Does Fast Internet Need a Push? High-Speed Access Seen as Economic Catalyst

By Jonathan Krim Washington Post Staff Writer Tuesday, January 15, 2002; Page A01

At a recent Washington dinner, four high-tech heavyweights compared notes about their home computer systems.

One is a top technologist at the Federal Communications Commission. One lobbies for high-speed Internet access on behalf of a Silicon Valley trade group. One is a senior legal adviser to the FCC, and one is a senior Commerce Department official for tech policy.

Yet only one of them has high-speed Internet access at home.

This drives Bruce Mehlman nuts. Mehlman, assistant secretary of commerce for technology policy, tells the story to illustrate the challenge of convincing Americans that broadband is the next big thing. (Mehlman has cable-modem service and a wireless network in his house.) If these people don’t want or need it, who will?

High-speed Internet access, otherwise known as broadband, has long been touted to consumers as an always-connected nirvana, eliminating the hassle of dial-up modems and allowing users to take full advantage of the Internet — downloading movies, perhaps even attending college classes remotely.

Now, broadband is a new battle cry in Washington, as the country struggles with the post-Internet-bubble, post-Sept. 11 recession.

More broadband is an economic priority for the Bush administration, said Mehlman, a former policy strategist for the networking company Cisco Systems Inc. Late last year, FCC Chairman Michael K. Powell began an intensive review of all regulations that affect broadband deployment. And just last week, Senate Majority Leader Thomas A. Daschle (D-S.D.) called for universal broadband access as one of his party’s recommendations for economic revival.

Today, the technology industry plans to launch a major lobbying effort to get the federal government to set national targets for broadband rollout and adoption. Often competitors in the marketplace, tech companies are united in their view that broadband could be a catalyst not just for recovery of their own battered sector but also for the next economic boom.

But whether, and how, the government should push broadband along will be fiercely debated. The broadband highway is littered with special interests and strewn with potholes. Like Mehlman’s dinner companions, most Americans so far are staying off the road.

To date, roughly 80 percent of the country’s homes have broadband service available to them — via cable lines, satellite or souped-up telephone lines (known as digital subscriber lines, or DSL). Yet only about 10 percent, or 10 million homes, have signed up.

The number of subscribers has risen steadily since broadband became widely available five years ago, but the rate of growth slowed last year. In the first quarter of 2001, the number of subscribers increased 27 percent from the previous quarter. It increased 17 percent in the second quarter and 13 percent in the third, according to Jupiter Media Metrix Inc.

In a recent test in LaGrange, Ga., 13,000 of the town’s homes were offered broadband, free of charge, for a year. Only half the town wanted it.

For those who decide they want broadband, it can take weeks for service to begin once it has been ordered. Self-installation kits can lead to hours of tech-support calls. Recently, hundreds of thousands of broadband subscribers were temporarily cut off from their cable-modem service after Internet access provider At Home Corp. declared bankruptcy.

“I’m really irritated with the whole thing,” said Angelene Hernandez, a licensed massage therapist in Phoenix who is a Cox Communications Inc. customer. Hernandez said that although her high-speed connection is helpful for linking with the college where she is taking classes, the months-long service problems she has encountered are beginning to outweigh the convenience.

Even without such problems, the general price tag for broadband, $40 to $50 a month, has kept away many consumers. Increasing numbers already have it at work and don’t see the need for another connection. For others, broadband has yet to deliver anything exciting beyond always-on connections and faster surfing and downloading speeds.

“There’s no broadband content yet that is especially compelling,” said Jeff Eisenach, president of the Progress & Freedom Foundation, a conservative think tank that supports widespread rollout of the technology.

One major obstacle is that current broadband technology is not fast enough to enable the kinds of whiz-bang, video-intensive applications that will help drive consumer use.

At current broadband speeds “it would take longer to download a movie than to go to a video store and rent it,” Rick Lane, vice president of government affairs for entertainment and media giant News Corp., said at a recent broadband summit.

Even if the speed were there, the major studios are not making their video entertainment available online until they are certain it cannot be pirated.

One of the biggest early drivers of broadband adoption was Napster Inc., the Internet service company that enabled users to download and swap music files. But the service was all but shut down by the recording industry, which won injunctions against what it claimed was theft of copyrighted works.

Some believe that unless copyright restrictions are adapted to enable individual file sharing, broadband adoption will be stunted.

Still, no one argues broadband’s potential. Large companies have benefited for years from networked high-speed access. Now, residential-level broadband service is essential to many small and home-based businesses, which rely on the Internet for conducting commerce.

Mehlman and other broadband evangelists argue that the current sign-up rate is not out of line with consumer adoption of new technologies in the past, including telephones and televisions.

For individuals, the benefits range far beyond entertainment, proponents say. Were broadband ubiquitous, startling advances would be possible in such areas as education and medical care via videoconferencing. Government services could be transformed, and telecommuting would become commonplace, saving energy, cutting road-maintenance costs and reducing pollution.

Michigan, for example, just created a virtual state court, where lawyers can file briefs online and put in their court appearances by teleconference.

