Compaq, @Home Move Worries Stores

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High-speed Internet-access company @Home Network continues
to position itself as the first contact with shoppers in the coming retail cable modem
market, amid growing insistence by cable-modem vendors that a packaged strategy is better.

Meanwhile, the personal computer industry moved closer to
broadband last week. Compaq Computer Corp. said it will build three types of
high-speed-data modems into its line of PCs: digital subscriber line, satellite and cable.

In apparent lockstep with @Home's strategy, Compaq did not
specify which vendors' modems will be built into its PCs, instead announcing a plan to
include software from @Home as its broadband-cable move.

Ironically, Compaq, along with Microsoft Corp., is a key
investor in Road Runner, the high-speed-data service started by Time Warner Cable and
later merged with MediaOne Group's MediaOne Express service.

Compaq called its broadband moves a "triple-play"
Internet-access program, meaning that cable modems, DSL lines and modems used by
satellite-data services will be included, said Rod Schrock, senior vice president and
group general manager of Compaq's consumer-products group.

Schrock called the strategy "the latest proof of
Compaq's vision of enabling the networked digital home through high-speed access to the
Internet."

Schrock said the triple-play program has already
"attracted" Road Runner/MediaOne Express, @Home, Ameritech Corp., Bell Atlantic
Corp., BellSouth Corp., Hughes Network Systems/DirecPC, GTE Corp., SBC Communications
Inc., Sprint Corp. and UUNet.

The specifics of the @Home/Compaq arrangement weren't
disclosed, but @Home executives pointed to a joint marketing and promotional campaign as a
first step.

In exchange for Compaq bundling @Home's software with the
PCs that it sells, the high-speed service will pay a "bounty" to Compaq, said
Paul Salzinger, director of business development for @Home. He declined to discuss
details.

*Home signed a similar deal with Dell Computer Corp.
recently, and Salzinger said the company is also working with at least four other PC
makers for similar arrangements.

It's all part of @Home's plans to seed interest in
broadband Internet services, Salzinger said. This summer, @Home detailed plans for what it
calls "@Home in a Box" — a $40 shrink-wrapped carton that contains
installation and service coupons worth $90 and a CD-ROM extolling the benefits of the
service.

But some cable modem manufacturers aren't so sure about the
long-term solidity of @Home's aggressive marketing plans. Two modem makers contacted last
week expressed concerns that the @Home in a Box strategy — while beneficial as far as
whetting consumers' appetites in the initial retail days — may only confuse matters
if it is sustained long term.

"I applaud @Home for what it's doing, but at some
point, this has to migrate to a more traditional retail point of presence," said
William Markey, director of marketing for the cable access group at 3Com Corp.

3Com — which, through its U.S. Robotics brand, sold 16
million dial-up modems last year — envisions a day when the cable modem is the first
thing that consumers see on retail shelves. Packaged with the modem, in Markey's vision:
high-speed-data-service software, coupons for cable premium channels, coupons for
installation and service discounts, or vouchers for free pay-per-view movies.

Two other modem manufacturers echoed 3Com's concerns.

"After all that we've invested to get here, we don't
want to be the afterthought wrapped in brown paper," said an executive with another
leading cable modem manufacturer, who asked to remain nameless due to ongoing negotiations
with retailers.

That's all fine, @Home said, but not now.

"We'd like that, too, but we're easily a year away
from that kind of one-box, one-disk, all-provisioned scenario," Salzinger said.

The point of @Home in a Box — which is now being sold
in about 35 CompUSA stores — is to "demystify" the service to the average
consumer, Salzinger said. The CD-ROM contains video clips about how the installation works
and "cool stuff about the service," packaged so that retailers can sell it
nationwide.

Developing different plans for different markets is
"sort of a nonstarter for the retailers," he added.

Salzinger said the industry is "a long way" from
the America Online Inc. model, where consumers buy dial-up phone modems and they come with
AOL disks for installation.

"For now, the goal should be to get the market
started," he said.

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