Adelphia's Top Guys On Life in Hot Seats

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Adelphia Communications Corp.'s new top dogs — chairman and CEO Bill Schleyer and president and COO Ron Cooper — are not easy to nail down these days. With the daunting task of bringing the troubled MSO out of bankruptcy and restoring credibility both with its customers and with Wall Street after its founding Rigas family was indicted on federal fraud charges last year, both men are logging a huge amount of travel miles. Cooper, in charge of bringing the operations up to speed, has visited at least 30 different Adelphia systems since signing on in March; he had to phone in for this interview from Bangor, Maine. Schleyer has focused on maintaining relationships with bankers, creditors and shareholders, while engineering a strategy to emerge from bankruptcy in 2004. Editor-in-chief Marianne Paskowski and senior finance editor Mike Farrell caught up with Schleyer (and Cooper, by phone) at the New York law offices of Wilkie, Farr & Gallagher — Adelphia's attorneys — on May 28. An edited transcript follows.

MCN: Ron, what are your days like? Are you on the road 90% of the time right now?

Ron Cooper: I am, and I have been for the last six or seven weeks or so. I've been really trying to visit as many of our field locations as possible. I've made pretty good progress. It's been very constructive and very worthwhile, getting to see who we have in the field and sharing with everyone our view of the business and our priorities and really just getting acquainted with the business. We're spread out, as you know, from one coast to the other and from north to south. We cover a lot of ground.

MCN: What kind of reception are you getting as you're visiting the field? Would you describe it as open-arms or warily cautious?

Cooper: I would say very enthusiastic. People in this company have been looking for clarity about strategy and business plans and objectives for quite awhile. Part of what we're doing in these visits is communicating what we think the strengths of the business are and what we think the challenges are and how we're going to address both of those things. People have been receptive, enthusiastic and energetic.

MCN: What are you finding, in terms of the state of the plant? I know it's probably different from place to place, but do you have a lot of investment ahead of you in terms of upgrading?

Cooper: As you've noted, it does vary from place to place. Some areas are completely upgraded and in terrific shape, and other areas are lagging. On a company-wide basis, we have upgraded approximately three-quarters of our passings. We still have close to 25% of passings that are not yet upgraded, and that's one of our highest priorities in the next year.

MCN: Bill, I imagine your job is quite different than Ron's present position, and probably very different from what you've ever done before in your life. What's your typical day like? After all, we are sitting in a lawyer's office.

Bill Schleyer: This is my home away from home. One of the first things that I think Ron and I did when we were entertaining doing this project, we said, look, this is a very different situation and we have to look at what are our responsibilities. What is it Ron does and what is it I do?

We sat down and talked about it at length to make sure that we divvied up responsibilities. We wanted to make sure that when we structured this, that I would be working on the bankruptcy issues, the process issues — now bankruptcy, major policy issues, financial issues — and Ron would focus on the execution issues and the operation issues. We cannot commingle these things. Otherwise, without that focus on operations, we'll never be able to grow this company to what it can be.

Candidly, the operating performance of this company, its financial records are so poor relative to our peers, that it needs that kind of maniacal focus that Ron can bring to it, and that's what he's doing. We're trying to keep Ron from getting engaged in the bankruptcy process so that he can really focus on driving the operating results for this company.

MCN: How are you getting along with Leonard Tow?

Schleyer: Fine. Leonard is a very bright guy. He spent a lot of time in this industry. I have a lot of respect for his opinion.

MCN: Have you been meeting with him regularly?

Schleyer: Yes. I met with Leonard just last week. I'm going to see him again next week.

MCN: So the relationship has thawed?

Schleyer: It never was frosty. As he would say, it never was personal. It was all business. And I've come to enjoy Leonard's company. Again, he's a very bright guy and he's been around a long time, he's a very honorable guy. Look at the money he's given away to charities and the good causes he has contributed his wealth to. I just have an enormous amount of respect for him.

MCN: At one point, he had offered his services. Is that anything you see in the future, Leonard getting involved in any way with Adelphia?

