Excite Given OK to End Net Service

A federal bankruptcy judge gave Excite@Home permission Friday to shut off its high-speed Internet service, prompting a last-ditch effort by cable operators to keep 3.7 million customers online for at least a few more weeks.

The order by Judge Thomas E. Carlson in San Francisco could bring an abrupt end to the Redwood City, Calif.-based company, a former Internet highflier felled by bad business deals and vanishing advertising revenue. Despite a late appeal by Federal Communications Chairman Michael K. Powell, Carlson granted a request by Excite@Home to cancel the contracts that required it to provide high-speed Internet service to more than a dozen cable operators’ customers.

Excite@Home could have terminated its service as early as midnight Friday, but it was not clear early Friday evening that the company would take that step. At Carlson’s urging, Excite@Home executives, cable operators and creditors resumed negotiations Friday afternoon in an effort to keep the service going long enough for the cable operators to provide alternatives for their customers.

If the company shuts down right away, millions of customers will be without service for anywhere from a few hours to a few months. Cable operators have known about the financial problems at the company for several months, but most don’t have a backup ready that could accommodate every customer.

Excite@Home’s intermittent slowdowns and poor customer service have given its cable partners headaches over the years, but a sudden shutdown would be the worst blow yet to an industry eager to change its image from a slow-moving, low-tech pay-TV business into a high-tech source of multiple digital services. The company’s rapid decline also has been a glaring problem for AT&T; Chairman and Chief Executive C. Michael Armstrong , who paid more than $6 billion for 38% of Excite@Home’s stock and control of its board. The stock closed at 5 cents, up 1 cent in over-the-counter trading, giving the company a market value of $18.9 million.

The cable companies with the largest number of customers served by Excite@Home are AT&T;, which has more than 900,000; Comcast Corp., which reportedly has 800,000; Cox Communications Inc., which has 550,000; and Charter Communications Inc., which has fewer than 145,000. Company officials said alternative networks are ready now for Charter customers and will be ready in one to 14 days for AT&T; customers, but Cox is set to move only 75% of its customers, and Comcast may need two months to finish its preparations.

In Southern California, no Charter customers are affected, nor any of the customers AT&T; inherited from MediaOne. Adelphia has about 40,000 local customers who could lose service for a week to 10 days, a company spokesman said. A Cox spokeswoman declined to comment on her company’s situation in Southern California.

Even if they can move quickly to new services, former Excite@Home customers will still lose their e-mail addresses. In addition, the company won’t be able to forward messages to their customers’ new e-mail addresses, officials said.

Founded in 1995 by venture capitalists and leading cable companies, Excite@Home was launched mainly to offer high-speed Internet service to homes through cable TV wires. It signed exclusive contracts with most of the leading cable operators in North America and quickly grew to be the nation’s largest operator of high-speed Internet services.

Not content to provide only a pipeline to the Internet, Excite@Home’s management bought a series of companies that provide advertising and information services over the Internet. Those deals--most notably the $6.7 billion that At Home Corp. paid for the Excite Internet search service--proved to be Excite@Home’s undoing, draining cash from the company and providing dwindling revenue as the online advertising market dried up.

Excite@Home filed for bankruptcy protection Sept. 30, saddled with nearly $1.3 billion in debt and money-losing long-term contracts with the cable operators. The same day, AT&T; announced it would offer $307 million to buy the company’s assets. Shortly thereafter, Excite@Home negotiated more lucrative short-term contracts with the cable operators to keep its service going until Friday.

The AT&T; bid drew fire from Excite@Home’s bondholders and other creditors, who would reap little from the sale. They urged Carlson to give them the power to shut down the company, hoping to win a higher bid from AT&T.;

Excite@Home also asked Carlson to reject its long-term contracts, enabling the company to shut down when the short-term deals expired Friday. The goal was to force the cable operators to pay more for Excite@Home’s service, before they finished work on their replacement high-speed Internet services, said Suzzanne Uhland of O’Melveny & Myers, Excite@Home’s counsel.

The company’s strategy was a reasonable one, given the substantial value cable operators derive from keeping Excite@Home alive until they come up with an alternative, Carlson said.

Although the long-term contracts, which gave Excite@Home only about a third of the money collected from subscribers, were costly, the more lucrative short-term deals allowed it to break even, Carlson said. But “the cable operators have not offered these higher rates on a long-term basis,” he said, adding that Excite@Home should be free to negotiate a better deal while it still can.

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Times staff writer Sallie Hofmeister contributed to this report.