AT&T faces @Home subscriber challenge

AT&T must increase its @Home Network subscriber base substantially during the next 13 months or risk losing part of its stake in the high-speed Net access company to Cox Communications.

The long distance giant, which recently acquired a 71 percent controlling stake in @Home via its purchase of cable operator Tele-Communications Incorporated, has to have at least 277,000 cable modem subscribers by May 31, 2000, according to a federal securities document filed yesterday.

AT&T had more than 50,000 subscribers as of February, the company confirmed today. As previously reported, some analysts yesterday had pegged the company's subscriber totals at much lower figures. Yet AT&T's totals continue to grow despite what some have called a slow start.

Sources said AT&T has increased its @Home installations to 2,000 customers per week, on par with some of @Home's best-performing cable partners. The Net-over-cable service is owned by a consortium of 21 cable operators, of which AT&T is the largest.

"It's aggressive," AT&T spokeswoman LaRae Marsik said of the newly increased targets. "But we are very committed to the upgrades to make things like @Home possible."

AT&T expects to have 150,000 @Home customers by the end of the year, Marsik said.

Separately, @Home reported earnings in line with analyst expectations at the close of the market yesterday.

The company announced a loss of $8.9 million, or 7 cents per share, for its first fiscal 1999 quarter before a set of costs and an investment gain. That compares with a net loss of $7.6 million, or 6 cents a share, for the same period a year ago.

According to a Securities and Exchange Commission filing, AT&T must give Cox a portion of its equity stake in @Home if AT&T fails to meet its subscriber goal, with certain exceptions. The new target number is part of @Home governance changes agreed to last week.

The issue came to light Thursday when minor changes to the way the @Home board of directors will operate were unveiled in another SEC filing. At the time, the companies declined to discuss specific target numbers for AT&T's new higher subscriber goals.

Reaching the new target may prove to be a difficult task, analysts said. AT&T bought some of the weakest cable systems in the business when it acquired the former TCI--now known as AT&T Broadband & Internet Services. TCI recently said that only 26 percent of its cable systems had been upgraded to support two-way transmissions, a prerequisite for delivering the @Home Internet service.

That number lags behind other cable operators' network upgrades, but AT&T expects to spend about $2 billion for two-way and power upgrades between now and the end of 2000.

Meanwhile, @Home's earnings report showed a narrower loss.

Including costs associated with a set of distribution agreements, mergers and acquisitions, and an investment gain, the company reported a net loss of 15 cents a share, or $18.1 million, for the 1999 first quarter. That compares with a net loss of $64.9 million, or 55 cents per share, for the same period a year ago.

Quarterly revenue increased to $25.1 million from $5.8 million a year ago.

@Home announced yesterday that it had 460,000 subscribers as of March 31, an increase of more than five times the 90,000 subscribers it had a year ago. The total reflects the partnership among the 21 different cable operators, including AT&T.

Still, @Home shares took a tumble today, despite meeting Wall Street's expectations with its financial results.

Merrill Lynch analyst Henry Blodget initiated coverage of @Home today with an intermediate "accumulate" rating and a long-term "buy" rating. The company remains on track to turn profitable in the fourth quarter and exceed 1 million customers by the end of the year, Blodget said in a report.

News.com's Ben Heskett contributed to this report.