CABLE OPERATORS SCRAMBLE TO AVOID ADELPHIA STIGMA

The cable industry's traditionally protective culture vanished last week for Adelphia Communications, leaving the troubled operator to suffer the arrows of an outraged financial community.

Adelphia, teetering on the verge of bankruptcy and revealing more financial wrongdoing on an almost daily basis, is a renegade company and not reflective of others, industry leaders said.

“This is a case where we have a very unique situation in one company,” said Michael Willner, president and CEO of Insight Communications and chairman of the National Cable & Telecommunications Association. “These are not widespread practices across the industry.”

Coudersport, Pa.-based Adelphia, which is under investigation by the Securities & Exchange Commission and grand juries in New York and Pennsylvania, has admitted that it inflated subscriber numbers and that members of its founding Rigas family took loans from the company for private partnerships.

Leonard Tow, chairman of Citizens Communications and the largest outside Adelphia shareholder, demanded a seat on Adelphia's board in May. But after getting a look at the company's books, he and Scott Schneider, Citizens' vice chairman, resigned from the board last week.

In a letter to Erland Kailbourne, Adelphia's chairman and interim CEO, Tow said “revelations of the unreliability of corporate data, as well as the ongoing serial disclosures of wrongdoing, have made it impossible to contribute meaningfully to the process” of righting the company's financial ship.

Others in the industry — without looking at the books — have just as eagerly distanced themselves. Insight used its quarterly earnings call to make its point, drawing a raised eyebrow from one multiple systems operator (MSO) executive. “What are they going to do when the next ‘oops’ comes up?” he said. “It's terribly precedent-setting.”

Adelphia's situation, though, is more than an “oops.”

“[Adelphia] just out-and-out lied,” said Michael Goodman, an analyst with The Yankee Group. “It's not an industry practice.”

Insight may be partially driven by Wall Street, which is pounding all cable stocks in the wake of Adelphia's revelations.

“Every shoe that drops in Adelphia's mess is going to reverberate throughout the investor community,” said Cynthia Brumfield, president of Broadband Intelligence.

Charter Communications, the Paul Allen-controlled MSO that considered buying some of Adelphia's systems, has been particularly hard hit by the growing taint.

A deeper look reveals accounting practices that have been under close scrutiny as the MSO moved from Arthur Andersen to KPMG, an Adelphia spokesman said. “We got the thumbs up from three accounting firms,” he said. “We feel confident that we're doing everything right, and we follow generally accepted accounting practices.”

Because Adelphia's problems started with the Rigas family loan, an unwanted spotlight has also been trained on other high-profile, family-governed operators. Comcast, controlled by the Roberts family, declined comment. Cablevision Systems, run by the Dolan family, outlined its accounting practices in a news release.