AT&T Corp. moved Wednesday to eliminate a raft of uncertainties surrounding the future of Excite@Home Inc. and to accelerate the roll-out of the high-speed Internet service.
Under an agreement hammered out by owners AT&T, Comcast Corp. and Cox Communications Inc., Excite@Home is to become a publicly traded subsidiary of AT&T, streamlining a cumbersome ownership structure that has hamstrung the operation. The deal ends months of haggling among the partners.
More important, it helps the owners accelerate Excite@Home's drive to market at a time of intensive competition with the phone companies, which are deploying their own speedy access called digital subscriber lines.
Ownership questions and the difficult political issue commonly referred to as "open access" had radically reduced the stock value of the service over the last year.
"The simplified decision-making will allow us to move more quickly," said George Bell, president of Excite@Home, the leading high-speed Internet access service, with 1.1 million of the 2 million customers in North America. The phone companies have roughly 250,000 high-speed customers.
Under the complicated deal, Comcast and Cox, which each hold stakes of about 8% in Excite@Home, have agreed to relinquish their board seats as well as the veto powers they have enjoyed. Although AT&T now controls Excite@Home, the blocking rights have undermined its authority.
The three partners also agreed Wednesday to extend the contracts, due to expire in 2001, under which they distribute Excite@Home to their cable customers on an exclusive basis. Through these and other contracts, Excite@Home has enjoyed the widest reach of any high-speed service: to 72 million homes in North America. Roadrunner, a similar service owned by cable rivals Time Warner and MediaOne Group, reaches only 20 million homes.
Under the pact, AT&T agreed to extend the term to 2008, while Comcast and Cox have agreed to stay on as partners until 2006.
In exchange for giving up management rights and for extending their distribution agreements, Cox and Comcast will be able to cash in their shares in Excite@Home for at least $48 beginning in January 2001.
That is a handsome premium over the current market price and would cost AT&T about $2.88 billion. Shares of Excite@Home rallied in reaction to the news, climbing $3.38 to close at $37.69 on Nasdaq. Shares have been drifting up gradually from a 52-week low this month of $26.75. They had a 52-week high of $99.
Yet some analysts said the agreement does not markedly brighten the future for Excite@Home, in part because it allows the partners to break their exclusivity agreements with the service in June 2001.
Many analysts expect all three partners to break those deals in their rush to sign up new high-speed Internet customers. Many believe cable operators would benefit from linking up with established dial-up Internet service providers such as America Online and Mindspring, which could leverage their existing customer loyalties.
"At the end of the day, it's about deploying cable modems," said Michael Harris, of Phoenix-based Kinetic Strategies.
While AT&T acquired its controlling stake in the high-speed service for more than $5 billion as part of its purchase last year of Tele-Communications Inc., its commitment to Excite@Home has wavered recently. Regulatory and grass-roots pressures on AT&T have mounted as a result of its pending purchase of MediaOne. With TCI, the $120-billion bet on cable will make AT&T the largest cable operator with access to nearly half of the nation's cable customers.
Fearing that cable's clout and superior Internet-access products could crush it, AOL has demanded that regulators require AT&T and other cable operators to open their high-speed networks to Internet service providers other than their own. The so-called open access movement, backed by several cities, directly challenged the exclusive contracts Excite@Home has with cable operators including AT&T, Cox and Comcast.
Excite@Home's value fell by half, creating tensions among the owners. Boardroom battles erupted as regulators pressured AT&T to withdraw from the content business, worried that the telecommunications giant would use its distribution clout to favor content it owns such as what is available through Excite.
AT&T proposed splitting Excite from @Home only months after the merger between the high-speed service and the search engine and content provider. Cox vetoed the plan, arguing that what was good for AT&T was not necessarily in the best interest of the other shareholders.
To appease regulators and other advocates of open access, AT&T agreed last year to lease space on its cable networks to other Internet service providers once its exclusive agreement with Excite@Home expires in June 2001. AT&T's concessions angered the cable operators. Cox and Comcast were particularly miffed as their equity values in Excite@Home sank because of the uncertainties of AT&T's commitment to the high-speed service.
The agreement Wednesday resolves most of those issues.
Excite@Home agreed to work with its cable partners to provide connectivity services to third-party Internet service providers.
AT&T agreed to purchase the 30 million Excite@Home shares that Comcast and Cox each own for a minimum of $48 per share between Jan. 1, 2001, and June 4, 2002.
The agreement gives Cox and Comcast additional warrants in Excite@Home should they continue the partnership beyond 2001.