SAN FRANCISCO – ExciteAtHome made plenty of dumb decisions on its way to the dot-com graveyard.
But what ultimately killed the company may have been its greatest accomplishment — the high-speed cable network that provided fast Internet connections to more than 4 million North American customers.
The service's explosive growth, marked by a 12-fold increase in subscribers since 1999, proved that providing high-speed Internet connections to people's homes could be a viable business.
As the service gained more popularity, the cable giants that helped launch ExciteAtHome in 1996 and continued to sign up most of the subscribers began to see the potential value of running their own independent networks.
"Cable companies are notoriously conservative, risk-averse companies, so they decided to create this separate company that would take all the risks," said Mark Kersey, a broadband analyst for ARS Inc., a research firm in La Jolla, Calif.
"Once they saw that this could really work, they decided that they probably really didn't need ExciteAtHome any more."
The cable companies say ExciteAtHome's financial collapse gave them little choice but to build their own networks to protect their customers and the franchises they had built during the last five years.
ExciteAtHome's three biggest cable partners — AT&T, Cox Communications and Comcast — accounted for 2.2 million of the service's 4.16 million subscribers as of Sept. 30. Nearly 90 percent, or 3.69 million customers, had cable modems in their homes. ExciteAtHome accounted for about 40 percent of all households and businesses with broadband, "always on" Internet access.
AT&T already has switched most of its 850,000 AtHome subscribers to its own high-speed cable network. Cox and Comcast plan to switch most of their customers to other networks by Feb. 28, when ExciteAtHome plans to shut down permanently.
Many ExciteAtHome investors, including both bondholders and shareholders, are convinced that the company's cable partners conspired to drive the business into bankruptcy so they could get out of restrictive contracts and build their own independent networks more quickly.
AT&T, which owned 23 percent of ExciteAtHome and controlled its board until October, is central to these conspiracy theories.
"If ExciteAtHome hadn't been run by a board that wanted it to go out of business, the company would still be alive today. AT&T completely violated its fiduciary duty," said Bob Garrity, an ExciteAtHome shareholder and one of the company's first employees.
AT&T regards these allegations "absolutely baseless," said AT&T spokeswoman June Rochford. She declined further comment, citing threatened lawsuits against AT&T by both ExciteAtHome bondholders and shareholders embittered by the billions that they stand to lose in ExciteAtHome's bankruptcy.
AT&T's defenders argue that it also had an incentive to keep ExciteAtHome alive. AT&T invested about $4 billion in ExciteAtHome, including $2.8 billion in stock paid to Cox and Comcast early this year to cement its controlling position.
That leverage also put AT&T in a position to drive ExciteAtHome out of business if it desired, bondholders and shareholders argue.
Under this theory, ExciteAtHome's death spiral accelerated in September 2000 when George Bell announced his decision to step down as chief executive.
Bell remained as a lame-duck leader until April, when ExciteAtHome hired Patti Hart -- an executive AT&T helped recruit. Bell now runs a college savings plan called Upromise, whose corporate partners include AT&T.
"There was a long stretch where the board was basically running the company," said Frank Thomas, a Heathrow, Fla. money manager on the executive committee of a shareholder group planning to sue AT&T.
Even AT&T critics acknowledge ExciteAtHome probably would not have been in such bad shape if not for the $6.7 billion merger that melded the cable network with the Web portal, Excite.com.
The 1999 marriage, which AT&T fiercely opposed, increased AtHome's exposure to online advertising — a market that has been slumping badly for more than a year.
As the Internet economy unraveled, ExciteAtHome's losses piled up — $8.9 billion since the start of 2000.
The hemorrhaging made it difficult for ExciteAtHome to raise more cash from anyone other than its cable partners.
Yet even as ExciteAtHome suffered financially, it added 486,000 new subscribers in the three months leading up to ExciteAtHome's bankruptcy at the end of September — a 13.2 percent increase that fell slightly below the industrywide average increase of 14.2 percent, according to ARS.
Meantime, the cable companies kept the bulk of the $40 to $50 monthly subscriptions paid by most AtHome customers. ExciteAtHome — which got just $12 a month per subscriber — was losing as much as $6 million per week under this arrangement.
The success of the cable network also pressured regional phone companies to ramp up their own high-speed Internet services through digital subscriber lines, or DSLs — which in turn worsened ExciteAtHome's financial misery.
To lure customers, the phone companies slashed DSL prices or offered free service for a few months, prompting similar offers from the cable companies. And when the cable companies waived fees, ExciteAtHome didn't get paid either, exacerbating the company's financial crisis.
Meanwhile, technological advances and a glut of cheap parts assured the cable companies that they could build their own networks for much less than the billions ExciteAtHome had spent on its own.
AT&T declined to divulge how much it spent on its network. The company had hoped to buy the AtHome cable network for $307 million before withdrawing its offer last week. Cox estimates that it will spend $100 million to $150 million on its network.
"The cable companies didn't have the expertise to build these networks five years ago," said Garrity, who wrote AtHome's training manual. "The only reason they can go out and do what they are doing now is because they worked so closely with AtHome."
If not for AtHome's inroads, many industry experts believe high-speed access still wouldn't be possible for the roughly 10 million households and businesses that use cable modems, DSLs and wireless connections to get online.
"They were the catalyst for broadband in homes," said Jack Harrington, a former AT&T executive who is now a venture capitalist at Advanced Technology Partners in Palo Alto. "Five years from now, when cable modems are in 20 million homes, people can look back and thank ExciteAtHome."