For the technology industry, still clawing its way back from the depths of its implosion, broadband offers the best hope for a return to the days of robust growth. Higher-speed connections drive a continuing need for more powerful computers with faster chips, new forms of networking equipment and expanded software applications, generating sales throughout the technology food chain.

“You have to have broadband for the economy to really take the next big bite,” said Matthew Flanigan, president of the Telecommunications Industry Association, which represents equipment manufacturers. “It will create hundreds of thousands of jobs.”

In a study published last summer, Brookings Institution economist Robert Crandall estimated that if broadband use were universal, it could be worth as much as $300 billion a year to the U.S. economy.

Such projections have been widely touted by local phone companies such as Verizon Communications Inc., which paid for the study, to bolster their arguments that government should do everything in its power to promote broadband rollout.

But there is hardly consensus on the best way to increase rollout of high-speed connections, reduce prices and spur broadband demand.

Several bills in Congress offer various stimulative prescriptions, from investment tax credits to deregulation, that proponents claim will spur faster broadband deployment. Many of these have languished, however, polarized by what one lobbyist calls the “telecom food fights” between telephone and cable companies that are jockeying for maximum advantage in selling broadband service.

The phone companies continue to push legislation, sponsored by Reps. W.J. “Billy” Tauzin (R-La.) and John D. Dingell (D-Mich.), that would remove a number of regulations that govern how much the companies must open their lines for use by competitors. The bill also would allow the companies to enter the market for carrying long-distance data without opening their local markets to competition, as is currently required.

The phone companies argue that these restrictions dampen their incentive to invest in rolling out more broadband service.

Long-distance and cable companies such as AT&T Corp. strenuously object, as do competitors, who say that the regional phone giants are dragging their feet in sharing their lines with competitors.

Today, TechNet, a potent network of 300 senior executives from large and small technology firms, venture capitalists and investment bankers, plans to call on Washington to drop those battles. Instead, the group, whose members include Cisco, International Business Machines Corp., Microsoft Corp. and Intel Corp., will call not only for national targets for broadband adoption but also for commitment to an “advanced broadband” that is at least 100 times as fast as what exists today.

The group will not seek tax incentives for industry, nor will it seek legislation that benefits a particular technology.

“No one knows what the technological solution is going to be” to increase broadband speed, said Rick White, a former congressman who is the president and chief executive of TechNet. But the group will urge legislation to clear a path for higher-speed lines to be built, by overriding certain state and local land-use restrictions.

“What we’re seeing right now are interim technologies . . . makeshift adaptations,” White said. “We need to leap over that and set very ambitious goals by the end of the decade.”

Next week, the Computer Systems Policy Project, a smaller group of computer and chip manufacturing companies headed by Michael S. Dell, founder of Dell Computer Corp., plans to make a similar pitch and meet with congressional and administration officials.

Others argue that the way to ensure more broadband is for government to guarantee competition.

“Monopolists have been allowed to control the pace of rollout,” said Mark Cooper, research director of the Consumer Federation of America. Cooper said that subsidizing a small group of telecommunications giants, through tax credits or anti-competitive deregulation, is “the Soviet model for growth.”

Instead, he said, the government should focus on reducing prices and increasing choice, particularly when there is so much more broadband available than there are people who are signing up for it.

“The capitalist model is to squeeze out all the demand first,” Cooper said. That way, “the companies minimize their risk and maximize their return on their existing set of assets.”

Staff writer Christopher Stern contributed to this report.

© 2002 The Washington Post Company

-Ian.

——— http://dailynews.yahoo.com/h/ap/20010928/tc/exciteathome_bankruptcy_4.html

Friday September 28 8:32 PM ET

ExciteAtHome to Sell Assets to AT&T

By MATTHEW FORDAHL, AP Technology Writer

SAN JOSE, Calif. (AP) – ExciteAtHome, the leading provider of high-speed Internet access over cable television lines, said Friday it will sell its broadband business to AT&T Corp. for $307 million in cash and filed for bankruptcy protection.

Under the agreement, the once high-flying company’s network would become a part of AT&T, which already has a controlling interest in ExciteAtHome. The deal is subject to a bankruptcy judge’s approval.

The bankruptcy papers, filed late Friday in San Francisco, will not result in any service disruptions to ExciteAtHome’s 3.7 million subscribers, the companies said.

“This filing is a tool to protect the value of the broadband business for the benefit of the company’s financial stakeholders and will help reassure our customers that service will continue uninterrupted through the restructuring process,” said Patti Hart, ExciteAtHome’s chief executive.

The directors of both AT&T and ExciteAtHome approved the asset-purchase agreement. The deal, however, could be canceled if higher and better offers are received.

In a statement, AT&T said it plans to build on the assets it acquires to develop a more robust network. AT&T spokeswoman Eileen Connolly declined to comment on how the deal might relate to any possible sale of its broadband unit. In July, AT&T’s board rejected cable TV provider Comcast Corp.’s unsolicited $40 billion stock swap offer for AT&T Broadband. On Friday, Comcast announced it had signed a confidentiality agreement rekindling talks.

