Adephia Close to Puerto Rico Sale

5/20/2001 8:00 PM Eastern

Adelphia Communications Corp. said it's close to reaching deals to sell about 880,000 of its subscribers, with the last of the transactions expected to clear in September.

In a conference call with analysts last Monday (May 14), Adelphia chief financial officer Tim Rigas said final bids for the company's 50 percent interest in its Puerto Rico systems, which have 135,000 subscribers, should be in by the end of May or early June. ML Media, a unit of Merrill Lynch & Co. Inc., is the other partner in the Puerto Rico systems.

A buyer or buyers for another 190,000 subscribers should be found by the end of next month, while the remaining 550,000 customers should be divested by the end of September.

Rigas would not identify the systems, aside from those in Puerto Rico, or speculate on the sale price. However, in December, Adelphia said it expected to sell the properties for between $3,000 and $4,000 per subscriber, or some $2.6 billion to $3.5 billion.

But some analysts believe the systems will fetch a more realistic sale price of between $2,000 and $3,000 per subscriber, which could net the MSO from $1.8 billion to $2.6 billion.

As Adelphia moved forward with its system sales, it reported modest growth for the first quarter ended March 31. Revenue increased 8.2 percent to $715 million, and cash flow improved 7.2 percent to $324.7 million, in line with analyst expectations.

Although Adelphia's cash flow growth was below that of its cable peers, SG Cowen Securities Corp. analyst Gary Farber said, it was acceptable given the MSO's rapid deployment of digital-cable service.

"They've got the adds going on digital and marketing costs, as a percentage of revenue, are down," Farber said. "They should be able to beat their digital numbers going into the next quarter."

For the rest of the year, Adelphia will focus on upgrading and rebuilding plant, said Rigas. The goal is to have 85 percent of Adelphia's systems running at a capacity of at least 750 megahertz, he said.

Adelphia added 300,000 digital subscribers during the period — averaging about 30,000 installs per month — to end the quarter with 1.2 million digital customers. Data customers increased by 50,000, to 197,000 in the period.

Rigas said the pace of digital installations has slowed to about 17,000 per week, particularly since Adelphia pulled back on its free installation and premium-service promotions.

But the company will step up its rollout of high-speed data service this year, he added, and could possibly join other MSOs hiking cable- modem rates as competition from digital subscriber line providers wanes.

Increasing the price of high-speed data by about 5 percent — to $42 from $40 per month —"is reasonable and very doable," said Rigas, who emphasized that no decision has been made.

Rigas added that data installs, currently at about 4,000 per week, could rise to between 6,000 and 7,000 per week.

An alliance with AOL Time Warner Inc. — which would afford its America Online Internet service access to Adelphia's high-speed data network — could help boost subscribers.

At an investor conference in New York last Tuesday, Rigas said Adelphia and AOL are in the early stages of talks.

"Since the [Time Warner Inc.] merger, they [AOL] have been more proactive," Rigas said. "AOL is a critical discussion."

Rigas said Adelphia is not talking to other ISPs at this time.

Adelphia vice president of finance Jim Brown said the MSO would be rolling out video-on-demand service in Cleveland and western Pennsylvania during June. The company has subscription VOD arrangements with Home Box Office, Starz Encore Group LLC and Showtime Networks Inc., he said.

Brown said Adelphia would not charge separately for the SVOD service, but would make it part of the overall premium package. That strategy is aimed at reducing premium-service churn.

"We're pretty good at selling HBO, but we're poor at retaining those customers," Brown said during the investors' conference. "This [SVOD] will help in the retention of these subscribers."

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