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Adelphia on Path to Restore Credibility

Sep 22, 2003  •  Post A Comment

From a distance, the marquee in the etching of the old Rigas Theatre appears to read “Shame.” But it’s an optical illusion.

The marquee actually reads “Shane,” the title of the classic 1953 Western. But “Shame” would be a logical interpretation of the etching, a symbol of the origins of Adelphia Communications that hangs on display in the Cable Center in Denver. Alleged malfeasance led to last year’s bankruptcy of Adelphia and fraud charges by the Securities and Exchange Commission against founder John Rigas, the former chairman and CEO of Adelphia, his three sons and two former senior Adelphia executives.

Now a new management team is aiming to extricate Adelphia, the nation’s sixth-largest cable operator, from Chapter 11 via a new, decentralized operating structure. Cable industry veterans Bill Schleyer and Ron Cooper joined Adelphia as chairman/CEO and president/chief operating officer, respectively, in March and moved the company from its longtime headquarters in Coudersport, Pa., home of the original Rigas Theatre, to Denver. Mr. Schleyer and Vanessa Wittman, the new executive VP and chief financial officer, are focused on the bankruptcy while Mr. Cooper concentrates on operations.

Senior management is based in Denver, where about 110 employees work. Mr. Cooper expects to add another 10 in Denver, while about 1,300 remain in Coudersport, where a telemarketing center, tech support, data center and other divisions are housed.

The SEC charged in New York federal court last year that the Rigas family inflated earnings, hid billions in debt and misused company funds. Though Adelphia’s entanglements from the past year and the ensuing Chapter 11 bankruptcy remain front and center, the new management team is focused on rebuilding the company, regaining credibility.

Central to that strategy is the implementation of a decentralized operating model across the company’s five regions, a process that began last spring. Each region is now headed by a senior VP with profit and loss responsibility who also oversees customer care, employee relations and financial performance, Mr. Cooper said.

Under that person are five VPs, for marketing, engineering, human resources, finance and law and public policy.

“That’s a fairly significant change from the model Adelphia used historically, where operations were much more centralized in Coudersport and the operating teams in the field had relatively less authority, less responsibility, less accountability and less resources to do their jobs,” Mr. Cooper said.

As a local business, cable doesn’t lend itself to a high degree of centralization, he said. “Each market has a different flavor, a different competitor or set of competitors, set of economics or demographics,” Mr. Cooper said. “We believe you can manage the business more efficiently if you have people locally who can own responsibility for the business and are accountable for it.”

That’s a model that industry leader Comcast follows. Comcast serves 21.3 million customers through six divisions and gives substantial authority and autonomy to the management team in each market. Each division is headed by a division president, and under that person are system general managers and regional and area VPs.

Adelphia is run like a large cable company now, said Bruce Leichtman, analyst with Leichtman Research Group. “To understand the local needs and to make the numbers is why you need local management-to make them accountable, but also to serve the community,” he said. “When someone calls up, it’s important for CSR to know what that town’s name is.”

“The whole objective here is to improve Adelphia’s financial performance. That is one of the key elements that will help Adelphia emerge from bankruptcy successfully,” Mr. Cooper said. “We think the way to do that is to be very specific in the assignment of responsibility and accountability to a group of managers who have the resources and organization and expertise to deliver those results, rather than try to do this all from Coudersport.”

The company is absolutely moving in the right direction, said David Joyce, senior equities analyst with Guzman and Co. in Miami. “I don’t think people are going to be too concerned about the past, as long as they keep upgrading,” he said. Adelphia has upgraded about 80 percent of its plant, behind the industry average of 95 to 98 percent. Mr. Cooper expects the cable operator to reach 95 percent of its customers with advanced services by next summer since it is now upgrading about 2,000 miles each month.

The team of Mr. Schleyer and Mr. Cooper dates back to Continental Cablevision, and they also worked together at MediaOne and AT&T Broadband. Their history is to improve systems and sell them. “I think their track record is such that they will be a success at Adelphia,” Mr. Joyce said.

Within a few years, the cable industry is likely to undergo another round of consolidation and Adelphia will probably be bought, Mr. Joyce said. “In the meantime, they are working on customer service issues and disputes they have with various franchises. I do think it is a different company with the Rigas family out of there and other managers doing their bidding out of there,” he said.

Earlier this summer, the company paid the city of Los Angeles more than $2.6 million in outstanding franchise fees dating back to 1999. That’s all part of Adelphia’s efforts to regain credibility with local authorities.

“For the most part in its markets, Adelphia has come to mean multichannel TV,” said Ted Henderson, cable analyst with Stifel Nicolas in Denver. “So you try to leverage that and try to remove any taint that came from the fact that you were one of the big names lying alongside Enron and WorldCom as poster children for corporate malfeasance. I think people can understand that happened at a much higher level.”

Customers are more concerned with the service, he said. Mr. Cooper boasted that Adelphia has had no service disruptions during the bankruptcy.

“I expect they’ll emerge from bankruptcy and be a respected cable operator in the near future,” Mr. Henderson said.