Cleland Turns Bearish on Cable

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Last year, widely quoted cable analyst Scott Cleland of The Precursor Group
turned bullish on the cable industry for the first time in two years.

On Wednesday, Cleland became bearish again, pointing to Adelphia
Communications Corp.'s debt woes and other accounting issues in the
industry.

'Most troublesome of all is that cable is the poster child for misleading
pro-forma EBITDA [earnings before interest, taxes, debt and amortization]
accounting,' Cleland wrote in a one-page client memo. 'This could become a big
problem if the market begins to move away from EBITDA-based valuation for
cable.'

Adelphia's disclosure of $2 billion in off-balance-sheet debt could make
'Adelphia cable's Global Crossing [Ltd.],' he wrote.

After noting that AOL Time Warner Inc. also revealed $2 billion in
off-balance-sheet debt, Cleland predicted, 'There are likely more' in the
industry.

On the regulatory front, Cleland said cable faced 'increased [Federal
Communications Commission] frustration' over carriage of competing
Internet-access providers and high-definition-TV signals from local TV
stations.

'Cable's regulatory outlook is no longer benign,' he said. The demise of
Excite@Home Corp. and the impact on consumers who lost electronic-mail
addresses, he added, 'made the FCC look bad and feel helpless.'

Last month, the FCC classified cable-modem service as an information service.
Cleland called the agency's decision to open a rulemaking to decide whether to
force cable to carry competing Internet-access providers 'an underappreciated
action.'

But he added that he did not expect the Republican-led commission to slap
cable with lots of new regulations.

'Precursor in no way is suggesting that this FCC wants to reregulate cable or
that cable is at real risk of having onerous regulations imposed on them,' he
said.

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