Keith Rodgers: Out of the valley

Excite edges closer to the cyber abyss
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It's not every day you can call the end of a company which is still trading on the stock market, but these aren't ordinary times. As Excite@Home, the high-speed internet service provider and media operation, plunges from crisis to crisis, the spectre of bankruptcy looms larger. Despite the backing of AT&T, one of the highest-profile stories of the internet era is reaching a familiar denouement.

Formed in 1999 through the merger of the Excite web portal and the cable-based internet-access operation @Home, its huge cable TV reach – at the last count, it claimed 3.7 million US subscribers – provided a formidable distribution infrastructure for its web-based content. It looked a force to be reckoned with.

But today its stock languishes at around 40 cents, down from $9.88 (£6.77) at the start of the year and a 52-week high of almost $17. It shares face delisting, two prime cable contracts are being terminated, one of its investors has demanded its money back and the company has warned that it may run out of cash before the year is out.

Even by internet standards, Excite-@Home's fall has been dramatic. While its internet subscriber base has continued to grow fast, the online advertising and marketing revenues that support its portal operation have collapsed, falling 62 per cent year-on-year in the most recent quarter. Despite efforts to cut jobs and costs, the company is devouring funds. Earlier this year it raised $85m through a financing agreement with AT&T, and a further $100m in a convertible note arrangement. It wasn't enough. Last month, its auditors warned of substantial doubt about its ability to continue as a going concern.

Multiple problems underlie that warning. For one thing, there's no near-term expectation of a recovery in advertising, and the company's efforts to find a buyer for the media business have so far been to no avail. Additionally, its continuing failure to meet Nasdaq's listing requirements could be critical: repayment of the $100m convertible notes will be automatically accelerated if delisting occurs. Although it may be able to head off that threat in the short term with a proposed stock split, half the loan is the subject of a separate dispute with Promethean Investment Group, which has demanded repayment. Meanwhile, the internet-access business has its own troubles. From December, Excite@Home's contracts with two key cable partners, Comcast and Cox, will go non-exclusive prior to complete termination next June, opening it up to intense competition.

AT&T will now be a key player in the endgame, and not just because it owns 23 per cent of the company and controls the board. AT&T is looking to spin off or sell its own broadband business, but part of the infrastructure that supports its internet-access operations is owned by Excite@Home. With the likes of AOL Time Warner and Comcast interested in doing a deal on the broadband arm, it's in AT&T's interest to see a quick resolution of the saga.

All of which is a big headache for Excite@Home's chief executive, Patti Hart. Once named in Fortune magazine's listing of the "50 most powerful women who influence corporate America", she joined in April after a highly successful 15-year career at Sprint. Her timing, it seems, could hardly have been worse. Excite-@Home has now called in an investment banker to advise on its options – but it's not clear how many choices are left.