Schleyer: I'm not sure. It's a difficult question which we don't have an answer for right now. But the least I could do is keep Leonard informed as a valued constituent.

MCN: Would you like him to play a greater role? If you had to say one thing to Leonard right now, here's your opportunity to do so.

Schleyer: I have no comment on that question. Again, Leonard's role right now, he's a constituent. His role as a constituent is similar to the roles the creditors have, the banks have. You need to keep all those groups as valued constituents.

MCN: What is the thorniest part of the process right now?

Schleyer: Right now, where we are. We've just arranged a DIP [debtor-in-possession] financing. We arranged for a $1.5 billion credit facility to allow us to get the capital we need to rebuild the system. That was our top priority.

So we get to continue during the bankruptcy process to rebuild our systems and provide both broadband services and advanced signal services to our customers.

I think the next issue now is, we're really starting to get into the emergence plan, and that's how I will be spending a great deal of time. In fact, as soon as we're done with this interview, we're going into a very lawyered meeting to start working on that plan. That's the most important thing we'll be doing.

MCN: You're still on track for an '04 emergence?

Schleyer: I think this company will be ready to emerge financially by the middle of '04. Whether or not there are other issues around litigation or constituent issues that need to be resolved, that remains to be seen. But I think the company financially will be ready.

MCN: What do you think Adelphia is going to look like when it comes out of bankruptcy?

Schleyer: Pretty much like it does today.

MCN: You're not going to be any smaller?

Schleyer: I wouldn't think so. A central part of our emergence strategy is to keep the core assets intact. First of all, I think if we were to try and sell off some assets between now and emergence, it would take an awful lot of time, particularly Ron's time and focus away from the task which is executing the business plan and executing our strategy.

We don't want to de-scale in any way. In fact, that would be very difficult for us. It would create a diversion that we're not interested in.

MCN: You're at around 5.3 million subscribers right now, 5.5 million counting Rigas-owned properties. Are you happy with that kind of scale?

Schleyer: I think there are companies that are our size that are running very profitably. Cox [Communications Inc.] is an example. I think Cox is the best-run company in the industry by far. I look at their size. They are not that much bigger than we are. About the same size in terms of assets. They've done a spectacular job, and there is no reason why we can't do the kind of job that they do.

They've done well in the market over the years. It's not necessary to be the size of a Comcast [Corp.] or even a Time Warner [Cable]. I think there'll be pressures to consolidate over time. But one of the benefits coming out of this bankruptcy process, we've got a pretty good balance sheet. I think that that will give us an opportunity to look at the scale issue.

MCN: What is the vision? What are the values?

Cooper: It's not rocket science. This company is in bankruptcy and as we think about the mission for the company and our strategy, we framed it in the context of what we need to do over the next 18 months to stabilize the company, grow the company and get out of bankruptcy. That has been our primary focus. So what we're trying to do, in a nutshell, is play off the traditional strengths that Adelphia has.

We have very dedicated employees. We have generally very solid relationships in our community. These are people, management teams, and local businesses that have generally been very well-integrated into their communities. And that's very leverageable, and we have a generally good track record in customer care. We were No. 2 in the JD Power [& Associates customer satisfaction] survey last year. This is a company populated by people who genuinely care about customers.

We can play off those strengths and those become foundational items for our mission and our strategy. We've identified some deficiencies, and they had to do largely with financial performance on the revenue side. We have been weak in that area, either because of excessive discounting or packaging and marketing strategies which have been either inappropriate or just fundamentally wrong. And those need to be corrected.

We need to get our network upgraded. We are only 75% of the way there. In areas where we are not upgraded, we do not have the opportunity to offer as competitive a set of products and services. So that needs to be done. And we need to get the organization pulling in the same direction with regard to those critical objectives.

The strategy is very focused on getting the network upgrade done, getting new services, like a robust digital-video offering and PowerLink and high-definition TV launched in our markets. Refocusing people on profitability, implementing an operating model that Bill just described, which is much more decentralized, and assign clear accountability to the P&L managers in the field, and get down the road with those objectives.

