Cable's Adelphia flu

Other operators suffer as investors look for Rigas symptoms

Cable operators got even more defensive last week as Adelphia Communications' new management revealed new details of the Rigas family's creative accounting and investors furiously hunted for problems at other MSOs.

Cable stocks—already battered by the saga of Adelphia and the family of ex-Chairman John Rigas—got hammered again. MSO executives had to fend off a flood of calls from institutional investors and analysts asking about suddenly important accounting arcana, such as whether they capitalize any labor costs. One exhausted CFO took 50 calls last Monday, patiently reviewing the same accounting issues over and over.

Adelphia's new management detailed in a securities filing the accounting gimmicks with which they artificially inflated Adelphia's reported $1.4 billion 2001 cash flow by more than $200 million. The company also fired auditor Deloitte & Touche (which also audits Cox and Comcast).

The worst hits are being taken by debt-laden Charter Communications, whose stock dropped to as low a $4 per share before coming back a bit. But it's still off more than 50% for the year. And some of Charter's bonds are trading as low as 70 cents on the dollar, which is where Adelphia's bonds sold two weeks ago.

Coping with the fallout from Adelphia's crisis was the hot topic of conversation among CEOs at a meeting of the National Cable Television Association's executive committee Thursday, but no one had any great plan of action.

"Adelphia's tainted everyone, no matter how clean our books," said a senior executive with one MSO.

Insight Communications CEO Mike Willner calmed some anxiety in a 25-minute conference with investors, reviewing how Insight accounts for the issues arising at Adelphia. Insight, for example, doesn't get any marketing-support payments from equipment vendors and counts subscribers and treats labor costs the same way many other MSOs do.

"One of the reasons for the widespread flu here is, there are practices in other industries, particularly the telecom industry, that are common with other companies," Willner said. "That's not the case here." The call helped boost Insight's stock price 15% to $11.50, but it's still off 50% since the Adelphia news broke.

Cablevision Systems and Mediacom also calmed fears, telling investors that they follow much more conservative practices accounting than Adelphia.

Adelpha took one subsidiary into Chapter 11 last week, but it's not clear when the rest of the company may seek similar protection from creditors.