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Judge Allows [email protected] to Cancel Contracts; Others Ready to Take Up Slack

A San Francisco bankruptcy judge permitted [email protected] to cancel its existing contracts Friday afternoon, but cable companies that provide the high-speed Internet access were still trying to work out a deal to continue service.

AT&T Broadband, Cox Communications and Comcast Corp. were still trying to strike a deal by the Nov. 30 midnight deadline to allow service to temporarily continue so [email protected]'s four million subscribers would not be left without their broadband access.

The ruling was a win for [email protected]'s creditors, because AT&T's $307 million buyout offer for the financially-troubled high-speed service would not have been enough to pay [email protected]'s debts.

In addition, Judge Thomas Carlson said Friday that he was confident [email protected] and cable providers would make new arrangements so service would not be discontinued, according to Reuters.

[email protected] representatives went before a San Francisco bankruptcy court Nov. 30 to determine whether it could immediately discontinue service if its contracts with its cable providers could not be renegotiated.

The move was not expected to harm advertisers, and both Cox Communications and AT&T said last week they would transfer Excite's customers to their broadband services if the bankruptcy judge ruled to discontinue service.

“Cox, AT&T and Comcast are all trying to work together. In the unlikely event that we wouldn't come to an agreement, then we all have our contingency plans,” said Susan Leepson, a spokesperson for Cox. AT&T and [email protected] did not return calls.

“Cox and AT&T are going to continue to offer the service and come up with a solution for the customer because they're the ones getting the bulk of the monthly fees,” said Steve Sheiner, chief revenue officer at Vivendi Universal Net, a new Vivendi Universal division that handles its Web properties. “All they were doing is paying a small licensing fee to Excite for the privilege of having Excite essentially give them content and create an interface to the consumers.”

Sheiner was executive vice president, sales and marketing, at MP3.com, which was bought by Vivendi Universal. He believes broadband is key to delivering better quality content to subscribers.

“I don't think you're going to see much disruption in service to consumers, especially since those consumers are highly profitable,” he said. “That's $45 to $50 a month [per customer].”

However, Cox has not finished the infrastructure for its high-speed Internet service and does not know when it will be available.

Advertisers likely had short-term contracts or were getting ads for free, observers said. A review of current banner ads on Excite.com showed ads primarily for charities such as United Way and e-learning firms.

[email protected], Redwood City, CA, provides high-speed Internet access to 4.1 million subscribers worldwide, all but 400,000 of them in North America.

It had warned of financial problems since this summer, and filed for bankruptcy in early October. Bankruptcy protection would let the company continue to offer high-speed Internet access service, a spokesperson said at the time. In late September, [email protected] said it would close its MatchLogic online ad service, lay off 500 employees and refine the services of its portal, Excite.com.

AT&T has offered $307 million for [email protected]'s assets, but creditors say that figure is low because Excite has $1.3 billion in debt claims.

Industry observers stressed that [email protected]'s failure does not signal a lack of confidence in consumer and advertiser support for broadband services. Problems resulted from [email protected] having too many irons in the fire.

“They really represent the Internet craze at its worst … [with] strange and bizarre acquisitions, such as [online greeting firm] Blue Mountain Arts for close to $1 billion in stock and cash,” said Bill McCloskey, president of Emerging Interest LLC, a consultancy to marketers on emerging technologies. “They just seemed to be making acquisitions for the sake of making acquisitions, rather than having any sort of overall plan.”

[email protected]'s executives lacked a plan that would allow all the firm's acquisitions, including MatchLogic and Enliven, to work together.

“They couldn't even use their own products because it was almost a conflict of interest,” McCloskey said. “They needed to work with lots of different ad-serving companies and rich media technology companies because they were a portal. On the other hand, they [owned] these rich media companies and serving technologies that they really couldn't promote.”

[email protected]'s broadband service also had limited success because it was available only through certain cable companies, such as Cox and Cablevision, and in certain regions. “They never really did have the kind of reach they proposed they had,” McCloskey said. “I think they had more users in Canada than anywhere else in the world.”

“I don't think broadband is going away,” said Ned Hickock, managing director of Greenfield Consulting Group, Wilton, CT. “This is just another notch in the belt of death for these Internet start-ups. Big, established companies are stepping into the fray … and the slack will be picked up.”

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