The Murky Mood of Internet Investors

SAN FRANCISCO -- Like "fire" in a crowded theatre, certain seemingly benign buzzwords carry great import at the Chase H&Q Technology Conference this year. Talk of "decline," "inability," "capacity constrained" and "scale-back" sets off alarm bells. Also of note: earnings estimates that executives are "comfortable" with or, ominously, that are "unchanged, at this point." There's also "burn-rate" and its converse "profitability."

Listen to those words and you'll get a good idea about a stock's direction.

Keeping @Home Fires Burning

Ken Goldman, Excite@Home's (ATHM) chief financial officer, played down comments made elsewhere Tuesday by Comcast (CMCSA) CEO Brian Roberts. Roberts was speaking on a panel at the big National Cable Television Association convention in New Orleans.

"From what I understand, Roberts was asked if AT&T (T) was doing the right thing by investing in the @Home network," said Goldman. "He was very bullish on our prospects. Bloomberg just happened to be there, and essentially, he was saying that we have a valuable asset. He's right."

Roberts' comments, which some interpreted as a sign of an impending takeover bid, sent Excite@Home's stock soaring at one point Tuesday.

The Mood Isn't Rebounding Either

With TheStreet.com Internet Sector Index off 36.2% since mid-March and the Nasdaq off 29%, one might expect money managers to drag their feet, or look longingly at the ledges. Then again, with inflows hanging tough, you might expect fund managers to rejoin the fire sale among tech stocks.

But "the tone here is almost more defensive than offensive," said Todd Bakar, Chase H&Q's head of research. "Rather than looking for new stocks to invest in, investors seem to be kicking the tires on the things they already own to make sure those things are still holding together."

(Official note of skepticism: One wonders what Bakar, a hapless Golden State Warriors' season ticket holder, knows of either defense or offense).

The Rhythm of the Net (Leave Your Worries Behind)

Scott Chandler, a Rhythms NetConnection's (RTHM) senior vice president, presented to an overflowing room, and it's little wonder. Here was one of the few men capable of explaining, capably and confidently, the intricacies of providing broadband networks, be they based on digital subscriber line or fiber.

Chandler's story suggested that of all the companies providing DSL broadband, Rhythms was best situated, natch. But that argument gained some credibility on April 11, when fiber-champion Excite@Home -- arguably the "anti-DSL" -- announced that it would employ Rhythms to provide DSL where it couldn't install fiber.

Chandler said that Rhythm shareholders will see the results of that deal this year. "You should expect to see the first elements at the end of the third quarter when we get our first line-sharing agreements going," said Chandler.

Chandler also broke down the economics of DSL. Installing a new area, or "central office," is a one-time cost of $10.4 million, or $4.8 million for a smaller market. Each new line, said Chandler, costs $650 to install, but immediately starts bringing in recurring revenue. Continued service is provided at a 55% profit margin. "In the end, our monthly cash flow, per line, is about $39," said Chandler. "So it takes us about 17 months until each line becomes profitable."

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