Ma Bell's No Stay@Home Parent

AT&T risks alienating cable Net users in its latest tangle with Excite@Home.
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Ma Bell's cord has been cut. Now let's see who wants to hang around and reconnect.

Some 850,000

AT&T

(T) - Get Report

customers receiving high-speed cable modem service through Excite@Home lost those Internet connections over the weekend after the companies broke off negotiations over modifying their business partnership.

Now AT&T, which hopes to provide those subscribers with an in-house alternative to Excite@Home, faces a race -- dotted with hazards in technology, customer service and public relations -- to keep those customers from deserting AT&T for other high-speed Internet providers. AT&T dropped 5 cents Monday to $17.44.

Uncertainty

The dispute between AT&T and Excite@Home, of which Ma Bell is a majority shareholder, illustrates how the slide of Excite@Home, which filed for bankruptcy protection in late September, is creating problems for major cable operators that have been marketing its service to their subscribers.

Continuing to negotiate with cable partners

Cox

(COX)

and

Comcast

(CMCSK)

, Excite@Home has been able to patch together agreements with those firms that kept service alive to those companies' cable modem customers served by Excite@Home. After Excite@Home won a bankruptcy court ruling Friday enabling it to cancel its contracts, those firms will presumably have to be paying higher prices to Excite@Home to keep the service running on their systems.

With AT&T -- which has hoped to buy Excite@Home's assets for $307 million -- walking away from subscription fee negotiation, the company obviously won't run the risk of overpaying Excite@Home for the service it provides. But now the company runs the risk of losing the loyalty of its cable customers who might blame AT&T for the outcome of the business dispute.

Certainly, AT&T is bending over backward to make its customers happy. On Saturday, the company said it had already moved 10% of its Excite@Home customers, in Oregon and the Vancouver, Wash., area, to the in-house AT&T Broadband Internet service. AT&T says it will automatically credit customers for two days' worth of service for each day of service interruption they suffer. Customers who suffer longer outages will receive free AT&T dial-up Internet access in the meantime.

Goat's Horns

Popular sentiment, though, remains a wild card for AT&T. In the past, when TV programming has been cut off in local cable systems in a dispute between the operator and a programming provider, individual subscribers have tended to blame the operator -- the party in the dispute to which they send their monthly check. (Most recently,

Time Warner

was perceived as the villain when, in a fight with

Disney

, certain cable systems stopped running Disney-owned channels.)

Public sentiment, if any, has been hard to gauge as it relates to Excite@Home and AT&T. On DSLreports.com, a site devoted to discussion of high-speed Internet service, blame for the cutoff seemed equally targeted at AT&T and Excite@Home, with people accusing Excite@Home of poor management and AT&T of trying to pick up Excite@Home on the cheap with its $307 million bid.

Certainly, onlookers were surprised by the dysfunctional family portrait painted by AT&T and its subsidiary failing to reach even a temporary agreement. Frank Thomas, a Florida investment adviser who's part of an Excite@Home shareholder group that's submitted a bankruptcy reorganization plan for the company, says the group believes that the company would still have a positive net present value should it lose Cox or Comcast as customers. But as to whether it would be as well situated without AT&T as a customer, he couldn't say. Because the shareholders believed that AT&T's contract with Excite@Home was rock-solid through 2008, he said, "We never really examined that in detail."