<PAGE>

                                                                   EXHIBIT 10.04

                            IRU CAPACITY AGREEMENT

          This IRU Capacity Agreement (the "Agreement") is entered into as of
July 1, 2001 (the "Effective Date") between AT&T Corp. ("AT&T"), a New York
corporation with offices at 295 North Maple Avenue, Basking Ridge, New Jersey
07920, and At Home Corporation ("@Home"), a Delaware corporation with its
principal place of business located at 450 Broadway Street, Redwood City,
California 94063.

                              TERMS OF AGREEMENT

     1.   Definitions

          1.1  "Accept" shall have the definition set forth in the section
entitled Testing and Acceptance. "Acceptance" shall have the corresponding
         ----------------------
meaning.

          1.2  "Additional Capacity" shall mean any Capacity acquired by @Home
pursuant to the section entitled Upgrades and Expansion.
                                 -----------------------

          1.3  "AT&T Network" shall mean the fiber optic communications system
operated by AT&T, as such system exists now, and as it is modified from time to
time.

          1.4  "AT&T POPs" shall mean (a) the AT&T sites identified in Exhibit E
and (b) such other AT&T sites as the parties may agree from time to time to be
within the scope of the term "AT&T POP."

          1.5  "@Home Backbone Network" shall mean, at any date, the @Home
Routes as of that date.

          1.6  "@Home Routes" shall mean Routes on which @Home has rights to use
capacity under this Agreement.

          1.7  "Capacity" shall mean the Initial Capacity and the Additional
Capacity, including both (a) the circuit capacity, as measured in terms of OC-3,
OC-12, OC-48 or otherwise and (b) a portion of the relevant fiber strands
necessary to transport such capacity.

          1.8  "Airline Mileage" shall mean the distance between the A and Z
City Pair end points of a Route, calculated in accordance with AT&T's standard
methodology for determining airline mileage between two or more locations with
respect to Private Line Services (see AT&T Tariff F.C.C. No. 10, Section
8.1.7.B). "Airline Mile" shall have the corresponding meaning.

          1.9  "City Pair" shall mean any of the pairs of cities listed in
Exhibit A, including any pairs of cities for New Routes added by expansion
pursuant to the Section entitled Upgrades and Expansions.
                                 -----------------------

          1.10 "Consumer Price Index" shall mean the Consumer Price Index for
Urban Wage Earners and Clerical Workers, All Items (1982-84=100), for the United
States as published by the United States Department of Labor, Bureau of Labor
Statistics, or any successor index thereto.
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          1.11  "Four-Port Network Electronics" shall mean four Dense Wave
Division Multiplexing terminal ports in the relevant points of presence and the
proportionate share of the associated optical amplifiers sufficient to support
four OC-48s in all the Initial Routes.

          1.12  "Indefeasible Right to Use" or "IRU" shall mean the exclusive,
unrestricted and (except in the case of a Payment Event of Default) indefeasible
right to use the relevant Capacity (including equipment, fibers or capacity) for
any legal purpose. The granting of such IRU does not convey title or legal
ownership of any fibers or equipment on the AT&T Network. Except in the case of
a Payment Event of Default (as defined below), the granting party shall have no
right to revoke or restrict in any manner or to any degree whatsoever, through
injunctive relief or otherwise, the use of the Right to Use granted to the
receiving party. Notwithstanding the occurrence of a breach by the receiving
party of any legal duty or obligation imposed by any contract, by the law of
torts (including simple or gross negligence, strict liability or willful
misconduct), or by federal or state laws, rules, regulations, orders, standards
or ordinances, during the Term, it being understood and agreed that each such
breach shall be compensable, if at all, by a remedy at law and not at equity.

          1.13  "Market Equivalent Capacity" shall mean an amount of
transmission capacity (as measured in channels, wavelengths or other appropriate
measures) equal to (a) with respect to two-fiber configurations, 25% or (b) with
respect to four-fiber configurations, 12.5%, in each case of the total
transmission capacity which it is commercially practical to sustain over two or
four optic fibers so configured, respectively, utilizing equipment at that time
in use in the Relevant Area (as defined below) by at least two of the ten
largest interexchange carriers in the United States. In Routes between two of
the thirty largest metropolitan statistical areas in the United States ("Large
MSAs"), the "Relevant Area" shall be any route in the United States; for Routes
which do not service a Large MSA, the Relevant Area shall mean a route in the
same general geographical area as the Route for which the Market Equivalent
Capacity is to be measured.

          1.14  "Material Provision" shall mean any provision of this Agreement
(including, without limitation, payment provisions) the breach of which by one
party is determined by a judicial proceeding or pursuant to the Section entitled
Arbitration to constitute a material adverse effect on the use and enjoyment by
------------
the other party of the benefits of this Agreement.

          1.15  "OC-3" shall mean bi-directional OC-3 optical transmission
capacity meeting the specifications set forth in AT&T's Technical Reference
54018, as revised from time to time. For purposes of this Agreement, "bi-
directional" shall mean that traffic up to the designated capacity can travel in
each direction simultaneously.

          1.16  "OC-12" shall mean bi-directional OC-12 optical transmission
capacity meeting the specifications set forth in AT&T's Technical Reference
54077, as revised from time to time.

          1.17  "OC-48" shall mean bi-directional OC-48 optical transmission
capacity meeting the specifications set forth in AT&T's Technical Reference
54078, as revised from time to time.
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                                    Page 3

          1.18  "Route" shall mean any route on the AT&T Network between any two
points of presence listed on Exhibit A or any other AT&T points of presence
which support OC-48 service.

          1.19  "Third Party POPs" shall mean (a) the third party sites
identified in Exhibit G and (b) such other third party sites as the parties may
agree from time to time to be within the scope of the term "Third Party POP."

          1.20  "Service Components" shall mean, with respect to any Route, the
capacity, collocation and interconnection services relating to such Route to be
provided pursuant to this Agreement.

     2.   Service Components.

          2.1   Indefeasible Right to Use. AT&T hereby grants to @Home for the
Term of this Agreement an IRU (as that term is defined above) in the Capacity,
as the Capacity may be increased from time to time pursuant to the terms hereof.

          2.2   Collocation and Interconnection. AT&T shall provide @Home with
collocation space along the @Home Backbone Network in the AT&T POPs under an
agreement substantially in the form attached as Exhibit F (Collocation
                                                           -----------
Agreement). In each AT&T POP, AT&T shall provide @Home with three rack spaces
---------
(as used in this Agreement, "rack space" shall have the meaning set forth in
Exhibit F) and associated collocation and interconnection services, as listed in
Exhibit F, or as hereafter mutually agreed upon. AT&T shall use its best efforts
to make the three rack spaces contiguous. AT&T shall procure on behalf of @Home
one rack space in the Third-Party POPs. As part of the Services provided
hereunder, AT&T will extend its facilities at no cost to @Home to the @Home
designated demarcation point within the Third-Party POPs.

          2.3   Initial Capacity. AT&T shall provide at no additional cost to
@Home OC-48's (including the Four-Port Network Electronics)on the Routes listed
on Exhibit A (the "Initial Routes") in the quantities listed in Exhibit A, in
accordance with the terms of this Agreement including Exhibit B (Technical
                                                                 ---------
Specifications) (the "Initial Capacity"). The "Initial Service Components" shall
--------------
include the Initial Capacity and corresponding collocation and interconnection
services as set forth in the Section entitled Collocation and Interconnection
                                              -------------------------------
and Exhibit F. AT&T will provide the Initial Capacity to @Home immediately upon
the Effective Date.

          2.4   Other Capacity. @Home, at its option, may order, and AT&T shall
use commercially reasonable efforts to promptly provide, capacity on routes not
available through the AT&T Network ("Off-net Capacity"). AT&T shall provide such
Off-net Capacity at 115% of the cost (net of discount) such is actually obtained
by AT&T from a non-affiliated third-party carrier, subject to such other terms
and conditions as apply between AT&T and such other carrier.

