Denver, Connecticut, Pittsburgh, Sacramento, Salt Lake City, Seattle and the San Francisco Bay Area will be transferred to its new network in the next two to 10 days. Some customers in Michigan and the Rocky Mountain region will also be switched to the new network. AT&T warned that customers "may experience temporary service disruption during the migration."

Numerous people told CNET News.com that AT&T representatives were calling them at home on Saturday morning and afternoon to alert them to the outage. AT&T is offering customers two days of credit for each day they are without high-speed Internet access.

But the courtesy may not compensate for the outrage that many customers feel toward both Excite@Home and AT&T. AT&T is offering customers free dial-up service from AT&T Broadband if their service goes down--but the conventional connection is painfully slow for people who have grown accustomed to high-speed cable modems, especially for downloading.

Customers must also change e-mail addresses because of the switch. According to AT&T, e-mail domain names will automatically change from (username)@home.com or similar addresses to (username)@attbi.com.

The changes--and lack of advance notice--offended many customers.

"I managed to reach AT&T Broadband support this morning after about 40 tries and they confirmed Excite@Home service was disconnected," said Mark J. Welch, an AT&T subscriber in Pleasanton, Calif. "Oddly enough, the people at that same number had assured me on Friday afternoon at 3 p.m. that any rumors about service were false, and there was no possibility of an outage, and my e-mail address would continue to work."

AT&T is one of many cable companies that partnered with Excite@Home to provide 4.1 million customers high-speed Internet access.

Customers who rely on Excite@Home and other cable companies, such as Comcast and Cox Communications, also reported outages on Saturday, but those customers did not receive phone calls or e-mail from their providers that service was out or would be resumed eventually.

Meanwhile, other cable partners were preparing customers of the potential for disrupted service in case Excite@Home ended all negotiations and cancelled service to all cable partners. St. Louis-based Charter Communications announced Saturday afternoon that it was switching all 450,000 Charter@Home customers to Charter's independent high-speed Internet service, Charter Pipeline.

Dave Barford, executive vice president and chief operating officer for Charter, said technicians have been preparing for such a move for months but only began switching customers immediately after Friday's court ruling. Charter has already switched 90 percent of its customer to its own pipeline. Those who still have Excite@Home service may experience temporary outages and slowdowns but will soon be switched, Barford said.

"Crews worked through the night to make the transition with minimal disruption to customers," Barford said. "We are still working on some minor issues, but the process went even better than we had hoped."

Fallout from court
Termination of service for AT&T customers began early Saturday morning, less than 24 hours after a key court decision that threatened to terminate service for Excite@Home customers.

On Friday, a San Francisco bankruptcy court judge ruled that angry bondholders and cable partners of Excite@Home must go back to the bargaining table. In the weeks leading up to the decision, the cable companies threatened to cut off service if their contracts, which expired at midnight Friday, were terminated.

The cable companies are upset about having to renegotiate contracts in large part because they fear that the new contracts will siphon revenue from them toward Excite@Home, which filed for bankruptcy protection in September. By some estimates, Excite@Home is burning through $6 million per week because of outdated contracts with the cable companies.

Although the contracts are complicated documents and vary widely depending on the cable partner, the agreements are weighted in the cable companies' favor. With the average cost of Excite@Home service around $46, the cable companies collect roughly 65 percent of that, while Excite@Home collects only 35 percent.

Interim contracts that parties negotiated in October are slightly different than the official contracts that are now being renegotiated, but the interim agreements still funnel a disproportionate amount of money toward cable companies. Contracts are also slightly different in Canada, where cable companies take as much as 80 percent of the revenue, leaving only 20 percent for Excite@Home.

Because Excite@Home filed for Chapter 11 bankruptcy protection in September, U.S. Bankruptcy Court Judge Thomas Carlson said Friday that Excite@Home may legally break its existing contracts to increase its chances of survival. He rejected the cable companies' argument that the contracts should be maintained to preserve the Internet service of 4.1 million customers, who represent 45 percent of the cable modem users in North America.

