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Adelphia Communications Corp. Business Information, Profile, and History

cable company systems rigas

5 West Third Street
Coudersport, Pennsylvania 16915
U.S.A.

History of Adelphia Communications Corp.

The largest cable operator in western New York and one of the largest in the United States, Adelphia Communications Corp. owns, manages, and operates cable television systems in mid-sized markets and suburban areas where non-cable reception is weak. During the mid-1990s, Adelphia served more than 1.5 million subscribers in a 12-state area stretching from Vermont to Florida, selling its customers video programming distributed through a network of fiber optic and coaxial cables. Recognized as operating one of the most sophisticated and profitable cable systems in the country, the company represented a model for other cable operators to emulate.

Early 1950s Origins

The corporate roots of Adelphia Communications were inseparably linked with the familial roots of the Rigas family, whose experience in the cable television business predated the incorporation of Adelphia Communications by more than three decades. The patriarch of the family, John J. Rigas, first entered the business during its nascence in 1952 when he started his first cable system in Coudersport, Pennsylvania, with his brother Gus Rigas. The name chosen for the company--Adelphia--is the Greek word for "brothers," an apt corporate title for a business that would employ generations of the Rigas family. Then in his early 20s, John Rigas entered an industry in its infancy when he started Adelphia, unwittingly laying the foundation for what would become one of the largest cable television companies in the United States. It would be years, however, before the Rigas family could claim they stood atop a cable empire. Cable television was decades away from enjoying widespread popularity, decades away from the years that would witness the exponential growth in the number of subscribers across the country. Those days arrived during the 1980s, when Rigas, with three decades of experience as a cable television operator, stood well-poised to reap the rewards from an industry fast on the rise. Adelphia Communications would serve as Rigas' vehicle of growth during the cable television industry's rapid expansion, quickly becoming one of the dominant cable systems operators in the nation.

Although Adelphia Communications did not officially exist until 1986, the company entered its inaugural year of business with a considerable head start over other fledgling cable operators. The company served as an umbrella organization for the centralization of the various cable properties owned by Rigas, and, consequently, was supported by more than 30 years of experience from its outset. Adelphia Cablevision, Inc., the cable company started by Rigas in 1952, was the oldest of the of the five cable companies that Rigas reorganized into one company on July 1, 1986. Joining the Pennsylvania-based Adelphia Cablevision were Clear Cablevision, Inc., Indiana Cablevision, Inc., Western Reserve Cablevision, Inc., and International Cablevision, Inc., which combined served 200,000 subscribers. Together, these companies formed the new Adelphia Communications, a Coudersport, Pennsylvania-based cable systems operator beginning business with $30 million in annual sales. In less than a decade, the company's sales volume would increase more than tenfold and its number of subscribers would rise sixfold, as Rigas moved aggressively to expand his cable television holdings. In the years ahead, the five original components of Adelphia Communications would be joined by a host of other established cable systems as Rigas, with his three sons at his side, mounted an aggressive acquisition campaign.

The company achieved prominence early on in western Pennsylvania and in western New York, where Rigas first established a presence in Niagara Falls in 1972. The addition of International Cablevision--one of the five original companies that formed Adelphia Communications--elevated Rigas' company to the number one position in western New York, giving the company 120,000 subscribers to add to its roster of customers. After taking Adelphia Communications public in August 1986, Rigas completed the acquisition of three cable systems before the end of the year, purchasing the Suburban Buffalo System from Comax Telcom Corp., the South Dade System from Americable Associates, Ltd., and New Castle System from Cablentertainment, Inc.

Late 1980s Acquisitions

During the ensuing two years, Rigas spearheaded the acquisition of more than ten cable systems that bolstered Adelphia Communications' presence in western New York and extended its area of service into neighboring states. By the end of 1989, the company owned cable television systems throughout an eight-state region comprising Florida, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, Vermont, and Virginia. Adelphia Communications lost money each year during its expansion, but perhaps more important to the long-term health of the company was the manner in which it had expanded.

A strategy had emerged during the first few years of the company's existence, one that dictated the direction of its expansion during the late 1980s and continued to describe its physical growth during the 1990s. Instead of purchasing cable systems merely for the sake of increasing the company's magnitude, Rigas and other Adelphia Communications executives targeted cable systems for acquisition that neighbored existing Adelphia Communications systems, striving to entrench the company's position through acquisition rather than embracing as large a territory of service as possible. The benefits of grouping cable systems together would manifest themselves as Adelphia Communications entered the 1990s, making the company an industry leader and reducing the sting of consecutive money-losing years.

Although the company's profitability had suffered as a result of the ambitious expansion, its revenue-generating capabilities had not. From the $30 million generated in sales during its first year, annual sales shot up to $131 million in 1988, increasing more than fourfold during a three-year span. Further financial growth was expected as the company's physical growth continued unabated, but as before, Rigas made it a practice to set his acquisitive sights on cable systems in proximity to Adelphia Communications systems already in operation. One significant acquisition that conformed to the company's acquisition strategy was the purchase of Jones Intercable in late 1989. Jones Intercable ranked as the third-largest cable system operator in western New York, an area where Adelphia Communications already reigned as the largest cable operator. Further, Jones Intercable, in many cases, operated in towns next to towns that Adelphia Communications already served, making the acquisition a strategic boon to the company's plan to develop an entrenched market position wherever it operated. Noting as much, Michael Rigas (John Rigas's son and Adelphia Communications' vice-president) elaborated on the company's acquisition of Jones Intercable by remarking, "Whenever possible we look for systems that are adjacent to other systems that we own. Generally speaking, we try to cluster our systems together."