     3.   Payment.

          3.1   Initial IRU Fees. In consideration for the IRU granted hereunder
in the Initial Capacity, @Home shall pay AT&T seven hundred thirty thousand,
seven hundred eighty-
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                                    Page 4

nine dollars and sixty eight cents ($730,789.68) for each month in the Term,
which amount will be billed in advance and paid within 30 days from the invoice
date (the "Initial IRU Fees"). AT&T may add interest charges to any amounts not
paid within such time at an annual interest rate of 8.0%. In the event @Home
assigns this Agreement or any rights or obligations hereunder to any person or
entity, AT&T shall have the right, in its sole discretion, to elect to
accelerate the obligation to pay the Initial IRU Fees, exercisable by AT&T
within 60 days after it receives notice of such assignment. If AT&T elects to
accelerate the obligation to pay the Initial IRU Fees, @Home and the assignee
shall be jointly and severally liable to pay an accelerated IRU Fee equal to the
present value of the Initial IRU Fee payments due for the remainder of the Term
(excluding any optional Term extension), discounted at 8% per annum, and shall
have no further obligation to pay Initial IRU Fees, and AT&T agrees to take all
necessary acts to immediately release the Security Interest upon receipt of such
payment.

          3.2  Additional IRU Fees.  In consideration for any IRU to be granted
hereunder in the Additional Capacity, @Home shall pay AT&T the amounts
calculated in accordance with the Section entitled Additional Capacity Cost (the
                                                   ------------------------
"Additional IRU Fees.")

          3.3  Maintenance.  In consideration for the provision of maintenance
services provided by or arranged for by AT&T with respect to Capacity in
accordance with the Section entitled Operation, Maintenance and Repair, @Home
                                     ---------------------------------
shall pay AT&T a quarterly Maintenance Fee (as defined below) in arrears on an
Airline Mileage basis (regardless of the amount of capacity used on the Route).
The mileage used to calculate the Maintenance Fee for each quarter shall be
calculated by adding together the number of applicable Airline Mileage in use at
the beginning and end of the quarter and dividing by two.  (AT&T may elect to
bill the Maintenance Fee on a monthly basis.)  The "Maintenance Fee" shall be
the sum of two components: the "Services Component" and the "Repair/Replacement
Component".  The Services Component shall be equal to $9.49 per quarter per
Airline Mile. The Repair/Replacement Component shall be lower during the period
the initial equipment used to provide the Capacity is new to reflect AT&T's
ability to take advantage of manufacturers' warranties.  The Repair/Replacement
Component shall be (a) $3.16 per quarter per Airline Mile until April 30, 2003
and (b) $9.96 per quarter per Airline Mile thereafter.

               3.3.1   CPI Increase. The Maintenance Fee shall be adjusted
annually by the aggregate change in the Consumer Price Index, as set forth
below. The Maintenance Fee payable hereunder shall be adjusted as of May 1 of
every year of the Term by multiplying the monthly Maintenance Fee set forth in
Section 3.3 by a fraction, the numerator of which shall be (i) the average of
the monthly Consumer Price Indices for the 12 months immediately preceding the
date as of which the Maintenance Fee is to be adjusted and (ii) the denominator
of which shall be 174.1.

          3.4  Collocation. In consideration for collocation at the AT&T POPs
@Home shall pay AT&T the amounts set forth in Exhibit F. AT&T shall charge @Home
for rack spaces in Third-Party POPs only the actual cost therefor to AT&T,
without mark-up.

               3.4.1  CPI Increase. The collocation charges shall be adjusted
annually by the aggregate change in the Consumer Price Index, as set forth
below. The collocation charges shall be adjusted as of May 1 of every year of
the Term by multiplying such charges by a fraction, the numerator of which shall
be (a) the average of the monthly Consumer Price
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                                    Page 5

Indices for the 12 months preceding the date as of which the charge is to be
adjusted and (b) the denominator of which shall be 174.1.

          3.5  Invoicing and Payment Terms. AT&T shall send a bill to @Home for
all charges payable under this Agreement. @Home shall pay all invoiced amounts
within 30 days after the date of an invoice therefor. Except with respect to the
Initial IRU Fees (which may not be withheld) @Home's obligation to pay a charge
that is subject to a specifically identified good faith dispute will be
suspended while the disputed charge is under investigation by AT&T if (a) @Home
provides a written explanation of the basis for such dispute prior to the date
such payment is due or (b) an AT&T account inquiry and collections
representative provides express written consent to suspend the payment
obligation pending investigation. If any amount due under this Agreement not so
disputed is not received within fifteen days after the date due, then, in
addition to its other remedies available under this Agreement, AT&T may in its
sole discretion impose a late payment charge calculated each month at the rate
of 1% per month (or 12% per annum), such late charge being payable upon demand
by AT&T.

          3.6  Deposits. @Home will provide a security deposit of 1 month's
charges. AT&T will rely upon commercially reasonable factors to determine the
continuing need for such deposit. These factors may include, but are not limited
to, payment history, number of years in business, history of service with AT&T,
bankruptcy history, current account treatment status, financial statement
analysis, and commercial credit bureau rating. Any deposit will be held by AT&T
as a guarantee for the payment of charges. AT&T may apply a deposit or any
portion of it against past due charges. A deposit does not relieve @Home of the
responsibility for the prompt payment of bills. Interest (at the rate of 8% per
year or such other rate as is legally applicable to deposits held by
telecommunications carriers) will be paid to @Home for any period that a cash
deposit is held by AT&T. AT&T will meet with @Home once a year at @Home's
request to review with @Home the continuing need for the deposit. Upon @Home's
written request, AT&T will return to @Home the interest accrued on the deposit,
provided that @Home is current in payment of all charges under this agreement
not subject to a good faith dispute.

     4.   Upgrades and Expansion.

          4.1  Upgrade of @Home Backbone Network at @Home's Request. At any time
during the Term of this Agreement, @Home shall have the right to upgrade its
Capacity on @Home Routes (a "Requested Upgrade"). In connection with a Requested
Upgrade, @Home shall have the right to purchase from AT&T additional network
electronics and/or circuit electronics, in order to increase the Capacity on the
applicable @Home Route to the Market Equivalent Capacity. @Home may request such
upgrade by providing written notice (the "Upgrade Request Notice") to such
effect to AT&T. The Upgrade Request Notice shall include the Route(s) and the
amount of additional capacity for each Route (provided however the effective
Capacity that @Home obtains shall not exceed the Market Equivalent Capacity for
such Route, except if @Home has previously made an Existing Route Expansion (as
defined below) for the Route that @Home desires, in which case the effective
capacity which @Home obtains shall not exceed the product of (a) the Market
Equivalent Capacity for the Route and (b) the Excess Expansion Percentage (as
defined below) for the Route). At such time, AT&T shall be obligated to provide
@Home with (i) the Requested Upgrade or (ii) alternative capacity along the
Routes and in the amount requested by @Home as part of the Requested Upgrade
("Additional Capacity Without Upgrade"). Within 60 days of the date of the
Upgrade Request
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Notice, AT&T shall respond in writing (the "Upgrade Response Notice") indicating
whether it has selected option (i) or option (ii) above and providing a detailed
description of the upgraded transmission system or the capacity, as applicable,
the anticipated time line for installation, completion and delivery, as
applicable and the estimated cost of the upgrade or capacity. Such cost shall be
calculated in accordance with the Section entitled Upgrade Cost. Within 30 days
                                                   ------------
after receipt of the Upgrade Response Notice, @Home shall provide AT&T with
written confirmation of @Home's desire (or lack thereof) to proceed with the
Requested Upgrade. @Home shall pay for the Requested Upgrade in accordance with
the Section entitled Upgrade Payment Terms and AT&T shall use commercially
                     ---------------------
reasonable efforts to provide the additional Capacity promptly.

