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Adelphia breakup fee may make purchase by Cablevision too costly

April 20, 2005 By Tony Gnoffo

Copyright 2005 Knight Ridder/Tribune Business News

Copyright 2005 Philadelphia Inquirer

Philadelphia Inquirer

April 21, 2005, Thursday

The judge in the Adelphia bankruptcy has approved a proposal to pay prospective buyers Comcast Corp. and Time Warner Inc. a 2.5 percent breakup fee that could make the cable acquisition more likely.

Public-interest groups had pledged a “guerrilla war” to block Comcast and Time Warner from buying Adelphia Communications Inc.

In documents filed late Tuesday at the Securities and Exchange Commission, Adelphia executives had said they asked Bankruptcy Court Judge Robert E. Gerber in New York to allow the breakup fee to be paid to Time Warner and Comcast if Adelphia does not consummate its deal to be acquired by them.

The request appeared to be aimed at derailing a competing bid — offered after the bidding deadline of Jan. 31 — by Cablevision Systems Inc. of Bethpage, N.Y. With the judge’s approval of the measure, Cablevision — besides having to offer more than the cash and stock bid of about $18 billion from Time Warner and Comcast — would likely have to pay the breakup fee, the amount of which was redacted from the SEC filing.

That filing was the first public acknowledgment from any of the parties that Time Warner and Comcast are the bidders preferred by Adelphia’s management. None of the companies involved would comment on the matter yesterday.

While the ruling in favor of Time Warner and Comcast might advance their effort to acquire Adelphia and its 5.3 million subscribers, a consortium of groups concerned about the consolidation of media ownership pledged to do all it can to block the sale.

In a letter to the mayors of the major cities now served by Adelphia, groups such as the Center for Digital Democracy and Common Cause urged them to oppose the transfer of Adelphia cable franchises to Time Warner and Comcast. The groups cited the “dangerous concentration of America’s electronic media and excessively high rates for cable television and broadband Internet access.”

Because each of the communities must approve the transfers of the local cable franchises, the public interest groups see them as venues to slow down or even stop the acquisition, said Jeff Chester, who heads the Center for Digital Democracy, in Washington.

He called the strategy a “guerrilla war” that will “harness the populist energy opposed to the further growth of that poster child for media consolidation, Comcast Corp.”

The letter accused Comcast and Time Warner of using their dominance of the cable market to charge “unreasonably high” rates for cable-television and broadband Internet access.

Comcast and Time Warner have said that their growth has permitted them to offer improved services to their customers, such as video-on-demand and higher Internet connection speeds.

Comcast spokeswoman D’Arcy Rudnay said identical accusations were made by Chester leading up to the company’s acquisition of AT&T Broadband in 2002.

“In fact, Comcast promised the FCC that we would bring customers the full benefits of fiber-coaxial cable systems, and we did so,” she said. “Comcast has upgraded AT&T systems across the United States, expanded programming content, added new channels, launched video-on-demand, increased the speed of our Internet service twice with no charge to customers, increased content on our portal and improved customer service.”

Comcast is the nation’s largest cable-television system operator, with 21.5 million subscribers. It is also the nation’s largest provider of broadband Internet access with about 7 million subscribers. There were approximately 31 million broadband Internet customers nationwide at the end of 2004, the latest period for which figures are available.

Time Warner is the second-largest cable company, with 10.9 million subscribers. It has about 4 million broadband subscribers.

This article contains information from Bloomberg News.

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