Adelphia
Business Solutions
Morgan Stanley Sponsored
Investor Day
September 5, 2001
Adelphia
Business Solutions
Forward Looking Financial Information Disclosure Disclaimer
The statements in this presentation that are not historical facts are
forward-looking statements that are subject to material risks and
uncertainties. Investors are cautioned that any such forward-looking
statements are not guarantees of future performance or results and involve
risks and uncertainties, and that actual results or developments may differ
materially from those in the forward-looking statements as a result of
various factors which are discussed in Adelphia's and Adelphia Business
Solution's filings with the Securities and Exchange Commission. These risks
and uncertainties include, but are not limited to, uncertainties relating
to economic and business conditions, acquisitions and divestitures, growth
and expansion risks, the availability and cost of capital, government and
regulatory policies and developments, the pricing and availability of
equipment, materials, inventories and programming, product acceptance, the
ability to construct, expand and upgrade its cable systems, fiber optic
networks and related facilities, risks associated with reliance on the
performance and financial condition of vendors and customers, the ability
of the companies to execute on their business plans and to market services
to existing and new customers dependence on customers and their spending
patterns; technological developments and changes in the competitive
environment in which we operate. Additional information regarding factors
that may affect the business and financial results of Adelphia and Adelphia
Business Solutions can be found in their most recent Quarterly Reports on
Form 10-Q filed with the Securities Exchange Commission and their
respective Form 10-Ks for the year ended December 31, 2000, as well as in
the prospectus and most recent prospectus supplement filed under
Registration Statement Nos. 333-64224 and 333-11142 (formerly No. 333-
88927), under the section entitled "Risk Factors" contained therein.
Neither company undertakes to update any forward-looking statements in this
presentation or with respect to matters described herein.
Adelphia
Business Solutions
[PICTURE]
Company Overview
Status Report
Modification of Business Plan
. Concentration in 50-60 markets with current active (or near to active)
networks
. Leverage profitability of Classes of `96-'98 markets
- Dense Fiber Optic Rings
- Fixed wireless
- DSL Connectivity in Bell LSOs
. Utilize regional network in Eastern U.S. for connectivity of newer
markets
. Focus new business on owned network assets - eliminate TSR
. Continued conversion/elimination of existing TSR customer base in 2001
Adelphia
[PICTURE] Business Solutions
Financial Impact of Business
Plan Modification
Previous Plan New Plan
------------- --------
Markets 75-80 50-60
Revenue Growth 5yr CAGR 41% 33%
EBITDA Positive Q4 '01 Q4 '01
Cap X - Q3 2001-2003 $960 Million $630 Million
Free Cash Flow Q4 '04 Q2 '04
Adjusted Funding Gap as of
June 30, 2001 ($1,105 Million) ($80 Million)
Sources of Financing
- - Existing Liquidity @ June 30, 2001 $85 Million $85 Million
- - Asset Sale to ADLAC - $125 Million
- - Senior Secured Credit Facility - $500 Million
Adelphia
Business Solutions
IP Data Center
[MAP]
230 million POPs of Fixed
Wireless Spectrum
Adelphia
Business Solutions
Major Customers
[LOGOS]
Adelphia
Business Solutions
[LOGOS]
Adelphia
Business Solutions
Commonwealth of PA
Illustrates advantages of a facilities rich approach and strong product
portfolio
Access
Service Requirements Product Offerings Technologies
-------------------- ----------------- ----------------
Dial tone - Centrex
100,000 lines POTS/PRI Fiber Rich
Network
Long distance -
-
2,500 data ACD Application -
locations Broadband Fixed
WAN Wireless
High Speed -
State wide ATM Ethernet -
network -
ATM ILEC
Colocations/DSL
Frame Relay
-------------------- ----------------- ----------------
Contribution to Business Plan
. Annual Revenues of over $50 million and going
