Newcomer Adelphia Outlines OC Strategy
Orange County has a new cable company with ambitious plans for Internet access and digital phone service over its fat coaxial pipes.
On the heels of several deals, Adelphia Communications Corp. now is the county’s second-largest cable operator with 190,000 local subscribers. Atlanta-based Cox Communications Inc. counts 235,000 residential cable subscribers in South County, according to Laura Oberhelman, a spokeswoman for Cox, which has made OC a test bed for cable Internet and phone service.
Coudersport, Pa.-based Adelphia is looking to do the same with its OC operation, which is concentrated in Anaheim, Fullerton and other parts of North County. Earlier this month, Adelphia officially took over service for 110,000 OC customers from Philadelphia-based Comcast Corp., which picked up 464,000 Adelphia subscribers in the Midwest and East.
The swap, done to better unify the coverage areas of both companies, brought Adelphia some 350,000 new Southern California subscribers for a total of 1.3 million in the Southland.
In October 1999, Adelphia acquired New York-based Century Communications Corp. in a deal that gave the company a Southern California foothold, including franchises for Anaheim, La Habra, Brea and Yorba Linda. The Century deal also made Adelphia the operator of the Orange County NewsChannel, the 24-hour local cable news channel based in Santa Ana.
In the next two years, Adelphia plans to spend about $30 million on its network in OC, according to Pennie Contos, the company’s area manager for OC.
“We’re stakeholders in Orange County and we’re here for the long run,” she said.
Bill Rosendahl, Adelphia’s regional vice president of operations based in Santa Monica, said he wants to sell OC subscribers everything from digital cable and high-speed Internet access to telephone service. He’s overseeing Adelphia’s local integration of more than $5 billion in recent acquisitions and subscriber swaps.
Rosendahl is animated about the prospect of digital phone service over Adelphia’s cable lines: “It gives the customer a better price than the monopolist incumbent,” he said, referring to phone companies such as SBC Communications Inc.’s Pacific Bell and Verizon Communications.
Adelphia has taken notice of Cox’s efforts to offer digital cable and communications services here, Rosendahl said. In the past three years, Cox has converted 58,000 local accounts to more profitable digital cable service, or about 25% of its OC subscribers, according to spokeswoman Oberhelman. In the past four years, the company’s Cox@Home Internet service has attracted 54,000 subscribers, she said. Cox also has digital telephone and Cox Business Services, but it declined to disclose local numbers on those operations.
Time Warner Cable, which serves Huntington Beach and other parts of West OC, also offers Internet access and communications services via cable lines. Time Warner Cable, a unit of media power Time Warner Inc., counts 135,000 OC subscribers, according to spokeswoman Kristy Hennessey.
Internet access and other business services are things Adelphia is looking at, Rosendahl said. The company’s Adelphia Business Solutions unit could be in OC as early as mid-year. But last month, Adelphia said it plans to cut back national expansion of Adelphia Business Solutions and expects slower growth for the unit.
For now, Rosendahl and Contos said Adelphia is focused on upgrading cable lines and assimilating employees,2,500 in Adelphia’s Southern California cluster and some 500 in OC. Adelphia’s local hub is in Anaheim.
Adelphia claims 16,000 miles of cable lines in Southern California, with 3,000 in OC, all of which will be “broadbanded,” Rosendahl said.
“Over the next two years, all of our plant will be broadband,” he said.
Adelphia wants 40% of customers to be digital-ready by the end of the year and all by 2002, Rosendahl said. Digital lines pave the way for Internet access as well as movies-on-demand and more pay-per-view events,profitable offerings for cable companies.
As it sells new services, Adelphia hopes to recoup the $3,500 per subscriber it averages on acquisitions. By comparison, AT & T; Corp. paid between $3,000 to $5,000 per subscriber when it acquired Tele-Communications Inc. and MediaOne Group in the past two years.
Adelphia subscribers could be in for higher fees, though. Last week, AT & T;, the nation’s largest cable operator, announced a 7% increase in cable rates, with other operators expected to follow suit.
Contos said Adelphia hasn’t finalized new rates but is looking at higher programming costs and other expenses.
Adelphia plans to upgrade and expand local offerings with sports and programming that appeals to Hispanics and other groups, officials said. And the company is looking to make Adelphia known in OC. Contos is chairwoman of the greater Anaheim Chamber of Commerce, while Adelphia has taken out ads at the Arrowhead Pond and Edison International Field. The latter deal entails free limited Internet access for fans during Anaheim Angels games.
Adelphia also has set up payment centers in office complexes in Anaheim, Brea and Yorba Linda and will gradually move into retail areas and strip malls, Contos said. The offices serve as marketing tools for all the company’s offerings, she said. “It says we’re in the neighborhood,” Contos said.
Adelphia’s local strategy reflects trends playing out nationally in the cable industry. Time Warner, AT & T;, Comcast, Cox, Charter Communications Inc. are clustering cable operations, buying and swapping subscribers in billion-dollar deals. “The economies of scale and clustering concept has hit Southern California,” Rosendahl said.
Today, there are just a handful of big cable operators in California,AT & T;, Charter, Time Warner, Adelphia and Cox,where there used to be dozens. AT & T;, according to Rosendahl, is strongest in Northern California with some 3 million subscribers. Cox is strong in south OC and San Diego. Adelphia has staked out the geographic high ground in OC and is bumping up against Cox with Time Warner wedged in between. “If you look at a national map it’s all clustering going forward,” Rosendahl said.
Adelphia has played a part in the industry’s consolidation. It has tripled in three years to 5 million customers nationally and vaulted into the ranks of the Top 10 largest U.S. cable companies. It currently ranks No. 6.
The company was born from the seeds of a Philadelphia cable operation begun in the 1950s by Chairman John Rigas. Rigas and his three sons, Timothy, James and Michael, operate the company and Adelphia Business Systems. The Rigas family owns about 30% of Adelphia; former Century Communications Chairman Leonard Tow owns about 17%.
Adelphia Communications has spent between $10 billion and $12 billion,much of it in the form of new debt,in the past few years to buy five primary cable clusters in New England, Florida, Virginia, the Pennsylvania, Ohio, New York region and Southern California. It spent another $1 billion on upgrades and new services last year and recently sold $750 million in high-yield debt to fund continuing efforts. Last year, Adelphia’s stock was added to the Nasdaq 100 Index.
Boosted by acquisitions, Adelphia’s third quarter revenue surged to $727.9 million, up from $232.3 million in the year-ago period. Earnings before taxes and other items grew to $280.3 million for the third quarter, up from $77.4 million in the year-ago period.
In OC, Adelphia will enjoy franchise monopolies that all cable companies have. But it still faces competition. El Segundo-based DirecTV Inc., a unit of Hughes Electronics Corp. and a provider of digital satellite TV, is a rival for couch potatoes. And residential and commercial cable Internet access runs neck-and-neck with digital subscriber lines offered by Pacific Bell and others. Adelphia also faces a threat from Princeton, N.J.-based RCN Corp., which offers TV and communications services via fiber-optic networks.
“There’s competition at every level,” Rosendahl said. “The new millennium is a competitive age.”
Rosendahl contends that Adelphia’s edge will be better service and a “fiber-rich” network to support its bundled services. “Whoever your customers are, you have the product for them,” Rosendahl said. “You respect the types of businesses, the diversity of people, and have a product that targets (every angle).” n
