Life After Excite@Home
DSL provider Covad has also been trying to grab former @Home customers. After officially emerging from bankruptcy on December 20, it has recently started offering a rebate of $225 on the cost of DSL installation. According to Hunter Middleton, group manager of consumer product marketing, Covad saw a 40 percent increase in sales in the weeks after AT&T pulled the plug on its Excite@Home customers. Middleton said that the offer would run until the end of January at which time it will reevaluate the market.
"The DSL market is competitive currently and consumers have a lot of options for getting DSL without a large upfront fee," says Middleton.
Ironically, many of the disgruntled Excite@Home shareholders have cited Covad’s exit from bankruptcy court as a model they would have liked to emulate. According to ARS’s Kersey, Covad found itself in a good position because it recognized early on that it was in serious financial trouble and honestly stated this fact with all parties. Covad entered into bankruptcy with a pre-negotiated reorganization plan that erased $1.4 billion in bondholder debt for approximately $257 million, or 19 cents on the dollar plus $13 million in previously restricted cash and a 15 percent stake in the company.
"We used the bankruptcy process as a financial tool," stated Chuck Haas, executive VP of marketing at Covad. Hass added that Covad’s network, which covers about 40 percent of homes and small businesses nationwide, is currently paid-for thanks to the bankruptcy deal. Covad now intends to fill up the network it has, rather then incur costs to expand.
"There were probably some customers that were hesitant to sign on with Covad during the bankruptcy process, and we saw a slow down in growth, but this just makes me more confident that our business will expand with that pent-up demand," said Haas. He also noted that Covad never suspended service.
Additionally, Verizon also offered a special holiday DSL promotion of $29.99 for three months, and other DSL companies across the nation offered similar discounts.
Will the Excite@Home Fiasco Hurt the Broadband Cable Industry?
ARS’s Kersey believes that in the short term, cable companies’ efforts to sign up new customers will be impaired by their unproven networks. In the long term, however, Kersey foresees that consumers will have more reliable service because large cable and telephone companies will dominate the industry.
"The whole point of Excite@Home in the first place was that cable companies felt it was easier to offload the risk while they waited to see if broadband would take off," added Kersey.
In December 2000, AOL Time Warner decided to increase its ownership in and fully manage its high-speed broadband service, Road Runner. According to Michael Luftman, VP of corporate communications at Time Warner Cable, the company remains very committed to the Road Runner brand, which currently boasts 1.7 million customers. AOL Time Warner reported in its June 2001 SEC filing that average subscriber revenues at Time Warner Cable increased 12 percent during the first half of the year largely driven by upgrades to high-speed service and digital cable.
And with the financial resources of AOL Time Warner behind it, Road Runner will be able to hit target markets with massive advertising and marketing efforts. Kersey adds that he has lived in several Time Warner Cable markets and "it is difficult to sit down and watch television for a night without seeing a few Road Runner commercials."
Slower Growth for Broadband
Still, demand for broadband access appears to be slowing down. ARS reported in December 2001 that the number of total broadband subscribers increased only 14.2 percent from the second quarter to the third quarter last year. That's the smallest increase since ARS began tracking the data. By contrast, broadband growth was reported at 25.8 percent for the first quarter 2001.
In the end, most analysts agree that the fall of Excite@Home is merely a bump in the road for the development of residential broadband. The speed with which AT&T, Comcast and Cox constructed their own networks combined with the mad dash by the DSL industry to steal away disgruntled customers; would seem to indicate that it is in the industry’s best interest to provide stable connections to all consumers. And with AT&T’s announcement in late December to sell AT&T Broadband to competitor Comcast for some $47 billion, the landscape for high-speed cable Internet access is sure to continue to change.