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Excite@Home Adds a New Service

The leading high-speed Internet service provider today announced the launch of a software subscription service, which it hopes will boost monthly revenue and help attract subscribers. This attempt to derive additional value from its network makes sense for Excite@Home, and other broadband Internet providers will likely follow suit.

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By Chris Rugaber (TMF RFK)
November 27, 2000

Broadband cable Internet provider Excite@Home (Nasdaq: ATHM) has launched a software-subscription service, enabling its customers to use a variety of computer applications without ever making a trip to the store. Today's announcement arrives amidst much hand-wringing by investors and the financial media over how (or whether) telecom and cable companies will make money from their newly upgraded, high-priced networks. As a result, investors should pay attention to whether this kind of value-added service materially adds to Excite@Home's bottom line.

To use the service, which will be free to the company's subscribers for one month, customers will download a "software player" program that accesses applications from a remote server, thereby avoiding extended downloads (and presumably enabling Excite@Home to control access). Payment plans vary, but generally consist of a flat monthly fee around $9.95 for unlimited use, with surcharges of $2.99 to $3.99 for 48-hour rental of the latest software releases. While much of the service seems to center on games, education and business applications (such as Lotus Organizer) as well as reference software (such as dictionaries) are included.

Certainly, the appeal of such a service is not hard to grasp: instead of having to buy the latest version of a particular program, or having to continually purchase games for your children (or yourself) after they (you) tire of the previous ones, you can save money by essentially renting software instead.

Value-added services
How this initiative fares will probably have an impact on more than just Excite@Home's bottom line. While most other broadband-service providers, particularly the baby Bells with their DSL services, are still focused on upgrading their networks and achieving a critical mass of customers, they will soon face the same challenge as Excite@Home: how to avoid becoming a provider of a low-margin commodity service. Cable and telecom companies need value-added products to differentiate themselves and to increase the return on the substantial investments they've made in their networks.

For example, in July of this year, Enron's (NYSE: ENE) broadband subsidiary contracted with Blockbuster (NYSE: BBI) to set up a video-on-demand service that it plans to test by the end of this year, and roll out next year. Last week, British Telecom (NYSE: BTY) announced that it plans to work with entertainment companies to develop original programming for its high-speed service, BTopenworld. British Telecom, a stodgy, debt-laden former telecom monopoly that is currently undergoing a restructuring (sound familiar?), may not strike most people as a likely source for entertainment, but like any other telco, the company needs to attract and profit from broadband subscribers.

An additional consideration for Excite@Home and other high-speed service providers is how their proprietary entertainment and other services will fare against independent competitors that will likely exist on the Web. For example, Seagram's (NYSE: VO) Universal Music Group announced last week the addition of an interactive game show, "Name that Jam," to its "musicUwant" website, which is specifically targeted to broadband users and is available to everyone, regardless of how they access the 'Net. If competing services are available on the Web, it may prove difficult for broadband Internet providers to use proprietary services to attract subscribers.

Excite@Home needs the money
Either way, for Excite@Home today's announcement is none too soon. As has been previously discussed in the Rule Breaker portfolio, the company's revenue per subscriber has been declining steadily for several quarters. The company recorded $111.96 in revenue per subscriber in the fourth quarter of last year, which dropped to $73.50 by the third quarter of this year.

According to a spokesman, Excite@Home doesn't currently have any future revenue projections for this new service, which in and of itself may prove to be small potatoes. But investors who've watched the shares of many telecom carriers fall through the floor this year due to concerns over their high capital expenditures will want to keep an eye on this and other, similar services, for they may be what the carriers need to boost their sagging fortunes.

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