Cable’s multiple-ISP world is born in Ohio

Sep 17, 2001  •  Post A Comment

When AOL Time Warner this week launches its multiple Internet service provider offerings in Columbus, Ohio, it will begin to test consumer response to federal regulators’ mandate for competitive choice.
In fact, Sanford C. Bernstein & Co. analyst Tom Wolzien, in a recent report to clients, posed the pointed question, “Excite@Home: Who Needs It?”
Comcast and Cox Cable recently said they would sever ties with the service by exercising a contractual option, thereby proving a blow to Excite@Home’s crippled financial state. Their withdrawal also ends an exclusivity protection that has provided @Home a chance to grow unabated during the development of high-speed Internet services over cable. @Home keeps only about 35 percent of the revenues generated and directs the remaining 65 percent to the cable operator.
AT&T Broadband has failed to clarify the ultimate fate of @Home’s ISP service and the company as a whole. Excite@Home, in which AT&T has a 23 percent economic and 74 percent voting stake, is considering all options, including sales of the ISP and content services and a Chapter 11 bankruptcy filing.
Mr. Wolzien said that e-mail and proprietary content are the services most at risk if @Home ceases operation. “In the event @Home suffers financial failure and ceases operation, maintaining Web access for broadband cable subscribers should not be an issue,” Mr. Wolzien said.
“The cable [multiple system operator] simply would be forced to find an alternative carrier to back-haul traffic onto the Net from the headend gateway router [depending on ownership, the MSO might need to replace the router with one of its own],” he added.
AT&T Broadband, the largest cable operator in the United States, already provides such service to @Home and could continue providing the high-speed Internet service to its own cable customers and other of @Home’s subscribers if necessary.
However, finding alternative ISPs isn’t as easy as all that. There are many complex and competitive tensions between the various ISP and cable players that could get in the way of mandated multiple ISPs evolving. For instance, AOL Time Warner has made a counteroffer for AT&T Broadband that throws it up against original bidder Comcast and the latter’s ally, Microsoft.
Time Warner, the second-largest cable operator in the United States, will offer Columbus subscribers its own AOL service, EarthLink and Time Warner’s long-running RoadRunner ISPs. The company has several months from launch to add a third competitive ISP choice, as ordered by federal regulators as a condition of approving the AOL Time Warner merger. AOL recently lost High Speed Access Corp. as its third option. The small Denver-based ISP said it failed to raise the funds needed to support its operations and to pay for a content partner.
Before its withdrawal, AOL Time Warner was subject to criticism that High Speed Access was not an independent ISP choice for consumers because it has ties to AOL.
Although the company will not comment, industry experts speculate that Prodigy or Microsoft’s MSN are being considered. But Juno most likely will be the third offering, pending approval by the Federal Trade Commission, sources close to the company said.
The new AOL High Speed Cable Service has been tested by AOL Time Warner employees and is expected to be offered in Syracuse, N.Y., Tampa, Fla., and Raleigh, N.C. Sources said AOL Time Warner plans to roll out its multiple ISP service to as many as 20 Time Warner cable markets. Twelve to 15 of those markets could see service before year’s end.
Ironically, Comcast and Cox, who declined comment on their considerations as well, also are expected to seek an alliance with AOL for alternative ISP services.
“Without @Home, the cable companies would be without a brand of their own. Providing consumers with a limited, low-end, private-label brand, however, would be possible as part of a broader AOL deal, with AOL providing content in a manner similar to the way it has planned in the past for WalMart and Gateway,” Mr. Wolzien said.
Some sense of resolution to Excite@Home’s near financial collapse could come later this month. At the very least, the company’s stock, which was trading at less than 50 cents a share before the stock markets closed last week, could be delisted from the NASDAQ.