Bolstering its plan to deliver high-speed Internet access over cable television lines, AT&T Corp. said Wednesday that it had agreed to take control of At Home Corp., the cable modem venture.
At Home, which does business as Excite@Home, is the nation's biggest provider of Internet service using cable systems, with about 1.1 million customers. But despite its success, the company has been riven by strategic disagreements among its major shareholders since AT&T became an investor in the company last year.The disputes had cast a pall of uncertainty over At Home's long-term future and prevented the company from moving as quickly as some executives would have liked to take advantage of the surging demand for high-speed Internet links.
"We'd gotten to a point where the lack of clarity, the lack of alignment, was getting in our way on getting important things done," C. Michael Armstrong, AT&T's chairman, said in an interview Wednesday. "This is the Internet space. You've got to operate at Net speed, and we were having a hard time doing that."
Seeking to end the confusion both in At Home's boardroom and among public investors, Wednesday's deal gave AT&T full control -- though not ownership -- of the company. At Home's two other major shareholders, Comcast Corp. and Cox Communications Inc., agreed to step down from At Home's board and to give up veto power.
AT&T will be left with 74 percent voting control of At Home, leading AT&T to say that it would consolidate At Home's future financial results into its own. AT&T said the move would reduce its earnings this year by 5 cents a share. Shares of AT&T rose $1.125, to $60.5625, on the New York Stock Exchange.
AT&T's ascendance was part of a complicated array of announcements Wednesday that were meant to clarify At Home's prospects and strategic direction. One of the first companies to recognize that cable lines could deliver torrents of data from cyberspace, At Home has been considered a highly promising, if slightly dysfunctional member, of the Internet vanguard.
Reversing a decision it made last year, At Home said Wednesday that it had canceled its plans to issue a separately traded stock meant to track the company's media assets, primarily the Excite Web portal.
Even more important, AT&T, Comcast and Cox said they had agreed to extend their use of At Home's communications network and to extend their deals to display the Excite portal prominently on users' computer screens. Under their previous agreement, the three cable carriers had given At Home the exclusive right to deliver Internet service over their cable systems through 2002. Those exclusive arrangements will still end, but under Wednesday's deal AT&T agreed to maintain the Excite portal's prominence through 2008, and Cox and Comcast made a similar pledge to extend through 2006.
After the exclusive deals run out in two years, AT&T, Comcast and Cox will continue to use At Home's network to deliver electronic content and services that may come from other companies, perhaps Yahoo Inc. or America Online Inc.
The dominant theme, however, of Wednesday's announcements was AT&T's new role of control.
"Over the last year, it has been an interesting time -- in or out, back, forth, what's it going to be, what isn't it going to be," Thomas A. Jermoluk, At Home's chairman, said Wednesday in an interview, referring to AT&T's unsettled relationship with his company. "Really it was time for AT&T in particular to make a conscious decision about where their Internet strategy was going to take them and what their relationship would be with the company."
Comcast and Cox will hardly leave At Home's board empty-handed. The two companies each own about 8 percent of At Home, or about 30 million shares. Under Wednesday's deal, Cox and Comcast each won the right to sell their stakes to AT&T for at least $48 a share at any time between next January and June 2002. (If At Home's shares are trading above $48 if and when Cox and Comcast decide to sell, AT&T would not have to buy the companies' entire stakes.) At Home's shares closed at $37.6875 Wednesday, up $3.375, in Nasdaq trading.
Cox and Comcast also won the right to cancel their entire deals with At Home after June 2001. The companies, however, will have strong incentives to stay.
Under the deal, Cox and Comcast each won the right to purchase two shares of At Home for each household to which their standard cable television service is available, a total that could reach more than 35 million shares. The price at which Cox and Comcast will be allowed to purchase those shares was not announced Wednesday, but executives involved in the deal said it was about $30.
Because it agreed to extend its relationship with At Home through 2008, AT&T will be allowed to buy up to about 50 million shares on the same terms, the executives said.
The catch for Comcast and Cox is that their right to purchase those shares will vest gradually through 2006. If they opt out of their deals with At Home, the companies will forfeit those rights.
"From the outset, we have viewed Excite(at)Home as an invaluable strategic partner," Brian L. Roberts, Comcast's president, said in a statement.
David Woodrow, Cox's executive vice president for business development, said in a statement, "We are pleased to extend our relationship with Excite(at)Home."
In the past, however, Comcast and Cox have not been pleased to confront AT&T in At Home's boardroom. For much of last year, AT&T had said that the Excite Web portal had little place in the same company with the At Home cable modem service, arguing that investors would not give the combined entity full financial credit for the strength of such disparate operations.
Cox and Comcast were strong believers that Excite and At Home should remain in the same stock, prompting a furious battle. AT&T eventually won out.
But a curious thing happened on the way to the new stock's initial public offering: America Online's deal to acquire Time Warner. That marriage between the No. 1 Internet provider and the No. 2 cable television company prompted AT&T to reconsider its stance on the marriage of Excite and At Home, executives close to both AT&T and At Home said Wednesday.
In the end, AT&T essentially changed its mind, leading At Home to announce Wednesday that it had canceled the plan for a new stock.
"This is a significant step in the AT&T Internet strategy," Armstrong said. "We've just acquired a terrific involvement and relationship with one of the leading portals and one of the leading broadband communications companies."