A US federal bankruptcy judge ruled Friday that bankrupt service provider Excite@Home can cease service at midnight. Creditors requested the freedom to shut down the network as leverage in ongoing negotiations for either a buyout or more favorable contract terms with cable partners of Excite@Home.
However, it is not a certainty that Excite@Home will stop service. An appeal will be made by cable companies that have contracts with Excite@Home to provide Internet broadband service to subscribers. Negotiations between the companies and Excite@Home also are continuing and could lead to a resolution of the situation.
Judge Thomas E. Carlson did not grant a temporary stay pending appeal. The cable companies intend to appeal immediately, either through the Bankruptcy Appellate Panel of the 9th Circuit or the US District Court for the District of Northern California, said Howard Steinberg, an attorney at Irell & Manella, which represents Charter Communications, a cable company that partners with Excite@Home and whose subscribers would be affected by the service suspension. The cable companies haven't yet decided in which court they will appeal, he said after the hearing at the bankruptcy court here.
Excite@Home, which filed for bankruptcy protection in September, has more than 4 million cable subscribers now caught in the service provider's financial death throes. Excite@Home contracts with cable companies, including Charter, Cox Communications, Comcast and AT&T to provide broadband Internet access to customers and for services like network management.
Creditors wanted the freedom to get out of contracts with the cable companies that have deals with Excite@Home, contending those are not in their best business interest. Attorneys for the cable companies challenged the argument that the deals were not at market rate, but Judge Carlson said the creditors had only to assert that the contracts weren't in their best interest.
Excite@Home creditors' efforts to shut down the service are a tactic designed to draw a better bid from companies interested in buying Excite@Home or to improve on the price paid for existing services by customers.
AT&T made a $US307 million bid in September to purchase Excite@Home after the ISP filed for bankruptcy. But Excite@Home's creditors believe the $307 million offer is too low. AT&T holds a 38 per cent ownership stake in Excite@Home and controls 79 per cent of the company's voting interest. The bid cannot go forward until the bankruptcy court approves it. A separate approval hearing is scheduled for next week.
Negotiations between the cable companies and Excite@Home went through the night Thursday without success, a cable attorney said in court Friday morning. Excite@Home's creditors have maintained in US Securities and Exchange Commission (SEC) filings that the cable companies won't negotiate earnestly unless they face an impending threat of losing service.
Cable companies have been concerned about Excite@Home's future for most of this year, and those concerns were compounded as the Internet service provider's online advertising revenue deteriorated with the economy. The larger cable companies that have contracts with Excite@Home have started building out their own Internet service infrastructures. It is unlikely that they can move all of their subscribers over to alternative services if Excite@Home shuts down soon.