. Annual EBITDA contribution of over $25 million
Adelphia
Business Solutions
[PICTURE]
2001 Business Drivers
. Convert Existing TSR Customers to our Networks
. Add New Customers Directly on to our Networks
. Significantly reduce overhead expenses associated with nationwide
expansion effort
. Complete Local Network Construction and light an additional 35 markets
in 2001
. Complete Long-haul Connectivity for all Local Markets lit in 2001
. Maximize Billing and Cross Product Bundling Opportunities through
Launch on New OE/OM Convergence Billing System
. Expand Product Management Efforts
. Minimize Bad Debts Associated with Bad Customers
Adelphia
Business Solutions
MARKET MATURITY
A TRACK RECORD OF SUCCESS
21 Original Markets 38 Expansion Markets
Gross Free Cash Gross Free Cash
Margin EBITDA Flow Margin EBITDA Flow
Positive Positive Positive Positive Positive Positive
-------------------------------- --------------------------------
Three Years from Now 21 21 21 38 38 15
-------------------------------- --------------------------------
Two Years from Now 21 21 21 38 30 5
-------------------------------- --------------------------------
One Year from Now 21 21 15 25 12 0
-------------------------------- --------------------------------
Today 21 21 9 9 1 0
-------------------------------- --------------------------------
One Year Ago 21 17 1 0 0 0
-------------------------------- --------------------------------
Two Years Ago 18 16 1 0 0 0
-------------------------------- --------------------------------
Three Years Ago 16 7 0 0 0 0
-------------------------------- --------------------------------
Adelphia
Business Solutions
[PICTURE]
Proof of Concept - A
Facilities Based Strategy
. All Original Markets are EBITDA positive
. Strong Facilities Presence in Lit Markets
- Regional network rings active in East U.S.
- Core networks for Class of 1999 being completed during 2001
. History of strong Gross Margins in Mature Markets
- Class of 1996 consistently over 70% GM
- On-switch emphasis will improve overall GM in 2001
. Multiple Broadband Access Technologies will facilitate Facilities
Based Strategy in Newer Markets
Adelphia
Business Solutions
Gross Margin Opportunities Depend Upon
Delivery Method
[GRAPH]
. Gross Margin Opportunity is very Dependent
Upon Transport Method
. Established Markets Incremental Margin per
Capital Dollar Deployed is Very High
. Lower Dependence Upon ILEC Increases Service
Capabilities
. Broadband Connectivity Aids Multiple Service
Offerings and Cross Product Bundling
Opportunities
Adelphia
Business Solutions
Capital Cost of Facilities Based Market Entry
------------------------------------------------------
($ in millions) Targeted 5 Year ROA
Core Infrastructure Capital Years 1/2
- --------------------------- --------- ------------------------------------------------------
Local Fiber Network - assumes 100 $ 5.0 ($ in millions) With Without
miles @ $50K average (40% savings Cable Cable
if built with cable partner) Partner Partner
--------------------------
Central Office with Regional Switch Year 5 Revenue $ 28 $ 22
- CO $ 5.0
- Switch $ 3.0 Year 5 EBITDA $ 15 $ 11
- Sonet $ 1.0
- DACs $ 1.5 EBITDA % 54% 51%
-------
Total Central Office $ 10.5 Gross PP&E - Core $ 16 $ 18
LSO Collocation - assumes 4-6 $ 1.5 Gross PP&E - Success Based $ 28 $ 24
ILEC COs Customers 1,500 1,200
Connectivity to Long Haul Network $ 0.4
Other (Office, Vehicles, Tools, etc.) $ 0.6 Employees 65 60
-------
Total Core Infrastructure $ 18.0 Unlevered ROA 37% 28%
======= ------------------------------------------------------
Thereafter capital spending, including capacity spending, is largely success
based at $650-$750/access line addition
Adelphia
Business Solutions
Capital Spending Plan
. Heavily focused on profitable business
[GRAPH]
Adelphia
Business Solutions
[PICTURE]
Strong Return on Incremental
Capital Investment
Success based capital has high contribution margin
. Core markets contribution of Annualized Revenues to Capital Investment
of $1.10:$1.00
. On-switch EBITDA margins of 55% - 75%
- Annual run-rate EBITDA improvement of over $140-$160 million
. Implied 2 year return of capital investment
