CABLE: WE'RE TAINTED BY TELECOM

If the arrest of five Adelphia Communications executives isn't enough to throw cable into a funk, it now is fighting the perception that it's part of the malodorous telecom space.

Executives from Insight Communications, AT&T Broadband, AOL Time Warner and Charter Communications last week all distanced their companies from Adelphia and the telecommunications mess, while crowing that cable's upgraded networks are reaping record numbers of high-speed data and digital video subscribers.

Even with the supposed good news, stock values have plummeted, partially because of an imprecise perception that cable is part of telecom, said Carl Vogel, CEO of Charter Communications, which will announce its Q2 results next week.

“The distinction is absolutely critical,” Vogel told shareholders during the company's annual meeting in Seattle. “We are not a telecommunications middleman, but a visible everyday presence within millions of homes.”

For average investors, though, it's difficult to see the difference, said Cynthia Brumfield, president of Broadband Intelligence. “I don't know if [the industry has] been able to get a coordinated message out there,” she said.

Cable further carries the baggage of capital-intensive network rebuilds that are needed to deliver advanced telecommunications services, spooking investors who see accounting similarities to the finaglings of WorldCom and Adelphia.

“The only way to get out of it is to start talking about free cash flow, which is a metric that can't be manipulated,” said Brumfield. “Very few cable companies can say, ‘We have free cash flow,’ because they don't.”

That likely won't happen for another year, at which time most large operators will be done with their major network rebuilds. Even Comcast, which will announce its earnings this week along with Cox Communications, will back away from free cash flow when it acquires AT&T Broadband later this year.

Rebuilt networks also are expected to blunt basic subscriber erosion. Glossed over in AT&T's quarterly earnings was the fact that its broadband group reported a stunning loss of 125,000 basic subscribers.

“We understand that plant rebuild status is the key determinant of our basic video competitiveness,” said AT&T Broadband President and CEO William Schleyer. “We don't expect to stem the competitive challenges until our upgrades are complete.”

Insight offered two different sets of basic subscriber figures. Excluding Illinois, “our basic customer growth is up 1.8%,” said Kim Kelly, Insight's chief operating officer.

Cable also faces the ongoing merger soap opera, which is further confusing the market. While AT&T can't wait to dump its failed, devalued cable experiment into Comcast's hands, AOL Time Warner, which has had trouble making the pieces of its merged company fit, continues to embraces cable.

“Our commitment to cable is unwavering,” said Richard Parsons, AOL Time Warner's CEO, noting that because AOL Time Warner's upgrades are complete, “there will be no further fixed capital systems upgrades planned in the foreseeable future.”

Industrywide, the cable story is good, said Michael Willner, Insight's president, CEO and chairman of the National Cable & Telecommunications Association. Convincing investors of that fact is proving more difficult.

“Sometimes I feel a little bit like a salmon swimming upstream,” Willner said.