Excite@Home has MSOs scrambling

Cable operators might have to scramble to find new ISPs if last week's warning from Excite@Home — caretaker of half the cable broadband connections in the U.S. — that it might go dark becomes reality.

“If you're smart [as a cable operator], you're preparing right now,” said Michael Goodman, senior analyst for The Yankee Group. “You don't want to wake up one morning and find that Excite@Home has pulled the plug.”

In @Home's latest SEC filing, independent auditor Ernst & Young expressed doubt about the ISP's viability as a “going concern.” While the company previously indicated it only has enough cash to get to the end of the year, @Home now also faces the possibility of a delisting by Nasdaq that will give bondholders the right to try to cash in early — demanding money the company doesn't have.

Market share of residential broadband ISPs* Excite@Home has the lions' share  of the market for all residential broadband
EarthLink (DSL)	4%
RBOCs (DSL)	19%
RoadRunner (cable)	22%
Cablevision (cable)	4%
Excite@Home (cable)	27%
Other ISPs	24%
* Data current as of first quarter 2001 Source: The Yankee Group

More than a dozen cable operators rely on @Home to some degree, but the most exposed are AT&T Broadband, Comcast and Cox Communications, all of which use @Home as their exclusive ISP and own major stakes in the company. Those operators, however, are loathe to discuss the possibility that @Home could go dark.

“We remain committed to Excite@Home as an integral part of our product,” said a spokeswoman for Cox. “With regards to Plan B, we're just not talking about that now.”

Her counterpart at AT&T Broadband echoed the sentiment.

“It's all speculative right now,” the AT&T spokeswoman said. “We can't tell what our contingencies are.”

Charter Communications, which connects 22% of its residential broadband base with @Home, believes it can transition its @Home customers either to its own proprietary ISP — Charter Pipeline — or to one of its partners if @Home collapses.

Charter has wholesale agreements with EarthLink and High Speed Access, with which it is conducting tests. However, the bulk of its customers are on Charter Pipeline. Charter doesn't have Pipeline infrastructure deployed in its @Home markets, meaning it would face the same logistical problems as another ISP to upgrade its data networks. For this reason, Charter acknowledges that the transition would take time, and customers might find their connections failing if @Home's networks suddenly go dark.

“We think we would have the adequate time to transfer our data customers to another service, but it obviously wouldn't happen overnight,” a Charter spokesman said.

Indeed, because cable franchises are exclusive, footprints don't overlap. Thus, while Charter may be able to extend Pipeline to encompass its own footprint, it's doubtful it will expand beyond it to aid other cable providers. AOL Time Warner's RoadRunner, which has been named as a possible savior if @Home fails likely wouldn't extend its network either.

As a result, MSO's best option may be turning to a group it has battled with for some time — independent ISPs such as EarthLink, MSN or Juno-NetZero.

EarthLink is the most aggressive of the group, playing in the DSL, satellite and now the cable arenas. EarthLink said it already has the 346,000 broadband customers on satellite and DSL, giving it 4% of the residential broadband market, according to The Yankee Group. By the end of the year, EarthLink plans to be in 20 cable markets, offering either wholesale or its own branded services.

Getting set up in those markets isn't a problem, said Tom Tracey, director of EarthLink's cable services. EarthLink needs only to install a router at the head end and provision capacity to link it to its regional data centers — something it is ready to do in numerous markets, Tracey said. The problem is negotiating the agreements with the cable operators and establishing the customer management structure.

“Technically this is no big deal,” he said. “Operationally, it's a big deal.”