. Focus on Customer Premise Equipment and Access Capital (Fiber, LMDS,
DSL)
Adelphia
Business Solutions
Illustrative Financial Model of a CLEC Market
[GRAPH]
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
[GRAPH]
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
* Markets at -100% EBITDA
represent markets with minimal
revenue and operating expense
2000 1999 1998/97 1996 and before
Annualized EBITDA $ (4.2M) $(21.8M) $ 26.6M $150.3M
Gross PP&E as of 6/30/01 $134.3M $405.3M $168.6M $807.6M
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
[GRAPH]
Harrisburg
LQA Revenue $24.2M
LQA EBITDA $18.9M
EBITDA % 64.6%
Gross PP&E $72.4M
Unlevered ROA 32.5%
Customers 992
Employees 34
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
2000 1999 1998/97 1996 and before
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
[GRAPH]
Wichita
LQA Revenue $19.7M
LQA EBITDA $11.3M
EBITDA % 57.4%
Gross PP&E $38.6M
Unlevered ROA 46.0%
Customers 1,066
Employees 47
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
2000 1999 1998/97 1996 and before
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
[GRAPH]
Philadelphia
LQA Revenue $ 65.8M
LQA EBITDA $ 37.3M
EBITDA % 56.7%
Gross PP&E $128.2M
Unlevered ROA 28.7%
Customers 2,000
Employees 71
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
2000 1999 1998/97 1996 and before
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
[GRAPH]
Vermont
LQA Revenue $ 38.9M
LQA EBITDA $ 20.0M
EBITDA % 51.3%
Gross PP&E $ 54.4M
Unlevered ROA 45.6%
Customers 772
Employees 35
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
2000 1999 1998/97 1996 and before
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
Buffalo
LQA Revenue $30.3M
LQA EBITDA $ 8.1M
EBITDA % 26.7%
Gross PP&E $ 71.5M
Unlevered ROA 36.5%
Customers 2,298
Employees 59
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
2000 1999 1998/97 1996 and before
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
Jacksonville
LQA Revenue $ 17.6M
LQA EBITDA $ 2.2M
EBITDA % 12.8%
Gross PP&E $ 98.5M
Unlevered ROA 16.0%
Customers 875
Employees 45
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
2000 1999 1998/97 1996 and before
Adelphia
Business Solutions
Class of 1996
Overall Quarterly Annualized Performance*
Revenue CAGR 40%
[GRAPH]
EBITDA (45% of Revenue)
Actual results (41% of revenue)
* Before Allocation of Corporate Overhead
Sep01 - Dec01 represent Company estimates
Adelphia
Business Solutions
Class of 1997/1998
Overall Quarterly Annualized Performance*
[GRAPH]
Revenue CAGR 61%
EBITDA (40% of Revenue)
Actual results (37% of revenue)
* Before Allocation of Corporate Overhead
Sep01 - Dec01 represent Company estimates
Adelphia
Business Solutions
Class of 1999
Overall Quarterly Annualized Performance*
[GRAPH]
Revenue CAGR 115%
* Before Allocation of Corporate Overhead
Sep01 - Dec01 represent Company estimates
Adelphia
Business Solutions
Class of 2000
Overall Quarterly Annualized Performance*
[GRAPH]
Revenue CAGR 325%
* Before Allocation of Corporate Overhead
Sep01 - Dec01 represent Company estimates
Adelphia
Business Solutions
Financial Results
21 Original Markets
Revenue EBITDA 40.6%
Margin
2 year
CAGR 80%
[GRAPH] [GRAPH]
SEP99Q $198,052 SEP99Q $ 52,616
DEC99Q $242,360 DEC99Q $ 84,860
MAR00Q $285,956 MAR00Q $ 84,296
JUN00Q $321,636 JUN00Q $ 78,540/(a)/
SEP00Q $368,916 SEP00Q $117,016
DEC00Q $387,044 DEC00Q $137,368
MAR01Q $411,904 MAR01Q $150,088
JUN01Q $435,504 JUN01Q $176,856
Last Quarter Annualized ($'000s) Last Quarter Annualized ($`000s)
/(a)/ Includes settlement charges with Bell Atlantic
Adelphia
Business Solutions
Gulf Region/Wichita
A Case Study in Success
Adelphia
Business Solutions
Overview of Assets-Facilities Key Drivers
to Long Term Success
One Year Ago Current By Q1 2002
------------ ------- ----------
Lit Markets 40 59 62
Local Operational Fiber Miles - Route 8,147 10,142 11,000
- Strand 359,862 586,183 650,000
5ESS Switches Operational 23 30 30
Collocated Central Offices 234 321 350
Data Switches -- 30 30
Buildings Connected 3,057 3,369 4,200
[GRAPH]
Adelphia
Business Solutions