          4.2  Expansion of @Home Backbone Network.  During the Term of this
Agreement, @Home shall have the right to request an expansion of the @Home
Backbone Network to (a) include Routes not then on the @Home Backbone Network (a
"Route Expansion") or (b) include additional capacity above the Market
Equivalent Capacity on an @Home Route then in use (an "Existing Route
Expansion"), (in either case, a "Requested Expansion").  In connection with a
Requested Expansion, @Home shall have the right to purchase from AT&T additional
network electronics and/or circuit electronics, in order to obtain Capacity (a)
in a Route Expansion, on such Routes up to the Market Equivalent Capacity or (b)
in an Existing Route Expansion, up to an amount of capacity above the Market
Equivalent Capacity as specified by @Home (the percentage amount requested in an
Existing Route Expansion above the Market Equivalent Capacity is referred to as
the "Excess Expansion Percentage") @Home may request such expansion by providing
written notice (the "Expansion Request Notice") to such effect to AT&T.  The
Expansion Notice shall include the new Route(s) and the amount of additional
capacity for each new Route that @Home desires.  At such time, AT&T shall
provide @Home with (i) the Requested Expansion using such upgraded facilities;
or (ii) alternative capacity in the amount requested by @Home as part of the
Requested Expansion ("Additional Expansion Capacity Without Upgrade"); provided
however that in either case, the Capacity that @Home obtains shall not exceed
(a) in the case of a Route Expansion, the Market Equivalent Capacity or (b) in
the case of an Existing Route Expansion, the product of (1) the Market
Equivalent Capacity multiplied by (2) the sum of one plus the Excess Expansion
Percentage.  Within 60 days of the date of the Expansion Request Notice, AT&T
shall respond in writing (the "Expansion Response Notice") indicating whether it
has selected option (i) or option (ii) above and providing a detailed
description of the upgraded transmission system or the capacity, as applicable,
the anticipated time line for installation, completion and delivery, as
applicable and the estimated cost of the upgrade or capacity.  Such cost shall
be calculated in accordance with the Section entitled Additional Capacity Cost.
                                                      ------------------------
Within 30 days after receipt of the Expansion Response Notice, @Home shall
provide AT&T with written confirmation of @Home's desire (or lack thereof) to
proceed with the Requested Expansion.  @Home shall pay for the Requested
Expansion in accordance with the Section entitled Expansion Payment Terms and
                                                  -----------------------
AT&T shall use commercially reasonable efforts to provide the additional
Capacity promptly.

          4.3  Upgrade of @Home Backbone Network During AT&T Network Upgrade.
AT&T shall provide written notice (the "Upgrade Notice") to @Home of each
"Upgrade" of the AT&T Network. An "Upgrade" is any change to the AT&T Network,
including but not limited to lighting fiber(s), adding, modifying, or replacing
electronic equipment, that enables AT&T to increase the total number of
channels, or increase the capacity per channel, on a per fiber, per route basis
on all or any part of the AT&T Network. The Upgrade Notice shall include a
detailed
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description of the upgraded transmission system (including routes, engineering
and capacity), anticipated time line for installation, completion and delivery
and the estimated cost to @Home for @Home's portion of the Upgrade. Such
estimated cost shall be calculated in accordance with the Section entitled
Additional Capacity Cost. @Home may elect to participate in the Upgrade and to
------------------------
retain AT&T to upgrade the @Home Backbone Network (or such portions of the @Home
Backbone Network as @Home requests) by providing notice (the "Upgrade Acceptance
Notice") to such effect to AT&T in writing within 30 days of receiving the
Upgrade Notice. The Upgrade Acceptance Notice shall include the Routes and the
amounts of capacity for each Route that @Home desires. @Home may elect to
participate in the AT&T Network upgrade on individual Routes, rather than for
the entire Upgrade. @Home may at any time in the future request Service
Components on the Upgraded portions of the AT&T Network in accordance with the
Section entitled Upgrade of @ Home Backbone Network at @ Home's Request.
                 ------------------------------------------------------

          4.4  Forecasting and Planning. AT&T and @Home shall meet twice a year
to review @Home's network forecasts, AT&T network planning and status and to
discuss the current Market Equivalent Capacity. In the event the parties do not
agree upon the Market Equivalent Capacity for any Route, at the option of either
party, determination of the Market Equivalent Capacity at such time shall be
referred to the binding decision of a mutually acceptable independent third
party. If the parties do not agree upon such a third party within 30 days of the
exercise of such option, an independent third party will be chosen through
arbitration under the terms of this Agreement.

          4.5  Transition to New Service. In the event an Upgrade, an Expansion
or a Requested Upgrade requires a transfer of @Home's Service Components to
different electronics, AT&T will effect the transfer in accordance with mutually
acceptable transition procedures approved by the engineering groups of @Home and
AT&T.

          4.6  Collocation with Upgrade or Expansion. In connection with a
Requested Upgrade, an Upgrade or an Expansion, AT&T shall provide collocation
services to @Home in a manner sufficient to meet @Home's needs. @Home shall pay
the cost for such collocation as set forth in Exhibit F.

          4.7  Acceptance of Upgrade and Expansion. Testing, Acceptance and
payment subsequent thereto of a Requested Upgrade, an Upgrade or an Expansion
shall be in accordance with the section entitled Testing and Acceptance herein,
                                                 ----------------------
provided however, that in the event the specifications set forth in Exhibit B
are no longer applicable to the technology employed at the time of a Requested
Upgrade, an Upgrade or an Expansion, the parties shall mutually agree in writing
to specifications in line with industry standards prior to the testing.

          4.8  City-Pair Split. At @Home's request, AT&T shall allow @Home to
split any Route between the two cities of a City Pair at an AT&T point of
presence (the "New POP") along the fiber path of the Route in between the two
cities, provided that the support provided at the New POP will be consistent
with existing capabilities supported at the New POP. In such case, AT&T shall
provide @Home with collocation (three rack spaces) and interconnection at the
New POP. AT&T's only charge for allowing and implementing such split in the City
Pair will be for the collocation. @Home shall pay the cost for such collocation
as set forth in Exhibit F. @Home shall not be required to pay anything for the
right to use fiber on an @Home Route being split in connection with the
acquisition of Additional Capacity on the span between the
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New POP and either or both cities in the City Pair, provided such Additional
Capacity together with previously existing capacity on such span does not exceed
the Market Equivalent Capacity for the Route. A City-Pair Split does not create
a New Route, but rather a New POP along the existing Route at which @Home can
connect through an LSA. @Home can increase the Capacity on one span from the New
POP to the city on one end of the Route without increasing the Capacity on the
span to the city on the other end of the Route.

     5.   Payment for Upgrades and Expansions.

          5.1  Additional Capacity Cost. Pricing for additional upgrading to a
new higher capacity shall be determined by the following:

               5.1.1  New Electronic Equipment Pricing Method. The payment from
@Home for the new network electronics and circuit electronics required to obtain
capacity beyond the Initial Capacity (the "Upgrade Cost") shall be determined by
AT&T based on @Home's requested upgraded configuration of the @Home Backbone
Network. The Upgrade Cost shall be equal to the product of (a) AT&T's Network
and Circuit Electronics Cost (as defined below) and (b) a fraction which shall
have a numerator equal to the Additional Capacity to be derived from such
electronics and a denominator which is equal to the total capacity which can be
derived from such electronics. The "Network and Circuit Electronics Cost" shall
be equal to AT&T's "actual cost" to provide the additional capacity requested,
consisting of the actual costs paid by AT&T to third parties for all physical
elements (active and passive) added to the AT&T fibers to prepare and create
channel capacity consistent with this Agreement and that are used in the
deployment of the @Home Backbone Network, including the costs paid to the
equipment vendor for engineering and installation, and including the cost of
initial deployment of spare components to the extent included in provisioning
such capacity in accordance with the general standards with which AT&T
provisions similar capacity in operating the AT&T Network (the "Spare
Components"). @Home will not be required to pay for any spares or replacement
parts required that are not included in the initial deployment of the Additional
Capacity. (AT&T's costs will be calculated on the basis of a cash purchase,
without regard to any financing AT&T may secure with respect to such purchases.)
The Network and Circuit Electronics Cost shall be adjusted as follows:

                      (a)  to not include any cost for installation services
where such services are otherwise included in the costs of the network and
circuit electronics invoiced to AT&T and already included in the Network and
Electronics Cost;

                      (b)  reduced by the "Discount Percentage." The Discount
Percentage is the percentage discount, rebate or other direct or indirect cost
savings ("Discount") that AT&T was given by its supplier of network or circuit
electronics when AT&T purchased such electronics. If a Discount was made
available to AT&T in bundled purchases that include network electronics or
circuit electronics and other equipment not covered under this Agreement, the
same Discount shall be afforded to @Home for the equipment that is installed on
the @Home Network;

                      (c)  decreased to the extent that the Comparison Price (as
defined below) for such upgrade is less expensive or to the extent that a less
expensive upgrade could have been possible if AT&T's equipment were of a more
recent manufacture or design; and
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                                     Page 9

                      (d)  increased by a mark-up of 20% (that is, after the
deductions listed above in subsection (a), (b), and (c) are made to the Network
and Circuit Electronics Cost, the Networks and Circuit Electronics Cost shall be
multiplied by 1.20); provided however, that the mark-up with respect to Spare
Components will be 10% instead of 20%.