ExciteAtHome’s bankruptcy filing is the latest development in the spectacular rise and fall of Redwood City, Calif.-based company.

At the height of the Internet boom in 1999, At Home Corp. merged with the portal Excite Inc. in a $6.7 billion merger. Executives at the time believed the company would someday rival America Online.

But the bubble burst and advertising revenue dwindled.

After losing $7.4 billion in fiscal 2000, ExciteAtHome said in April it needed to raise $75 million to $80 million to make it through 2001. The company restructured its fiber-optic network lease deal with AT&T and sold $100 million in notes.

Even so, ExciteAtHome said in July it needed more cash to stay in business in 2002.

The company also cut back its work force. The latest round came Tuesday, when it reduced its ranks by 27 percent, or 500 jobs as it shuttered its MatchLogic division and discontinued less popular services on the Excite portal.

Shares of ExciteAtHome closed up 2 cents, to 15 cents, in Friday trading on the Nasdaq Stock Market. It lost 3 cents in after-hours trading. It traded around $100 in April 1999. Shares of AT&T closed up 60 cents to $19.30 in Friday trading on the New York Stock Exchange (news – web sites).

AT&T became the controlling shareholder of ExciteAtHome with its purchase of the cable giant Tele-Communications Inc. in 1999. TCI, along with Comcast and Cox, was an early participant in the At Home network.

It’s not the first time that AT&T has purchased the assets of a high-speed Internet provider during bankruptcy proceedings. Earlier this year, it paid $135 million for the assets but not the customers of NorthPoint Communications, which provided high-speed access over telephone lines.

AT&T doesn’t HAVE any more money to plunk into E@H, and since they’re in the process of saying Bye-bye to the Cable unit, there’s some question as to why they NEED @Home anymore.

The company’s too expensive to buy (plus the losses are SCARY), the individual service elements are each (at best) 2nd or 3rd place in the market, and they don’t have a single market leader among the whole lot.

Not good.

-Ian.

——— http://dailynews.yahoo.com/h/ap/20010820/tc/exciteathome_outlook_3.html

Monday August 20 6:03 PM ET

Auditors Doubt ExciteAtHome Survival

By BRIAN BERGSTEIN, AP Business Writer

SAN JOSE, Calif. (AP) – High-speed Internet access provider ExciteAtHome, formed in one of the biggest mergers of the dot-com heyday, could be on the verge of joining the growing list of high-tech flameouts.

The Redwood City-based company updated its annual report to the Securities and Exchange Commission (news – web sites) on Monday to add a note from its auditors expressing “substantial doubt about the company’s ability to continue as a going concern.”

The report sent ExciteAtHome shares down 40 cents, or 46 percent, to 47 cents in trading on the Nasdaq Stock Market.

ExciteAtHome, which lost $7.44 billion in 2000 and $346.3 million in the most recent quarter, already had said it needed substantial funding to stay alive into next year. The company is controlled by AT&T Corp., which owns 23 percent of ExciteAtHome stock but has a 74 percent voting stake.

In June, ExciteAtHome helped avert a major cash crisis by selling $100 million worth of notes that can be converted into company stock.

That deal required ExciteAtHome shares to stay listed on a major stock exchange. However, ExciteAtHome has fallen below the Nasdaq Stock Market’s minimum requirements for net assets, stockholders’ equity and share price.

If the stock were to be delisted, ExciteAtHome would be forced to speed up its repayment of the notes, auditors Ernst & Young pointed out in the refiled annual report.

ExciteAtHome spokeswoman Alison Bowman said the company has not yet gotten a delisting notice from the Nasdaq.

ExciteAtHome said its stockholders have approved a reverse stock split that would increase its trading price above $3, the minimum for a company that does not meet Nasdaq’s minimum requirements for assets and shareholder equity. But there are no assurances the price would remain above $3.

To conserve cash, ExciteAtHome is cutting 200 jobs this month, plus another 90 at its MatchLogic subsidiary, an online marketing company. That follows at least 630 layoffs at ExciteAtHome earlier this year, and the SEC report said even more jobs could be cut in the current quarter. The company has 2,200 employees.

ExciteAtHome was born in 1999 out of the $6.7 billion merger of At Home Corp., a leading provider of fast Web access over cable TV lines, and Internet portal Excite Inc. – which just happened to be headquartered across the street from each other in Redwood City.

By linking Internet access and Internet content, the deal was supposed to make the company a strong competitor to America Online, now part of AOL Time Warner Inc.

But while the company’s cable-modem subscriber base has risen from 330,000 at the time of the merger to 3.7 million now, the network has required costly investments.

In June, cable TV providers Comcast Corp. and Cox Communications Inc. decided to end their deals to offer Internet access exclusively through ExciteAtHome.

And the Excite portal has suffered severely from the plunge in Internet advertising, a market not expected to recover this year.

ExciteAtHome executives have said since April they were looking for someone to buy its media properties, which in addition to Excite include the Blue Mountain greeting cards site and Webshots, a site devoted to online photos.