Type I - Leveraging Facilities for High Economic Returns
Typical Single Tenant Type I Building Profile
Tenants 1
Square Feet 10,000
Addressable Market - Access Lines 40 - 50
- Annual Telecom Dollars $ 25,000
Building Entry/CPE Cost Profile
Fiber Construction $ 5,000
CPE (including SONET) 12,000
Riser Cable/Labor, etc. 1,000
Total Capital Costs $ 18,000
Opportunity 100%
----
Revenue (Monthly Recurring)* $ 2,100
Cost of Service/Building Rent 250
--------
Gross Margin $ 1,850
Gross Margin % 88%
Selling Cost - One Time (3,500)
Incremental Monthly EBITDA Contribution 1,850
Payback (in Months) 12 months
ROIC - assumes customer for 4 years 96.3%
* Excludes one time installation charges which are often available in Type I
Buildings
Adelphia
Business Solutions
Type I - Leveraging Facilities for High Economic Returns
Typical Type I Multi-Tenant Building Profile
Tenants 20
Square Feet 100,000
Addressable Market - Access Lines 240
- Annual Telecom Dollars $ 168,000
Building Entry/CPE Cost Profile
Fiber Construction 10,000
CPE (including SONET) 16,000
Riser Cable/Labor, etc 4,000
Total Capital Costs $ 30,000
Penetration Rates of Building
-----------------------------
Opportunity 20% 50% 100%
--- --- ----
Revenue (Monthly Recurring)* $ 2,800 $ 7,000 $14,000
Cost of Service/Building Rent 525 850 1,400
--------- -------- --------
Gross Margin $ 2,275 6,150 12,600
Gross Margin % 81% 88% 90%
Selling Cost - One Time (3,000) (7,500) (15,500)
Incremental Monthly EBITDA Contribution 2,275 6,150 12,600
Payback (in Months) 14 months 8 months 6 months
ROIC - assumes customer for 4 years 73.6% 145.9% 197.4%
* Excludes one time installation charges which are often available in Type I
Buildings
Adelphia
Business Solutions
[MAP]
Adelphia
Business Solutions
City Overview
----------------------------------------------------------------------
June Month-End
----------------------------------------------------------------------
On-Net Type II TSR Total
----------------------------------------------------------------------
Budget % 72% 16% 12%
----------------------------------------------------------------------
Actual % 75% 18% 6%
----------------------------------------------------------------------
Budget Qty 13,834 3,064 2,344 19,242
----------------------------------------------------------------------
Actual Qty 15,151 3,699 1,261 20,111
----------------------------------------------------------------------
Delta 1,317 635 (1,083) 869
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Existing Pending Fiber Type II Type II
- --------------------------------------------------------------------------------
LEC LEC Route Lit DS1 DS0 TSR
- --------------------------------------------------------------------------------
Collo's Collo's Miles Buildings Buildings Buildings Buildings
- --------------------------------------------------------------------------------
5 2 236 225 333 209 576
================================================================================
Lines 15,151 3,268 431 1,261
Per Bldg 9.8 2.1 2.2
========================================================
Adelphia
Business Solutions
Budget Summary YTD thru June 01
---------------------------------------------------------------------
Total Budget Delta
---------------------------------------------------------------------
REVENUE 10,223,741 9,061,740 1,162,001
---------------------------------------------------------------------
---------------------------------------------------------------------
Tech Exp 1,554,968 1,556,638 (1,670)
---------------------------------------------------------------------
---------------------------------------------------------------------
GROSS 8,668,773 7,505,102 1,163,671
---------------------------------------------------------------------
MARGIN 85% 83%
---------------------------------------------------------------------
---------------------------------------------------------------------
Total Expenses 4,417,940 3,572,324 845,616
---------------------------------------------------------------------
---------------------------------------------------------------------
EBITDA 5,805,801 5,489,416 316,385