The "Comparison Price" for an upgrade shall be the lower price, if any, any
other AT&T-qualified vendor (or, in the event only one vendor is AT&T qualified
for the type of equipment being considered, any vendor of substantially
equivalent equipment of comparable quality) could have provided the electronics
(or substantially equivalent electronics), established as follows: (a) there
will be semi-annual meetings between @Home and AT&T to review market pricing,
and based on such meetings, the parties will attempt to mutually establish a
Comparison Price for any impending upgrade, (b) if no such price can be mutually
agreed to, the parties will engage a mutually acceptable third-party expert to
determine the Comparison Price, which determination will be binding on the
parties, and (c) if no such expert is mutually agreed to, the choice of the
expert will determined by an arbitrator under the arbitration provision of this
Agreement. During such process, AT&T will share equipment market price
information it has with @Home to the extent allowed by existing non-disclosure
agreements it has with third parties.

In the event AT&T chooses to supply Additional Capacity Without Upgrade or
Additional Expansion Capacity Without Upgrade pursuant to option (ii) of the
section entitled Upgrade of @Home Backbone Network at @Home's Request or of
                 ----------------------------------------------------
option (ii) of the section entitled Expansion of @Home Backbone Network, the
                                    -----------------------------------
cost to @Home of such Additional Capacity shall be calculated through a
reasonable estimate of what the costs would have been as if the facilities
upgrade set forth above had actually taken place.

               5.1.2  Fiber Cost. @Home shall not be required to pay anything
for the right to use fiber on any then existing @Home Route (i.e., the same City
Pair) in connection with the acquisition of Additional Capacity which together
with previously existing capacity on such Route does not exceed the Market
Equivalent Capacity for such Route. @Home shall pay $2,700 per Route mile for
the right to use fiber in connection with extending the Capacity to an
additional Route (a "New Route") that is not a then existing @Home Route. @Home
shall pay an amount equal to the product of (a) $2,700 per Route mile and (b)
the Excess Expansion Percentage for the right to use fiber in connection with an
Existing Route Expansion. The route mileage for New Routes shall be determined
by AT&T's final as-built circuit designs. Connection by @Home of two Routes on
the @Home side of the AT&T/@Home Network Interface does not create a New Route
(e.g., if @Home has a Route from City A to City B, and a second Route from City
B to City C, @Home may connect those Routes within its LSA Space in City B, or
in a different location on the @Home side of the AT&T/@Home Network Interface,
but that does not create a new Route between City A and City C and @Home would
not be required to make the $2700 per Route mile payment in connection
therewith).

          5.2  Upgrade and Expansion Payment Terms. Upon agreeing to participate
in an upgrade or expansion, @Home shall owe AT&T a deposit of 10% of the
estimated cost of the upgrade or expansion. Upon Acceptance in accordance with
the Section entitled Testing and Acceptance and delivery of the Service
                     ----------------------
Components along the upgraded or expanded portion of the @Home Backbone Network,
@Home shall pay the remainder of the Upgrade Cost or the Expansion Cost;
provided however that @Home shall not be required to pay more
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                                    Page 10

than 110% of the estimated cost given to @Home for such Upgrade or Expansion in
the Upgrade Response Notice, the Upgrade Notice or the Expansion Notice, as
applicable. The Section entitled Invoicing and Payment Terms shall apply to the
                                 ---------------------------
Upgrade Cost and the Expansion Cost.

     6.   Audit of Certain Upgrade, Expansion and Discount-Related Invoices.
@Home may undertake an audit under this Section in connection with a billing
dispute or after payment of the relevant invoice to evaluate the accuracy of
pricing and calculations for such invoice. For a period of twelve (12) months
from the date payment of the relevant invoice by @Home is first due, AT&T agrees
to maintain records related to its purchases of equipment and services related
to an invoice, and to make such records available to a representative of @Home
(or, at AT&T's option, to a third-party auditor acceptable to both parties) at
reasonable times at AT&T headquarters on prior notice in connection with an
audit requested by @Home under this Section. All costs related to such audit
will be borne by @Home. All documents reviewed in connection with such an audit
shall be subject to confidential treatment as set forth in the Section entitled
Confidentiality. If the audit discloses an error in the pricing or discounts
---------------
made available to @Home, and such audit indicates @Home paid too much, AT&T and
@Home will promptly review the conclusions of the audit and, where AT&T concurs,
AT&T shall pay @Home the amounts due within 15 days of its concurrence. In the
event the audit reveals that @Home was charged too little, @Home shall pay the
difference within 30 days of receiving an invoice from AT&T therefor. If the
parties disagree, either party may seek to resolve the matter through
arbitration as set forth in the Section entitled Arbitration.
                                                 -----------

     7.   Testing and Acceptance.

          7.1  Testing. Prior to making any Additional Capacity available to
@Home under this Agreement, AT&T shall test the Additional Capacity on a Route-
specific basis ("Testing") to ensure that the Additional Capacity is in
conformity with the technical specifications set forth in Exhibit B (the
"Specifications"). If any Testing establishes that the Additional Capacity does
not conform to the Technical Specifications, AT&T promptly shall correct such
nonconformity and conduct additional Testing prior to making the Service
Components available to @Home.

          7.2  Acceptance. If AT&T determines, that for a particular Route, that
the Testing results show that the Additional Capacity meets the Specifications
and that the Service Components are available for @Home's use, AT&T shall
provide @Home with written notice to that effect (the "Delivery Notice"). The
Delivery Notice shall include the Testing results, a description of the
available Service Components (including circuit identifiers) and the date the
Service Components will be available. Prior to providing the Delivery Notice
AT&T shall use commercially reasonable efforts to deliver @Home the applicable
rack spaces pursuant to a Collocation Agreement in the AT&T POP for installation
of its equipment. If @Home fails to give a Non-Acceptance Notice (defined below)
or makes a special request for an extension of the acceptance period within 30
days after @Home's receipt of the Delivery Notice, @Home shall be deemed to have
accepted the Service Components for such Route(s) effective as of such thirtieth
day. The earliest of (i) such date, (ii) the date @Home informs AT&T that it has
accepted the Service Components, or (iii) the date that @Home actually begins
commercial use of the Service Component shall be deemed the "Acceptance Date"
for that Service Component and such Service Component shall be "Accepted." @Home
shall have the right to extend the acceptance period for 15 days upon written
request to AT&T.
<PAGE>

                                    Page 11

          7.3  Non-Acceptance. If within the 30-day period (or the 45-day period
if applicable) described above, @ Home gives AT&T a written notice of any
nonconformity of the Additional Capacity to the Specifications or stating that
the Service Components are not available for @ Home's use ("Non-Acceptance
Notice"), Acceptance shall not occur. A Non-Acceptance Notice must either
specifically identify the Specifications with which @Home contends the
Additional Capacity does not conform, or provide an explanation of the manner
and extent to which the Service Component is not available. @Home will promptly
upon AT&T's written request give reasonably specific additional information to
AT&T regarding the claimed nonconformity. AT&T shall use commercially reasonable
efforts to correct such nonconformity and make the Service Component available
within 10 days of receipt of @Home's valid Non-Acceptance Notice. Upon
completion of such correction, AT&T shall notify @Home by providing a Delivery
Notice, after which @Home shall have 10 days for Acceptance or for @Home to
provide additional notice of a failure to deliver the Service Components by
providing a Non-Acceptance Notice. Such process shall be repeated until
Acceptance, provided however, if AT&T fails to correct any nonconformity of any
Additional Capacity to the Technical Specifications or to provide the Service
Components within 90 days after the date of the first Delivery Notice, @Home may
at its option terminate this Agreement with respect to the affected Route(s)
only, upon written notice to AT&T. In such case, AT&T need no longer deliver the
affected Route(s), and @Home need no longer pay any amounts due for such
Route(s).

     8.   Operation, Maintenance and Repair.

          8.1  Purchase, Repair or Replacement of Electronic Equipment. AT&T
shall purchase, repair and replace all electronic equipment related to the
provision of the Service Components at all times.

          8.2  Operating Standards. During the term of this Agreement, AT&T
shall operate the @Home Backbone Network in accordance with the same standards
with which AT&T operates the AT&T Network and in any case, with at least the
standard of care in the industry.

          8.3  Maintenance and Repair. During the Term hereof, AT&T shall be
responsible, at its sole expense, for the emergency and non-emergency
maintenance, and repair of the AT&T Network and the @ Home Backbone Network, so
as to assure continuing conformity of the @Home Backbone Network with the
Specifications. If routine, scheduled maintenance of the @Home Backbone Network
is expected to result in any interruption of the Service, AT&T shall so notify
@Home in writing at least 10 business days prior to commencing such routine
maintenance. AT&T shall schedule major maintenance of the @Home Backbone Network
at a time selected by AT&T to limit adverse user impacts.

