First Sub-Gain Month for Adelphia

11/02/2003 7:00 PM Eastern

September was a strong month for Adelphia Communications Corp. — it reported its first month of basic subscriber growth since March — but president and chief operating officer Ron Cooper cautioned that observers shouldn't take that to mean the MSO is out of the woods just yet.

Denver-based Adelphia reported basic subscriber gains of 14,500 customers in September. According to the operating report, it ended the month with 5.078 million subscribers, up from the 5.06 million it reported in August.

Those numbers don't include about 400,000 subscribers in systems in Puerto Rico (a partnership that filed for Chapter 11 bankruptcy protection separately) and several suburban systems owned by Adelphia's founding Rigas family.

Big Turnaround

Still, the basic growth was impressive, especially when compared to September 2002, when Adelphia lost about 17,000 basic customers.

In an interview, Cooper said the gains reflect stepped up marketing efforts and normal seasonal effects — students returning to school and "snowbirds" returning to their winter homes.

"We're pretty happy with the numbers," Cooper said. "We are continuing to step up our marketing efforts. I think you can expect in the overall scheme of things to see Adelphia continue to be very aggressive.

"But I think you're going to see results are going to be fairly choppy over the course of the next six months. One month standing alone doesn't necessarily make a trend."

Revenue in September was up 0.8%, to $305.1 million, and earnings before interest, taxes, depreciation and amortization increased 8.4%, to $77.5 million, from $71.5 million in August.

Cooper said he was encouraged by the September results, adding that Adelphia was on plan in terms of its upgrade schedule — it expects to have about 95% of its subscribers in rebuilt plant by the middle of next year — and in making improvements to its high-speed data product and customer-care operations. But he stressed that the MSO isn't likely to reap the full benefit of those initiatives until after it emerges from bankruptcy.

"I think the results of that will be manifest in the fullness of time over the course of next year," Cooper said. "Our objective is to use the bankruptcy to stabilize and enhance the performance of the company, get all these things cleaned up in an appropriate way, consistent with our new accounting policies, so as we emerge from bankruptcy next year we are in a position to continue growing the business and to continue to have very clean and easy to understand financial results and financial statements."

Capital expenditures for the month were up 21% from August to $87.3 million, evidence that Adelphia is ramping up its upgrade. Roughly 85% of the MSO's plant is two-way capable at 550 Megahertz.

As markets are upgraded, Cooper said, Adelphia is aggressively rolling out new products, like high-speed data and HDTV. He said that HD is available in 18 Adelphia cities so far, and that the MSO expects that 53% of its subscriber base will have access to HD by the end of the year. Digital video recorder set-top boxes also will be launched in a number of markets this year.

Spend To Gain

"We have said to the markets, as aggressively as we are managing costs, we want you to spend your full marketing budgets," Cooper said. "It is critical that we have a more aggressive presence as we face more aggressive competition both in the video and data business."

Cooper wouldn't say how much Adelphia will spend on marketing, but added that it will be more in 2004 than 2003.

Although he viewed Adelphia's September results as mixed, UBS Warburg cable debt and equity analyst Aryeh Bourkoff was encouraged by the results.

"We view the September results as indicative of an investment in future growth," Bourkoff wrote in a report.

Digital-cable subscribers increased by 16,000 to 1.8 million and high-speed data customers rose 37,000 to 876,991 customers in the month. Adelphia's digital penetration is about 35.9%, above the industry average of 33%, according to Bourkoff.

But Bourkoff said Adelphia's plan to introduce new digital cable packaging could result in a near-term increase in churn.

Cooper said that churn is relative to how it is defined. Customers that move from one digital package to another are technically counted in the churn numbers, he said.

"The objective is to keep people in the digital category and make sure they get into the appropriate package," Cooper said.

Ultimately, the idea is that this strategy will reduce digital churn in that customers will be in a package that is priced to their needs.

"We're trying to proactively deal with that very issue, as well as ensure that we can get people positioned to take full advantage as we upgrade these networks of all the new channels we've added, all the premium multiplexes and all the pay-per-view," Cooper said.

Monthly Snapshot
Key operating data from Adelphia's latest monthly report in bankruptcy court.
September August
* Excludes about 400,000 subscribers in Puerto Rico and in several Rigas Family partnerships that Adelphia manages.
Revenue$305.1 million$302.8 million
EBITDA$77.5 million$71.5 million
Basic Subscribers*5.078 million5.063 million
Digital Subscribers1.822 million1.806 million
High-Speed Data Subscribers876,991839,622

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