---------------------------------------------------------------------
57% 61%
---------------------------------------------------------------------
Adelphia
Business Solutions
Well Known Customers
[LOGOS]
Adelphia
Business Solutions
Technical Exp YTD thru June 01
- -------------------------------------------------------------------------------------------------------
Top 12 1st Q 2nd Q YTD BUDGET Delta
- -------------------------------------------------------------------------------------------------------
Wages 279,557 322,020 601,577 513,716 87,861 117%
- -------------------------------------------------------------------------------------------------------
TSR 248,982 39,591 288,573 465,745 (177,172) 62%
- -------------------------------------------------------------------------------------------------------
Type II 159,671 175,653 335,324 290,293 45,031 116%
- -------------------------------------------------------------------------------------------------------
Long Distance 132,408 141,873 274,281 245,000 29,281 112%
- -------------------------------------------------------------------------------------------------------
Oper Trnspt Fee 83,221 106,603 189,824 160,832 28,992 118%
- -------------------------------------------------------------------------------------------------------
Data Expense 59,723 83,139 142,862 107,120 35,742 133%
- -------------------------------------------------------------------------------------------------------
Interconnect Fees 42,367 74,972 117,339 47,305 70,034 248%
- -------------------------------------------------------------------------------------------------------
Collocation 31,230 25,291 56,521 63,750 (7,229) 89%
- -------------------------------------------------------------------------------------------------------
Outside Services 18,597 11,144 29,741 38,400 (8,659) 77%
- -------------------------------------------------------------------------------------------------------
Other Tech Exp 9,751 17,969 27,720 30,691 (2,971) 90%
- -------------------------------------------------------------------------------------------------------
Travel & Entertainment 1,726 4,686 6,412 14,080 (7,668) 46%
- -------------------------------------------------------------------------------------------------------
Education 2,251 -- 2,251 5,250 (2,999) 43%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Total Technical Expenses 814,411 740,557 1,554,968 1,556,638 (1,670) 100%
- -------------------------------------------------------------------------------------------------------
Gross Margin Percentage 85% 84% 85.0% 83%
- -------------------------------------------------------------------------------------------------------
Adelphia
Business Solutions
Marketing Exp YTD thru June 01
- -------------------------------------------------------------------------------
1st Q 2nd Q YTD BUDGET Delta
- -------------------------------------------------------------------------------
Outside Service 7,580 -- 7,580 7,580
- -------------------------------------------------------------------------------
Advertisement 54,496 29,121 83,617 76,926 6,691 109%
- -------------------------------------------------------------------------------
Other (9,924) (4,930) (14,854) -- (14,854)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total 52,152 24,191 76,343 76,926 (583) 99%
- -------------------------------------------------------------------------------
% to Sales 0.95% 0.51% 0.75% 0.85%
- -------------------------------------------------------------------------------
Adelphia
Business Solutions
Sales Expense YTD thru June 01
- -------------------------------------------------------------------------------------------
1st Q 2nd Q YTD BUDGET Delta
Wages 212,755 216,713 429,468 349,832 79,636 123%
- -------------------------------------------------------------------------------------------
Bonus & Comm 209,533 150,173 359,706 197,579 162,127 182%
- -------------------------------------------------------------------------------------------
Education -- 4,940 (4,940) 0%
- -------------------------------------------------------------------------------------------
