Issue #20 of The Hook; published 06/20/02

BY LISA PROVENCE

Industry watchers say it's no longer a question of if Adelphia Communications is going to file for bankruptcy.

Following recent revelations that the company over-reported cable television subscribers by 358,000 and a Wall Street Journal report that it kept two sets of books on cable upgrades, the question for Charlottesville subscribers is when Adelphia will file and how it will affect their cable TV service.

"Adelphia will not be Adelphia for very much longer," predicts Bob Schotta, president of Wahoo Communications and an avid industry watcher.

Adelphia appears to have $18 billion in debt, its stock has fallen to just 23 cents, and on June 17, the company missed $51 million in interest payments.

"There's no way they're going to recover from that," says Schotta, "and no one is going to buy them."

The latest damaging reports follow the March news that Adelphia was under investigation by the Securities and Exchange Commission for $2.3 billion in off-the-books loans to members of the company's founding Rigas family.

The sixth-largest cable company in the country, Adelphia has long earned local fire for its near-monopoly on cable television. Now it finds itself being compared with the financial debacle of Enron.

To illustrate just how serious Adelphia's situation is, Schotta points to troubled MCI WorldCom, with $30 billion in debt.

"They make that much in a month," says Schotta. "They're a worldwide company, and they're going to sell off South America. Adelphia doesn't have that luxury."

Assistant city attorney Renee Knake says the City, which has a franchise agreement with Adelphia that is up for renewal in June 2003, has not received any official word from Adelphia on its plans. She notes that if Adelphia transfers its cable operations to another provider, the city must be involved in negotiations.

Schotta estimates that within a month, Adelphia's Virginia cable will have a new owner, either Cox Cable in Virginia Beach-- owned by Atlanta-based Cox Communications-- or Richmond-headquartered Cavalier Telephone. "There's no one doing well enough to have interest in Virginia except Cox or Cavalier," he says.

Meanwhile, Adelphia Communications spinoff Adelphia Business Solutions, although ostensibly a separate company, has been tarred with the same brush. ABS filed for bankruptcy in March, and its biggest competitor, Sprint, has launched a marketing campaign that seems to be capitalizing on the uncertainty of Adelphia Business Solutions' fate.

In bold type, a May 28 Sprint letter to Charlottesville businesses reads, "It's no secret some companies in Virginia may exit the market tomorrow."

The letter asks how vulnerable a business would be if its communications provider "elects to discontinue operations," while noting Sprint's more than 100 years of service.

Sprint spokesman Tom Matthews denies that Sprint is preying on Adelphia's woes to frighten business Sprint's way. He says the letter, a result of marketing research, is being used in the 17 other states Sprint serves. "Basically, the same research indicates it's good for us everywhere."

Does that research speak to the underlying weakness of the telecommunications industry in general? Matthews prefers to characterize it as a "very competitive industry," and says there are still hundreds of competitors for the services Sprint provides to businesses.

"People want simplicity," he says, and if one company can provide local phone service, long distance, wireless, and Internet service at a good price on one bill, "that lets you jump to the front of the line."

Over at Adelphia Business Solutions, spokesman Mark Golik is circumspect about whether Sprint smells blood and is circling a weak member of the pack.

"That's always possible," he says. "It's one of those situations that you can infer who they're talking about."

Golik says if Adelphia Communications files for bankruptcy, it won't affect ABS at all-- especially since ABS is already in Chapter 11. However, "There's an unfortunate connection with the name," he says.

And although ABS is selling off assets, that doesn't affect the Charlottesville market. In fact, local sales manager Tom Thompson says ABS is profitable in Virginia.

The telecommunications battle will only continue, with many companies falling by the wayside. Waynesboro-based Ntelos, which offers the same services as Sprint and ABS, is now trading at $1.60 a share, down from its 52-week high of $31.09.

"Their book is on the street," says lingo-happy Schotta. In other words, he claims, Ntelos-- which has a substantial cell phone business-- may try to sell off bits and pieces of the company.

And as for whether Sprint is trying to capitalize on the vulnerability of Adelphia and Ntelos, Schotta has no doubts. "Absolutely," he says. "It's a very valid scare tactic."

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