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ExciteAtHome Can Shut Down

A Judge for the U.S. Bankruptcy Court for the Northern District of California Friday sided with bondholders of Excite@Home , forcing the company to block service to some 4.1 million users worldwide.

The service was scheduled to be shut down as early as Saturday at the request of creditors who are owed hundreds of millions of dollars.

In preliminary rulings, Judge Thomas Carlson said the Redwood City, Calif.-based broadband Internet provider can break its contracts with other cable companies. "The debtor (Excite) should not be forced to accept the offer the cable companies find advantageous," says Carlson.

But, negotiations are expected to continue well past the midnight deadline. If creditors are able to make a deal with the cable companies that have a major presence on the @Home network, the entire network could stay afloat. "We are continuing to talk with ExciteAtHome and are hopeful there will be no interruption in service for our high-speed Internet customers as we work to reach a resolution," says Comcast Senior Vice President David Juliano.

Earlier in the morning, Federal Communications Commission chief Michael Powell made a plea to the courts asking it to "provide for an orderly transition rather than a precipitous shutdown of Excite@Home to avoid disrupting broadband service to a significant percentage of U.S. customers."

But the FCC has no direct authority to block a shutdown of Excite@Home.

The decision today puts to rest weeks of wrangling by the two main competitors -- AT&T Broadband and @Home creditors and bondholders -- in an @Home bankruptcy case that began in September.

AT&T seeks to buy out the broadband Internet service provider it still owns at a bargain-basement rate of $307 million. That's particularly galling to @Home creditors, who have been trying to get the courts to allow the provider to shut down the network in order to push up the asking price.

It's a move that would have disconnected more than 4.1 million customers worldwide and plunged the industry into chaos, a frightening deja vu for broadband users.

Last year, major digital subscriber line (DSL) provider NorthPoint Communications shut down its network at the behest of creditors, who wanted to minimize their loss at the expense of customer's connectivity. Thousands of residential and business subscribers were left scrambling for a connection, a process that took many users months to re-establish.

Coincidentally, AT&T Broadband was the buyer the creditors shut down the network to accommodate, buying up $135 million of the DSL provider's equipment.

Cable operators like AT&T, Cox Communications and Comcast Corp. dont want that to happen, though. All three have @Home customers on their networks, to varying degrees, and a shutdown would make it much harder for them to resign those jilted customers.

For competitors, the shaky situation is a potential windfall.

DIRECTV DSL, the broadband ISP arm of Hughes Electronics Group , was quick to push a promotion of two free months of DSL service for stranded cable customers if they signed up for a one-year deal. Other dial up, DSL and fixed wireless ISPs around the nation have rushed out with their own "rescue" efforts.

To minimize defections, Cox and Comcast spent this week scrambling to keep their customers up-to-date with the latest news, via email updates and come up with a back up plan.

In that, both would have failed in the event of an immediate shutdown Cox announced earlier this week a network upgrade that would take "several months" to complete, while Comcast's Connection Backup Plan was a link to United Online (the free ISP Juno-NetZero business) and its 10 free hours of online service. Of course, that wouldn't allow users to use their @Home address and there was no guarantee the dial up number would be local.

The three cable carriers didn't expect the @Home bankruptcy judge to allow an immediate shutdown, particularly because of the NorthPoint fiasco last year. In fact, despite their withdrawal from @Home over the past year, all three want the service around, for their own reasons.

Reports have Cox, Comcast and AOL Time Warner (the nation's second-largest cable operator) putting bids on AT&T Broadband, which has so far rebuffed buyout attempts, as early as Monday. Reports also talk of a $3-$5 billion investment by Microsoft , in exchange for AT&T's use of its software and services.

But that's not to say a shutdown couldn't have happened; subsequent strictures imposed by state public utilities commissions (PUCs) and the Federal Communications Commission do not affect the cable industry, which has so far avoided regulation and can pretty much do as they please.