T&E 3,443 (2,869) 574 15,814 (15,240) 4%
- -------------------------------------------------------------------------------------------
Telephone 1,014 762 1,776 5,175 (3,399) 34%
- -------------------------------------------------------------------------------------------
Outside Services 5,481 1,457 6,938 7,200 (262) 96%
- -------------------------------------------------------------------------------------------
Recruiting -- 15,750 (15,750) 0%
- -------------------------------------------------------------------------------------------
Other 532 293 825 2,427 (1,602) 34%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Total 432,758 366,529 799,287 598,717 200,570
- -------------------------------------------------------------------------------------------
% to Sales 7.86% 7.77% 7.82% 6.61%
- -------------------------------------------------------------------------------------------
Adelphia
Business Solutions
G&A YTD thru June 01
- --------------------------------------------------------------------------------------------------------
Top 12 1st Q 2nd Q YTD BUDGET Delta
Bad Debt 459,360 382,373 841,733 181,236 660,497 464%
- --------------------------------------------------------------------------------------------------------
Wages 149,393 145,916 295,309 323,901 (28,592) 91%
- --------------------------------------------------------------------------------------------------------
Taxes & Fees 130,295 144,993 275,288 168,000 107,288 164%
- --------------------------------------------------------------------------------------------------------
Billing 106,108 154,407 260,515 205,236 55,279 127%
- --------------------------------------------------------------------------------------------------------
Office Rent 59,021 73,365 132,386 126,000 6,386 105%
- --------------------------------------------------------------------------------------------------------
Bonus & Comm 36,628 20,223 56,851 48,000 8,851 118%
- --------------------------------------------------------------------------------------------------------
Outside Services 25,339 12,777 38,116 32,160 5,956 119%
- --------------------------------------------------------------------------------------------------------
Telephone 14,829 21,428 36,257 82,800 (46,543) 44%
- --------------------------------------------------------------------------------------------------------
Office Supplies 13,424 8,032 21,456 46,120 (24,664) 47%
- --------------------------------------------------------------------------------------------------------
T&E 5,486 3,929 9,415 45,000 (35,585) 21%
- --------------------------------------------------------------------------------------------------------
Education 4,000 -- 4,000 13,168 (9,168) 30%
- --------------------------------------------------------------------------------------------------------
Other G&A (6) (2,523) (2,529) 16,492 (19,021) -15%
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Total 1,017,548 969,794 1,987,342 1,340,043 647,299 148%
- --------------------------------------------------------------------------------------------------------
% to Sales 18.47% 20.57% 19.44% 14.79%
- --------------------------------------------------------------------------------------------------------
Adelphia
Business Solutions
Type 1 Strategy
[_] Current Type 1 Buildings - 227
[_] Total Identified Type 1 Buildings - 100's
[_] To be added this year - 12 - 24
[_] All multi-tenant buildings with clear potential are already On-Net
[_] Remaining potential are single tenant, office parks and strip centers
[_] Sales drive single tenant entry
[_] Office park and strip center tenants sometimes justify fiber
[_] Outside Plant Cabinet with copper distribution being developed
Adelphia
Business Solutions
Margin Improvement Efforts
[_] A/R Collections Efforts
[_] Resale Conversion / Rate Increases
[_] Cost of Service Analysis
[_] Type II / UNE Optimization
[_] Increase focus on new / existing
Type I locations
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
Gulf Region
[GRAPH]
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
