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Adelphia Takes Sub Hit

7/06/2003 8:00 PM Eastern

Subscriber losses continued to mount at Adelphia Communications Corp., with the Denver-based MSO dropping more than 12,000 customers in the month of May.

Adelphia finished May with 5.138 million subscribers, down from 5.15 million in April, according to documents filed with the U.S. Bankruptcy Court for the Southern District of New York on June 25. The company has lost more than 160,000 basic subscribers since March 31, when it had 5.3 million customers.

Adelphia conceded that it has been susceptible to direct broadcast satellite competition, especially in markets where it has not upgraded its plant. Currently, about 68% of the operator's plant is upgraded, compared to 80% to 98% for its other cable peers.

Adding to the pressure: ongoing aggressive marketing and discounting in certain markets by DBS competitors EchoStar Communications Corp. and DirecTV.

"It's clear that DBS companies increased their marketing in key Adelphia markets right after the bankruptcy," Adelphia spokesman Eric Andrus said. "We saw it initially in July and August [2002] in Los Angeles and Cleveland; I haven't seen so much or heard about it since."

Back in August, Adelphia officials in Los Angeles complained to the city attorney's office there of unfair telemarketing practices by a firm hired by retailers of EchoStar's Dish Network.

According to the complaint, the telemarketing firm was allegedly contacting Adelphia subscribers, claiming that other subscribers were experiencing blackouts or that the Adelphia bankruptcy would interrupt their service.

EchoStar spokesman Marc Lumpkin said he is not aware of any national campaign by his company in Adelphia markets, adding that Dish Network is the low-cost provider in all of its markets nationwide, offering 50 channels for $24.99 per month. He said some independent satellite distributors may have been more aggressive in Adelphia markets.

"It certainly might be happening, especially in areas where the cable company is raising its rates and changing its channel lineup around or not upgrading their plant," Lumpkin said. "Dish Network has 20,000 points of sale nationwide through retailers. We provide them with all the marketing tools so they can aggressively convert cable customers to satellite TV. If you have an area where the cable company is weak, then I think our retailers would definitely take advantage of that. But we haven't launched a nationwide campaign against Adelphia."

DirecTV spokesman Bob Marsocci said that his company launched a campaign targeting Adelphia in certain markets about a year ago, shortly after Adelphia filed for Chapter 11 bankruptcy protection. But he was unaware of any recent campaign targeting the MSO.

Adelphia recently restarted its upgrade program, after getting access to a $1.5 billion debtor in possession financing. When that deal was finalized in May, Adelphia chief operating officer Ron Cooper said the intention was to continue upgrades in several select markets.

Cooper's objective is to boost total upgraded plant to at least 90% by mid-to-late 2004. That is also about the same time that Adelphia plans to emerge from bankruptcy protection.

Andrus said the upgrades will go a long way to stemming subscriber losses and "more so it will help us grow subscribers."

As far as the upgrades go, no specific areas are being targeted more than others, he said.

"Certain areas are complete and the areas that are not are all over the map," Andrus said. "It does include parts of Los Angeles and that market."

The Los Angeles market, which Adelphia purchased as part of its acquisition of Century Communications Corp. in 1999, has been notorious for poor service and has one of the highest DBS penetration rates in the country.

Adelphia also plans to tweak its digital and high-speed data offerings. In an interview in May, chairman and CEO Bill Schleyer said that the company would likely make some changes to the product line. While Schleyer wasn't specific, it is likely that one of the first things Adelphia may do is offer a tiered high-speed data service.

Carmel Group chairman and CEO Jimmy Schaeffler said that DBS companies have been quick to pounce on operators that show any sign of weakness. And with the taint of a bankruptcy filing and an accounting scandal in which the MSO's founding family was indicted on federal fraud charges, Adelphia is a prime candidate.

"The real name of the game for the satellite guys right now is market-by-market guerilla warfare," Schaeffler said.

Schleyer and Cooper have been criss-crossing the country visiting Adelphia markets to drive home the mantra of improved service, rolling out advanced services and improving profit margins.

That is apparent in the latest operational data. Capital expenditures in May were $53.8 million, more than twice the $19.4 million spent in April. Most of that money was earmarked for upgrades, according to a research report by UBS Warburg LLC cable debt and equity analyst Aryeh Bourkoff.

In his report, Bourkoff estimated that Adelphia plans to spend about $470 million between now and mid-2004 on upgrading its plant.

At least on the advanced-services side, that strategy is starting to show some progress. In May Adelphia gained almost 1,200 digital cable subscribers, finishing the month with 1.769 million digital customers. High-speed data subscribers rose by 21,000 in the month to 758,543.

Adelphia's Erosion
Date Data Basic Customers Digital Customers High-Speed Customers
Source: Securities filings, bankruptcy court documents.
5/31/03 5,138,022 1,769,610 758,543
4/30/03 5,150,435 1,768,453 737,352
3/31/03 5,302,533 1,837,871 711,736
12/31/02 5,321,675 1,783,480 627,170
9/30/02 5,350,036 1,692,482 553,178

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