Adelphia Gets Static on Digital Cable

Jerry Weiss is furious at his cable company for ruining one of his treasured Sunday night rituals: watching “The Sopranos” on Home Box Office.

The Hollywood Hills window decorator is one of more than 140,000 local customers of Adelphia Communications Corp. that have lost a handful of analog channels, including HBO and Showtime, as a result of the cable company’s march into the brave new world of digital television.

After months of warning by mail and on the tube, Adelphia on March 27 pulled a total of eight signals off of three cable systems that serve West Los Angeles, the San Fernando Valley and the hillside communities from the Hollywood Hills east to Eagle Rock. To continue to receive the channels, Adelphia is requiring customers to buy a new digital package that is costing some of them more money.

“It’s a big mess,” said Weiss, who has missed two episodes of his favorite TV show, spent hours on hold with Adelphia and waited two weeks for a replacement digital box because the first one didn’t work.

His saga and those of tens of thousands of Southland cable customers highlight the formidable challenge that cable operators face in selling new high-tech services that have cost them billions of dollars. Services such as digital cable and high-speed Internet access are the cable industry’s best hope for warding off satellite competition, but they are neither fail-safe nor customer-friendly.

Adelphia says the change is necessary to give customers more channels and to rein in widespread theft, which costs the cable industry an estimated $6.5 billion a year. Adelphia is paying the price for a $5.2-billion purchase in late 1999 of Century Communications Corp., whose systems in the region remained antiquated even as neighboring cable operators offered advanced services. Century’s record as the worst cable operator in Los Angeles is haunting Adelphia today.

Adelphia estimates that as many as 40,000 L.A. subscribers were getting HBO and Showtime free without knowing it because of the vintage of Century’s cable systems. The company insists that digital customers should see their rates drop unless they are hooking up multiple sets to digital. But it acknowledges that subscribers previously getting HBO and Showtime free could be surprised.

“The problem is, some people thought HBO was part of the basic cable package,” said Bill Rosendahl, Adelphia’s senior vice president of operations in Southern California, where 1.2 million customers from Ojai to Temecula make it the region’s largest operator. “But it’s not, and now they no longer will be getting it for free.”

Adelphia said customers who had been paying for premium channels will find digital a bargain. In Eagle Rock, the old rate for the basic cable package plus Showtime and HBO was $69.86 a month. The digital package costs $60.03 a month and provides an additional 28 movie channels, 45 music channels, nine pay-per-view movie choices and 20 basic channels.

“Any customer who says their bill has not gone down, I would love to chat with them because there is something wrong with that story,” said Lee Perron, Adelphia’s vice president of corporate affairs in Southern California.

His phone may start ringing off the hook. Weiss and other customers who claim to have been paying for HBO all along say their monthly bills are rising to $65 from $45.

Most cable operators gently nudge their customers into buying digital boxes by offering new or niche networks such as Toon Disney or Noggin for an additional $10 a month. Adelphia’s bare-knuckle attempt to convert customers to digital by using some of the hottest properties on cable as bait has put it under an industry spotlight.

Some subscribers charge blackmail. “I’m furious that I am forced to pay extra to get HBO,” said Larry Richards, a 48-year-old Silver Lake resident. “I was perfectly happy with my old service. Clearly, Adelphia, a monopoly, recognized that the current popularity of “Sopranos” and other HBO shows is another opportunity to overcharge.”

After steady improvement on Century’s record its first year in Los Angeles, Adelphia’s complaint rate spiked after the launch of digital in October, according to city officials. In the fourth quarter, the most recent data available, the three Adelphia systems undergoing the transition to digital had more complaints apiece than any system in the city except for AT&T; Broadband’s mid-city system, which had a total of 259, nearly three times the volume of any other single operation.

AT&T; officials say the system, which serves neighborhoods such as Hancock Park, Mar Vista and Hollywood, had technical problems transmitting signals to a new generation of digital box, although city regulators say most of the problems have been cleared up.

“In public hearings, people are absolutely beside themselves about this issue,” said Rohit Shulka, vice president of the Board of Information Technology, which governs cable franchising in Los Angeles. “It’s a nightmare that we’ve seen not only with Adelphia, but with [the city’s other cable operators] Time Warner and AT&T.; This is the world consumers are being dragged into, like it or not.”

The confusion has some Adelphia customers threatening to defect to satellite. Subscribers complain of waiting recently as long as an hour on Adelphia’s customer service phone lines. At the company’s Eagle Rock offices, lines have snaked out the front door as customers showed up in person to place orders for digital over the last two weeks.