Some sources have said that the cable companies are negotiating to extend their existing contracts at least through next week, when AT&T, which has a 79 percent voting interest in Excite@Home, is expected to make a $307 million bid for Excite@Home's cable assets. If and when the sale is finalized, AT&T could renegotiate contracts with the other cable providers.

Many Excite@Home shareholders and creditors say the company's cable assets are worth vastly more than $307 million--some insisting that fair market value is as high as $1 billion. AT&T may be terminating its service in order to make customers defect--a move that would devalue Excite@Home and make AT&T's $307 million bid seem more appealing, critics say.

AT&T Broadband representatives said this week they could assume about 20 percent of Excite@Home customers if the company shuts off service. Excite@Home has been in meetings for the past several weeks with AT&T as well as other cable companies.

The last chapter in a long history
AT&T's $307 million bid--as well as the termination of its service to customers--is the latest chapter in the tortured relationship between AT&T and Excite@Home.

Redwood City, Calif.-based Excite@Home became the largest Internet company when it was formed in a $6.7 billion merger of Web portal Excite and cable company @Home in January 1999. It remains one of the most high-profile and strained marriages of the Old and New Economies, with AT&T owning the majority of Excite@Home's outstanding stock. Both companies share several board members--and executives at both companies have been vocal in their disdain for those at the other company.

Basking Ridge, N.J.-based AT&T, which inherited its @Home stake and board representation from its acquisition of cable TV leader Tele-Communications Inc., opposed the very creation of Excite@Home.

AT&T had been a shareholder in the cable company for only a few months before its directors voted to acquire Excite--a second-tier Internet portal whose dot-com culture contrasted starkly with Ma Bell's conservative sensabilities.

Frustration with former Excite@Home CEO Tom Jermoluk became clear at a meeting in March 1999 in the boardroom of AT&T's headquarters in New York, when several directors suggested spinning off Excite as a separate company--essentially undoing the merger only two months after the deal had closed. Clashes between Jermoluk and then-AT&T cable chief Leo Hindery, who adamantly opposed the merger, are legendary among executives at both companies.

AT&T wasn't the only problem Excite@Home had to face. Since its inception, it has operated under an awkward ownership and governance structure that included significant input from three major cable operators: AT&T, Cox and Comcast. As a result of the complicated ownership structure, Excite@Home has appeared unfocused and divided. More bickering between AT&T Chief Executive C. Michael Armstrong and Hindery over the direction Excite@Home should take--and the role content should play--left the access provider adrift among the big cable operators' vast assets.

Boardroom divisiveness escalated in March 2000, when Ma Bell assumed majority control of Excite@Home's board of directors and offered to buy the stakes of co-partners Comcast and Cox. At that point, AT&T had a 23 percent ownership stake in Excite@Home and a 74 percent voting stake.

In January, AT&T traded $2.9 billion in its stock for the ownership stakes that competing cable operators Cox and Comcast held. That deal boosted AT&T's stake to 38 percent. AT&T also took a 79 percent voting interest in the broadband Net access company.

Some insiders say AT&T's heavy stake in the company compromised the board's decision-making abilities and took the focus away from Excite@Home shareholders.

Some Excite@Home insiders blame the company's plight squarely on cultural clashes between AT&T's "cable guys" and Excite@Home's more informal, younger executives. In fact, Excite@Home's September bankruptcy filing was part of a deal with AT&T. The agreement called for Excite@Home to become wholly owned by the long-distance giant by early 2002, pending approval by the bankruptcy court.

At the time of the bankruptcy filing, AT&T said that it will use Excite@Home's assets as the core of a larger broadband network. AT&T insisted customers would not experience an interruption in service.

"AT&T remains committed to working with Excite@Home's management and the bankruptcy court to provide uninterrupted high-speed cable Internet service to existing Excite@Home customers, as well as continuing relationships with other cable companies to ensure seamless service to their customers on the @Home network," the company said in a statement on Oct. 1.