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Merger Creates Monster Broadband Firm

Amsterdam-based United Pan-Europe Communications NV Tuesday teamed up with Excite@Home to form one of the largest broadband companies outside of the U.S.

The merger combines UPC's Chello Broadband NVsubsidiary with Excite@Home's international operations in Europe, Latin America, Australia and Japan.

Dubbed Excite Chello, the merger features Excite@Home's international portal, media and high-speed data ventures with Chello's high-speed Internet operations and its exclusive access to the broadband networks of UPC and its business partners in Europe, Asia and Latin America.

The combination of the companies makes Excite Chello the operator of the largest cable footprint outside North America.

Liberty Media Corp. will invest $187 million in Excite Chello in the form of a note convertible into Excite Chello shares. ExciteAtHome and UnitedGlobalCom Inc., the owner of United Pan-Europe Communications, will each invest 100 million euros.

Liberty has a controlling stake in UnitedGlobalCom.

Analysts say Chello/Excite@Home stands to have a big advantage over competitors in Europe.

"In connectivity, Excite Chello is competing with all the normal names which use DSL and satellite connections. (And) it has a first mover advantage there," Jamie Wood, technology analyst at JP Morgan & Co., told Reuters.

European carriers such as Deutsche Telekom's Internet service provider T-Online and France Telecom's Wanadoo rival have recently begun offering broadband services.

But such companies tend to upgrade ordinary copper telephone wires with DSL, leaving Chello/ExciteAtHome with a dominant position on higher cacity TV cable wires. And analysts say it has an 18-month lead over DSL entrants.

George Bell, Excite@Home chairman and chief executive officer said the deal creates global scale in the Internet's most dynamic growth area, broadband services.

"We have watched Chello Broadband's growth and success in Europe and believe that the combination of assets in our new venture cannot easily be replicated," Bell said.

Bell added that the broadband company would be unrivaled by competitors in the regions for years to come.

"The two companies are the early leaders in the North American, European and Asia Pacific broadband markets and we know how to win," Bell said. "Excite Chello presents a rare opportunity to take everything that we have learned and built over the past six years and use it to accelerate the global broadband market and create an instant leader in the field.

Mark Schneider, UPC chairman and chief executive officer, said Excite Chello would deliver a compelling broadband proposition to subscribers.

"Excite@Home has demonstrated its leading media and broadband credentials throughout its markets," Schneider said. "Furthermore, this merger gives us a way to reach narrowband Internet customers worldwide through the Excite portal. The momentum this transaction generates will maximize our growth opportunities as we continue to enter new countries."

The two also intend to marry their advanced television device and platform strategies, combining Excite@Home's set-top platform technologies with Chello's exclusive rights to roll out television set-top box services to the current UPC footprint.

Excite@Home's Bell said set-top-box deliver of broadband services would dominate the market.

"The marriage of our set-top box technology with Chello's exclusive set-top box footprint is a powerful combination and we expect this to be one of the most promising areas of development in the global Internet marketplace," Bell said.

Before the ink dries on the deal, Excite Che