And now for the possible reasons:
"DIFFERENT VISIONS. Why would they suddenly consider reversing course? One source chalks it up to a behind-the-scenes dispute over strategy that pits Excite@Home's Jermoluk and high-powered venture capitalist and Excite@Home board member L. John Doerr against AT&T CEO C. Michael Armstrong and top lieutenant Leo Hindery Jr.
Jermoluk and Doerr want Excite@Home to be like an AOL on steroids, offering everything from high-quality video and sound to sophisticated interactive programming and E-commerce. The idea would be to keep subscribers on their site as much as possible, thereby competing more aggressively with AOL and grabbing more advertising dollars.
By contrast, AT&T's top brass want to offer subscribers content over the @Home network from as many companies as possible, including Yahoo and Microsoft. They believe that's the fastest way to ramp up the number of paying subscribers to @Home and help pay off the billions of dollars they're investing in their cable infrastructure.
But having to play second fiddle to Excite's offerings rather than enjoying equal billing could give other content providers reason to snub AT&T. "Excite@Home wants to be the other AOL -- a largely closed online service," says one person involved in the debate. "The problem with that is that hurts the value of the communications network."
LOSS OF CONTROL. But AT&T may have a tough time getting its way. Though it has 58% of the voting rights in Excite@Home, it doesn't have complete control. That's because of a byzantine governing structure set up by cable pioneer John Malone, who established @Home in 1995. To take significant actions such as selling Excite@Home, AT&T needs the support of other board members, which include Cox Communications and Comcast Communications.
One source close to AT&T says that Doerr, a board member and top partner at the venture capital firm Kleiner Perkins Caufield & Byers, opposes a deal with Yahoo because he believes that Excite@Home is worth more with its current business plan than if it were to go with Yahoo. This source said Doerr and other board members could be persuaded if Yahoo offered a sweet enough price. Doerr was unavailable for comment.
While AT&T would not comment on any negotiations, its view of what Excite@Home should become clearly contrasts with any plans of empire-building at Excite@Home. "We're not interested in being a content company," says John Petrillo, AT&T's head of corporate strategy. "We don't want to buy a movie studio."
Petrillo says that AT&T, with executives from Excite@Home, have talked to a wide variety of Internet companies about wrapping their content in with the @Home access service. Those named included Microsoft's MSN, Disney's Go, and NBC's snap.com. "We're better off if we offer the customer as much choice as possible."
Publicly, Armstrong and Jermoluk have supported their partnership. On July 27 when Excite@Home held a meeting for Wall Street analysts at its Redwood City, Calif., campus, Armstrong flew out from headquarters in Basking Ridge, N. J. He explained AT&T's corporate strategy and emphasized how important the rollout of broadband cable was for the long distance giant, according to participants.
"We were impressed by his tone," says Michael Graham, the Internet analyst at BancBoston Robertson Stephens who attended the meeting. Occasionally, though, disagreements have surfaced. For example, Hindery, a former TCI executive who now oversees AT&T's cable operations, has said that he thinks the Excite acquisition contradicts AT&T's stance of staying out of the content business.
Yet Jermoluk remains steadfast, noting that Armstrong supports the acquisition.If Excite@Home is sold, it would help AT&T in its battle with AOL and other companies over "open access." These rivals are arguing that AT&T should have to share the use of its cable network to supply broadband connections to the Net. A handful of municipalities, including Portland, have ruled that AT&T must open up its network to competitors, while Federal Communications Commission Chairman William E. Kennard has publicly supported AT&T.
HELPING AT&T. If AT&T opens up @Home to a variety of content providers beyond Excite, AOL will have less leverage to argue that AT&T is blocking out competitors. A source close to AT&T says that the open access firestorm is not the primary reason for the talks with Yahoo, although an Excite@Home deal would help AT&T's regulatory position.As for Excite@Home, its relationship with AT&T has had its ups and downs. One source close to Excite@Home describes the alliance as "frustrating."
Nonetheless, this source says Excite@Home could be well-served by sticking with AT&T if it can get Armstrong's team to focus on the company's mission. If not, then the source says a deal with Yahoo might be more attractive. "If AT&T is willing to make a full commitment and see this to the end, then I think it's better to stay as it's set up," the source says. "But if AT&T and the cable guys can't decide what they want, then Excite@Home should go and be with somebody who will focus on it."
For Yahoo, the acquisition could be manna from heaven. It had considered buying Excite late last year before @Home stepped in with a winning offer. But a deal now would not only greatly extend the reach of the Web's dominant portal. It would also supply Yahoo with something much more valuable: The broadband strategy it has been lacking. Yahoo needs a cable distribution channel to carry the rich media it is currently folding into its vast network. Yahoo declined to comment.
Since January, Yahoo has been on a buying spree in an effort to expand its services and offerings. It bought Internet community leader Geocities Inc. on Jan. 28 for about $5 billion in stock. On April 1, it plunked down another $5.6 billion in stock for Broadcast.com Inc., the largest provider on the Web of video and audio programming. A deal with Excite@Home clearly would allow Yahoo to make more of what it already has. Now it just has to figure out a way to get it.
By Linda Himelstein in San Mateo, Calif. and Peter Elstrom in New York
EDITED BY DOUGLAS HARBRECHT
8/2/99 7:16 PM" |