          8.4  Use of Subcontractors. AT&T may contract with qualified
contractors for the performance of any maintenance and repair services
contemplated by this Agreement, including unaffiliated contractors, but shall
remain responsible for the performance of such services in accordance with the
requirements of this Agreement.

          8.5  Response to Interruptions. Subject to geographic limitations,
AT&T shall exercise commercially reasonable efforts to respond to any
Unscheduled Interruption (defined below) involving AT&T facilities delivering
the Service within four hours, measured in each case
<PAGE>

                                    Page 12

from the time that AT&T receives notice of an interruption and ending at the
time a qualified AT&T technician arrives at the site of the reported problem.

          8.6  Credit for Total Interruptions.

               8.6.1  A Total Interruption is: (a) any situation in which @Home
suffers a total loss of connectivity in one or more Routes, lasting two or more
hours, which loss is not caused by @Home, and that does not occur within or as a
result of equipment connections that @Home provides. In the event of a Total
Interruption that is due to circumstances within AT&T's reasonable control
(fiber cuts shall not be deemed to be within AT&T's reasonable control), @Home
shall be entitled to an allowance in the form of a credit against amounts
otherwise payable by @Home under this Agreement, calculated as set out below. No
credit will be provided for any scheduled interruption. Any credit shall be
applied to the next monthly maintenance invoice issued to @Home.

               8.6.2  @Home shall be credited for each two hour period of a
Total Interruption within AT&T's reasonable control in a specific Route at a
rate of $500 for each such period of a Total Interruption for each Route where
the Total Interruption occurs, the duration of such Interruption being measured
from (i) the time of notice to AT&T's network control center that a Total
Interruption has occurred to (ii) the time of restoration of the Service.

               8.6.3  If there shall occur, within any period of 12 consecutive
months, more than four Total Interruptions caused by factors within AT&T's
reasonable control on the AT&T Network, AT&T will demonstrate to @Home actions
taken by AT&T to reduce such Interruptions. If there shall occur more than two
additional Total Interruptions due to factors within AT&T's reasonable control
within the subsequent three-month period, @Home may at its option terminate this
Agreement upon written notice to AT&T, but only with respect to the affected
Route(s).

          8.7  Interference. In any instance in which AT&T believes in good
faith that @Home's use of the @Home Backbone Network is interfering unreasonably
with the use of AT&T service by others or the operation of the AT&T Network,
AT&T may immediately restrict or suspend the Service Components, without
liability on the part of AT&T, and then notify @Home of the action that AT&T has
taken and the reason for such action. For purposes of the foregoing sentence,
the normal usage by @Home of all or any part of the Capacity shall be deemed to
be reasonable. To the extent doing so does not interfere with its ability to
prevent such interference, AT&T will attempt to limit any restriction or
suspension under this Section to the Service Components that are causing such
interference.

          8.8  Ongoing Service Quality Review. The Parties shall establish an
informal mechanism for maintaining communications channels between their
respective network staffs related to service quality on the Routes. In the event
that there arises a service quality issue that a party deems to be significant
and that is not resolved in a satisfactory manner through the established
mechanism, the dissatisfied party may escalate the matter to senior management
of the other party for resolution, at the level of an executive vice president
or higher.

     9.  Relocation. Unless the circumstances make such notice impracticable,
AT&T shall give @Home at least 90 days prior written notice of any scheduled
relocation of any portion of the @Home Backbone Network, and as much advance
notice as possible of any
<PAGE>

                                    Page 13

unscheduled relocation. AT&T shall have the right to direct any relocation of
any portion of the @Home Backbone Network, including but not limited to the
right to determine the extent and timing of, and the methods to be used for,
such relocation; provided, however, that unless otherwise agreed, any such
relocation: (i) shall be constructed and tested in accordance with the
Specifications, and (ii) shall not result in any Interruption in excess of two
hours or degradation of the Service Components. In the event an AT&T POP or a
Third-Party POP is relocated or replaced, by a new site, AT&T shall relocate the
applicable @Home Service Components (including any facilities necessary to
continue the AT&T and third-party interconnections in place immediately prior to
the relocation or replacement). Any such relocation shall be undertaken at no
cost to @Home, except in cases where relocation is accompanied by additions or
other work to benefit @Home and for which @Home agrees in writing to pay.

     10.  Term of the Agreement. This Agreement is binding on the parties as of
the Effective Date and, subject to the termination provisions of this Agreement,
shall remain in effect until April 30, 2020, or until April 30, 2022 if AT&T
exercises the term extension option described in this Section (the "Term"). AT&T
has the option to extend the Term by an additional two years, exercisable in
2018. If AT&T exercises that option, all charges due under this Agreement for
the two-year extension period will be reset to then-current market rates. This
Agreement, including the Service Components granted under this Agreement, may be
renewed upon terms mutually agreed upon by the parties in writing.

     11.  Use of the Services and Restriction on Resale. @Home may use the
Service Components for any lawful purpose and @Home represents and warrants that
its use of the Service Components and its offering of services using the @Home
Backbone Network will comply with all applicable government codes, ordinances,
laws, rules, regulations and/or restrictions. @Home may sell, trade, exchange or
otherwise make available to any person or entity any service so long as @Home's
routers and packet switches or packet based successor equipment are used.

     12.  Indemnification.

          12.1 @Home shall indemnify, defend, and hold harmless AT&T and its
directors, officers, employees, agents, subsidiaries, affiliates, successors and
assigns from any and all third party claims, damages and expenses whatsoever
(including reasonable attorneys' fees) arising on account of or in connection
with @Home's use of the Service Components provided under this Agreement,
including but not limited to: (a) claims arising from any failure, breakdown,
interruption or deterioration of service components provided by AT&T to @Home or
service provided by @Home to third parties; and (b) claims of patent
infringement arising from combining or using services or equipment furnished by
AT&T in connection with services or equipment furnished by others. @Home's
indemnification obligations do not apply to claims for damages to real or
tangible personal property or for bodily injury or death negligently caused by
AT&T.

          12.2 AT&T shall indemnify, defend, and hold harmless @Home and its
directors, officers, employees, agents, subsidiaries, affiliates, successors,
and assigns from all claims of patent infringement arising solely from the use
of the Services.
<PAGE>

                                    Page 14

          12.3 The parties hereby expressly recognize and agree that each
party's said obligation to indemnify, defend, protect and save the other
harmless is not a material obligation to the continuing performance of the
parties' other obligations, if any, hereunder. In the event that a party shall
fail for any reason to so indemnify, defend, protect and save the other
harmless, the injured party hereby expressly recognizes that its sole remedy in
such event shall be the right to bring an arbitration proceeding pursuant to the
terms of this Agreement against the other party for its damages as a result of
the other party's said failure to indemnify, defend, protect and save harmless.
These obligations shall survive the expiration or termination of this Agreement.

          12.4 Nothing contained herein shall operate as a limitation on the
right of either party hereto to bring an action for damages against any third
party, including indirect, special or consequential damages, based on any acts
or omissions of such third party as such acts or omissions may affect the
construction, operation or use of the AT&T Network or the @Home Backbone
Network, as the case may be; provided, however, that each party hereto shall
assign such rights of claims, execute such documents and do whatever else may be
reasonably necessary to enable the other party to pursue any such action against
such third party.

     13.  Security Interest

          13.1 To secure payment of its obligations to AT&T under this
Agreement, @Home grants to AT&T a continuing, perfected, first-priority security
interest in this Agreement and all of its rights hereunder (including any
enhancements or additions) (the "Security Interest").

          13.2 At any time after July 1, 2006, @Home may accelerate its
obligation to pay the Initial IRU Fees, by paying an accelerated IRU Fee equal
to the present value of the Initial IRU Fee payments due for the remainder of
the Term (excluding any optional Term extension), discounted at 8% per annum.
Upon payment of such accelerated IRU Fee, @Home shall have no further obligation
to pay Initial IRU Fees and AT&T agrees to take all necessary acts to
immediately release the Security Interest.

