Cable's Transparency Problems

With cable stocks in yet another tailspin, it was refreshing to see three MSOs last week finally step up to the plate and say, "We are not Adelphia Communications Corp."

Cablevision Systems Corp., Mediacom Communications Corp. and Insight Communications Co. each told Wall Street that — unlike Adelphia — they're not plagued with the kind of off-balance sheet debt and subscriber-count discrepancies likely to lead to a bankruptcy filing. For Adelphia, that could come as early as next week.

Something clearly had to be done, as investors are continuing to punish all nine of the publicly traded cable companies. That translated into another round of 52-week lows for some of those stocks.

All three MSOs said Adelphia's problems were unique to that company, as they painstakingly described their own capitalization policies, payments from vendors and subscriber counts to underscore their very real differences.

Insight CEO Michael Willner, who is also the chairman of the National Cable & Telecommunications Association, went a step further. He suggested the industry should perhaps look into taking steps to make its numbers more understandable.

After the Enron Corp. debacle — and the sorry mess that Adelphia has become — the rally is on for transparency in all business sectors. Who could argue against that, given the number of innocent bystanders who've taken a financial hit? Maybe those who have something to hide, as appears to have been the case with Adelphia.

"In terms of clarification and ease of understanding of the little difference between the ways companies interpret certain numbers, we might be able to do a better job as an industry of trying to give you some macro numbers that we all report in a similar way," Willner said during a conference call with analysts last week.

I'd take Willner's words as a rallying cry. There is an irony here that is not lost on anyone. Cable's fundamentals have never been better, but now — because of Adelphia, and the very real fact that cable is a highly leveraged business — the sector continues to get hammered on Wall Street.

If you missed this quote in Multichannel News
from two weeks ago, in which one analyst offered his take on cable, I'll regurgitate it here as food for thought. "Cable is basically the opposite of the Visa card—it's everywhere you don't want to be in the market," said Banc of America Securities LLC analyst Doug Shapiro.

Ouch. And that's not all he had to say. "People are scared of leverage: It's a long-duration asset meaning the residual benefits to equity holders are years out; and it's loosely associated with telecom."

Throw the Adelphia mess on top of that, and you have a pretty insidious combination, according to Shapiro.

He's not the lone wolf here, either. Merrill Lynch analyst Jessica Reif Cohen reduced her price-to-earnings multiples for Cablevision and Charter Communications Inc.

I'm with Willner 100 percent, and I view this moment as an important opportunity to tell cable's story more clearly — something this industry seems to have trouble doing from time to time.

The cable industry is no longer a bunch of ragtag companies — rather it's a sophisticated and sometimes complex business. Its books should be as transparent as a dog is when it salivates under the dinner table.