Going their separate ways

Excite@Home, chello dissolve partnership In the end, irreconcilable differences squelched Excite Chello, the estimated $5.1 billion international high-speed data merger that would have combined Excite@Home's Asian-Pacific and European media and broadband subscriber businesses with chello broadband, an international broadband operator run by Denver-based UnitedGlobalCom and its Dutch subsidiary UPC.

Merger talks died last week amid contradictory explanations.

"UPC and UGC indicated that they were no longer in a position to complete the Excite/chello transaction as planned as the result of market conditions," said Mark McEachen, Excite@Home's executive vice president and chief financial officer.

Not quite, responded a UGC spokesman. "It was a complex transaction, plus there were a number of business issues that the two sides weren't able to resolve," he said, blaming the dissolution on "business issues," not "market conditions."

McEachen agreed with that point: "We have become concerned that the complexity of the proposed venture... would be an impediment to its success and would risk slowing down our international expansion."

Domestic events are distracting that international focus. The Federal Trade Commission, mulling Time Warner/America Online's $164 billion merger, is considering open access for more than one ISP on a cable network. At the same time, the FCC will reply to comments on the matter on Dec. 12.

Both will impact Excite@Home.

The breakdown of the talks "signals that Excite@Home is having some difficulties and that it's really trying to rid itself of future burdens in the international market," said Keith Kennebeck, a cable analyst for The Strategis Group. Excite@Home "really wants to focus on its U.S. operations in light of its not-so-stellar forecast for future growth and in light of the open access movement," he said.

McEachen acknowledged that open access is on the company's radar screen. "There's a lot of noise in the marketplace around the issue of third-party ISP access to the cable networks," he said. "EarthLink's deal with Time Warner and the announcement of an open access trial by Comcast have created some froth."

Time Warner and EarthLink agreed to try open access to appease the FTC. That was not open enough for Microsoft, which reportedly filed objections with the FTC this week. A Microsoft spokeswoman confirmed the company's comments to the FTC but declined to reveal specifics.

Apparently, they were not a ringing endorsement of AOL getting its hands on Time Warner's broadband networks as part of the merger. "Microsoft obviously wants to get into this space, and AOL/Time Warner obviously wants to keep Microsoft out," Kennebeck said.

The Competitive Telecommunications Association took its case to the FCC. "We filed because we thought it made a difference," said H. Russell Frisby Jr., the organization's president. "We're committed to open access."

So is Excite@Home, executives insist. "Nobody wants to play catch-up here," said George Bell, chairman and CEO of Excite@Home. "We think that the open access environment is inevitable."

That attitude doesn't surprise Kennebeck. "A company like Excite@Home should have never thought that, in the long run, it was going to be the exclusive provider of Internet access to the cable home," he said.

Comcast Cable Communications announced it would trial open access with Juno Online Services, even to the point of restructuring its exclusive Excite@Home agreements.

"Our preference is to see the exclusivity run its course through mid-2002, in part because there are so many technical issues and business model issues to solve before non-exclusive access can get off the ground," McEachen said.

Nevertheless, he said, there are "significant opportunities in a non-exclusive world," including offering the service via competing technologies such as DSL.

The network could wholesale its infrastructure, Bell said. "From our point of view, there are going to be wholesale and retail opportunities. We are in discussion with several ISPs," he said. "They're going to need backbone, infrastructure, caching and so forth. We're the largest provider of that in the world today."

But technical questions still abound, he warned.

"We just don't know how many ISPs can be carried to maintain reasonable performance, both in our part of the world and the cable part of the world," he said, estimating it would take up to 18 months to get answers. "We are convinced... that there is a new interesting business model for us here. We just don't know how to scope it at this point."