So Much for the Broadband Revolution

The disintegration of Excite@Home Corp., once the leading provider of high-speed Internet service, has sent a disquieting message that the revolution promised by fast, ubiquitous connectivity lies in the distant future.

Spiraling costs in a slack economy, a lack of compelling content offerings and a basic miscalculation about what consumers will pay for fast online connections have decimated a once-thriving sector of the tech economy, analysts said.

After filing for Capter 11 bankruptcy protection Oct. 1, Excite@Home, also known as AtHome Corp., announced Tuesday that it will cease operations Feb. 28, forcing its 4.1 million customers to find new e-mail addresses and Internet connections.

“There were such grand illusions about how the Internet was going to change everyone’s life. It’s a tool, and for the right price people will use it,” said Fred Hickey, editor of the High-Tech Strategist, a financial newsletter.

For the vast majority of consumers, that price is about $20 a month--the cost of Internet service over a standard phone line--not the $45 to $60 high-speed providers charge, experts agree. Even at those higher rates, providers are losing money.

Fueled by optimism that the “always on” Internet would become as indispensable as electricity--and by billions of dollars from investors--more than a dozen companies constructed networks to give businesses and consumers high-speed connections to the “information superhighway.”

The dream was that the so-called broadband connections would give consumers instant access to an infinite library of movies, music and television shows. They would be able to conduct video chats with friends, try on virtual outfits in online stores and partake of other futuristic delights.

But over the last year, a number of once-highflying broadband companies have collapsed. The failures cover the entire range of high-speed technologies. No matter whether they converted traditional copper phone wires to high-speed DSL lines, retrofitted coaxial cables to carry data as well as television signals or created networks based on wireless technology, they all failed to make a profit.

Among the victims were such pioneering companies as NorthPoint Communications, Rhythms NetConnections and Metricom Inc.

AtHome was the most prominent. It was founded in 1995 by leading Silicon Valley venture capitalists and technologists who were convinced that consumers would pay a premium for services they couldn’t get via a sluggish dial-up phone connection.

Early adopters seemed to validate the gamble. AtHome pulled in some 4.1 million subscribers out of the nationwide total of about 10 million who connect online via cable lines, wireless or DSL.

Paralleling the dot-com meltdown, subscriber growth for high-speed service has slowed dramatically. A year ago, the number of subscribers was growing 34% each quarter. In the last quarter, it was up only 14%.

That made it harder for AtHome and its competitors to recoup their enormous construction costs with monthly subscriber fees.

“They decided to push a technology before its time,” Hickey said.

The stream of recent failures has quickly consolidated the broadband industry, suggesting to some experts that growth will continue to slow for the time being as companies absorb all the recently abandoned customers.

Most of the remaining broadband companies are large cable and phone companies, which see high-speed Internet service as a way to cross-sell customers into more-lucrative offerings, such as long-distance phone service and pay-TV channels, experts say.

But even the telecom giants cannot continue to lose money on broadband services indefinitely. They have begun to shift the actual costs of service to subscribers--with fees rising an average 11% in the first nine months of this year, according to market analysis firm ARS.

“The model just doesn’t work yet,” Hickey said. He compared broadband Internet service to the failed online grocer Webvan, which was spending $143 for every $100 of groceries it sold--with a profitable model nowhere in sight.

AtHome represents the industry’s most ambitious experiment and most spectacular failure. It was based on a collaborative model. AtHome provided the technology to turn a cable TV network into a two-way, interactive Internet service with features such as e-mail, online chat groups and shopping services. Cable company partners had to upgrade their aging networks and provide marketing and customer support.

But the two cultures--Internet whiz kids and old-school cable veterans--clashed repeatedly over tactics and costs.

Then in 1999, AtHome spent about $6 billion to acquire Excite--a second-tier general-interest Internet portal--to enable cross-marketing and to attract subscribers by using multimedia content, owned by Excite, for its premium package.

The combination--a struggling service provider and a money-losing Web portal--proved disastrous. A key problem, analysts say, was that the “killer application” of high-speed services--riveting content--has yet to materialize.

“People aren’t looking for broadband content. They’re looking for sports sites, for the sweater to buy their cousin or to get their homework done,” said Chris Charron, an analyst with Forrester Research. Most Internet firms, struggling to survive, are concentrating their efforts on content that can be used effectively by the masses who have slow connections.

That realization was at odds with the ambitions of the broadband start-ups.

Winstar Communications Inc. of New York accumulated nearly $5 billion in debt trying to connect businesses to the Internet via antennas placed an rooftops. Teligent Inc. of Vienna, Va., filed for bankruptcy protection after losing nearly $2 billion in five years.

Analysts expect broadband access to be commonplace someday, but the AtHome debacle may have set that day back by sending a discouraging message to consumers.

AT&T; pledged to shift Seattle customers such as Casey Corr and his father onto its own network. Corr’s service was restored after two days, but his father, another AtHome subscriber, is still offline.

“There was no provision to make sure that stranded customers were able to forward their e-mail,” said Corr, a former Internet executive who was an AtHome customer for 21/2 years. “That’s the result of some sort of tussle between AT&T; and [AtHome], but come on, who’s thinking of the customers here?”