2000 1999 1998/97 1996 and before
Adelphia
Business Solutions
Class of 1999/2000 Markets
Following in the footprints of
their mature brethren
David Sutherland - RVP South
Region
Adelphia
Business Solutions
Class of 1999 Markets Basic Facts
. History
- Initial Expansion into primarily larger Tier I/II markets
- Focus of Eastern half of US, particularly Southeastern US
- Initially heavy focus on market share penetration before facilities
were in place
- Represents addressable market of approximately 18 million access lines
$35 billion in annual telecom revenues
. Current Situation
- Only money forward in markets with network presence (25 markets)
- Markets now have lit/operational metropolitan network rings, central
offices, and ILEC/IXC collocations
- Aggressively converting existing TSR business
- No further TSR Installations
- Reducing dependence/cost of ILEC networks use, i.e. driving positive
gross margin
Adelphia
Business Solutions
Class of 1999 Markets Basic Facts Con't
. Future Outlook
- Turn gross margin positive by end of 2001;EBITDA positive by Q3 2002
- Incremental contribution margin from TSR conversion and new on-switch
business of 65%-80%
- Core market capital spending largely complete, then success based
capital at roughly $650-$750/access line addition
- Competitive landscape becoming much more favorable - market share
opportunity is large
Adelphia
Business Solutions
The Corner Has Been Turned
Passing the EBITDA Loss Inflection Point
[GRAPH]
Adelphia
Business Solutions
The Corner Has Been Turned
Passing the EBITDA Loss Inflection Point
Historic Forward Looking Guidance
-------- ------------------------
[GRAPH]
Adelphia
Business Solutions
A Historic Track Record of Success
EBITDA % of Revenues
South Region
[GRAPH]
Length of Time Markets in Operation Since:
1 Yr 2 Yrs 4 Yrs 5+ Yrs
2000 1999 1998/97 1996 and before
Adelphia
Business Solutions
The Track to Success
The Month Each Market Turns Positive EBITDA
- -----------------------------------------------------------------------------------------------------------
AUG 01 SEP 01 OCT 01 NOV 01 DEC 01 JAN 02 FEB 02 MAR 02 APR 02 MAY 02 JUN 02
- -----------------------------------------------------------------------------------------------------------
Jacksonville X
- -----------------------------------------------------------------------------------------------------------
Baton Rouge X
- -----------------------------------------------------------------------------------------------------------
Southern Region X
- -----------------------------------------------------------------------------------------------------------
South Florida X
- -----------------------------------------------------------------------------------------------------------
Charlotte X
- -----------------------------------------------------------------------------------------------------------
Orlando X
- -----------------------------------------------------------------------------------------------------------
New Orleans X
- -----------------------------------------------------------------------------------------------------------
South Carolina X
- -----------------------------------------------------------------------------------------------------------
Raleigh X
- -----------------------------------------------------------------------------------------------------------
Mobile X
- -----------------------------------------------------------------------------------------------------------
Tampa X
- -----------------------------------------------------------------------------------------------------------
Atlanta X
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Adelphia
Business Solutions
Class of 1999 Markets - The Drive to Profitability
. Type I Building Entry Strategy
- Replicate Historic Performance of Original Markets - Lots of
experience
- Focus on mid-sized buildings - under-served portion of the market
- Utilized fixed wireless (2002+) where feasible
- Lower CPE costs resulting in improved economics
. TSR Conversion of Existing Lines
- 177 lit collocated LSOs
- Focus on customers within our footprint
