Excite@Home Board Expected to Vote on Split

The board that controls Excite@Home Corp. is preparing to vote on whether to split the high-speed online service provider into two companies, according to sources close to the situation.

Sources say AT&T;, the largest shareholder of Excite@Home, with 58% of the votes, sent a formal proposal to the Excite@Home board this week that calls for separating the distribution from the content assets of the company, just months after the $7.2-billion merger of Excite and @Home that brought those operations together.

But Cox Communications, the nation’s fifth-largest cable operator and also a shareholder of Excite@Home, is expected to vote against breaking up the company. Cox, which has the power to veto the AT&T; proposal, has opposed the breakup since the issue emerged informally several months ago.

Excite@Home has exclusive contracts with several major cable operators to offer high-speed Internet connections to their customers through 2002. Although the company has only 500,000 subscribers nationwide, high-speed data services are regarded by cable companies as a major source of revenue in the future.

Though AT&T; approved of the Excite merger, sources say its top executives have had a change of heart and have been pushing for the breakup because of political and regulatory pressures. The long-distance giant is seeking regulatory approval for the acquisition of Media One Group, which would make AT&T; the nation’s leading cable operator--reaching nearly half of all American homes.

Advocacy groups have opposed the deal because of the concentration of power and the potential for AT&T; to use its customer reach to favor content it owns over that from outside suppliers. America Online has fanned the flames by leading a national initiative aimed at forcing cable operators to lease access on their networks to rival Internet service providers, contending that cable operators are giving preferential treatment to their own online services.

AT&T; has bet $120 billion on a strategy to transform the long-distance giant by using cable wires to deliver a host of new services, including high-speed data and local phone calling.

Leo Hindery Jr., the chief of AT&T;’s cable group, denied that there is a proposal to split the company. “There are no discussions underway to split the company between its content and distribution activities,” he told Reuters in an interview before a speech Wednesday night in Hartford, Conn.

Hindery also denied that there have been any recent discussions with AOL.

On Wednesday, shares of Excite@Home soared 13% amid renewed speculation that the company is close to resolving a dispute with AOL, the nation’s leading Internet service provider.

After a three-month decline, shares of Redwood City, Calif.-based Excite@Home soared $5.06, closing at $43.44 on Nasdaq. AOL fell 63 cents to close at $109.25 on the New York Stock Exchange.

AOL’s “open access” initiative has threatened the exclusive agreements that Excite@Home enjoys with cable operators to provide high-speed Internet connections.

Analysts have been predicting in recent weeks that AOL would strike a deal with Excite@Home under which AOL would get a fee for converting any of its 20 million customers to high-speed service over cable.

Cable operators are eager to use AOL’s vast subscriber base to jump-start their entry into the Internet access arena. For its part, AOL fears that its core business will be hurt by high-speed services such as those provided by Excite@Home and Roadrunner.

Analysts said Wednesday’s run-up in Excite@Home stock was triggered by hints dropped Tuesday at a Merrill Lynch investor conference by Hindery, who told attendees at the event in Marina del Ray that Excite@Home’s conflicts with AOL would soon be resolved, although sources said he didn’t provide details about how.

Some Wall Street analysts expect the high-speed online service to split into two parts, with AOL buying the Excite content portion in exchange for high-speed carriage of its service. Sources close to Excite@Home, however, say that should the company be split up, Microsoft and Yahoo are the leading contenders to buy Excite.

Cox has been unwavering in support of Excite@Home management’s vision of building the company into a turbo-charged AOL, complete with sports, news and entertainment content as well as the high-speed connection.

Sources say that by forcing a vote on the breakup of Excite@Home, AT&T; is trying to put pressure on Cox. AT&T; could threaten to leave the partnership when its exclusive contract with Excite@Home expires in 2002, which would cause Excite@Home’s fragile stock price to collapse.