Net Stocks Are in Limbo as the Sector Licks Its Wounds

Internet issues were holding at lower levels, with traders reluctant to buy.
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SAN FRANCISCO -- Like the rest of the market, the Internet sector today remained somewhat in limbo. Traders were reluctant to aggressively play the long side due to the recent selloff, though the recovery late last week was lending some hope that the worst was over.

TheStreet.com Internet Sector

index was down 2.53, or 0.5%, at 495.86, continuing to flirt around the 495.17 low from June 15. The index reached a session low of 491.70.

An unidentified malfunction that started Friday morning has crippled about 15% of

MCI WorldCom's

(WCOM)

network. The three-day partial outage has caused service interruptions to hundreds of MCI WorldCom's corporate customers primarily in the Northeastern U.S. and the Chicago areas.

The problem began when MCI WorldCom was making upgrades to its frame-relay network, a high-capacity pathway used for corporate communications and long-distance telephone service, according to a MCI WorldCom spokeswoman. The

Chicago Board of Trade

electronic trading floor was one of the first organizations affected by the outage.

"We have our technicians, along with vendor technicians, methodically going through our network switches to find out what the root cause is," said company spokeswoman Linda Laughlin. MCI WorldCom faxed an outage report to the

Federal Communications Commission

at 10:15 a.m. Monday, an indication that the disruption was of significant size and duration, an FCC official said.

MCI WorldCom was down 3 1/8 to 78 1/8 at midafternoon.

This morning's report in

The New York Times

regarding

AT&T

(T) - Get Report

potentially working on a deal to provide

America Online

(AOL)

access to its cable lines was providing much of the excitement in the sector. AOL remained strong, up 2 7/8, or 3%, at 87 5/8, though that was off its session high of 89 1/16.

Excite@Home

(ATHM) - Get Report

, which would stand to lose the most from such an alliance, was down 2 11/16, or 6%, at 39 7/8. Excite@Home is controlled by AT&T, and much of its valuation is based on having exclusive rights to the AT&T lines. AT&T was down 7/8, or 2%, at 50 13/16.

In response to the story,

Merrill Lynch

analyst Henry Blodget wrote today that "selling the @Home pipe to the highest bidders (which would likely include AOL), might be economically superior and less risky than trying to develop a nationally branded Excite@Home service." He further wrote that he "would not be surprised to see some transaction in which Excite were spun off from @Home." Merrill has done underwriting for Excite@Home.

Blodget also wrote that the impact on AOL "will be entirely dependent ... on the financial terms of the deal and the relative terms of any 'enhanced access' for AOL."

eBay

(EBAY) - Get Report

also remained a focus in the market following technical problems on Friday and further technical problems over the weekend. eBay is holding an analysts' meeting today, and the ongoing problems are likely to be the main topic of conversation. eBay was down 1 3/4, or 2%, at 81 1/2, trading in a range between 78 1/2 and 85 7/8.

A number of initial public offerings that were postponed on Friday, presumably because of market conditions, were expected to be priced later today. According to

Renaissance Capital

,

garden.com

(GDEN:Nasdaq),

Braun Consulting

(BRNC:Nasdaq) and

US Interactive

(USIT:Nasdaq) will be priced today. Renaissance also reported that

HotJobs.com

(HOTJ:Nasdaq) lowered the number of shares it's offering to 3 million shares from 4.75 million and lowered its price range to $9-$11 from $12-$14.