And that we're trying to keep it narrow and focused so everyone can put resources against the most important objectives this company has, and it's really no more complicated than that.

Schleyer: Let me just kind of encapsulate in a few sentences what Ron said. We're basically going to build on all the good stuff. We're going to fix all the bad stuff. We're going to emerge from bankruptcy as a well-run, well-regarded cable operator.

And while we are doing that, we are going to fix the corporate governance of this company, so that what happened in this company will never, ever, ever happen again. That's what we're going to do in the next 18 months.

For instance, one of our values is ethical conduct. We don't want to hear of anything about discrimination. We don't want to hear anything about harassment of any kind. We don't want to see any kind of deceptive practices.

Cooper: It's a zero-tolerance policy.

Schleyer: In fact, in addition, it's not just behaving like that that's the problem. If you know that behavior occurs — if you know it occurs in this company and you don't stand up and tell us about it, you're just as guilty as the person who committed the crime, so to speak. That's the kind of organization we want. That's the kind of behavior we want.

We want people to be able to stand up and say, look, there's something wrong over here you ought to know about, and before they were afraid to. Not anymore, though.

MCN: Was there discrimination and harassment?

Schleyer: I don't know. This is general behavior we do not condone in any way, in any organization. But we have to make sure that people understand, we do not accept behavior other than that of the highest ethical quality.

MCN: Switching gears, what do your programming contracts look like? Are they up in the air? Are you going back to the programmers saying we are in bankruptcy, ergo, we have the right to re-examine terms?

Cooper: We have a couple of things going on in programming. We are still completing some retransmission-consent negotiations that had been held over, particularly from last year when the company entered bankruptcy. There is work going on in that area, and we are looking at all of our programming contracts and relationships in the context of bankruptcy because we have a significant number of pre-petition claims or liabilities where we owe programmers money and where we are in discussions with programmers.

And [senior vice president of programming] Judy Meyka and [vice president of programming] Jeff Abbas are working in all of those areas. But we are not in a position to comment about any of those conversations. Those are all ongoing dialogues with programmers. And, suffice it to say, it's a pretty complicated set of issues.

MCN: Is that almost like a negotiating tool for you? Going to the programmer and saying, listen, we owe you this much. If you want that money back, give us a break?

Schleyer: Again, we haven't figured out exactly how to integrate the bankruptcy issues with our — you have to keep in mind, we view ourselves as respectful partners to our program suppliers. This is how the industry was built. We're going to pay our bills on time. We are going to engage in good-faith negotiations with all the programmers.

Again, we haven't figured out exactly how we're going to integrate the bankruptcy process with that. But they have been our partners and valued partners over the years and that will continue.

MCN: Does Adelphia intend to have a huge presence at the National Show?

Cooper: No. We'll have a few people there, but frankly, our priority is much more appropriately focused on the work we have to do internally, in our communities, and with our customers. And there will be a few senior people from our corporate office in Chicago, participating in industry affairs. That's a priority for us – getting this company actively engaged in key leadership activities in the industry.

But the higher priority for the people in my group is to focus on the business and on the challenges that we have in hand. So our presence in Chicago, I would say, would be modest.

MCN: Are you on the National Cable & Telecommunications Association executive committee?

Schleyer: Yes.

Cooper: We expect this company will be very actively involved in NCTA activities, [Cable Television Laboratories Inc.], [Cable & Telecommunications Association for Marketing], things of that nature — industry activities that we think are important to the industry and to the business. But our priority by necessity has to be, at least in the operating part of our company, more internally focused, because we have so much work to do internally, and we have finite resources and want to make sure that we're focusing those resources in areas that are going to make a difference for us.

Schleyer: We'll play a vital role, as Ron mentioned, in the governance of the industry, through NCTA. Our voice is important. We are a big operator. We pay a lot of dues to these various bodies and we need to contribute our voice.

Cooper: Historically, Adelphia was not all that active in industry affairs, and we want to change that, and we want to make sure that we are represented, and we are fulfilling an appropriate role.

