Under pressure from @Home Networks partners, AT&T Corp.
has agreed to boost its cable modem customer signup obligations and slightly dilute its
dominant sway over the venture's corporate governance.
The partnership moves coincided with launches of two major
@Home initiatives -- a deal to create a high-speed Internet access service in Japan and
the funding of the @Home Solutions business aimed at providing turnkey high-speed access
systems to small and mid-sized MSOs in the United States.
AT&T's concessions last week were a response to
the possibility that another major @Home partner, Cox Communications Inc., could terminate
its exclusivity contract with @Home because AT&T Broadband & Internet
Service's cable systems were failing to meet their subscribership obligations.
Cox said it has no desire to bolt from the partnership, but
the companies nevertheless leveraged the situation to promote changes they view as
incentives for AT&T to catch up with the more successful partners.
Tele-Communications Inc., which AT&T acquired earlier
this year, had lagged behind other @Home affiliates while it was upgrading its cable
systems to activated two-way status, according to analysts. TCI's controling stake dated
to its co-founding of @Home in 1995, with venture capital firm Kleiner Perkins Caufield
The incentives include an agreement for AT&T to pay Cox
a penalty of @Home stock if AT&T fails again to meet its signup goals.
"We don't want them to pay the financial
penalties," David Woodrow, Cox senior vice president of business development who sits
on @Home's board, said last week. "We want them to build their customer base because
that enhances the value of the whole company for everyone."
At issue was AT&T's likely inability to meet a
June 4 deadline for its undisclosed subscribership goals, which are set for each @Home
A shortfall on that date would have given Cox -- the
partner with the highest subscriber penetration on that date -- the right to terminate its
exclusivity agreement with @Home, raising the specter of a serious split in the
But Cox agreed to waive the right if AT&T met new,
higher signup goals by June 4, 2000. In a separate deal, Cox also obtained the provision
for financial penalties for non-compliance.
Some analysts said that the changes could be moot in a
year, given that AT&T already has begun an aggressive acceleration of system upgrades
necessary to offer @Home service to more areas and boost sub growth.
"To the degree that everyone's on the same page,
we won't see any changes in what's going on in @Home," said Lou Kerner, a
cable and @Home analyst at Goldman Sachs & Co.
Nevertheless, the shifts come against a backdrop of
continuing bad publicity about @Home customer service complaints in a number of markets
and reports of sporadic friction among @Home partners both with the service and among
AT&T would not comment about the reasons it has been
unable to meet its subscribership goal. But analysts long have characterized the MSO as
having a problematic network, one that as of year-end was only about one-quarter upgraded
to two-way capable.
At the same time, @Home's growth at TCI also may have
been hindered by waves of bad publicity in a number of TCI markets, such as Fremont,
Calif., and Hartford, Conn., about problems ranging from poor customer service to a
controversy over disclosure of subscriber information.
AT&T would not disclose either its old or new, higher
subscription benchmarks, but stressed that the goal of tripling its @Home head count to
150,000 by year's end was consistent with the new performance expectations.
"We're working to launch new markets aggressively
in keeping with our rebuild and upgrade plans, which are progressing on schedule,"
said AT&T Broadband spokeswoman LaRae Marsik.
In Japan, @Home is partnering with leading MSO Jupiter
Telecommunications and Sumitomo Corp. to launch its initial service by early next year.
*Home will own 43 percent of the joint venture. Jupiter,
which is 40 percent owned by Liberty Media International Inc., is committing its
market-leading 5.1 million homes passed to the partnership.
The deal is @Home's biggest foreign venture so far,
following its launch in Canada and the scheduled second-quarter launch of its @Home
Nederland Dutch service. Besides Jupiter, @Home also is talking with other MSOs about
affiliating with the new network.
Jupiter has about a third of the total homes passed in
Japan, a nation where the number of Internet users rose by 50 percent last year to some 15
The @Home Solutions unit announced it had completed $20
million of financing from equity partners Cisco Systems Inc., 3Com Corp., Motorola Inc.
and cable operator Falcon Communications, which also became the first MSO to sign up as an
@Home Solutions affiliate.
The Solutions business is intended to leverage @Home's
experience in deploying and running high-speed cable modem systems, plus its economies of
scale in buying equipment, as competitive advantages against such rivals as ISP Channel
and High Speed Access Corp. that are gunning for the same small and mid-sized MSOs.
Falcon already has a 1-million subscriber partnership with
AT&T systems in Alabama, California, Missouri, Oregon and Washington state. The
operator has about 1.9 million homes passed, but has upgraded only about 20 percent of its
systems to two-way 750-MHz technology.
The @Home Solutions unit claims to have letters of intent
pending from seven other MSOs, but would not name them.