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Joshua Cho
Some cable operators aren't convinced that partnering with AT&T Corp. makes the most sense when it comes to residential telephony service over cable plant.
Last November, Cablevision Systems Corp., said that it wasn't sure if it wanted to "abandon" to AT&T the lucrative telephone business it had begun testing.
Last week, similar comments were coming from Adelphia Communications Corp.
During an analyst conference call to discuss third quarter earnings, Adelphia chairman and CEO John Rigas said that he saw his company "partnering with a major long distance brand name company" because of the short-term benefits of the "marketing prowess and the branding it would bring to the table."
However, Rigas said that over the long-term, that situation would be a tradeoff.
"Ten years down the road do you want the brand name for that telephony service to be established as an AT&T product or as an Adelphia product?" Rigas rhetorically asked. "We're not sure. We're evaluating the best long term economics with regard to that."
Rigas went on to say that although the company has partnered with other companies many times in the past, both in the cable business and through Hyperion Telecommunications Inc., Adelphia's CLEC subsidiary, going it alone would be just as likely.
"Alternatively, we've developed a significant amount of self-sufficiency with regard to providing telecom service and believe that would be a viable route for us as well," Rigas said.
Analysts chalked this talk up to posturing in the face of current negotiations taking place with AT&T, which is actively seeking cable operators in an effort to reach into two-thirds of the nations households.
"I thought the response was pretty standard," said Credit Suisse First Boston analyst Laura Martin. "I think these guys need AT&T and they're giving the party line as to how many options they have."
Rigas would not say whether the company was currently talking with AT&T, after being asked. However, he did say, "We find the AT&T-Time Warner package to be a significant ratification of the potential for residential telephone service over the cable plant that will add a tremendous amount of value to our platform. The best way to capture that value is yet to be determined."
Rigas did not address any of the long running rumors regarding the possibility that Adelphia would be sold. But analysts said that the company would be very attractive to Comcast because it would complement its systems. A sale would make sense since the company is small and highly leveraged, one analyst said. The company's debt to cash flow ratio currently stands at 7.05, down from 7.97 in December '97.
Adelphia said that for its third quarter ended Dec. 31, 1998, it had operating cash flow of $85.3 million on revenues of $193.0 million. The company also had a net loss applicable to common stockholders of $44.5 million, or $1.06 per share, compared to a net loss of $64.0 million, or $2.09 per share, on a year-over-year basis.
Excluding Hyperion, Adelphia had pro forma revenue and cash flow growth of 8%. Martin said that the company's cash flow was being held down by launch costs associated with new products, particularly cable modems.
Pro forma internal basic subscriber growth was 1.7% for the 12 months ended Dec. 31, 1998.
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