Pennsylvania Investment Observer

End of an Era

by Daniel J. Nestlerode

Yesterday, John Rigas, the eighty year old founder of Adelphia Cable, was sentenced to fifteen years in Federal prison for fraud and conspiracy related to looting more than $100 million Adelphia Cable. John's son Timothy, the former chief financial officer, was sentenced to twenty years.

Running a public company is distinctly different from running a private company. In a private company, the interests of management and the shareholders are one and the same. Public companies have outside interests called shareholders who depend on management to run the company in a manner that looks out for their interests. John Rigas and Timothy Rigas now understand this distinction.

Adelphia is now being rolled into the operations of the largest cable company, Comcast and Time Warner's cable division. Further, the cable division of Time Warner is supposed to become a public company following the acquisition of its part of Adelphia.

Much of the cable industry is held in private companies. Indeed, with the privatization of Cablevision and the earlier privatization of Cox Communications, Comcast is the only public company in the cable industry. We'll have to wait to see if Time Warner follows through on making its cable operations a publicly traded security.

It is intriguing to me that two major cable companies (Cox and Cablevision) privatized their operations. From a business standpoint, it hints that the future of cable operations is likely to become increasingly profitable. It further tells me that the remaining publicly traded companies are very likely to be desirable investments. According to Barron's, Comcast is projected to have a sharply increasing cash flow from its expanding operations, including digital cable, telephone services (VoIP - voice over internet protocol)) and high speed internet connectivity. It is also ironic that cable systems are challenging the telephone companies by providing VoIP telephone services through coaxial and fiber optic cable hung on telephone poles.

As I mentioned above, we are witnessing the end of an era. The entrepreneurs that started the cable television revolution are passing into history at the very time that cable companies seem to be entering into a golden age of prosperity. John Rigas and his family have a lot to be proud of, founding an industry that is now becoming an important part of the information economy. It is unfortunate that they are not able to enjoy the success of the industry.

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