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To: HeyRainier who wrote (20)	5/13/1998 12:42:00 AM
From: ftth	Respond to of 36

Hi Rainier, Thanks for dropping by the ghost town. Watch out for the blowing tumbleweeds *** * * * *** :o). Now regarding your last post: <<The big question is: BRCM or ATHM?>> Answering your question is a bit complicated because there are so many unproven characteristics for these 2 companies. I want to try an approach here that I think should attract some input from the bulls and bears of the Broadcom and @HOME camps. We'll try to assess each company's business strategy and competitive advantage. Though they are in different industry sub-groups, there are higher-level industry relationships where making some comparisons could prove insightful. Let's start with the generic industry constraints on profitability: 1. Bargaining power over suppliers 2. Bargaining power over customers 3. Threat of new entrants 4. Risk of substitution by new products We'll discuss each one of these in turn for the 2 companies. After that, we can start with the examination of the industry competition, and the company-specific competitive advantages that drive profitability to arrive at an aggregate rating for the suitability of these 2 companies as a parking place for our investment dollars. Sound like a plan? Having used the products of both companies as a direct customer, I can speak from personal experience, rather than just from what I've heard or read. This will undoubtedly bias some of my judgements compared to what it would be just from second-hand information, but as much as possible, I will try to keep the biases to a minimum. Since I expect the analysis will take some time, it's probably best to break this down into a series of posts. I invite you and any others to take part in this discussion. It is based on the methods outlined in Raymond Suutari's text, Business Strategy and Security Analysis. dh

To: HeyRainier who wrote (20)	5/13/1998 12:45:00 AM
From: ftth	Respond to of 36

[ATHM]Bargaining power over suppliers..................PART I First, this part of the discussion will focus on the @HOME/@MEDIA arm of the company, which together make up the residential services portion of the company's offerings. The @WORK arm of the company operates under very different (and more favorable) constraints. @WORK is the "crown jewel" of the company in my opinion. @WORK will be discussed separately to try and keep confusion to a minimum. BARGAINING POWER OVER SUPPLIERS: The company's end-to-end residential service includes product from the following third-party suppliers (some of these products are shared with the @WORK service): Cisco, Oracle, Sun, Silicon Graphics, Tivoli Systems, Objective Systems Integrators, Netscape, Microsoft, and leased backbone capacity from Sprint with tier-1 peering (this means the national backbone utilized by the company "hooks up" to the internet at the highest-level connection points (the "NAP" or Network Access Point)). This is not a unique connection. All national backbone providers interconnect at the NAP's, which establishes the core concept of the internet. The group of third-party suppliers mentioned above primarily affect roll-out costs of the service. These are not constraining suppliers at present. The company's bargaining power over these suppliers would rate as favorable, as they have strategic relationships with them which allows favorable pricing due to the volume. A second supplier to the residential @HOME service is the company's own @MEDIA arm. @MEDIA aggregates the core service providers offerings (programming, advertising, transaction processing), and supplies them to @HOME (so they are an indirect supplier). @MEDIA's bargaining power over ITS suppliers is "favorable", but will likely improve to "high" as advertisers begin to pay up for the reported response rates (called "click throughs") on the @HOME service which are substantially higher than traditional services. They are also beginning to charge on a "cost per thousand impressions" basis, rather than one time "sponsorship" payments. In addition, these advertisers are provided more extensive usage statistics than they are able to get from traditional services (due to the monitoring capabilities of the @HOME inTRAnet), which makes advertising on the @HOME service (through @MEDIA) a value-differentiated product.

