Excite@Home's Money Trouble Won't Disrupt Service

Even if firm folds, broadband cable service is poised to continue.

Tom Mainelli, PCWorld.com

When accountants for broadband pioneer Excite@Home warned this week that operating losses and plummeting stock threaten the company's future, more than 3.7 million residential cable modem customers drew a concerned breath. After all, once you go broadband you can't go back.

Those customers can exhale now, experts say. Regardless of Ernst & Young's comments and the company's eventual fate, its cable-based high-speed Internet services will continue.

"If I was a subscriber I wouldn't worry about it at all," says Mike Paxton, cable industry analyst with Cahners In-Stat Group. "They're not going to wake up and find they don't have cable broadband anymore."

A total of 21 cable companies, including national giants such as AT&T Broadband, Comcast, and Cox Communications, rely on Excite@Home equipment and network management services to help provide Internet service. The cable companies simply can't let Excite@Home's services go away, he says.

The company itself may not survive, but the cable companies--some of which own a large chunk of Excite@Home--will find ways to continue the service it helps provide, Paxton says.

AT&T's Promises

AT&T Broadband has more than 1.35 million customers who access the Internet via cable modem. The vast majority of them do it through services provided in part by Excite@Home, says Sarah Eder, an AT&T Broadband spokesperson.

"AT&T Broadband is committed to providing uninterrupted service to our customers," she says.

Eder, however, declines to elaborate on how AT&T Broadband could make this guarantee when it relies on Excite@Home equipment, and when Excite provides the customer e-mail service. Since Excite@Home is still up and running, it's "premature to talk about those scenarios," she says.

She does note, however, that AT&T--the parent company of AT&T Broadband--has 23 percent ownership in Excite@Home as well as a 74 percent voting interest. As such, she says, AT&T is hopeful about Excite@Home's continued survival. Another interesting point: Excite@Home actually leases part of its network backbone from AT&T, which it in turn resells access back to AT&T Broadband.

"We will work with Excite@Home to come to the best decision for customers and stockholders," Eder says.

Excite: We're Still Standing

Despite the ominous tone of Monday's announcement, which states in part that the company may not be able to continue as a "going concern," Excite@Home officials are confident the company will survive, says Stephanie Xavier, a company spokesperson.

Excite@Home announced Wednesday that it has fired Ernst & Young and switched its accounting services to PricewaterhouseCoopers. The move was long planned and had nothing to do with Ernst & Young's negative comments; the company is simply planning for its future, she says.

"Our plan is to weather this storm," Xavier says. "We're here to stay, that's our plan."

To that end, the company's leadership continues to look for ways to improve operational efficiencies, she says. They're also looking to sell assets to help raise cash. As it stands, the company has the funds to continue operation through the end of the year, she says.

Selling Assets?

One asset the company may be shopping around is its Excite.com portal, says Cahners' Paxton. When @Home acquired the portal in January 1999 it looked like a savvy move. In hindsight, the deal--an all-stock transaction then valued at approximately $6.7 billion--may have been the beginning of its downfall, he says. While the integration of the two companies seemed to go well, the combined company's reliance on advertising has been very damaging over time, he says.

"They've been bleeding money every quarter, and their investment isn't paying off," Paxton says of the portal.

The cable-access portion of the company might become profitable if it split off the portal, he says. Even under that scenario, however, there aren't any guarantees.

New Rivals

Excite@Home has enjoyed the advantage of often being the only option in some markets for companies that want to resell high-speed cable Internet access. Consequently, Excite signed exclusivity deals with many cable companies.

But more competition is emerging, just as those deals are running out, Paxton says. While other companies are beginning to offer services similar to Excite@Home, it's an expensive investment.

While Excite@Home's Xavier remains confident the company will survive its current problems, and can compete with others down the road, she's willing to address customer concerns.

"Under any scenario we foresee providing uninterrupted service," she says. "We don't anticipate any major interruptions, regardless of what happens."