Another pivotal transaction completed in 1989 provided Adelphia Communications with a powerful money-making business during the early 1990s. In 1989, the company entered into a partnership with unaffiliated parties to form Olympus Communications L.P., a southeastern Florida cable television joint venture that Adelphia Communications managed for an annual fee. Comprising Adelphia Communications' own South Dade System, which was acquired in late 1986, several neighboring cable systems in West Palm Beach, and several cable systems that were acquired in 1989 from Centel Corporation, Olympus Communications served roughly 250,000 subscribers and epitomized Adelphia Communications strategy to cluster its cable systems together. During the first few years of its operation, Olympus Communications performed admirably, recording double-digit revenue and cash flow growth.

In the wake of the Jones Intercable acquisition and the formation of Olympus Communications, Adelphia Communications was looking to acquire additional cable systems in specific areas, notably in Virginia, West Palm Beach, Florida, Syracuse, New York, and Hilton Head, South Carolina. As the plans for further physical expansion in the 1990s were being formulated, the company was also investing its resources into improving the infrastructure of its various cable systems--something it had been doing since its formation in 1986. In January 1990, the company announced it would start a five-year, $25 million system upgrade to improve picture quality and increase channel capacity for its subscribers. Part of the system upgrade consisted of the installation of 2,000 miles of cable, including a fiber-optic network that would double the number of available stations from 36 to 72, give sharper television images, and lessen the chance of interrupted service.

1990s: National Prominence

Adelphia Communications' continued commitment to improving the quality and technological capabilities of its cable systems stood as one of the hallmarks of its success during the early 1990s, proving to be as instrumental to the company's rise as a national contender as its practice to cluster cable systems together. Another definitive aspect of the company's success was its robust cash flow, which in part was attributable to the economies of scale engendered by the concentration of its cable properties. By 1992, Adelphia Communications had transformed itself through acquisition and internal growth into the tenth-largest television cable systems operator in the country--up from the 25th slot the company occupied in 1986--but in terms of operating cash flow the Coudersport-based firm placed second to no one. Adelphia Communications' operating cash flow margin of 57 percent of operating revenues represented the highest percentage in the U.S. cable industry, far higher than the industry average of 35 percent.

Aside from the company's enviable cash flow performance, there were other characteristics of Adelphia Communications' operations that were indicative of its success in the past and pointed to growth in the future. By 1992, the company had invested nearly $350 million since its formation to achieve what one industry analyst referred to as "among the best channel capacities and addressability in the industry." The company's cable systems were state-of-the-art, capable of providing a quality of service that distanced Adelphia Communications from competitors and kept its customers satisfied. Of the company's 1.2 million subscribers, all had access to at least 30 channels of programming, while 46 percent of the company's subscribers could choose from at least 54 channels; nationally, only 28 percent of cable subscribers had a choice of at least 54 channels.

In terms of cash flow and technological capabilities, Adelphia Communications held a decided lead over other competitors in the cable industry as the company operated during the early 1990s. In terms of the demographics of its markets, Adelphia Communications also could boast superiority over many of the country's cable operators. Since its formation, the company had targeted mid-sized, suburban markets, carving a presence in communities where incomes were high and populations were expanding. The strategy was paying dividends as Adelphia Communications entrenched its position in these lucrative markets, fueling the company's growth. Historically, the primary regions where the company operated had demonstrated household growth rates that eclipsed the national average. By the early 1990s, after years of consistent growth, Adelphia Communications' markets were recording household growth rates nearly 25 percent above the national average, further bolstering hope that the financial growth of the past would continue into the future.

Sales in 1992 amounted to $267 million, up nearly nine times the total collected in 1986. In 1993, sales jumped to $305 million, continuing their solid rise. To sustain this pace of financial growth, Adelphia Communications looked to physical expansion and resumed its acquisition program as it entered the mid-1990s. In 1994, the company agreed to purchase all the cable systems owned by WB Cable Association, Clear Channels Cable TV, and those owned by the Benjamin Terry family. In all, Adelphia Communications gained 62,200 subscribers, a figure that paled in comparison to the nearly 1.5 million subscribers the company served at the time, but the acquisitions strengthened the company's position in key markets. The WB Cable system was situated in West Boca Raton, Florida, where Adelphia Communications served 300,000 subscribers. The Terry family cable systems were located in Henderson, North Carolina and the Clear Channels cable systems were located in the Kittanning, Pennsylvania area. Further additions to the Adelphia Communications system were made in 1995, when the company agreed to buy cable systems from four small operators that included southeastern Florida cable systems owned by Fairbanks Communications, plus others owned by Eastern Telecom and Robinson Cable TV in the Pittsburgh area, and cable systems in New England owned by First Carolina Cable TV. Together, the acquisitions added 108,000 subscribers to Adelphia Communications' network, and each conformed to the company's strategy of clustering its cable system holdings.

As Adelphia Communications prepared for the 21st century, the company was expected to continue adding to its cable system holdings by fleshing out the regions where it already operated through acquisitive means. Supported by its enviable cash flow margins, the economies of scale realized by grouping its markets close together, and its substantial investments in technological upgrades, Adelphia Communications appeared to be solidly positioned for future growth. With a second generation of Rigas family members at the helm, the company prepared for its second decade of existence but had as its support more than 40 years of experience in the cable television market.

Principal Subsidiaries: Adelphia Cablevisions, Inc.; Clear Cablevision, Inc.; Indiana Cablevision, Inc.; Western Reserve Cablevision, Inc.; International Cablevision, Inc.

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