ExciteAtHome Cleared to Disconnect
Updated: Fri, Nov 30 8:26 PM EST
A judge said bankrupt ExciteAtHome could turn off its high-speed cable Internet service this weekend, which could affect more than 4 million subscribers around the country.
Lawyers for the cable companies that connect their customers to the AtHome network said they planned to appeal the decision to U.S. District Court in San Francisco. Meanwhile, both sides continued to negotiate in order to reach an agreement that would keep the service running.
Bankruptcy Judge Thomas Carlson said Redwood City-based ExciteAt Home could reject its existing contracts with the cable companies as early as 3 a.m. EST Saturday.
The judge was unmoved by the argument that he shouldn't close down the network because it would affect consumers.
"The end users may be affected by these proceedings, but they are not parties to these proceedings," Carlson said. "Bankruptcy typically causes much disruption all the time, leading to loss of jobs and services to communities."
The ruling affects many of the nation's largest cable companies, including AT&T, Comcast Corp. and Cox Communications Inc., that sell Internet access through AtHome's network.
Carlson gave ExciteAtHome the leeway to end the contracts after concluding they had become "clearly burdensome" to the company. Under the contracts, ExciteAtHome executives said the company was losing up to $6 million per week.
ExciteAtHome wants the cable companies to pay a substantially higher connection fee to use its network. Until ExciteAtHome's bankruptcy, the cable companies had been paying a monthly fee of $12 per subscriber. Last month, the cable companies agreed to increase the monthly fee to $20 per subscriber.
The cable companies typically charge their customers $40 to $50 per month to use the AtHome network.
By forcing the cable companies to pay even more to use the high-speed Internet service, ExciteAtHome and the company's bondholders hope to prove the network is worth substantially more than the $307 million that AT&T has bid for it.
The bondholders have accused AT&T of using its controlling position on ExciteAtHome's board to steer the company into bankruptcy as part of a scheme to buy one of the nation's biggest high-speed Internet networks at a bargain price. AT&T has denied the allegations.
Comcast, Cox and Insight Communications had put together an offer to outbid AT&T, but withdrew the proposal when Carlson refused to delay Friday's hearing, said Charles Cohler, an attorney for Comcast. Cohler didn't provide details of the offer.
The bid wasn't substantially higher that AT&T's, said Don Morgan, managing director of Mackay Shields, one of ExciteAtHome's largest bondholders.
The uncertain fate of ExciteAtHome's network could be resolved quickly if the cable companies agreed to share more of the revenue generated by customer subscriptions, Morgan said.
"There is a simple solution to this problem. Money makes this problem go away. Subscribers need to realize that they are paying $50 a month for this service, but (ExciteAtHome) is seeing very little of that," he said.
Lawyers for the cable companies have equated ExciteAtHome's tactics to blackmail.
The bondholders "seek to play a 'game of chicken' in which the threat of a blackout is used to extort the (cable companies) into paying yet more for AtHome's services," AT&T said in a brief leading up to Friday's hearing.
If ExciteAtHome pulls the plug on its service, the high-speed network will become even less valuable, cable company lawyers contended in Friday's hearing.
"This will kill its value as a going concern," said Cohler, who likened the possible shutdown to a "murder-suicide."
The cable companies have been warning customers during the past few days that the high-speed service might be disrupted, but their contingency plans remain sketchy. Some are offering access to dial-up Internet service _ an unacceptable option for many customers accustomed to high-speed access.
"If they shut down, I will start looking for another service as soon as possible," said AtHome subscriber Todd Ambur of Fremont. "I need Internet service all the time and there is no way I am going back to dial-up modems."
Lauren Adair of Philadelphia said her home business would suffer if she loses AtHome's high-speed service.
"My work would suffer if I had to dial-up every 15 minutes to check my e-mail, and downloading files would take forever," she said.
Cox is "trying to do everything we can to make sure our customers get uninterrupted service," company spokeswoman Susan Leepson said Friday. Cox has about 550,000 AtHome customers, with the largest concentration in the San Diego and Phoenix markets.
Officials at Comcast and AT&T did not return calls seeking additional comment. A statement on the Comcast Web site said that negotiations were continuing and that it was not aware of any planned termination in service.
In a letter to Carlson before the hearing, Federal Communications Commission Chairman Michael Powell urged the court to provide for an "orderly transition" in the event it decided to discontinue service, "rather than a precipitous shutdown."
Carlson expressed confidence his ruling would force the cable companies and ExciteAtHome to settle on new terms before the network was disconnected.
"It is obvious the cable companies are vitally interested in keeping the service alive," Carlson said. "It is reasonable to assume these sophisticated parties will find a way to share the value of (AtHome's) continued operations."
