Profit Taking Shaves Off ISDEX

Internet stocks took a 55-point or 8% drop yesterday as measured by ISDEX, closing Wednesday at 608.57. The high the past 52 weeks was 696.76, which is more than 90% better than where ISDEX began the year.

So the bellwether index is already off more than 80 points from the top in case bears start to see bears here.

I believe largely fueling April 14’s sellathon was investors taking profits to perhaps pay part of 1998 taxes, rather than an
industry-inspired sale. No news coming from the Internet sector itself seems to be behind the downturn.

Indeed, recent results from Internet firms showed record revenue results. ISP EarthLink (NASDAQ:ELNK), for example,
posted record first-quarter revenue up 129% to $68.2 million. In the period it added 155,000 new subscribers. ELNK beat
the Street on losses also, trimming those to $0.15 loss per share, seven cents better than expected.

EarthLink has a telco partner with Sprint which feeds it subs and marketing, but that also could prove to be a valuable partner if
DSL deploys on a widespread basis.

EarthLink rival Mindspring (NASDAQ:MSPG) just sold $179 million convertible sub notes at 5% and 2.76 million in common
stock. Translation: the ISP looks cashed up to compete on the next level: broadband.

It’ll take more than capital. Mindspring’s CEO told a conference crowd that he wants the cable firms to open up the wire to

But the cable firms believe (rightly or not) that they own the wire, despite the fact that communities and cities granted them
effective monopolies in the 1970s and 80s, a license to collect fees perpetually.

Meanwhile, concerns have arisen that @Home (NASDAQ:ATHM) may not meet its 1.1 million subscriber goal this year,
especially as AT&T (NYSE:T) tries to feed its newfound unit newbies. T owns 71% of ATHM through its acquisition of TCI.

AT&T says it’s adding about 2,000 new subs to @Home weekly. One of the easier ways to make the goal may be to stop
fighting the cable vs. DSL war and for @Home and AT&T to fully embrace the spectrum of broadband technologies.

The @Home buy of Excite (NASDAQ:XCIT) continues to draw those looking to play the arbitrage gap: there’s still a $8.375
gap here in favor of XCIT shares despite the nearly 1:1 stock exchange per the offer from @Home.

The cable-telco battle over the cable wire could likely result in more mergers, more partnerships, more alliances as the cable
firms and telcos choose to work together rather than bring the FCC into it.

AT&T/TCI/@Home/Excite looks like a model here. So I would view the brewhaha as a positive also in that the worlds of ISP
and cable look to be converging at some juncture sooner rather than later. All ISPs could be prospects there.

As a final note on the industry, the turnout at the opening exhibitor sessions at Spring Internet World appear much
busier with more people and general innovation this year than I have seen in four years of being at these shows.

While Spring Internet World 1998 was the year IBM made a splash with its “e-business” slogan, I find some sort of solace in
forecasting that service is now king. HP’s new slogan: e-services.

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