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Adelphia Auction Just a Start

9/12/2004 8:00 PM Eastern

Labor Day has come and gone, and what will be a protracted bidding process for Adelphia’s 5.4 million subscribers will soon get underway in full force.

And despite what most potential bidders are saying — “I’m not going to pay a lot for this muffler,” to borrow from the old Meineke campaign — I predict they will.

And I’ll go out further on the limb to say that Adelphia is just the beginning of another round of cable consolidation that will begin next year, with companies like Insight and Cablevision jumping into the seller’s mode.

Why do I think Adelphia will fetch some pretty attractive bids, after all the posturing about low-ball bidding is said and done? Because the cable industry lost some 230,000 subscribers last quarter, while direct-broadcast satellite picked up more than triple that number.

Logic argues that when you lose a customer to a competitor, you’re unlikely to get that customer back. While today’s MSOs are clearly not “your father’s cable operators,” they have a lingering legacy which is hard to shake: high-priced and shoddy customer service.

Clearly, the loss of 230,000 subscribers was not all about nomadic college students or snow birds, given that DBS has enjoyed such growth. And you have to accept the fact that much of that growth came out of cable’s hide.

So now some 5.4 million Adelphia customers are up for grabs. Under its former management team, Adelphia never had a great track record for customer service and was behind its peers in terms of delivering advanced digital products.

In the end, a court determined those executives were arrogant crooks, and they’ll be punished accordingly. The interim caretakers, and that’s what they are, have done a yeoman-like job of keeping the company afloat during the prolonged trial which found Adelphia’s founding Rigas family guilty of bilking billions of dollars from the company’s coffers.

Don’t you think DirecTV and EchoStar are interested in getting those Adelphia subscribers? I do. If I were in their shoes, I’d be turning up the heat in the various Adelphia markets and stage pricing wars. And that’s what I think part of the onslaught of new TV ads coming out of the DBS camp is all about. Wall Street has sharpened its pencil, and envisions Adelphia’s assets sold as 12 separate geographic clusters that will appeal to other MSOs that want to widen their existing foot print.

And some of those clusters, like Adelphia’s holdings in Los Angeles and the Southeast, will attract multiple bids from the big boys. The moral of the story here is that if you can’t keep your customers, I guess you just have to go out and buy new ones.

And once Adelphia is all neatly sorted out, and four or five MSOs get properties that fit into their geographic clusters, so goes the ongoing dance of consolidation. At the end of the day, all of those clusters will be close to abutting, and those MSOs which aren’t now geographically attractive will become highly so.

Any bettors out there?

 

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