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Can AT&T Stay Excited?

Anxious to avoid antagonizing customers, AT&T is likely to step in with enough cash to keep ailing high-speed Internet service Excite@Home running, but not for very long.

That's the assessment of Wall Street and media and Internet executives as the Excite @Home financial crisis escalates. AT&T is seen as taking the lead because it has the most invested in the company. Chairman Mike Armstrong has spent a total of $5.5 billion on AT&T's 23% stake in Excite@ Home, stock that fell to just 47 cents per share last week. That's generally seen as unlikely to rise, particularly if Excite@Home slides into bankruptcy protection.

More important, though, Armstrong has a million high-speed Internet subscribers with e-mail and Web pages tied up in Excite@Home's Web servers. If Excite@ Home shuts down, they'll be at least as hostile toward AT&T Broadband as they are toward the Internet company. The cable systems that AT&T acquired from MediaOne Group use AOL Time Warner's Road Runner.

Although cable operators install the service, Excite@Home handles a lot of other customer-service issues that cable operators lack the infrastructure to replace.

"It seems to me that AT&T's going to have to keep it alive and administer an orderly transition," said one media analyst.

An AT&T spokeswoman said only that "we will continue to serve customers and our customers can rest assured that they will receive uninterrupted service now and in the future."

Cox and Comcast have almost as many subscribers relying on Excite@Home, and any MSO that bought systems from AT&T lately has "legacy" customers as well. But they're not likely to be as committed at AT&T. "I have a piece of paper that says, as long as @Home is provisioning one AT&T customer, they have to provision ours," said an executive with one Excite@ Home affiliate.

"We'll do what it takes to be supportive, but AT&T won't let it go under."

Right now, Excite@Home operations burn about $42 million in cash monthly, excluding restructuring costs from recent firings. The company has about $100 million in cash and more than $747 million in debt.

The company's auditors warned last week that the high-speed Internet company could be headed for bankruptcy court. Excite@ Home revealed in an SEC filing that accounting firm Ernst & Young has pulled its previously clean opinion of the company's financial situation, saying financial decay raises "substantial doubt about the company's ability to continue as a going concern."

Those are deadly words in accounting-speak and come just after Excite@Home moved to dump Ernst & Young, with PricewaterhouseCoopers taking over by September. Controlling shareholder AT&T Corp. shows no signs of stepping in to prevent a collapse and is expected by analysts to jump in after any Chapter 11 filing.

Excite@Home's financial position is no secret, with warning flags flying last spring as Chairman George Bell was squeezed out. Internet ad spending has plunged. Internet portal Excite, acquired to be the salvation of the capital-intensive @Home, has become a real dog, and ad revenues dropped 64%.