Excite@Home service to end in 90 days

Bankrupt Internet service provider Excite@Home will cease operations in 90 days, according to sources close to the negotiations...

Bankrupt Internet service provider Excite@Home will cease operations in 90 days, according to sources close to the negotiations between the company and its cable partners.

The move will mean the cancellation of stop-gap funding agreements made on 3 November to keep the Internet service going.

AT&T, meanwhile, said it is dropping its $307m (£217m) acquisition bid for Excite@Home. The move comes after Excite@Home shut down its service to AT&T in the wake of a bankruptcy court hearing last week.

A US federal bankruptcy judge ruled on 30 November that Excite@Home could shut down its service. Excite@Home creditors wanted to shut down the network to put pressure on Excite@Home's cable partners and potential buyers, in an effort to get better terms on contracts and a buyout. But now, with AT&T dropping its bid for the ISP, the gambit has proven to be a mixed bag.

By threatening disconnection, Excite@Home managed to squeeze $355m out of its partners, which came up with the money to help keep the Excite service going. Cox Communications and Comcast Cable Communications provided the largest share of the payment to ensure three more months of continued service.

Excite@Home has now decided that once that three-month period is over, it will stop its services, according to the source close to talks between the company and its partners.

"The company has hard assets that can be liquidated: individual pieces of the technology," said Lydia Leong, an analyst at analyst firm Gartner. "They have technologies that might be valuable to someone, but I don't think it will be a lot of money."

After the bankruptcy court hearing on 30 November - when AT&T neither raised its acquisition bid nor came up with additional cash to help the failing service provider - Excite@Home made good on its threat to cut off 850,000 of AT&T Broadband's cable Internet subscribers. AT&T has now decided to withdraw its bid to buy the company.

Guaranteeing uninterrupted service to its customers formed a major part of the reasoning behind AT&T's acquisition bid in the first place, said Eileen Connolly, an AT&T spokeswoman.

"The $307m wasn't [just] for routers and switches," she said, noting that AT&T is building its network infrastructure, to which subscribers who formerly used the Excite@Home network are rapidly being switched.

A source close to the negotiations said AT&T had been asked to pay $125m for continued service, and had agreed in principle, but creditors would not provide suitable service guarantees to ensure that Excite@Home continues operating.

What remains unclear, according to the source, is whether the other cable companies that provided the $355m face the risk that Excite@Home creditors will go back to bankruptcy court soon anyway, get the service halted again and pocket that money.

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