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To: Impristine who wrote (38510)	2/7/1999 11:17:00 AM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164685

18 Statistics Canada, Ryder, Home Shopping Network and Buy.com . We've Been Saying That The Stock Could Grow In Time, But That Hasn't Happened. What Now? We've been as frustrated as anyone with how the stock has traded over the last year, with but a wisp of a gain off of January of 1998. This despite the very real gain in earnings and revenue in that time and coupled with the fact that they have (basically) made every quarter that they've reported since going public (of course there have always been a few small worry points here or there in any given quarter). So either the market is telling us something (specifically that, though SE's earnings may have increased the value attached to those earnings may have decreased dramatically for any series of reasons), or the market's wrong and just doesn't “get” the story yet. We're Getting Antsy Feet, But We're Keeping The Rating Despite our antsy feet on this one, we're still in the glass-is-half-full category. SE's business is solid, its products are good, its customer base unparalleled, and sometime in 1999 we're going to hit the knee of the spending curve on e-commerce technologies/services and Sterling will be right there at the right time. Sure, many of the “worry issues” that have plagued both Sterling and the electronic commerce space generally, like a soft pricing environment, international weakness, and a shift toward NT and PC platforms, remain out, they haven't manifested themselves in any metric we track of this company's business.. Our valuation, of 28X's our FY:99 EPS estimate of $1.60, is within the long range EPS growth we forecast for this stable grower. We're maintaining our Buy (2) rating on SE. Observations A Shot Across The Bow? A slight chill went up our backs when we saw the news cross the tape that AT&T had cut a deal with Time Warner. Our first question was: does it involve Road Runner, Time Warner's fledgling cable Internet access service? The answer, gladly for AOL, is no. First the specifics: the deal involves offering AT&T's telephony services over cable lines in 33 states, boosting the long distance company's bid to enter local phone markets. The joint venture will offer telephone service to households served by Time Warner cable. AT&T will own 77.5 percent of the new company, and will pay Time Warner about $300 million for exclusive rights to offer phone service though the cable network for the next 20 years. On top of that, AT&T will also pick up some of the costs of upgrading the cable network to handle phone traffic. Time Warner's network reaches about 20 million homes, with about 13 million customers currently subscribing to the company's cable TV services. The new joint venture will begin telephony trials in one or two markets this year, with a broader rollout in 2000. Both AT&T and Time Warner emphasized that Road Runner is not a piece of the new partnership: “we had no conversations as part of this joint venture about AtHome or about Road Runner,” stated Leo Hindery, president of TCI. For his part, @Home's Tom Jermoluk stated that “it's just too obvious to everybody that the combination [of AtHome and Road Runner] is immeasurably stronger than one plus one, if you can get all of cable to be able to use a harmonized platform. So the technology of it and the desireablity of it are huge and compelling.” We've long held the view that AOL could (and probably should) sign a deal with Time Warner's Road Runner service in order to have a cable partner as broadband evolves. Though we think AOL's xDSL initiatives are compelling, we (as