Schleyer: We are a pure cable company. There are not many of us left. Our voice needs to be heard.

MCN: You've been hiring a lot of people lately, including several women. Is there a conscious effort to increase the diversity of Adelphia's management?

Cooper: One thing that was a reality about Adelphia was that the executive team at Adelphia previously had zero diversity — there were no women and no people of color on that team at all. Over the past six months, we have created a team, which we think is forward on diversity, particularly gender diversity. We still have work to do, I believe, with racial and ethnic diversity. But we've made a couple of strides there.

We now have a much better, diverse leadership team in this company and we think that's important and it's going to continue to be important to us as we continue to grow our company.

Schleyer: First day on the job, I asked to meet with the senior management of the company. I walk in the room. There were 25 people in the room, all guys.

Since then we've hired seven senior women?

Cooper: At least. At the VP level, it's probably more like 10. But obviously at the executive VP level, we have Vanessa Wittman, who is our CFO. And at the Senior VP level, [senior vice president of operational finance] Connie Campbell, Judy Meyka, [senior vice president of customer care] Ellen Filipiak, all in senior executive roles.

Schleyer: And our treasurer is Christine Morris.

Cooper: Our VP of law and public policy, Maria Arias. And then in the VP ranks in corporate in the field, we have another 10 or 12 senior women, many with very deep industry backgrounds. People like Cindy Chalfant and Mariann Belmonte who are our vice presidents of marketing in the central region and in southern California. Cathy Fogler, who was with AT&T Broadband and TCI [Tele-Communications Inc.], is our VP of video product management. Mary McLaughlin is our VP of law and public policy in New England. Sue Wombacher is our VP of labor relations at corporate.

So we have really added appreciably to our talent pool and to the diversity of the company, and we'll continue to do that.

MCN: There was a lot of controversy about your pay packages. Obviously you guys thought you were worth it and you are getting the money.

Schleyer: It's not what we thought we were worth. It's what somebody else thought we were worth.

MCN: What's your take on that whole thing now? Do you think it's pretty much blown over, or do you think maybe looking back, given all the problems that the company was going through, it was not such a great thing to do at that point in time?

Schleyer: It wasn't us. This is a past issue; there's no sense in digging this one up again. But we behaved appropriately. The delays in the process weren't us, believe me. We behaved appropriately during the whole process. It's an old issue.

MCN: Regarding upgrades, this is kind of the same situation that you had when you walked into AT&T Broadband. Do you see a lot of similarities between the two?

Schleyer: Oh, absolutely. There's a lot of similarities and a lot of differences. The biggest similarities are I think the digital-video strategy that was broken at both companies and the amount of rebuild was bad. That really affected the operating performance of the company.

And the margins weren't incredibly good. Adelphia's margins are in the mid-20s. Our peers are in the high 30s or low 40s. That's outrageous performance. When we got to AT&T, it was in the high teens. It was ridiculous. So we had to fix that. We got it on the right path.

Cooper: The margins here at Adelphia were, of course, masked by the overcapitalization problem, which has since been identified and corrected. But it's obviously a very significant gap that we have to close.

Schleyer: The big difference here though, I think, is you have some of the operating people have been around awhile, and that's good. I think of some of our new regional senior vice presidents, I think that's good that they've been around. And the customer service is very good here. They really took care of customer service.

I think that's very different than what happened at AT&T. When we walked in, the customer service was incredibly broken — they were abandoning one out of every six phone calls that came into the place. Here, the customer service is good. So you come in here and instantly you have something to build on. I think the morale is pretty good here — Ron, wouldn't you say?

Cooper: I think it is. People are very receptive to new leadership and a lot of people who have been involved with Adelphia for a period of time are embarrassed by what's happened, even though they had no involvement in some of these misdeeds. They want to be part of the solution.

As we had begun to articulate a strategy and get the resources together to execute that strategy, there's been a lot of enthusiasm, and that's going to help us enormously.

Schleyer: So a lot of similarities, but a lot of differences, and those differences really work for us.

MCN What keeps you up at night?

Schleyer: My dog.

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