Broadband Cable Customers Face Cutoff

SAN FRANCISCO -- Although a federal bankruptcy judge has ruled that bankrupt broadband service provider Excite@Home can cease service as soon as midnight Friday, as leverage to close financing deals, it's not clear that its 4 million customers--including those of its network partners--will be bounced offline.

Creditors had requested the freedom to shut down the network as leverage in ongoing negotiations for either a buyout or more favorable contract terms with cable partners of Excite@Home. Cable partners that have contracts with Excite@Home are immediately appealing through the court for continued subscriber service, while continuing to negotiate with Excite@Home.

Judge Thomas E. Carlson did not grant a temporary stay of the shutdown permission order pending the cable partners' appeal. Rather, he ruled that Excite@Home could cease service. Although he acknowledged a shutdown would inconvenience consumers, Judge Carlson said no danger is present that would justify forcing the company to keep operating. "It does not pose a significant health and safety risk," Carlson said.

So in the meantime, customers of 21 cable companies, including Charter, Cox Communications, Comcast, and AT&T, which rely on Excite@Home to provide broadband Internet access as well as services like network management, face discontinuation of their services at almost any time after Friday. AT&T Broadband, Comcast, Cox, and Insight Communications make up over 95 percent of Excite@Home customers, notes Mike Paxton, a senior analyst with Cahners In-Stat, who said he's "confident they'll maintain service."

"Are they going dark over the weekend? The odds are two-to-one no," Paxton added. "It's in their best interest that they stay up and running."

Excite had no official comment immediately after the bankruptcy court's decision. The company would not say whether it would unplug its broadband customers, but urged customers of its cable partners to contact their providers for information about ongoing @Home network services.

Mixed Messages

Outages could affect AT&T Broadband customers for anywhere from several days to a month, said Sarah Eder, an AT&T Broadband spokesperson.

"We have a contingency network in the event Excite@Home's service is interrupted," Eder said. AT&T Broadband can service an estimated 700,000 of its 1.4 million broadband customers who rely on Excite@Home for service, she said. Primarily affected would be former TCI cable customers. Former MediaOne and Roadrunner customers would not be affected by a service outage, Eder said.

"AT&T is a networking company. Connecting people is what we do," she said, stressing that she could not estimate how long service might be interrupted for any one particular customer. However, she noted, "if it took less than a month we'd be happy.... We're talking hundreds of thousands of customers here."

Comcast is tight-lipped as to its immediate plans. Over 90 percent of its 792,000 high-speed customers are routed to the Internet using Excite@Home, according to Tim Fitzpatrick, a Comcast spokesperson. Comcast has also announced intentions to build its own network. It is also in partnership trials with Juno and Earthlink, which would sell and provide broadband services over Comcast's network.

Comcast had warned customers of the potential for a service outage if Excite@Home is permitted to break its contract. Spokesperson Jenni Moyer could offer only vague assurances that the company would do everything it can to maintain connectivity. She would not say what percentage of Comcast's customers could be moved to a new service if Excite@Home goes dark.

Insight Communications in New York sent e-mail to its customers earlier this week saying it does not believe the system will go down on Friday.

"We are working on a number of fronts to prevent this from happening, including direct motions in the Court," said Kim D. Kelly, executive vice president and chief operating officer, in a message that is also posted on the company's Web site. Insight is also exploring options with other ISPs to ensure continued service for its customers, Kelly said.

Under Construction

Another major ISP that relies on Excite@Home services, Cox, has "various contingency plans in place," according to Susan Leepson, a Cox spokesperson. "The effectiveness is driven by timing," she added.

Cox has been planning to switch to its own equipment since the beginning of the year and has invested more than $100 million in building the service. The network is 75 percent complete, and partially operational now, she said.

However, Cox's 75 percent finished network doesn't necessarily translate to it being able to serve 75 percent of its Internet customers with the new network. Given 30 to 60 days of notice, the majority could be moved over to Cox's own service, Leepson said. But she cannot guarantee everyone that they will be moved over in that time frame.

Cox is speeding up the process of weaning its customers off the Excite@Home service, Leepson said. About 550,000 of the total 779,000 Cox customers are served by Excite@Home. Cox wanted to cut free of its service partnership with Excite@Home by June 2002, but those plans are accelerated by Excite@Home's rapidly deteriorating financial situation, she added. All of Cox's Excite@Home customers will be moved over to the new service in the next three months, according to Leepson.

"We are looking to have more control over our network and be able to assure quality and reliability," Leepson added.

Bidding Wars

Excite@Home filed for bankruptcy protection in September, and shortly after that AT&T made its $307 million purchase bid. But Excite@Home's creditors believe the $307 million offer is too low. AT&T holds a 38 percent ownership stake in Excite@Home and controls 79 percent of the company's voting interest. The bid cannot go forward until the bankruptcy court approves it. A separate approval hearing is scheduled for next week.

Creditors wanted the freedom to get out of contracts with the cable companies that have deals with Excite@Home, contending those are not in their best business interest. Attorneys for the cable companies challenged the argument that the deals were not at market rate, but Judge Carlson said the creditors had only to assert that the contracts weren't in their best interest.

Excite@Home creditors' efforts to shut down the service are regarded as a tactic designed to draw a better bid from companies interested in buying Excite@Home or to improve on the price paid for existing services by customers.

Negotiations between the cable companies and Excite@Home continued through the night Thursday without success, a cable attorney said in court Friday morning. Excite@Home's creditors have maintained in U.S. Securities and Exchange Commission filings that the cable companies won't negotiate earnestly unless they face an impending threat of losing service.

At the outset of Friday's hearing, a Comcast attorney said Comcast and Cox had a new proposal that is better than AT&T's offer, and asked the judge to postpone the session so details could be worked out. Judge Carlson rejected the request. An attorney for the bondholders later said the offer was rejected.

"It's clearly inadequate at this point," said William Weintraub of Pachulski, Stang, Ziehl, Young & Jones, in San Francisco. He declined to discuss details of the deal because it is not public.

The bondholders would like to see full payment to parties with claims against Excite@Home, which come to approximately $1 billion, Weintraub added.

Cable companies have been concerned about Excite@Home's future for most of this year, and those concerns were compounded as the Internet service provider's online advertising revenue deteriorated with the economy. The larger cable companies that have contracts with Excite@Home have started building out their own Internet service infrastructures. It is unlikely that they can move all of their subscribers over to alternative services if Excite@Home shuts down soon.