@Home shareholders cite AT&T "fraud"
news.com.com
By John Borland
Staff Writer, CNET News.com
November 14, 2002, 9:36 AM PT
Aggrieved investors in the defunct Excite@Home cable modem service
said a months-long investigation has uncovered new evidence that AT&T
engaged in "fraud" and corporate "technology theft."
Shareholders suing AT&T and former company directors filed an
amended complaint in New York federal court last Thursday, with new
details of alleged wrongdoing based largely on interviews with former
Excite@Home employees, including ex-CEO Patti Hart.
The amended complaint claims that top AT&T executives engineered a
plan to steal key intellectual property that was used to develop a
competing broadband network. According to the complaint, AT&T created
its own cable Internet experiments called the "Steamboat Project" as
early as February 2000, and by the next month, the company "had a
plan to copy and convert Excite@Home's technology."
Attorneys representing the plaintiffs said the amended complaint
includes crucial new evidence in the case.
"We did not feel like we should go to court without having a lot of
hard evidence we could point to," said Frank Thomas, chairman of the
shareholders' group legal subcommittee. "We all talked about (AT&T's
role) and had theories about it, but now we're able to substantiate
it."
AT&T declined to comment on the pending suit.
The shareholders' class-action suit is just one still pending over
the company's demise, which played out as one of the dot-com years'
most dramatic Icarus stories. Even a year after customers have found
their way to other service providers, the company's story remains a
magnet for critics convinced that parts of the dot-com free fall
could have been avoided.
Excite@Home, once the largest broadband Internet service provider,
collapsed into insolvency a year ago amid allegations by shareholders
and bondholders that AT&T had helped engineer, or had at least
profited by, the company's failure.
As Excite@Home went into bankruptcy last year, AT&T offered to buy
the assets of the struggling company. Bondholders and shareholders
cried foul, saying that it wasn't a good deal and that AT&T had
pushed Excite@Home into accepting bargain-basement prices. The deal
ultimately fell through in part as a result of the opposition. As the
company collapsed, AT&T, Comcast and Cox Communications all said they
were transferring subscribers to their own cable modem networks--in
AT&T's case, built in just a few weeks, the company said.
According to the shareholders' complaint, AT&T's network was actually
the result of much more than a year's worth of effort, in which the
company systematically extracted critical proprietary networking
information from Excite@Home with the aim of constructing its own
competing network.
Siphoning out knowledge?
According to last week's amended complaint, AT&T concealed a plan to
raid Excite@Home technology under the auspices of an "open access"
experiment aimed at letting rival ISPs offer service over its cable
network. A network designer working on the so-called Steamboat
Project had warned Excite@Home management in July 2000 that AT&T was
using the trial "as a means to take and convert Excite@Home's
proprietary technology and that Steamboat posed a direct threat to
Excite@Home's business."
The complaint cites specific instances, beginning in January 2001, in
which AT&T personnel asked for and copied key Excite@Home software
and data, including provisioning databases and engineering and
planning documents. Some of these efforts met with protests by
Excite@Home employees, which were ultimately overridden, the
shareholders allege.
By spring and early summer, well before the service providers had
reached the early throes of bankruptcy, AT&T was already rerouting
some Excite@Home traffic through AT&T servers, a change that made the
ultimate transition of customers to AT&T's network a simpler task,
the shareholders said.
Much of this later action happened under the guidance of Hossein
Eslambolchi, installed by AT&T in February 2001 as
Excite@Home's "interim vice president of broadband services" and
tasked with strengthening a network that was prone to failure.
Eslambolchi's role had previously been questioned by critics who
charged he helped build AT&T's own network with knowledge gleaned
from Excite@Home.
"Once we got in and started to investigate, we found there was
corroboration for virtually every part of the speculation" about
AT&T's role in Excite@Home's collapse, said Rick Rayle, a Lovell &
Stewart lawyer serving as the chief investigative attorney for the
shareholders' group.
However, AT&T and some Excite@Home insiders have previously said
Eslambolchi's work simply brought badly needed stability to a shaky
network. The experienced AT&T engineer--now the head of AT&T Labs--
had no need to tap Excite@Home for networking knowledge, AT&T
insiders have previously said.
Shareholders also alleged, based on interviews with former CEO Hart,
that Excite@Home's financial strength had been badly overstated in
the final months before bankruptcy. The complaint cites Hart as
saying that subscriber and revenue growth projections--largely those
made by AT&T--were inflated by as much as 30 percent over what the
company could justify internally.
The group leading the class-action suit comprises about 200
individual shareholders who have incorporated themselves to pursue
the action. They allege that the actions outlined in their complaint
are evidence of securities fraud on the part of AT&T, directors and
former executives of Excite@Home.
No court date has been set for hearing the allegations laid out in
the complaint. The case is being heard in the New York Southern
District federal court. |