          13.3 @Home warrants that no financing statement covering this
Agreement is on file in any public office. @Home will join with AT&T in
executing one or more financing statements pursuant to the Uniform Commercial
Code of applicable jurisdictions in a form satisfactory to AT&T. A carbon,
photographic or other reproduction of this agreement or a financing statement
will be sufficient as a financing statement. @Home agrees to take such further
action as AT&T may reasonably request to evidence, protect or perfect the
Security Interest.

          13.4 AT&T may assign this Security Interest, and all AT&T's rights
with respect to this Security Interest shall inure to the benefit of AT&T's
successors and assigns, and all obligations of @Home with respect to this
Security Interest shall bind @Home's successors and assigns.

          13.5 @Home appoints AT&T as @Home's agent and grants AT&T limited
power of attorney to sign any necessary documents including but not limited to
UCC-1 and UCC-3 financing statements for the purpose of perfecting or otherwise
protecting AT&T's security interest.
<PAGE>

                                    Page 15

     14.  Limitation of Liability.

          14.1 EXCEPT AS SET FORTH IN THE SECTIONS ENTITLED DELIVERY AND
                                                            ------------
LIQUIDATED DAMAGES, AND CREDIT FOR TOTAL INTERRUPTIONS OR AS OTHERWISE SPECIFIED
------------------      ------------------------------
HEREIN, THE LIABILITY OF AT&T ASSOCIATED WITH THE INSTALLATION, PROVISION, USE,
MAINTENANCE, REPAIR, TERMINATION OR RESTORATION OF SERVICE COMPONENTS PROVIDED
PURSUANT TO THIS AGREEMENT SHALL NOT EXCEED AN AMOUNT EQUAL TO THE PRORATED
PORTION OF CHARGES FOR THE AFFECTED SERVICE COMPONENTS FOR THE PERIOD DURING
WHICH THAT SERVICE COMPONENT WAS AFFECTED.

          14.2 NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY,
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, PUNITIVE, RELIANCE OR CONSEQUENTIAL DAMAGES, WHETHER
FORESEEABLE OR NOT, ARISING OUT OF, OR IN CONNECTION WITH, TRANSMISSION
INTERRUPTIONS OR PROBLEMS, INCLUDING, BUT NOT LIMITED TO, DAMAGE OR LOSS OF
PROPERTY OR EQUIPMENT, LOSS OF PROFITS OR REVENUE, COST OF CAPITAL, COST OF
REPLACEMENT SERVICES, OR CLAIMS OF CUSTOMERS, WHETHER OCCASIONED BY ANY REPAIR
OR MAINTENANCE PERFORMED BY, OR FAILED TO BE PERFORMED BY, THE FIRST PARTY OR
ANY OTHER CAUSE WHATSOEVER, INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT,
BREACH OF WARRANTY, NEGLIGENCE OR STRICT LIABILITY. THIS PARAGRAPH SHALL NOT BE
CONSTRUED TO LIMIT EITHER PARTY'S ABILITY TO RECOVER UNDER THE SECTION ENTITLED
INDEMNIFICATION WITH RESPECT TO CLAIMS OF THIRD PARTIES BROUGHT AGAINST SUCH
---------------
PARTY OR THE RIGHT TO RECOVER LIQUIDATED DAMAGES UNDER THE SECTIONS ENTITLED
DELIVERY AND LIQUIDATED DAMAGES AND OPERATION, MAINTENANCE AND REPAIR.
-------------------------------     ---------------------------------

          14.3 PURSUANT TO THIS SECTION, NO PARTY SHALL BE PREVENTED FROM MAKING
A CLAIM OR FILING SUIT AGAINST AN INDEPENDENT CONTRACTOR FOR SPECIAL,
INCIDENTAL, INDIRECT, PUNITIVE, RELIANCE OR CONSEQUENTIAL DAMAGES ARISING OUT OF
SUCH INDEPENDENT CONTRACTOR'S PERFORMANCE OF MAINTENANCE OR REPAIR SERVICES FOR
THE SYSTEM OWNER, BUT THE PARTY MAKING THE CLAIM OR FILING SUIT AGREES THAT IT
WILL NOT SEEK RECOVERY OF SUCH DAMAGES TO THE EXTENT SUCH INDEPENDENT CONTRACTOR
HAS A CONTRACTUAL OR COMMON LAW RIGHT OF RECOVERY AGAINST OR AN INDEMNITY FROM
THE OTHER PARTY.

     15.  Notice.

          15.1 Unless otherwise provided herein, all notices and communications
concerning this Agreement shall be in writing and addressed to the other party
as follows:
<PAGE>

                                    Page 16

          If to @Home:        At Home Corporation
                              450 Broadway Street
                              Redwood City, California 94063
                              Attention: General Counsel
                              Telephone: (650) 569-5000
                              Facsimile No: (650) 482-4606

          with a copy to:     Michael P. Whalen, Esq.
                              O'Melveny & Myers LLP
                              990 Marsh Road
                              Menlo Park, CA 94025
                              Facsimile No: (650) 473-2601

          If to AT&T:         AT&T Corp.
                              Room 3W090
                              300 Atrium Drive
                              Somerset, New Jersey  08873
                              Attn: Connie Diehl
                              General Manager - @Home
                              Facsimile No: (732) 805-9385

          with a copy to:     AT&T Corp.
                              295 North Maple Avenue
                              Basking Ridge, New Jersey, 07920
                              Attn: [David J. Ritchie]
                              General Attorney - Wholesale Markets
                              Facsimile No: (908) 953-8360

or at such other address as may be designated in writing to the other party.

          15.2 Unless otherwise provided herein, notices shall be sent by
registered or certified U.S. Mail, postage prepaid, or by commercial overnight
delivery service, or by facsimile, and shall be deemed served or delivered to
the addressee or its office on the date of receipt acknowledgment or, if postal
claim notices are given, on the date of its return marked "unclaimed," provided,
however, that upon receipt of a returned notice marked "unclaimed," the sending
party shall make reasonable effort to contact and notify the other party by
telephone.

     16.  Confidentiality. The parties hereto agree that this Agreement and the
terms hereof are "Confidential Information" as defined in the Nondisclosure
Agreement dated as of September 8, 1998 between the parties. Notwithstanding the
terms of that agreement however, either party may disclose the contents of, or
information concerning, this Agreement to the extent required by law after using
reasonable efforts to consult with the other party regarding such disclosure
and, as applicable, using reasonable efforts to obtain confidential treatment
from the applicable regulatory agency regarding the pricing terms hereof.

     17.  Use of Marks. Nothing in this Agreement creates in a party any rights
in the other party's trade names, trademarks, service marks or any other
intellectual property. Except as may be otherwise agreed between the parties in
writing:
<PAGE>

                                    Page 17

          17.1 Either party may use the other party's trade names, trademarks,
or service marks only to the extent such use is not prohibited by this Agreement
and is otherwise permitted by law (including but not limited to the Lanham Act).

          17.2 In no event shall either party use or display, in advertising or
otherwise, any of the other party's logos, trade dress, trade devices or other
indicia of origin, or any confusingly similar logos, trade dress, trade devices
or indicia of origin.

          17.3 Neither party shall conduct business under the other party's
corporate or trade name, trademark, service mark, logo, trade dress, trade
device, indicia of origin or other symbol that serves to identify and
distinguish the other party from its competitors, or under any confusingly
similar corporate or trade name, trademark, service mark, logo, trade dress,
trade device, indicia of origin or other symbol.

          17.4 Neither party (the "First Party") shall indicate or imply to any
third party that the First Party is affiliated with the other party, that the
First Party is authorized by the other party to sell or provide service to them,
that the First Party is providing (or will provide) service to such party
jointly or in collaboration or partnership with the other party, or as the agent
of the other party, or that service provided by the First Party or another
carrier is provided by the other party.

          17.5 Except to the limited extent (if any) as may be required under
law, neither party shall indicate or imply to any existing or potential end user
that any portion of the service provided to the end user by a party is provided
by the other party or is carried over the other party's network or facilities.

     18.  Default.

          18.1 A party may deliver to the other party a written "Notice of
Default" for: (i) failing to make any payment of the Initial IRU Fees owed
hereunder (an "Initial IRU Payment Default"); (ii) failing to make any payment
of any amounts owed hereunder other than Initial IRU Fees, when no bona fide
dispute exists (an "Other Payment Default"); (iii) the breaching by either party
or its agents, assigns or affiliates of any Material Provision; or (iv) the
filing or initiating of proceedings by or against a party seeking liquidation,
reorganization or other such relief under any federal or state bankruptcy or
insolvency law (a "Bankruptcy Proceeding"). Such Notice of Default must
prominently contain the following sentences in capital letters: "THIS IS A
FORMAL NOTICE OF A BREACH OF CONTRACT. FAILURE TO CURE SUCH BREACH WILL HAVE
SIGNIFICANT LEGAL CONSEQUENCES."

