The Day Ahead: AT&T grabs Excite@Home, but questions still linger

But there are a few more questions lingering.

Once you sort through the details of Wednesday's announcement, the bottom line appears to be this: AT&T gets to milk the Excite@Home cow without buying it outright.

The agreements to extend Excite@Home's distribution pacts with cable partners AT&T, Comcast and Cox Communications simplify a lot of issues.

The AT&T deal means Excite@Home has a more straightforward corporate governance -- AT&T runs the show with 74 percent voting power. The distribution pacts with AT&T, Cox and Comcast ensure Excite@Home won't be disappearing when the cable trio opens up to other Internet service providers.

That's the good news. Now for the unresolved issues.

How will ATHM shares trade?

Excite@Home and AT&T have eliminated a lot of uncertainty about Excite@Home's future. Shares gained on Wednesday, but will the run continue?

One analyst, who requested anonymity, said he viewed Excite@Home almost like a tracking stock. Tracking stocks are meant to "track" individual units of larger companies. Investors can buy into tracking stocks, but they have little clout on the board of directors.

Excite@Home will remain independent and report earnings separately, but AT&T will lump in Excite@Home's results with its own.

"Excite@Home is effectively an operating unit as a function of voting control," said Paul Merenbloom, an analyst with Prudential Securities.

If it walks like a tracking stock, talks like a tracking stock, it may just trade like tracking stock.

What about Excite's media assets?

CEO George Bell said the deal with AT&T eliminates the need for a Excite@Home tracking stock covering media assets such as Matchlogic and Enliven.

Does it?

Many analysts said Excite@Home's media assets are buried and will remain that way under the AT&T deal.

Excite@Home would do shareholders a big favor by spinning off a prized property such as Matchlogic.

What cable partner got the best deal?

Although analysts said AT&T may get some leverage on America Online with the Excite@Home deal, Cox and Comcast appear to be the big winners. Excite@Home could lose.

AT&T will carry Excite@Home as the featured -- but non exclusive -- service on its start page through 2008. AT&T will carry Excite@Home exclusively until it opens its cable pipes in 2002.

That arrangement means Excite@Home and AT&T are married for about 50 years in Web time.

Now let's look at Comcast and Cox. Sure, Comcast and Cox will give up voting rights, but the companies can also exit their exclusive arrangement with Excite@Home in 2001. Comcast and Cox will be free to rake in fees from other Internet service providers.

And to allow Comcast and Cox an exit strategy, AT&T has agreed to give the two cable partners the right to sell their shares in Excite@Home to AT&T for a minimum price of $48 (£30) a share any time between January 1, 2001, and June 4, 2002. Henry Blodget, an analyst with Merrill Lynch, notes that public shareholders don't have the price protection that Comcast and Cox has.

If Comcast and Cox stick around on a non-exclusive basis, Excite@Home hands out warrants like candy through 2006. Comcast and Cox can't lose.

Blodget said an operational upside from working with AT&T will be offset by Excite@Home’s grant of warrants up to 100 million new shares to its cable pals.

How will AOL vs. AT&T play out?

The Excite@Home-AT&T did accomplish one thing -- it created two behemoths on the open cable access front. The players are clear: AOL Time Warner vs. AT&T and Excite@Home.

Prior to the deal making, it was primarily AOL, AT&T and Excite@Home in the broadband wars. Now it's just AT&T and AOL at the table. AOL, which recently bought Time Warner, may view AT&T as a content peer instead of just the company with access to cable pipes.

AT&T and AOL will still wind up working together, but the dynamic between the two companies could change with Excite@Home in the fold. AT&T, for better or worse, will find itself tied to the content business. In a Goliath vs. Goliath war, AOL still wins in the content department.

The other wild card is Microsoft. Microsoft not so long ago invested heavily in Comcast. If Comcast gets out of the Excite@Home pact early, look for Microsoft to enter the fray. Will Microsoft and AT&T get chummy just to battle AOL?

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