Excite@Home Goes Bankrupt: Is Cable Internet in Trouble?

The other shoe just dropped.

Excite@Home, the company that provides cable internet service to roughly 4 million subscribers across the United States, filed for Chapter 11 bankruptcy protection on September 28, 2001. The filing caps a spectacular two-year decline from a company once valued at $35 billion to one that can't pay its bills.

If you get your high-speed internet through Comcast, Cox, or AT&T Broadband, your connection runs through Excite@Home's network. Which means this bankruptcy is very much your problem.

How We Got Here

The story of Excite@Home is a cautionary tale about dot-com ambition colliding with economic reality.

@Home Network launched in 1996 with a simple, good idea: partner with cable TV operators to deliver high-speed internet over their coaxial networks. @Home would build and operate the backbone network and the portal; cable companies would handle the last-mile connection to subscribers. Everyone would share the revenue.

The model worked. By 1999, @Home had millions of subscribers and was growing fast. Then the company made a fateful decision: it merged with Excite, the struggling web portal, for $6.7 billion. The theory was that combining @Home's broadband pipe with Excite's content would create a juggernaut. Instead, it created a cash incinerator.

Excite was losing money hand over fist on its portal business. @Home's broadband operations were growing but not yet profitable. Bolted together, the combined company burned through over $1 billion in 2000 alone. When the dot-com crash dried up the capital markets, there was nowhere to turn for more funding.

AT&T, which had acquired a controlling stake in @Home through its purchase of TCI's cable systems, tried to negotiate a restructuring. Those talks collapsed. The bankruptcy filing became inevitable.

What Happens to the 4 Million Subscribers?

This is the question keeping cable internet subscribers up at night. The short answer: your service probably won't be interrupted, but the transition is going to be messy.

Here's what each major cable operator is doing:

AT&T Broadband (the largest cable operator in the U.S., thanks to AT&T's acquisitions of TCI and MediaOne) has been building its own broadband network infrastructure for months in anticipation of exactly this scenario. AT&T plans to migrate its @Home subscribers to its own network by early 2002. During the transition, service should continue, though don't be surprised by some hiccups.

Comcast, the third-largest cable operator, is in a similar position. Comcast has been quietly deploying its own broadband infrastructure and will transition subscribers off the @Home network. The timeline is less clear than AT&T's, but Comcast has been vocal about ensuring no disruption to customers.

Cox Communications has its own broadband platform already partially deployed and is accelerating the migration. Cox subscribers may actually see improvements as the company takes full control of its internet service.

Cablevision and other smaller @Home partners are in various stages of preparation. Some are further along than others.

The bottom line: if you're an @Home subscriber, your cable company is working on a replacement. Your email address will change (goodbye, @home.com), and there may be a brief disruption, but cable internet service itself will continue. The cable operators need broadband to compete with DSL providers — they're not going to let this bankruptcy kill their competitive position.

Is Cable Internet Itself in Trouble?

No. And this is an important distinction.

Excite@Home was a middleman. It operated the network backbone and the portal, sitting between the cable operators and their subscribers. The cable operators own the actual physical networks — the coaxial cables, the headends, the infrastructure that connects to your home. That infrastructure isn't going anywhere.

What the Excite@Home bankruptcy does is eliminate the middleman layer. Going forward, each major cable operator will run its own broadband service from end to end. Comcast will be Comcast Internet. Cox will be Cox High-Speed Internet. AT&T Broadband will be whatever AT&T Broadband calls its service.

This is arguably a better model. The cable operators know their networks, know their customers, and can invest in upgrades without negotiating with a third party. The Excite portal was dead weight that nobody used anyway — subscribers just wanted the fast pipe.

The Bigger Picture

The Excite@Home bankruptcy is the biggest casualty of the dot-com bust in the broadband space, but it fits a pattern we've been tracking for over a year. NorthPoint, Rhythms NetConnections, Winstar — the list of failed broadband middlemen keeps growing.

The survivors are the companies that own physical infrastructure: the Baby Bells (now consolidating into SBC, Verizon, BellSouth, and Qwest) on the telco side, and the major cable operators (AT&T Broadband, Comcast, Cox, Charter, Adelphia) on the cable side.

This consolidation isn't great for competition. Fewer players means less price pressure and fewer choices for consumers. But it does mean the remaining companies are financially stable enough to keep building out broadband infrastructure through the current recession.

What You Should Do

If you're currently an @Home subscriber:

1. Don't cancel in a panic. Your cable company is preparing a migration plan. Canceling now just leaves you without broadband during the transition.
2. Back up your email. If you use an @home.com email address, download everything important. That address will eventually stop working. Set up a free Hotmail or Yahoo Mail account as a backup.
3. Watch for communications from your cable company. Comcast, Cox, and AT&T Broadband will all be sending information to affected subscribers about the migration timeline and what you need to do.
4. Check your bill. Make sure you're not being double-charged during any transition period.

Cable internet is very much alive. Excite@Home is dead. The two things are related but not the same. Your fast connection is going to survive this — it just might have a different name on the bill next year.