Broadband Issues
Stock of the Day
Jan 27, 1999
@Home: Stacked for Broadband Success
The times, they are a-changin'. When I talk to my neighbors in the street these days, we don't talk about the Clinton impeachment trial or Michael Jordan's retirement. Instead, we ask if anyone's heard when @Home's cable Internet access will become available in our area. Next month? Next quarter? Did anybody see a cable truck in the neighborhood? Accessing the web through regular phone lines is like trying to suck an entire ocean through a drinking straw. We are all craving serious bandwidth--the fire hose that is cable Internet access.
This little anecdote may not represent the general population of America (yet), but there is unquestionably a nucleus of consumers out there demanding, even starving for, high-speed Internet connections. This nucleus isn't just die-hard fans of web surfing, it includes the fast-growing number of people who work from home either full time or when their not at their office enjoying ISDN or even T-1 access. There is a hungry audience for cable Internet access, and @Home's cable affiliates can't roll out the service fast enough. Just ask my neighbors.
In short, @Home (pronounced "at home") is working with 18 major cable companies to offer Internet access through a cable modem. Using the existing coax cable, 100 to 300 times as much data can gush into your PC per second, turning it into a rich multimedia experience instead of what many now complain is the World Wide Wait. A graphic that now takes 30 seconds to download through a dial-up modem could take one to two-tenths of a second with cable modems. A full-motion video clip that might take 5 minutes now would load in 1.7 seconds. There is almost no doubt broadband Internet access will be a huge hit, and @Home (Nasdaq:ATHM - news) is commonly viewed as the best-positioned pure play for delivering broadband service.
It is about bandwidth, but it's also about consumer reach, programming, and leveraging an audience in ways never before possible. The company has exclusive or near-exclusive access to over 50 million cable subscriber households through its affiliates. Three of the largest cable operators, TCI (Nasdaq:TCOMA - news) , Cox (NYSE:COX - news) and Comcast (Nasdaq:CMCSA - news) , own stakes in @Home. AT&T (NYSE:T - news) and TCI are in a pending merger agreement, and AT&T is now talking with @Home about swapping its WorldNet Internet service with 1.4 million subscribers for a direct stake in @Home (in addition to the large stake it is set to gain from the TCI acquisition). Finally, @Home announced a deal last week to acquire Excite (Nasdaq:XCIT - news) .
These relationships mean that @Home service will be the linchpin to an unprecedented package of services. The package may include Internet access, web content, telephony, digital video and audio on demand, even home banking and any number of other hard and soft e-commerce opportunities. This is called leveraging the customer relationship, and doing it on a scale only now being realized by the hugely-successful America Online (NYSE:AOL - news) .
@Home's close association with TCI, AT&T and now Excite make it the most formidable challenger to America Online in competing for the future of consumer media. Even before the Excite acquisition, the power of @Home's position was apparent if only by the reaction from AOL to AT&T's purchase of TCI. Since TCI is the largest shareholder of @Home, AOL immediately realized what a genuine threat this triumvirate (AT&T-TCI-@Home) is to its dominance in the consumer Internet space. AOL has aggressively lobbied federal regulators to impose restrictions on the AT&T/TCI merger, and behind the scenes AOL has reportedly tried to work with TCI to gain access to its high-speed pipes. AOL is also stepping up plans to offer high-speed access to its service via DSL. The magnitude and immediacy of the response from AOL, otherwise untouchable in its current leadership, reflects just how powerful @Home may soon become.
The company is headed by Thomas Jermoluk, the well-respected former president of Silicon Graphics. William Randolph Hearst III of the Hearst publishing empire is the Vice Chairman. Perhaps most impressive to some, though, is the role of Milo Medin, formerly of NASA Ames Research where at the age of 23 he led the development of the NASA Science Internet. He is considered the man (or at least one of a handful) responsible for the Internet's phenomenal growth by virtue of the fact that he championed the Internet's communication protocol standard (TCP/IP). Now, at the ripe old age of 34, he is VP of networks for @Home, leading the buildout of its private network backbone.
With it's own network, in essence a parallel Internet optimized for speedy and consistent delivery, @Home has more than just a piggyback arrangement with cable affiliates. It can leverage its assets in yet another direction, namely business services through its @Work unit. Here, too, it starts with Internet connectivity but extends to intranet and extranet services. These captured business customers are, like their consumer counterparts, ripe for extension of the business model.
The whole rollout is dependent upon the timely upgrade of the nation's major cable systems. Service is currently deployed in 59 US and Canadian markets. In the fourth quarter, 15 new markets and increased penetration of existing markets helped grow the subscriber base to 331,000, up 58% from the third quarter. Right now the service is only available to 13.2 million homes, or about a fifth of the total cable subscribers @Home can reach through current affiliate relationships, but the bulk of the cable system upgrades should be completed in the next two years.
Forrester Research predicts Internet cable service subscribers will top two million by the end of this yera. By 2002, 16 million homes will use broadband connections, 80% of which Forrester believes will be cable access. The Baby Bells are aggressively rolling out Digital Subscriber Line (DSL) service as an alternative for high-speed connections, and recent price cuts make it more competitive, but DSL still lags in some key performance areas and appears to be destined for second place behind cable.
Most industry watchers agree that @Home offers one of the most compelling stories in this emerging age of the Internet economy. @Home and its strategic partners have the opportunity to leverage a mass-market consumer base in so many directions that this business model might be the case study for the new millennium.
Now it must execute to achieve all that potential. So far, customer churn has been virtually nonexistant, but there's no way of knowing how mass-market consumers will behave especially if they have choices for high-speed access. That's why @Home is assembling a collection of value-added services like Excite to ensure they not only leverage the customers, but retain them.
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