Adelphia Finances Cloud Future of L.A. Franchises
By DARRELL SATZMAN
Staff Reporter
Whether or not debt-ridden Adelphia Communications Corp. puts its prized L.A. properties on the block, the company’s financial problems could have a bearing on its renewal of long-term franchise contracts in Los Angeles and Beverly Hills.
The franchise renewal process typically amounts to little more than a rubber stamp, but officials in both Beverly Hills and Los Angeles, where Adelphia’s 15-year contracts expire in June and August, respectively, said they plan to take a closer look at the company’s viability.
Adelphia has come under regulatory scrutiny since the March 26 disclosure that it guaranteed $2.3 billion in loans to off-balance partnerships owned by the family of its founder and chairman, John Rigas.
“Obviously we will look at the finances,” said Greg Fuentes, telecommunications regulatory officer for the city of Los Angeles. “This has given us reason to look extra hard to determine if they can stay in compliance with their franchise responsibilities.”
Federal law governs contracts between municipalities and cable operators, allowing cities to charge cable companies 5 percent of the fees collected from customers for the right to the franchise. For Beverly Hills, where Adelphia is the sole cable provider, the fees amount to $400,000 per year. In Los Angeles, the total figure is closer to $20 million, about $6 million of which is paid by Adelphia.
Adelphia’s Los Angeles territories include a huge swath of the Westside and Hollywood. With 1.3 million subscribers, it’s the county’s largest cable provider.
Although instances in which cable franchises have not been renewed are rare, Richard Siderman, a credit analyst with Standard & Poor’s, said Adelphia might be an exception.
“The off-balance sheet debt has materially weakened the company’s overall financial profile,” Siderman said. “It may very well influence people at these cities in their negotiations. It’s an unknown, but it’s something to think about.”
Weighed down by more than $15 billion in debt, Adelphia has been hit with more than a dozen shareholder lawsuits and a Securities and Exchange Commission inquiry.
Fred Cunningham, director of public affairs for the city of Beverly Hills, said that his calls to Adelphia over the past couple of weeks have not been returned. “If they do decide to sell off their California systems, we would have to renegotiate with them but also with whoever buys the system,” he said. “That’s a concern.”
Adelphia has hired a trio of high-powered financial institutions, including Bank of America, to raise cash by selling up to half its territories nationwide. But the company has not publicly indicated if it will put its Los Angeles systems up for sale.
“To the extent that we are going to sell assets, I’m not in a position to say those assets would be in Los Angeles or anywhere else,” said Karen Chrosniak, director of investor relations for Adelphia.
Nevertheless, there is considerable speculation on potential buyers. Charter Communications Inc. Chief Financial Officer Kent Kalkwaf said last week that the company was interested in some of Adelphia’s assets, but he did not specify which ones.
Two of the nation’s biggest cable companies, Comcast Corp. and AT & T; Broadband, are pursuing their own merger and considered less likely to bid for Adelphia. AOL Time Warner, another cable giant, is in the process of restructuring its cable operations.
Adelphia entered the market in March 1999 by acquiring Century Communications Corp. for $5.2 million buyout or a then-record $3,600 per subscriber. But systems in comparable areas have since sold for $5,000 per subscriber.
When Adelphia bought Century, Tim Rigas, Adelphia’s chief financial officer and the son of the chairman, promised that the company was “very focused on operating, integrating and doing what’s necessary to provide good service to our customer base.” But after initially improving Century’s spotty customer performance, complaints in some Adelphia areas soared in 2001.
Adelphia got its worst marks in East Los Angeles, where in one area there were 1,252 complaints lodged in 2001, a jump of more than 1,000 percent from the previous year, according to city records. In its Hollywood and Los Angeles franchise areas, customer complaints rose by more than 300 percent.
In some franchise areas, the company has failed to live up to promises to roll out high-speed cable modem service. Additionally, Adelphia raised prices several dollars per month when it switched many of its premium channels to digital from analog last year.
Fuentes said Adelphia was not contractually obligated to provide the cable modem service, but its backtracking clearly angered residents in those areas.
“If you look at the numbers you can see that 2001 was a rough year (for Adelphia),” Fuentes said. “The major cause of the complaints was the migrating channels from analog to digital. That and customers trying to get through on the phone lines had long wait times.”
