Adelphia Steps Up Capital Outlay

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Coudersport, Pa.— Adelphia Communications Corp. plans to step up its capital spending this year, partly to fill demand for digital boxes and partly to accelerate plant rebuilds.

That word came as company executives reported stronger-than-expected digital sales. Adelphia notched 256,000 more digital subscribers in the second quarter, adding about 19,000 per week.

The MSO ended June with 1.5 million digital subscribers. Adelphia pegs its digital penetration at 26 percent of basic subscribers, which it figures is the highest rate in the industry.

The company's revenue rose 10 percent in the quarter, to $778 million, while cash flow rose 8.5 percent, to $353 million. SG Cowen analyst Gary Farber — who rates the stock a "buy" — said more than half of the revenue growth was related to new products. Digital and premium revenues rose 47 percent year over year, to $104 million, and data revenue rose 154 percent, to $18 million.

Adelphia financial executives told analysts last Tuesday to pencil in $1.7 million to $1.9 million in capital expenditures this year, up from prior forecasts of $1.5 to $1.7 million.

The MSO passed through basic rate increases that averaged $2 to $2.50 per month in the quarter, Farber estimated. Adelphia said it was the first rate hike in more than a year.

At the same time, the company began an aggressive push of a $79.95 monthly package that includes digital TV and high-speed data, and a $99.95 bundle that also includes all premium services.

Basic revenue grew by 6 percent, as the basic subscriber count rose 1 percent in a seasonally slow period. Adelphia faces competitive pressure from satellite and overbuild providers, so it plans to ramp up dish-buyback plans and is experimenting with bundled discounts in about six markets, Farber noted in a report.

The company's video-on-demand trial, which began in "friendly" homes in Cleveland, is gearing up for a September commercial launch. Adelphia's VOD plans rely on subscription-based offerings from Home Box Office, Showtime and Starz Encore Group.

Chief financial officer Jim Brown said the MSO hasn't signed final deals with those providers yet, but expects to have them in place.

Assuming the service is technically up to speed, Adelphia hopes to offer VOD throughout a 1.4-million-subscriber portion of Pennsylvania, Ohio and upstate New York by the time the MSO reports its 2001 results early next year, Brown said.

Adelphia is shopping systems with more than 700,000 subscribers. A little behind schedule, the company expects to announce sale agreements for those systems in about three months, at the same time the third-quarter results are released.