Posted on 11/30/2001 3:38:37 PM PST by spycatcher
*update* SAN FRANCISCO--A bankruptcy court judge ruled Friday that angry bondholders and cable partners of Excite@Home must go back to the bargaining table, leaving four million customers of the high-speed Internet service in limbo.
Judge Thomas Carlson said Excite@Home could cancel contracts with its cable partners. Carlson didn't rule on whether the cable-modem service would be shut down, but the cable companies have threatened to cut off service if their contracts, which expire at midnight Friday, were terminated.
Attorneys for the cable companies said Friday afternoon they were unsure whether or when they would shut off the service. Representatives for Excite@Home said they did not have any comment on Friday's ruling.
Despite threats from the cable companies, Carlson and numerous attorneys for bondholders and unsecured creditors said that shutting off service was highly unlikely--chiefly because such a move would be detrimental to all parties involved. Excite@Home and various cable partners, including AT&T Broadband, Cox Communications and Comcast, share infrastructure and content, and the companies split revenue that comes from paying subscribers.
If cable companies enrage customers by switching off their high-speed Internet service, the judge and bondholders argued, then the cable companies would harm themselves and shrink their customer ranks. One bondholder said cable companies would engage in a "murder-suicide" pact with the Excite@Home if they switched off service.
"It's clear that the continued operations have substantial interests to the cable companies," Carlson said to a packed courtroom where attorneys, Excite@Home executives, journalists and others jockeyed for seats and flooded into the courtroom's aisle and rear.
Corporate America has been keenly watching the bankruptcy proceedings of Redwood City, Calif.-based Excite@Home, which became the largest Internet company when it was formed in a $6.7 billion merger of Web portal Excite and cable company @Home in January 1999. It remains one of the most high-profile and strained marriages of the Old and New Economies, with AT&T owning about three-quarters of Excite@Home's outstanding stock.
Victory for bondholders Carlson's decision was a major victory for bondholders and unsecured creditors, who are desperate to boost revenue of Excite@Home and thereby minimize losses on the bondholders' and creditors' investment. By some estimates, Excite@Home is burning through $6 million per week because of outdated contracts with the cable companies.
Although the contracts are complicated documents and vary widely depending on the cable partner, the agreement is weighted in cable companies' favor. With the average cost of Excite@Home service at about $46, the cable companies collect roughly 65 percent of that, while Excite@Home collects only 35 percent.
Interim contracts that parties negotiated in October are slightly different than the official contracts that may now be renegotiated, but the interim agreements also funnel a disproportionate amount of money toward cable companies. Contracts are also slightly different in Canada, where cable companies take as much as 80 percent of the revenue, leaving only 20 percent for Excite@Home.
By allowing Excite@Home to renegotiate its contracts with the cable companies, the judge opens the door to new contracts that substantially increase Excite@Home's cut in revenue. Because Excite@Home filed for Chapter 11 bankruptcy protection in September, the judge said that Excite@Home may legally break its existing contracts in order to increase its chances of survival.
But the decision also opens the door to a termination of Excite@Home's high-speed Internet service to more than four million subscribers. The cable companies, including Cox, Comcast, Charter Communications and others, have stated or implied for weeks that new contracts could result in termination of the service.
"The contract is the means by which we operate a service," an attorney representing cable company Charter Communications said in court Friday. "If there is no contract, there is no service."
But attorneys for bondholders and unsecured creditors said the cable companies' protestations are nothing but idle threats--an attempt to hang onto lucrative contracts without having to renegotiate them at potentially less favorable rates.
"They're playing a high-stakes game of chicken at the expense of customers," said Richard Slack, a New York attorney representing Excite@Home's bondholder committee. "The court was pretty clear about the importance of renegotiating contracts."
Even after Carlson heard arguments for two hours and ruled that Excite@Home could renegotiate contracts, attorneys for the cable companies protested. One said he planned to appeal the decision. Several other attorneys for cable companies argued that the judge should, at a minimum, let the companies continue operating under the existing contracts for several days.
But Carlson said it was in the best interest of the consumers to renegotiate the contracts immediately. He rejected cable companies' argument that the contracts should be maintained in order to preserve the Internet service of 4.1 million customers.