          18.2 If @Home receives a Notice of Default arising out of an Initial
IRU Payment Default, it shall have 5 days to cure; provided that prior to
sending such a Notice of Default, AT&T shall have engaged (or made commercially
reasonable efforts to engage) in discussions with @Home with respect to the non-
payment. If @Home fails to cure an Initial IRU Payment Default within the cure
period, AT&T shall have the right to suspend @Home's right to use the Initial
Routes. If @Home fails to cure an Initial IRU Payment Default within 30 days
after receipt of the Notice of Default, AT&T shall have the right to reclaim the
IRU under this Agreement with respect to all @Home Routes, in which case @Home
will be liable for an
<PAGE>

                                    Page 18

accelerated IRU Fee equal to the present value of the Initial IRU Fee payments
due for the remainder of the Term (excluding any optional Term extension),
discounted at 8% per annum, less the fair value of the IRU as then in effect,
including without limitation, all Additional Capacity and New Routes, with such
fair value to be determined based upon an auction process with a reasonable
amount of time conducted by a recognized investment bank. In the event the fair
value exceeds the present value of the Monthly IRU Fee payments, @Home will be
entitled to the amount of such excess. Notwithstanding Section 18.4, AT&T may
not disconnect service or revoke the IRU with respect to any Initial Capacity
except in accordance with this Section 18.2.

          18.3 If @Home receives a Notice of Default arising out of an Other
Payment Default, it shall have 30 days to cure. If @Home fails to cure an Other
Payment Default within the cure period, AT&T shall have the right to either (a)
suspend its performance obligations under this Agreement, (b) seek an award for
the past due balance, including interest and reasonable attorneys' fees, and/or
(c) require @Home to post a reasonable deposit or other adequate assurance of
payment as a condition of continuing performance by AT&T. Notwithstanding the
foregoing and Section 18.4, AT&T may not disconnect service or revoke the IRU
with respect to any Additional Capacity except for non-payment of the Additional
IRU Fee with respect to that Additional Capacity.

          18.4 A party that has received a Notice of Default arising out of an
alleged breach of a Material Provision shall have 30 days to cure the alleged
breach (except as otherwise provided in Section 18.2 with respect to a breach of
@Home's obligation to pay the Initial IRU Fees). If the defaulting party shall
have commenced actions in good faith to cure such defaults which are not
susceptible of being cured during such 30-day period, such period shall be
extended (but not in excess of 90 additional days) while such party continues
such actions to cure. If such party fails to cure the breach within the
applicable cure period, this Agreement shall not be terminated, but as long as
such default shall be continuing, the non-defaulting party shall have the right
to either (a) suspend its performance or payment obligations under this
Agreement, (b) seek an order of specific performance, and/or (c) seek the award
of compensatory damages. Any event of default by either party may be waived
under the terms of this Agreement at the other party's option.

     19.  Termination.

          19.1 Upon the expiration of the Term of this Agreement, the Services
Components shall terminate and @Home shall owe AT&T no additional consideration.

          19.2 Notwithstanding the foregoing, no termination of this Agreement
shall affect the rights or obligations of any party hereto with respect to any
payment hereunder for services rendered prior to the date of termination or
pursuant to the Sections entitled Indemnification or Arbitration herein.
                                  ---------------    -----------

     20.  Force Majeure. If, by reason of any Force Majeure Event (as
hereinafter defined), a party shall be unable to carry out any of its
obligations (other than the payment of monetary amounts due) under this
Agreement and that party gives the other party prompt written notice thereof,
then, except as otherwise set forth herein, any such obligations shall be
suspended to the extent made necessary by reason of such Force Majeure Event
during its continuance, provided that such party attempts to eliminate insofar
as is reasonably possible the effect of such force majeure with all reasonable
dispatch. The term "Force Majeure Event" shall
<PAGE>

                                    Page 19


mean: (i) an act of God, (ii) fire, (iii) flood, (iv) explosion (v) material
shortage or unavailability not resulting from the responsible Party's failure to
timely place orders or take other necessary actions therefor, (vi) war, civil
disorder, earthquake or labor strikes or (vii) national emergency. The party
claiming relief under this Section shall promptly notify the other in writing of
the existence of the event(s) (i) through (vii) relied on, the expected duration
of the Force Majeure Event, and the cessation or termination of said event.

     21.  Arbitration

          21.1  An "Arbitrable Dispute" is any dispute or disagreement arising
between @Home and AT&T in connection with this Agreement in which the dollar
amount in dispute is less than one million dollars ($1,000,000) or which
involves quality issues not settled by the parties pursuant to the section
entitled Ongoing Service Quality Review. Any Arbitrable Dispute which is not
         ------------------------------
settled to the mutual satisfaction of @Home and AT&T within thirty (30) days
from the date that either party informs the other in writing that such dispute
or disagreement exists, shall be settled by arbitration in San Francisco,
California in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect on the date that such notice is given. If the
parties are unable to agree on a single arbitrator within 15 days from the date
of receipt of the notice notifying a party of a dispute or disagreement, each
party shall select an arbitrator within 15 days and the two arbitrators shall
select a third arbitrator within 10 days. The decision of the arbitrator(s)
shall be final and binding upon the parties and shall include written findings
of law and fact, and judgment may be obtained thereon by either party in a court
of competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. The arbitrator(s) shall be instructed by
the parties to establish procedures such that a decision can be rendered by the
arbitrator(s) within 60 days of their appointment.

          21.2  The obligation herein to arbitrate shall not be binding upon any
party with respect to requests for preliminary injunctions, temporary
restraining orders, specific performance or other procedures in a court of
competent jurisdiction to obtain interim relief when deemed necessary by such
court to preserve the status quo or prevent irreparable injury pending
resolution by arbitration of the actual dispute.

     22.  Waiver.  The failure of either party hereto to enforce any of the
provisions of this Agreement, or the waiver thereof in any instance, shall not
be construed as a general waiver or relinquishment on its part of any such
provision, but the same shall nevertheless be and remain in full force and
effect.

     23.  Taxes.

The Parties' respective responsibilities for taxes arising under or in
connection with this Agreement shall be as follows:

          23.1  Each Party shall be responsible for any personal property taxes
on property it owns or leases from the other Party or from a third party, for
franchise and privilege taxes on its business, and for income taxes based upon
its net income.
<PAGE>

                                    Page 20

          23.2  The Parties agree to reasonably cooperate with each other to
enable each to more accurately determine its own tax liability and to minimize
such liability to the extent legally permissible. AT&T's invoices shall
separately state the amount of any taxes AT&T is collecting from @Home.

          23.3  In the event that a sales, use, excise, value added, services,
duty, consumption, or other tax is or may be assessed on the sale, installation,
use or provision of any of the Service Components, the IRU or any equipment
provided under this Agreement,the Parties shall work together to segregate, to
the extent practicable, the payments under this Agreement into three payment
streams: (a) those that are taxable; (b) those that are nontaxable; and (c)
those for which AT&T functions merely as a payment agent for @Home in receiving
goods, supplies or services (including leasing and licensing arrangements) that
otherwise are nontaxable or have previously been subject to tax.

          23.4  Subject to Section 23.3 above, @Home shall be responsible for
and shall pay any sales, use, excise, value added, services, consumption, or
other similar tax payable with respect to the Service Components, the IRU or any
equipment provided under this Agreement, except to the extent @Home provides a
valid tax exemption certificate to AT&T prior to the delivery thereof. AT&T will
apply taxes to @Home at the same rates applied with respect to other similarly
situated customers, which rates are designed to cover costs, without mark-up.

          23.5  AT&T shall promptly notify @Home of, and coordinate with @Home,
the response to any settlement of any claim for taxes asserted by applicable
taxing authorities for which, as between the Parties, @Home is responsible
hereunder. It being understood that with respect to any claim arising out of a
form or return signed by a Party to this Agreement, such Party shall have the
right to elect to control the response to and settlement of the claim, the other
Party shall have all rights to participate, at its own cost and expense, in the
responses and settlements that are appropriate to its potential responsibilities
or liabilities. If @Home requests that AT&T challenge the imposition of any tax,
@Home shall reimburse AT&T for the reasonable expenses it incurs. @Home shall be
entitled to any tax refunds or rebates granted to the extent such refunds are of
taxes that were paid by @Home.