- Raise rates or terminate customers where economics of conversion do
not work
Adelphia
Business Solutions
The Drive to Profitability Con't
. Type II
- Improved economics with UNEs and EELs
- Large addressable market for bundled services on IAD
. Cost of Service Initiatives
- Detailed audit of ILEC facilities invoices - error rate 10%-25%
- Dispute resolution very favorable to date. $15.2M recovered (or
pending recovery) disputes
. Pricing
- Pass through of ILEC charges for usage on TSR accounts
- Features charges comparable to ILEC pricing
- Discount to ILEC - On-switch 15%-20% off ILEC Tariff
- TSR 0% off ILEC Tariff
Adelphia
Business Solutions
Profile of Improved Financial Performance
Lines On-Switch versus TSR
Lines On-Switch vs. TSR
[GRAPH]
1/31/2001 2/28/2001 3/31/2001 4/30/2001 5/31/2001 6/30/2001 7/31/2001 8/31/2001
(5 cities) (7 cities) (7 cities) (10 cities) (11 cities) (11 cities) (11 cities) (11 cities)
On Switch 12664 13928 26052 29561 32584 46665 55340 58805
TSR 77560 75531 74351 70053 64421 59924 54204 51192
Adelphia
Business Solutions
TSR Conversion & Type II Tremendous Margin Opportunity
Typical Type II Customer Profile
Access Lines Served- Local 8-14
- LD 50% to 60% take rate
Data/Internet Access 128kb - 512kb circuit
Monthly Recurring Revenue - Average $ 650
Capital Cost - Incremental CPE/Cabling $ 3,600
Payback/Margin Analysis Current (UNEs/EELs) Historic (Special Access T-1)
- ----------------------- ------------------- -----------------------------
Monthly Recurring Revenue $ 650 $ 650
ILEC Line Cost
- One Time (400) (400)
- Recurring* 190 350
--- ---
Gross Margin 460 300
Gross Margin % 71% 46%
Selling Costs (one time) (700) (700)
Incremental Monthly EBITDA Contribution 460 300
Payback (in months) 10 months 16 months
ROIC - assumes customer for 4 years 111.6% 66.7%
* Includes cost of network components to support connectivity to PSTN
Adelphia
Business Solutions
Pricing Opportunities - The Changing
Competitive Landscape
. Target Pricing - 15% - 20% below ILEC fully loaded rates
- Charge for features (call waiting, call forwarding, three way calling,
etc.)
- Pass through ILEC charges and usage on TSR customers
- Raise TSR rates to equal ILEC rates - 0% discount
. Competitive Landscape Changing
- Don't give away revenue opportunities
. Calling Areas/Call Plans
Adelphia
Business Solutions
Profile of Improved Financial Performance
A Rollforward of Results
Type II Type II Type I
TSR Change(a) SA T-1 Change (b) UNE/EEL Change (c) On-Net
--- --------- ------ ---------- ------- ---------- ---------
Revenue $ 410 $ 240 $ 650 -- $ 650 $ 650
Direct Cost of Service 450 (100) 350 (160) 190 (115) 75
----- ----- ----- -----
Incremental Gross Margin $ (40) 300 460 575
Incremental Gross Margin % (10%) 46% 71% 88%
Typical Customer Profile
- ------------------------
Base line
---------
-12 line customer - local only
(a) TSR conversion and add LD and internet access
(b) Conversion to UNE/EEL
(c) On-net customer
Adelphia
Business Solutions
Gross Margin On Its Way To Join Mature Markets
Gross Margin by City
[GRAPH]
Adelphia
Business Solutions
A Look at ABIZ from
Adelphia's Perspective
Tim Rigas, CFO
Adelphia
Business Solutions
A Look at ABS from Adelphia's Perspective
. Enabling Network
. Digital TV Transport
. High Speed Data - IP Backbone
. Residential Telephony
. Attractive Investment
. Leverage Enabling Network to provide better ROI
Adelphia
Business Solutions
[MAP]
. The PONY ring allows digital set top boxes in Coudersport to be fed from
digital headend equipment in Buffalo, fenabling wide scale digital
deployment while minimizing capital spent on headend equipment
Adelphia
Business Solutions
High Speed Data - IP Backbone
[MAP]
. The IP Backbone will enable Adelphia to gain Tier 1 ISP status, saving the
company $7.00 to $9.00 per cable modem customer in transport and transit
expense.
Adelphia
Business Solutions
. The ABS backbone can provide transport and switching to connect Adelphia
cable subscribers to the public switched networks
[DIAGRAM APPEARS HERE]
Adelphia
Business Solutions
Morgan Stanley Sponsored
Investor Day
September 5, 2001