"Bankruptcy typically causes much disruption," Carlson said. "While the cessation of customers' Internet access is regrettable, it does not jeopardize public health or safety."
A shutdown would strand 45 percent of the cable modem users in North America, disrupting small-business owners, telecommuters and even students, since many cable companies have donated high-speed data lines to schools, according to a research note by Anthony Gikas, an analyst at U.S. Bancorp Piper Jaffray.
Excite@Home customers have grown increasingly upset as their Internet access provider has struggled through bankruptcy proceedings. Many say termination would force them to rely on dial-up connections, which are vastly slower than high-speed cable modem access. Digital subscriber line (DSL) is another fast alternative to cable access, but the service is not widely available, and it requires new hardware and installation fees.
"I will cancel all of my AT&T services" if Internet service is terminated, said Bryan Kennedy, a software engineer in Dallas. "This affects my family's ability to work at home. The cost of setting up DSL and going through the process is too much of a headache. I would go back to a dial-up account until I could find a reasonable high-speed alternative."
Some sources have said that the cable companies hope to extend their contracts at least through next week, when AT&T is expected to make a $307 million bid for Excite@Home's cable assets. If and when the sale is finalized, AT&T could renegotiate contracts again.
AT&T's bid has also become rife with controversy. Many Excite@Home shareholders and creditors say the company's cable assets are worth vastly more than $307 million--some insisting that fair market value is as high as $1 billion.
AT&T Broadband representatives said this week they could assume about 20 percent of Excite@Home customers if the company shuts off service. Excite@Home has been in meetings for the past several weeks with AT&T as well as other cable companies.
Sources close to the deal said few of those involved in the talks really want a shutdown of Excite@Home, and some bondholders are willing to accept bids even marginally more than $307 million.
"Anything is possible with enough money," said Bill Weintraub, an attorney who represents the bondholders committee. But he added that the $307 million offer was "clearly inadequate at this point."
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This sucks rocks!
I feel like a guy who wakes up from an operation and realizes he's still alive. Arms, legs, still present and moving.
Whew!
I work for AT&T Broadband, and rumor has it that the whole network should be down by 6PM.
Just set up a Netzero account last night...back to dial-up for awhile I guess :(
Comcast Cable Modem still working fine here in Albuquerque. Does anyone know if excite@home goes belly up whether the existing connection to the cable company would allow you to TCP/IP to another ISP? Even though I hate AOL, I have a free-year and would use it as an alternative ISP in the interim.
Couple of weeks???? Are you crazy? {meant in jest}
The worst thing about broadband IMHO, is that FR is always "there." I walk past the screen at home; I hit Lastest Posts & pray nothing interesting catches my eye. It's much like using the hand lotion next to the kitchen sink. Or climbing the mountain. You do it just because it is there.
I too am down here in the Chicago Suburbs! I guess Excite really did pull the plug. As an AT&T retiree, I wish my former company had been more out front on this issue with its customers. The BBS site I was given last night by AT&T has NOTHING on it since 11-26-01! Nice job AT&T! NOT!
Also, does anyone know what Cox is planning on doing next such as...are they intending on putting up their own high speed internet access?? Just curious!
Free advice if you need it
As of 10:00am this morning (12/1) my cable modem appeared to go out, but on closer examination in turned out that the DNS servers that I was using were not working. I reconfigured to those I used to use when I add a phone connection and everything was OK.
Maybe a coincidence, maybe not.
Obviously, if you are having the same problem, you are likely not reading this, but if you know someone who thinks they are down, try pointing their web browser to:
http://64.58.76.228
if they get to yahoo.com, that their problem too.
FRegards, Al
Where are all the tort lawyers when you need them?
Probably, out giving Bill and Hilery a public service award, or something.
Maybe. I am not privy to any inside info about their network, but I am a techy. I suspect that the routers and such might be at your local cable company and these just might continue to work (or they might not). They might turn off your DHCP server that gives you your IP address, so you would need to know a fixed IP address that you could use.
They might also turn off the DNS servers as well, which translate names like www.freerepublic.com into a numeric IP address. In fact, this may have already happened to me (see above post)
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