Adelphia's on the block - now a guessing game
By Ian Katz
Business Writer
Posted May 9 2004
Sun-Sentinal, South Florida
The new game in the cable industry these days is guessing who will buy embattled Adelphia Communications Corp., which has put itself up for sale.
For some of Adelphia's 337,000 cable subscribers in South Florida, a change in ownership might mean faster upgrades to cutting-edge technology such as video on demand.
The early betting among industry analysts is that Comcast Corp., the largest cable operator in South Florida, with 700,000 subscribers, eventually will end up with most of Adelphia's South Florida subscribers.
Adelphia -- which has 250,000 subscribers in Palm Beach County, 19,000 in Broward and 68,000 in Miami-Dade -- is in bankruptcy and embroiled in the fraud trial of founder John Rigas and his two sons. The company said last month it will listen to offers. "We will try to sell the company as a whole, but we wouldn't rule out selling parts," said Paul Jacobson, Adelphia's vice president of corporate communications.
The leading candidates are Comcast, Time Warner Inc., or Cox Communications Inc. in a joint bid with either Comcast or Time Warner, said James Brancheau, vice president of media industry research at Gartner Research in Stamford, Conn. Neither Time Warner nor Cox has significant operations in South Florida.
Brancheau and other analysts believe that even if Comcast does not buy Adelphia, it will eventually acquire most of Adelphia's South Florida systems from whoever purchases the company. Comcast would have more incentive to acquire Adelphia's lucrative customer base in Palm Beach County, as Comcast already operates in neighboring Broward.
Analysts believe a sale would help Adelphia's current customers because the leading potential buyers are in better financial shape than Adelphia. "I think they [Adelphia] may have fallen behind the current state-of-the-art standard," said Allison Hift, an attorney specializing in the cable and telecom industries for Fort Lauderdale law firm Becker & Poliakoff.
Over the long term, a new owner might be able to introduce "the newest services more quickly than Adelphia would, limping along in bankruptcy," Brancheau said. Some of the most recent TV technologies include digital video recording, video on demand and high-definition TV.
Digital video recorders, such as the popular service offered by TiVo Inc., are used to record television programs on a hard-disk drive for later playback. Video on demand is a pay-per-view service in which viewers can order programs and have them delivered instantly to a TV, usually with the ability to pause and rewind. High definition TV transmits a signal with much greater resolution than normal TV.
Adelphia has digital video recording and high definition TV in South Florida, Jacobson said. Video on demand will be available from Adelphia by the end of the year, he said. Comcast says it now offers high definition TV and is rolling out digital video recording and video on demand between now and the fall.
It remains to be seen whether a new owner will be an improvement over Adelphia. To compare the number of subscriber complaints against cable companies is nearly impossible. Internet message boards and home-made Web sites are filled with venom for every major cable operator in the country.
As attorney Hift points out: "Everyone hates their cable company."
The nature of the cable business is almost unique among major U.S. industries. "The cable industry is very geographic," Brancheau said. "It's better to own a market than have half of one and half of another."
By owning systems geographically close to one another, cable companies can reduce costs. "You need less personnel to operate and manage, and you can more efficiently deploy your field service personnel," said David Joyce, a senior equity analyst covering cable and media for Coral Gables-based investment bank Guzman & Co.
In fact, when it makes sense geographically, cable operators often sell to or trade systems with one another. These trades, called "swapping," are encouraged by the fact that cable companies usually hold monopolies in their geographic areas. For example, though Comcast and Adelphia compete for market share nationally, they don't normally compete against each other in the same geographic area.
"These companies really do operate on a local basis, but they try to get big for scale, to create efficiencies for purchasing," Joyce said.
Nationally, Comcast had 21.5 million basic cable subscribers at the end of last year, according to Gartner Research. Time-Warner is second with 10.9 million, followed by Charter Communications, with 6.3 million, Adelphia with 5 million and Cablevision Systems Corp. with 2.9 million. Advance/ Newhouse has 2.1 million, of which 5,000 to 7,000 are in Broward County.
So far, the big cable companies are coy about whether they will bid for Adelphia. Brian Roberts, CEO of Comcast, said last week on CNBC TV that he will consider it. "Some of those systems fit us," he said. Comcast is in a stronger position now that it has dropped its bid -- initially valued at $66 billion -- for Walt Disney Co.
Richard Parsons, chairman and CEO of Time Warner, refused to say last week whether Time Warner will bid.
Cox could be interested in buying parts of Adelphia, "but not the whole thing," said Laura Oberhelman, a spokeswoman with Cox in Atlanta. She said the company believes in the "cluster" strategy of owning cable systems geographically close to one another. Oberhelman said virtually all of Cox's 269,000 Florida subscribers are in the Gainesville and Ocala areas and along the Gulf Coast.
Brancheau rates Viacom International Inc., which owns CBS, and Liberty Media Corp., which owns the QVC home shopping network and has stakes in the Discovery Channel and E!, as dark horses to buy Adelphia. He believes Disney is a really long shot because it would have made more sense to have accepted Comcast's merger bid than to buy the weaker Adelphia.
It's also possible that no one might bid for Adelphia and the troubled company will continue to manage its systems as it struggles through bankruptcy. At a national cable industry convention in New Orleans last week, some industry analysts said the major cable companies would be better off focusing on generating cash flow rather than attempting to buy Adelphia.
However, with Adelphia in financial difficulty, analysts believe that at least some pieces of the company will be sold, though perhaps not in the next several months. "I think it will happen," Brancheau said. "The market is hungry for this." |
