Comcast announced that it will allow Juno to offer its services over Comcast's cable lines beginning next year, on a test basis. This makes it the third cable company to voluntarily move toward "open access." For Juno and Comcast, it looks like a good deal. For poor Excite@Home, though, it may mean that the company will lose its exclusive footing earlier than it expected. The company has no choice but to just deal with it.
By LouAnn Lofton (TMF Lou2)
November 29, 2000
Comcast (Nasdaq: CMCSA) , the third-largest cable provider in the country, announced today that it will open its cable lines to unaffiliated Internet service provider (ISP) Juno Online Services (Nasdaq: JWEB) on a test basis. The move marks the third time this year a cable company has voluntarily gone the route of "open access."
AT&T (NYSE: T) , the largest cable company in the U.S., has been conducting test offerings over its cable lines for ISPs this month in Colorado, and Time Warner (NYSE: TWX) recently announced a deal with EarthLink (Nasdaq: ELNK) . It looks like everyone wins today -- except much-maligned Rule Breaker holding Excite@Home (Nasdaq: ATHM) .
The debate over "open access"
At issue is competitors' access to the cable companies' "fat pipelines." Unlike telcos, which are considered "common carriers" and must allow their lines to be used by any ISP that wants to, cable companies aren't regulated the same way. There has been some talk of forcing the cable companies to open their lines, but regulators have been hesitant to do so and cable companies are conducting lots of open access "tests." As it is now, a customer that wants to have America Online's (NYSE: AOL) Internet service, for example, through an Excite@Home cable modem connection offered by Comcast has to pay for both the Excite@Home service and the AOL service.
This is because Excite@Home, which I fitfully own, is majority owned by AT&T, as well as Comcast and Cox Communications (NYSE: COX) . Until now, Comcast has only offered Excite@Home's broadband services, and if you wanted anything else, you had to pay for it on top of the Excite@Home charges. Comcast customers will almost certainly have a choice in the future, if the testing goes well and the cable company decides to offer Juno's (and possibly other ISPs') services. It also has to amend its exclusivity deal with Excite@Home before it can do that.
Implications for Juno and Comcast
What's this mean for everyone involved? Well, for Juno, which supposedly signed a preliminary deal back in the summer with Time Warner to get access to its cable lines, this is a positive development. It'll have greater customer reach even if the Time Warner deal ends up folding. If that deal happens, too, that would be even sweeter for the company.
Comcast is in an interesting position. The company owns part of Excite@Home, and should it offer Juno's services now it will be offering direct competition to Excite@Home. However, Comcast will have an option in January to sell its stake in Excite@Home for $48 a share to fellow owner AT&T, which has expressed an interest in buying so that it can gain full control of Excite@Home. Considering that Excite@Home is trading around $6 a share now -- and that Comcast and AT&T haven't always seen eye-to-eye about the best path for Excite@Home -- it's not far-fetched to think that Comcast will bail.
Comcast still has a deal with Excite@Home, though, to make it the exclusive provider for broadband cable services until the second half of 2002. Comcast says, however, that it will have opportunities to alter that next year, and that it can go ahead with the ISP tests now. Given that the other two big cable companies have signed similar "test" agreements, this move from Comcast isn't all that surprising.
Implications for Excite@Home
For Excite@Home, today's news means that this competition is coming quicker than the company probably expected. The company's exclusivity agreements -- some of them ending in 2002 and some in 2006 -- had been one strong argument for its ability to gain subscribers and get a jump on the competition. With Comcast as well as AT&T now testing other choices, Excite@Home may have to compete earlier than it had anticipated. From the sound of it, Comcast intends to wrangle out of its exclusivity agreement, so this quickened competition seems like a near certainty.
There's no guarantee yet that either AT&T or Comcast will actually end up offering those other services over their cable lines. These are just tests to figure out the possible technicalities with multiple ISPs using the same cable pipes. AT&T and Comcast are not even figuring out the revenue breakdowns between the cable companies and the ISPs for these offerings, which is still a contentious issue for all involved. However, the reality still looms for Excite@Home. For the cable companies, giving customers choices makes sense, from a business perspective and a political one. Excite@Home and its shareholders, are just going to have to learn to deal with it. But when your stock's down from a 52-week high of $55 15/16 to $6 a share, that is one bitter pill to swallow.