“Shouldn’t they have anticipated some of these problems beforehand?” Weiss said.

One Adelphia field manager said that most customers waited until the last minute to order digital service and that even doubling up on the daily house calls hasn’t eased the backlog.

Notwithstanding these snafus, the stunt has turned around Adelphia’s image as a digital slowpoke. All but 6,800 of the 30,000 HBO and Showtime customers in the three affected areas have added digital service, Adelphia officials say, bringing the total digital households to 45,000 of the 140,500 subscribers.

That 32% penetration far surpasses the 15% average for the nation’s top six cable companies at the end of 2000, including sixth-ranked Adelphia, whose penetration companywide was 14%.

“In Los Angeles, Adelphia is particularly vulnerable to satellite and decided to defend its turf by aggressively rolling out digital there,” said Tom Eagan, an analyst at UBS Warburg.

Adelphia’s formula could become a template for speeding migration to digital industrywide. “It’s the direction that all of cable is heading,” said Michael Goodman, a senior analyst at Yankee Group in Boston. “We expect that premium channels will be on digital because they provide better value” and stickiness.

To guard against the advance of satellite television, which offers clearer pictures and more channels, cable companies have spent $42 billion since 1996 to upgrade their systems to digital. In addition to matching the virtues of satellite, cable operators are chasing a potential revenue windfall from the sale of services beyond plain old TV, such as Internet access, phone calling, movies on demand, and Web surfing and chatting on TV.

But there are drawbacks. The digital box limits the ability to tape shows or to use a TV’s picture-in-picture function. Surfing is slower too.

“This is the classic case of ‘build it and they will come,’ ” said Shulka of the information technology board. “These digital boxes don’t add functionality, do not properly integrate with TV equipment and provide 250 new channels that no one asked for or wants.”

He said the city of Los Angeles has little recourse because it regulates only the basic cable package, while the Federal Communications Commission governs all other tiers as well as the technical issues.

Cable franchise renewal negotiations are underway in the city, but Shulka said local regulators would be hard-pressed to reject any incumbent because of the time it would take a newcomer to build a comparable cable system.

He said regulators would seek to tighten service standards to ensure that customers are better educated about new products.

He acknowledged, however, that Adelphia is a vast improvement over Century, which in 1998 was hit by the biggest penalty ever leveled by Los Angeles against a cable company: a $12-million fine for charging excessive rates and failing to meet deadlines for upgrading its facilities.

Built in the 1960s by the late industrialist Howard Hughes, Century’s systems are some of the oldest in the country. Adelphia officials say that even the systems Century had upgraded by 1998 in Beverly Hills, Santa Monica and West Hollywood to provide as many channels as satellite and new services such as Internet access did not all have up-to-date security.

Worse, the systems in the Valley, West Los Angeles and the hills still have only about 70 channels, half as many as satellite.

They also lack security systems that most cable operators installed 10 or 15 years ago, such as set-top boxes and in-home decoder mechanisms for unscrambling premium channels. To prevent theft of these channels, these systems used “traps” installed on telephone poles that could be blown off by strong winds.

“Some of these traps were taken down over time, allowing people to get premium channels for free,” said Rosendahl, who also was in charge of the California systems under Century’s ownership. “To clean up these systems, you’d have to climb every pole in Los Angeles.”

Instead, Adelphia is updating the entire network. But because the project will not be completed until 2002, Adelphia is taking an interim step to give customers more channels while securing against theft.

Under what is known in the cable industry as a “recapture program,” Adelphia is taking certain channels off its analog service to free up space. Using digital compression technology, the company can cram eight to 10 digital signals into the space previously occupied by one analog channel.

Under the first phase of the plan launched in October, Adelphia shifted channels including ESPN Classic, the Movie Channel and International Channel to the digital package. Showtime, HBO, Cinemax and their related channels were part of phase two that took effect at the end of March.

The third phase comes June 1, when the Sundance Channel shifts to digital in the Valley and West Los Angeles, giving customers who were complaining that kids were tuning in to its R-rated movies the ability to put a lock on the channel.

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Adelphia Areas

Subscribers in three Adelphia cable systems in Los Angeles, highlighted below, have been forced to purchase digital packages if they wish to continue to receive channels such as HBO, Showtime and the Sundance Channel.

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Top 5 Cable Operators in Southern California:

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Company Subscribers Adelphia 1.2 million Cox 795,000 Time Warner 700,000 AT&T; 580,000 Charter 500,000

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Sources: City of Los Angeles, Times research