          23.6  AT&T shall be responsible for and shall timely pay any and all
(i) taxes and franchise, license and permit fees based on the physical location
of the AT&T Network and the @Home Backbone Network; (ii) right-of-way payments
on the AT&T Network and the @Home Backbone Network; and (iii) gross receipts tax
based on revenues received by AT&T under this Agreement.

          23.7  For purposes of this Section, "Taxes" shall mean all sales, use,
value added, transfer, ad valorem, or excise taxes and any other similar taxes,
fees, duties or imposts, plus any interest and penalties imposed thereon and all
expenses incurred by @Home or AT&T in connection with the payment or settlement
of or defense against any claim for such taxes.

          23.8  @Home shall be responsible for USF fees and similar
telecommunication surcharges or user fees imposed by government authorities and
associated with the performance by AT&T of its obligations under this Agreement.
<PAGE>

                                    Page 21

          23.9  AT&T will determine in its reasonable judgment whether such
Taxes or assessments apply. AT&T will consult with @Home prior to changing the
manner in which AT&T specifically treats @Home with respect to applicability of
taxes and assessments (this does not include general changes within a
taxing/assessing jurisdiction which may affect @Home).

          23.10 @Home will indemnify AT&T against any obligation AT&T incurs to
pay any Taxes or assessments for which @Home is responsible.

     24.  Equipment.  AT&T shall retain title to all of its equipment and
facilities used to meet its performance obligations this Agreement.

     25.  Governing Law.  This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without reference to
its choice of law principles.

     26.  Rules of Construction.

          26.1  The captions or headings in this Agreement are strictly for
convenience and shall not be considered in interpreting this Agreement or as
amplifying or limiting any of its content. Words in this Agreement which import
the singular connotation shall be interpreted as plural, and words which import
the plural connotation shall be interpreted as singular, as the identity of the
parties or objects referred to may require.

          26.2  Unless expressly defined herein, words having well-known
technical or trade meanings shall be so construed. All listing of items shall
not be taken to be exclusive, but shall include other items, whether similar or
dissimilar to those listed, as the context reasonably requires.

          26.3  Except as set forth to the contrary herein, any right or remedy
of AT&T or @Home shall be cumulative and without prejudice to any other right or
remedy, whether contained herein or not.

          26.4  Nothing in this Agreement is intended to provide any legal
rights to anyone not an executing party of this Agreement.

          26.5  This Agreement has been fully negotiated between and jointly
drafted by the parties.

          26.6  In the event of a conflict between the provisions of this
Agreement and those of any Exhibit, the provisions of this Agreement shall
prevail and such Exhibits shall be corrected accordingly.

          26.7  All actions, activities, consents, approvals and other
undertakings of the parties in this Agreement shall be performed in a reasonable
and timely manner. Except as specifically set forth herein, for the purpose of
this Section the normal standards of performance within the telecommunications
industry in the relevant market shall be the measure of whether a party's
performance is reasonable and timely.
<PAGE>

                                    Page 22

     27.  Assignment.  Neither Party shall assign or otherwise transfer this
Agreement or its rights or obligations hereunder to any person or entity without
the prior written consent of the other party, which shall not be unreasonably
withheld or delayed; provided, however, that either party shall have the right,
without the consent of the other, to assign or otherwise transfer the Agreement
to any person or entity that controls, is under the control of, or is under
common control with the assigning party, or any corporation into which such
party may be merged or consolidated or that purchases all or substantially all
of the assets of such party used by such party in connection with the Capacity
Service; provided, further, that any such assignment or transfer shall be
subject to the other party's rights under this Agreement and any assignee or
transferee shall continue to perform the assigning or transferring party's
obligations under this Agreement.  This Agreement is intended to pass by
operation of law to any party to whom AT&T may assign all or substantially all
of the AT&T Network, but only to the extent that it is in fact assigned.

     28.  Representations and Warranties. Each party represents and warrants
that:

          28.1  It has the full right and authority to enter into, execute,
deliver and perform its obligations under this Agreement (including, with
respect to @Home, authority to grant a perfected, first priority security
interest in this Agreement);

          28.2  It has taken all requisite corporate action to approve the
execution, delivery and performance of this Agreement;

          28.3  This Agreement constitutes a legal, valid and binding obligation
enforceable against such party in accordance with its terms; and

          28.4  EXCEPT AS PROVIDED IN THIS SECTION, AT&T MAKES NO WARRANTIES,
EXPRESS OR IMPLIED, UNDER THIS AGREEMENT AND SPECIFICALLY DISCLAIMS ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. AT&T DOES NOT WARRANT
THAT THE SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT THE SERVICES WILL
MEET CUSTOMER'S REQUIREMENTS OR THAT THE SERVICES WILL PREVENT UNAUTHORIZED
ACCESS BY THIRD PARTIES.

          28.5  Its execution of and performance under this Agreement shall not
violate any applicable existing regulations, rules, statutes, or court orders of
any local, state or federal governmental agency, court or body.

     29.  Entire Agreement; Amendment. This Agreement constitutes the entire and
final agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements relating to the
subject matter hereof, which are of no further force or effect. The Exhibits
referred to herein are integral parts hereof and are hereby made a part of this
Agreement. This Agreement may only be modified or supplemented by an instrument
in writing executed by a duly authorized representative of each party.

     30.  No Personal Liability.  Each action or claim against any party arising
under or relating to this Agreement shall be made only against such party as a
corporation, and any liability relating thereto shall be enforceable only
against the corporate assets of such party.  No party shall seek to pierce the
corporate veil or otherwise seek to impose any liability relating to,
<PAGE>

                                    Page 23

or arising from, this Agreement against any shareholder, employee, officer or
director of the other party. Each of such persons is an intended beneficiary of
the mutual promises set forth in this Section and shall be entitled to enforce
the obligations of this Section.

     31.  Relationship of the Parties.  The relationship between AT&T and @Home
shall be that of independent contractors and not of principal and agent,
franchiser and franchisee, dealer and distributor, partners or joint venturers
for one another, and nothing contained in this Agreement shall be deemed to
constitute a partnership or agency agreement between them for any purposes,
including, but not limited to federal income tax purposes.  AT&T and @Home, in
performing any of their obligations hereunder, shall be independent contractors
or independent parties and shall discharge their contractual obligations at
their own risk.  Each party acknowledges that nothing in this Agreement
diminishes or restricts in any way the rights of the parties to engage in
competition with each other.  Each party acknowledges that it remains at all
times solely responsible for the success and profits of its own business.

     32.  Export Regulations. The parties acknowledge that any products,
software, and technical information (including, but not limited to, services and
training) provided under this Agreement are subject to U.S. export laws and
regulations and any use of or transfer of such products, software and technical
information must be authorized under those regulations. @Home agrees that it
will not use distribute, transfer or transmit the products, software or
technical information (even if incorporated into other products) except in
compliance with U.S. export regulations. If requested by AT&T, @Home also agrees
to sign written assurances and other export-related documents as may be required
for AT&T to comply with U.S. export regulations.

     33.  Severability.  If any term, covenant or condition herein shall, to any
extent, be invalid or unenforceable in any respect under the laws governing this
Agreement, the remainder of this Agreement shall not be affected thereby, and
each term, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.

     34.  Counterparts.  This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
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                                    Page 24

   IN WITNESS WHEREOF, in confirmation of their consent to the terms and
conditions contained in this Agreement and intending to be legally bound
thereby, the parties have executed this Capacity Lease Agreement on the dates
shown below but effective for all purposes as of the Effective Date.


AT&T CORP.                                    AT HOME CORPORATION


By:    /s/ Kathryn Morrissey                  By:    /s/ Patti S. Hart
       -------------------------------               --------------------------

Title: VP Sales, Service Provider Mkts        Title: Chairman & CEO
       -------------------------------               --------------------------

Date:  6/19/01                                Date:  6/19/01
       -------------------------------               --------------------------

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                                    Page 25

                                    EXHIBITS

Exhibit A  Initial Capacity]

Exhibit B  Technical Specifications

Exhibit C  [Reserved]

Exhibit D  [Reserved]

Exhibit E  AT&T POPs

Exhibit F  Collocation Agreement

Exhibit G  Third Party POPs