To: HeyRainier who wrote (20)	5/13/1998 12:47:00 AM
From: ftth	Respond to of 36

[ATHM]Bargaining Power over Suppliers.................PART II The third, and constraining, supplier is (are) the cable MSO (Multiple System Operator). These MSO's (potentially) supply the end-user connectivity to the @HOME residential internet service (once they provide the 2-way, broadband connection by upgrading their infrastructure). Bargaining power over these constraining suppliers is very low; in fact, @HOME is essentially "hand-cuffed" by the cable MSO's, as they own the end-user infrastructure for the @HOME service. Although ATHM has exclusive rights as the sole PROVIDER of high-speed (defined contractually as >128kbps) data services (until 2004) with the US cable MSO's that it has contracted with, these cable MSO's are NOT contractually obligated to ever offer the ATHM service to their customers. Nor are they contractually obligated to upgrade their infrastructure to support high speed data services. As well, the cable operators are permitted under their agreement to engage in activities which could compete, directly or indirectly, with @HOME's services. Is any of this likey? I don't think so because none of these clauses are likely to be exercised (it was simply "a way out" for the cable operators if the service proved to be a flop). The cable operators don't have core competencies in the service areas that @HOME addresses. @HOME provides them a turnkey solution. For the cable operators to attempt to develop such services from scratch is beyond their capabilities, and is too large an undertaking / distraction from their core business areas. It is unlikely they could develop a cost and value improvement to the turnkey solution offered to them by @HOME. Another key point is that even when the infrastructure upgrades are "completed" in the future, a person desiring the @HOME service still can't necessarily get it due to the "sole source" nature of cable services nationwide. This is not necessarily as negative as it may sound because, on the one hand, it will never be available to everyone; but on the other hand, those cable subscribers that it is available to have no real choice at present, other than @HOME (this will be discussed further when we talk about competition). PRIMARY SUPPLIER (MSO) CONSTRAINTS: The types of services @HOME can offer are contractually limited (in the US). The "exclusivity" agreements with cable operators covers ONLY high speed residential internet services. Except through special agreement with each cable operator, @HOME cannot collect revenues from streaming video greater than 10 minutes duration (i.e. "clips" only). They cannot collect revenues from telephony services, internet telephony, internet video telephony, or internet video teleconferencing. They cannot collect revenues from local content (cable operators receive all revenues derived from local content distributed locally through portions of the @HOME broadband network to local subscribers). Is this a serious impediment to @HOME's revenue stream? Only if these services become extremely popular, i.e. "must have" with consumers. @HOME had to make concessions in order to get exclusive supplier rights to residential internet. You couldn't expect the cable operators to just let @HOME jump into their infrastructure and make all the money on all the potential new services. These concessions were simply an integral part of @HOME gaining any access at all to the cable operators franchise (and you had to expect that it would be slanted in the cable operator's favor--at least, in the cable operator's view). I've seen no indication that any of these excluded services will be in high demand any time soon, so I don't consider this a serious impediment at present. Such services are discretionary expenses by the consumer, and are more of a novelty feature than a utility feature for most consumers. Business customers, on the other hand, could easily justify the value of video/audio conferencing services. The business arm of the company, @WORK, has no barriers to carrying such services (more on that when I address @WORK specifically). The costs of local marketing efforts for the @HOME service are borne by these "constraining" cable operators (but @HOME assists them in preparing the material), as are the costs of upgrading and maintaining the cable system, installing the @HOME service, and procuring the cable modems. Thus, if the cable operators decide to put off these expenses, @HOME suffers from missed market opportunities. This in fact is hampering unbounded growth at present, but in a sense it is allowing more controlled growth to take place. This may be a blessing in disguise because it allows the customer support to expand at a controlled rate also. Maintaining top-notch customer support is a high priority to the company, and this is evident from the non-traditional, but very effective, organization of this group (see SEC filings for more detail). My personal experiences with customer support have all been positive. Poor or unresponsive customer support is the norm for most every online service I have had, so this is another area that they stand out.

To: HeyRainier who wrote (20)	5/13/1998 12:48:00 AM
From: ftth	Read Replies (2) \| Respond to of 36

[ATHM]Bargaining Power over Suppliers..........SUMMARY Summary: Bargaining power over suppliers for the @HOME residential service would rate as favorable overall. The constraints imposed by the MSO's, although somewhat limiting, are mostly "paper" constraints that aren't likely to have serious impacts in my opinion. On the positive side, what @HOME gets for living within these constraints is a virtually guaranteed eventual market (until June 2004 anyway). It will always be a fraction of the total available market, but it is still a large playing field. International expansion will only add to their available market, and possibly under more favorable terms (as in the case of the Canadian MSO's). dh