Excite@Home's Woes Included Open Access

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As Excite@Home Corp. wallows in bankruptcy, many of its strategic missteps have garnered headlines. But buried beneath the obvious shortcomings that helped bring the company to its current state is a bogeyman that's haunted Excite@Home almost since its inception: the threat of regulation.

Competitors have called it "open access." Many in the cable industry say it's "forced access." Whatever the jargon, the idea that the government might force cable operators to allow multiple Internet-service providers to use their wires has sent a lingering chill throughout the broadband business for the last few years.

No company was affected as much as Excite@Home — the leading cable-backed broadband ISP, whose success depended largely on exclusivity deals with its MSO partners.

"The regulatory issues were clearly one of the reasons why Excite@Home didn't make sense at the end of the day," said Robert Rini, a Washington telecom lawyer at Manatt, Phelps & Phillips. That firm has represented the OpenNet Coalition — a group advocating government-imposed open access — although Rini hasn't been involved with that account.

Excite@Home's problems stem from many factors, including poor execution and constant infighting between the ISP and its cable partners over everything from service quality to the rollout of new applications.

The specter of "open access" regulation had little effect on Excite@Home's early stock run-up during the technology explosion of the late 1990s. But as soon as the market began to falter in March of 2000, investors began to take a closer look at the company's overall strategy.

One thing seemed clear: Either the government would impose open access, or MSOs would voluntarily adopt some type of open-access policy.

"We've all been working on multiple-ISP solutions anyway," said Insight Communications Co. president Michael Willner, whose company is negotiating to buy assets related to Insight's 75,000 @Home customers.

ACCESS 'SCHIZOPHRENIA'

Most of Excite@Home's cable partners were studying ways to work with a number of ISPs (of course, getting a piece of the action from each one). Company insiders said it was always a source of irony that the industry opposed open-access rules but wanted to provide such functionality on its own.

"There always seemed to be a schizophrenic approach to open access," said Michael Foley, president and CEO of Alopa Networks and a former senior Excite@Home executive.

Headlines about court cases and potential action in Washington may have spooked some investors, but Foley said it never became an obsession among internal management.

"There were a lot of people involved in the issue," he said. "It was a threat to the value of the company, but I don't think it was a significant distraction."

For the MSO partners, open access became yet another complication in an already strained relationship.

"It's just another example of [the] difficulties we had in our relationship with Excite@Home," said Dallas Clement, vice president of strategy and development for Cox Communications Inc., which plans to sever ties with Excite@Home in June.

In 1999 — as open-access proponents continued to pound Capitol Hill and the Federal Communications Commission — cable operators became increasingly frustrated. Excite@Home obviously had nothing to gain by allowing competitors to invade its broadband arena (or give up its exclusive contracts), but it didn't necessarily oppose open access either, as long as it was on terms chosen by cable.

"Excite@Home has always been a proponent of open access," an Excite@Home spokeswoman said. "But we wanted the industry to regulate itself, rather than the government regulating it."

A key stumbling block was devising an architecture that would allow multiple ISPs onto the cable wire without adversely affecting current subscribers.

"We've participated with many trials with cable operators," she said. "We saw where the market was going. But we weren't very close to open access. There were so many open issues. And there was no conclusion on which technology was the best."

COURTING CONFUSION

Unlike Washington — where well-paid lobbyists often can contain fires before they spread — many open-access battles have taken place in cities around the country, forcing cable-industry lawyers and executives to go before city officials and take part in court cases. Even Leo J. Hindery Jr., the high-profile former CEO of AT&T Broadband, occasionally made personal appearances.

A key cable-industry argument against open access has been the premise that cable-modem service is a "cable service" subject only to cable regulations, rather than a "telecommunications service" subject to common-carrier rules, which normally apply to telcos. Court decisions on open access have not settled that point.

In Gulf Power Co. vs. FCC, the 11th U.S. Circuit Court of Appeals ruled that cable-modem service is neither a cable service nor a telecommunications service. More likely, the court ruled, it qualifies as an "information service." (That case is now on appeal before the U.S. Supreme Court.)

But in June 2000, the 9th U.S. Circuit Court of Appeals — in ruling that Portland, Ore., couldn't impose open-access rules on AT&T Broadband — said cable-modem service was not a cable service, but more likely an information service or a telecommunications service.

On Nov. 8, 2000, South Florida U.S. District Court Judge Donald Middlebrooks ruled that Broward County, Fla.'s open-access ordinance violated the operator's First Amendment rights.

And on July 11, 2001 — in MediaOne Group Inc. and AT&T Corp. vs. Henrico County, Fla.
— the 4th U.S. Circuit Court of Appeals ruled that cable operators didn't have to provide a "telecommunications facility" to unaffiliated data providers. But it left the question of whether cable-modem service should be labeled as cable, telecommunications or information to the FCC.

The varied reasoning created confusion in Washington, and forced Excite@Home executives to shuttle between the company's Redwood City, Calif., headquarters and Washington to lobby on the issue.

News coverage of the access debate in trade publications — as well as in such mainstream press outlets as The Wall Street Journal
— created a perception that the company's exclusive arrangements with cable operators might at some point fizzle out, allowing competitors to eat away at its broadband user base.

"Once it became apparent that its exclusivity wasn't going to be achievable — that they weren't going to be able to capture 60 million homes — the business plan started to unravel," Rini contended.

BET ON CONTENT

Just one month after Portland imposed open-access as a condition of transfer of Tele-Communications Inc.'s cable franchise to AT&T in December of 1998, the original At Home Corp. announced it would merge with Excite Inc., an Internet portal and content firm with which it had little in common.

In retrospect, the timing raises some eyebrows.

Open access "probably caused their management team to diversify and not be just a service provider — to also be a content provider," said Jeff Huppertz, the vice president of sales and marketing at ClearBand LLC, a broadband video-content provider. "That led to the merger with Excite. It's unclear whether that pushed them over the edge, but it didn't help."

At Home's whopping $7.2 billion merger with Excite muddied the company's mission statement and caused occasional culture clashes between the At Home "cable guys" and the Excite "dot-commies."

As executives were trying to get their groove on, America Online and Time Warner announced in January 2000 that they would merge in a colossal, $163 billion deal. Not only would the newly merged AOL Time Warner Inc. compete with Excite@Home, but the FCC and Federal Trade Commission later imposed open-access conditions on the company's MSO, Time Warner Cable, as part of the merger approval process, in January 2001.

"That was a milepost, and a scary one for the cable industry," Rini said. "That was a signal of the way that the government was willing to go. And it was spooky for many investors."

The FCC still has yet to make a final decision on open access, though it has completed a notice of inquiry from which it will decide whether to impose any such rules upon cable.

In the meantime, Excite@-Home has been dealing with other problems, including a sagging stock price that led to its Sept. 28 bankruptcy declaration. So open access was hardly the only factor that led to the company's current situation.

"I think that anybody who pretends that that's where the problem is is looking for an excuse," said Intertainer Inc. president Jonathan Taplin.

Clearly, though, the access situation didn't help Excite@Home.

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