CNET también está disponible en español.

Ir a español

Don't show this again

Christmas Gift Guide
Mobile

AT&T consolidates control to drive Excite@Home forward

After nearly a year of uncertainty about Excite@Home's future, AT&T finally grabs the reins of the high-speed Internet access company, hoping control equals success for the firm.

After nearly a year of uncertainty over Excite@Home's future, AT&T has finally grabbed the reins of the high-speed Internet access company in hopes it can put the firm back on track.

Ma Bell today announced it will assume majority control of Excite@Home's board of directors, will consolidate the company's financial results with its own, and has offered to buy the stakes of co-partners Comcast and Cox Communications should those cable operators want to back away.

In doing so, AT&T shored up a wayward Internet strategy and You've got Time Warnerembraced the changing nature of the industry, underscored by the proposed merger of America Online and Time Warner. That merger signals the importance a combination of compelling content and high-speed connections may play as the Internet industry consolidates.

"For Excite@Home, the AOL-Time Warner deal created a call to action. And I think this is the response," said Michael Harris, president of industry watcher Kinetic Strategies. "All of a sudden they were like a deer in the headlights."

A combined AOL Time Warner serves as a major threat to Internet industry players, including Excite@Home and AT&T. With more than 20 million AOL customers and access to Time Warner's cable distribution systems and vast Internet, movie and TV content, the combined company is expected to be a giant media and online powerhouse--and one that could excel at Excite@Home's strategy of combining Web content and high-speed Net access into one service.

Since its inception, Excite@Home has operated under an awkward ownership and governance structure that included significant input from three major cable operators: AT&T, Cox and Comcast. As the industry's poster child for the high-speed, or "broadband," Internet, Excite@Home has had its share of successes--measured by its more than 1 million subscribers--but has often appeared confused strategically.

The company's ability to focus and launch initiatives has been clouded by several factors, including the post-merger integration of Excite's Web content and @Home's Net access, its cable operators' commitment, the specter of open-access regulations, and its future after exclusive pacts with its cable partners expire in two years. Excite@Home's stock price has languished accordingly.

In the face of increased competition created by the recent AOL-Time Warner deal, Ma Bell simply has taken the clear leadership position that Excite@Home sorely lacked.

Executives from AT&T, Excite@Home, Cox and Comcast today touted the "clarity" the reorganization should bring to Excite@Home's future.

For AT&T, the move serves to put to rest questions about its relationship with and commitment to Excite@Home. Internal bickering between the telecommunication company's chief executive C. Michael Armstrong, and Leo Hindery, formerly its top cable strategist, over the direction Excite@Home should take--and the role Internet content should play at AT&T--left the Net provider looking like an unwanted stepchild among Ma Bell's vast assets.

Those internal squabbles sometimes confused the already-strained relationships among Excite@Home board members. But as a result of today's move, Cox and Comcast will no longer have veto power and representation on the Excite@Home board of directors, leaving the decision-making power to Ma Bell, which recently became the nation's largest cable-TV company. AT&T will recast the board, electing a majority of its future members.

"What it all adds up to is AT&T wanted to get its hands around Excite@Home more firmly," said Mike Paxton, a cable industry analyst at Cahners In-Stat Group, a market research firm.

Wall Street seems to agree with the approach, having sent Excite@Home shares more than 10 percent higher before closing up $3.38 at $37.69 at 1 p.m. PST. One of the Internet's highest-flying stocks at one time, many investors have shied away amid the uncertainty.

Most believe broadband Net connections represent a gold mine. According to The new world orderJupiter Communications, the U.S. market for high-speed services will increase to 15.3 million customers in 2003, up from about 2.2 million subscribers at the end of 1999.

The broadband industry, though still in its infancy, is expected to explode into a multibillion-dollar sector over the next few years, eventually replacing today's dial-up modems as consumers' primary means of accessing the Internet. Cable modems, Excite@Home's technology of choice, lead the way, although a variety of competing technologies based on phone, satellite and wireless systems also are making headway.

Analysts say AT&T was uncomfortable with the confused management and governance structure, particularly as it signed more cable modem subscribers in recent quarters.

"From AT&T's perspective, they are trying to aggressively roll out the @Home service, and they want to make sure they have input on control of the network by more directly controlling the company," Kinetic's Harris said. "In the past, TCI (now part of AT&T) was the laggard, but they really turned the corner in the last half of last year, so it makes sense that they would exert more control now."

Company executives say the closer relationship between AT&T and Excite@Home will free the Net access company to more quickly offer new services, rather than scramble internally to fend off cable operator feuds or other diversions.

"This allows the company to stop worrying about the boardroom and to focus on building the best service you can build," said Mark Stevens, executive vice president of business development for Excite@Home. "It's about execution without distraction."