Pittman, Jermoluk Spar With Confab Keynotes

8/22/1999 8:00 PM Eastern

New York -- The temperature rose ever so slightly in the
ongoing battle for open access to the cable-broadband pipe, as the leaders of two of the
main combatants in the controversial debate spoke at an industry conference here last

America Online Inc. president Bob Pittman and Excite@Home
chairman and CEO Thomas Jermoluk made dueling keynote speeches last week at Kagan Seminars
Inc.'s "Digital Household Summit II."  But while the potential for
sparks was high, both men avoided using their pulpits to sling mud.

The debate for open access has been heating up since June,
when a federal court in Portland, Ore., upheld a lower-court decision that would force
AT&T Broadband & Internet Services -- which owns a controlling stake in
Excite@Home -- to allow competitive Internet-service providers to lease cable capacity.

AT&T Broadband is appealing the court ruling, but other
communities, including Broward County, Fla., have joined the fray.

AOL has been one of the most outspoken proponents of open
access, and it is one of the leaders of the OpenNet Coalition, a group of ISPs that has
been lobbying hard to gain a foothold on the cable-broadband network.

AOL has also landed deals with several regional Bell
operating companies to offer its content on their high-speed,
asymmetrical-digital-subscriber-line services.

Pittman, whose keynote opened the conference last Tuesday,
shrugged off the controversy surrounding open access.

"All of us are trying to figure out how we get to
where we'll wind up," he said. "We all realize we're going to be doing
business together. I think we're trying to figure out on what terms, when and how.
I'm very optimistic that economics always win and that everybody always does the
right thing. It's hard to get from point A to point B sometimes, but I think smart
people always figure a way to work it out."

Instead, Pittman dismissed the threat of broadband, calling
it an add-on, rather than a replacement for dial-up Internet access

Pittman said that of the AOL subscribers who have access to
broadband services, only 22 percent opt to take the $9.95-per-month,
"bring-your-own-access" tier. The vast majority -- 78 percent -- buy a
full-blown narrowband and broadband service for $21.95 per month.

He added that he believes the main reasons why are that
customers don't want to change their online behavior and that broadband hasn't
come up with a compelling reason for them to stop using narrowband service altogether.

"People aren't tethered to one computer,"
Pittman said. "They want to be able to get online easily wherever they are."

Pittman likened the marketing of broadband service to an ill-fated telco offering of a few
years ago -- integrated services digital network. Although ISDN is being offered by telcos
across the country, it never lived up to expectations because it was too pricey and it
didn't provide functions that the typical residential user believed were worth the
high cost.

"Everybody is selling broadband the same way they sold
ISDN," he said. "It's complicated to install, it's designed as a
replacement and there are no clear mass-market benefits."

AOL's broadband plans are different in that the
company will add broadband content through a separate tier called "AOL Plus." In
addition, the company is beta-testing a "bandwidth sniffer" that automatically
determines what bandwidth the customer has and delivers the appropriate content.

Jermoluk, who spoke the next day, was a little more
forthcoming regarding the so-called open-access debate.

He said Excite@Home has already filed its
"friend-of-the-court" brief in the U.S. Ninth Circuit Court of Appeals in San
Francisco disputing the Portland ruling, adding that 24 Silicon Valley companies also
filed briefs in support of Excite@Home's position.

The Federal Communications Commission and AT&T Corp.
have also already filed briefs with the court.

"This has to be done at the federal level,"
Jermoluk said. "The FCC has far more experts on their staff, both technically and
businesswise, than Portland or Broward County."

He even brought up past Senate testimony by AOL chairman
Steve Case to bolster his point.

"Steve Case himself testified before the [U.S.] Senate
last year and said, 'Look, you can't leave the question of Internet legislation
to 30,000 different municipalities. This is something that has to be done on the federal
level.' Now he was talking about [Internet] taxation, but the point remains the

Jermoluk added that Excite@Home is living up to the tenets
of the Telecommunications Act of 1996 in that it is creating competition in the broadband

"The RBOCs are waking up," he said. "Do you
think you're getting ADSL because they want to do ADSL, or do you think you're
getting it because they're getting their butts kicked by cable modems? There
isn't a chance in the world that if cable-modem technology was not happening right
now, the RBOCs would be investing in ADSL. We feel 100 percent confident that the Portland
ruling will be overturned."

Jermoluk also downplayed recent reports that pitted
AT&T against Excite@Home regarding AT&T's desire not to be involved in the
content industry. Jermoluk said that although AT&T wants to stick strictly to
distribution, 20 of Excite@Home's 21 cable partners have at least some content play.

"Our company is set up for content," he said.
"The fact that AT&T is a network company doesn't conflict with us being a
content company."

Jermoluk added that although some of Excite@Home's
exclusivity agreements with cable operators expire at the end of 2002, they only represent
a small portion of its subscriber base.

He explained that some of the company's contracts with
cable operators end six years from the date they were signed -- including those with
AT&T Broadband, Cox Communications Inc. and Comcast Corp. -- so they technically will
end in 2002.

However, the bulk of its subscriber base is in systems
where the contracts expire three years after the high-speed-data service has been
launched, extending the dates to 2003, 2004 and 2005 with many systems.

"After that, we'll just negotiate new
contracts," Jermoluk added.

Excite@Home should be in a better position to negotiate --
barring any open-access mandate -- because its subscriber base is expected to balloon
during that period.

"By the time the contracts run out, we should have 10
[million], 15 [million], 20 million broadband Excite@Home [customers]," Jermoluk
said. "We'll have better economies of scale."

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