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Excite@Home
End of Residential DSL?

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By sweeethome
May 30, 2001

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Today Covad finally held its 4th quarter 2000 conference call. Yes, that's right... 4th quarter 2000. It was really pathetic. Covad repeated the same boilerplate from yesterday's press release. The Q&A consisted of marshmallow questions from the only analyst who maintains a strong buy rating. It was really sad and cynical to hold the screws to the stockholders, and then hold the conference call two hours before a three-day holiday when most traders have already gone home.

Next, Tuesday will certainly mean across the board downgrades for Covad. I would have to believe after the contempt Covad has shown for its creditors, shareholders, the Nasdaq, and SEC it will be delisted on Tuesday. If so Covad will join Rythms, which will be delisted from the Nasdaq on May 30th. Yet, Covad had the nerve to say today that it cannot talk to the press since it is now in a quiet period pending its posting of 1st quarter 2001 earnings.

Furthermore, it is highly likely that Covad's creditors will move for a bankruptcy declaration since Covad's auditors have questioned its viability as an "ongoing concern." The creditors are already saddled by the FCC with funding a 60-day grace period before shutting down Covad's network.

Why is this important? Because IMO it means the end of residential DSL. SBC and Verizon have been saying that there are insufficient margins to support DSL at even $50 bucks a month. Now Qwest, the most swashbuckling of the ILEC's, has joined SBC in announcing that they will be slowing the capital spending needed to rollout DSL. That was after last month's press release stating that Qwest and MSN entered into a DSL broadband partnership.

Perhaps the ILEC's have been right all along and today marks the end of residential DSL. I bet after today, average consumers will find it very difficult to acquire DSL. Lets face it... you just don't see it advertised anymore. And the FCC and Congress will have to wake up to the economic reality.

Two years ago I am sure the Board of Directors of ATHM were being bombarded by questions from the press and analysts about what they were going to do about the DSL threat. ATHM launched a partnership with Rythms called @WORK that offered DSL. It tanked. Now DSL is no longer a serious residential broadband threat. Who knows, with Docsis 1.1 maybe cable will be a serious threat to business DSL and T1 lines.

Remember, not long ago many business journalists and market analysts (remember Blogdet?) believed that "Content was King" and there was no money in being a just an Internet "Common Carrier." ATHM had to develop a content strategy and attract advertising revenue. Once again ATHM caved in to the conventional wisdom and got sidetracked. @Home Networks became Excite@Home and we have lived to regret it.

The purchase of Excite could now result in ATHM's bankruptcy and everybody today claims that they knew it was a mistake from the start. However, I still believe that Excite and other media properties can be sold for a decent price.

Today, it seems to me that @Home is struggling to rediscover its original business model. It was easy to bash George Bell and the board of directors at the time of the Excite purchase but they were caught up in the spirit of times at the height of the tech bubble. Lets face it, we all were.

Likewise, today it is easy to read the press on ATHM and agree with the conventional wisdom is that @Home will go bankrupt and AT&T and Cox and Comcast will gladly pick over its remains. I just don't see it that way. I think that it is very likely that @Home can rediscover itself in the next couple of months.

I can list several critical requirements that must take place before one can expect a major turnaround with @Home. The death of residential DSL was one of them. (Consumers now clearly know that if they want broadband, cable is their best choice.) The other requirements are increases in the monthly price by Cox and Comcast, the sale of Excite and Matchlogic, the partnership of @Home with the PC makers and retailers to lower the cost of obtaining subscribers, carriage agreements with the media giants left out of AOL's Walled Garden, and finally a strong track record of several months of network stability to reassure the MSO's that ATHM knows broadband.

Today was just one step on the road back.