Excite@Home topples

Excite@Home and AT&T Broadband last week engaged in a dangerous game of “chicken” last week, putting @Home’s future and 850,000 AT&T cable modem connections on the line. @Home blinked first.

After seven days of chaos, AT&T transferred the vast majority of its cable Internet subscribers from the @Home network onto a redundant optical network Ma Bell had been building secretly for the last six months. By Tuesday, AT&T had declared its independence, nullifying all ties with its former broadband darling and yanking its $307 million bid for @Home’s network assets. @Home was left trying to squeeze its remaining cable partners for more cash but eventually announced it will fold completely Feb. 28.

“We put in that bid as the one way to ensure our customers wouldn’t lose their service,” an AT&T spokeswoman said.

By shutting AT&T’s network, @Home created the one scenario AT&T wanted to avoid, the spokeswoman said, destroying any chance of the clean transition AT&T was hoping to oversee.

Analysts were flabbergasted by the whole ordeal, questioning how @Home did not know that AT&T’s network was ready to take over the @Home load. Bankruptcy lawyer Bill Rochelle said the company did know. @Home’s bondholders, who forced the issue in bankruptcy court, simply had nothing left to lose, so they gambled big on the chance AT&T didn’t want the hassle of a complete network blackout and ensuing public-relations disaster, said Rochelle, an attorney for the firm of Fulbright Jaworski in New York.

“It’s the old notion of going for all or nothing,” Rochelle said. “Guess what, they got nothing.”

But @Home’s tactics worked with its other cable partners. Last month, a federal bankruptcy court judge ruled that @Home could cancel its service contracts, giving the bankrupt company a precious bargaining chip.

Returning to the negotiations table, @Home told carrier customers to ante more money or see their networks go dark. AT&T and Charter Communications--which transferred more than 130,000 subscribers to its Pipeline service last week--didn’t budge, but Cox Communications, Comcast, Rogers Cable and a handful of smaller MSOs collectively agreed to pay $355 million to continue service for three more months.

“These guys were playing with really hardball tactics,” said Cynthia Brumfield, president and principal analyst of Broadband Intelligence. “Cox and Comcast ended up paying a pretty penny, about $60 a subscriber a month--that’s $18 more a month per sub than revenue--just to keep their customers’ connections on.”

But the ploy didn’t work for bondholders without the cooperation of AT&T. While @Home’s bondholders claim they came out on top, the math doesn’t support their claim. The service contracts give @Home an additional $48 million over what @Home would have collected from AT&T’s bid, but @Home must still run its other cable partners networks for until Feb. 28, meaning a good deal of the contract proceeds will be used to pay operating costs. In addition, AT&T’s bid had proposed to take on a portion of @Home’s network debt, which now remains on the company’s balance sheet.

“If they had sold the damn thing right now, they wouldn’t have the operational expenses,” Rochelle said. “In the end, @Home will net a loss.”

Though @Home officially announced it will fold at the end of February, a few minor skirmishes may appear. According to industry experts, the remaining cable operators are in different states of preparedness for the eventually transition to their own networks. While they all likely will be ready by Feb. 28, @Home precarious financial situation and proclivity for canceling contracts might force them to hasten their efforts.

Tim Spencer, chief technology officer for cable provisioning company Sigma Systems, said most MSOs have been building out their networks for the last year, counting on a six-month transition period from @Home’s networks to their own.

The structuring of the contracts the major carriers signed with @Home reflects that plan. When exclusivity clauses ended in December, the operators would have begun moving customers market-by-market to the new networks, finishing in June when their contracts with @Home expired.

“They had all hoped to transition at a more sane pace than what is happening now,” Spencer said.

With @Home’s demise, the operators have all instituted emergency plans designed to transition their customers over in a manner of weeks if a scenario similar to one faced by AT&T’s occurs, Spencer said.