Cable Operators

May Sees Charter Progress

5/08/2005 8:00 PM Eastern

After less than six months on the job, Charter Communications Inc. interim CEO Robert May is beginning to see results in his ambitious plan to right the St. Louis-based MSO’s past customer-service problems, with basic-subscriber losses at their lowest level in about a year.

Charter lost 6,700 basic video customers in the first quarter, its lowest level of losses in more than three periods, while it added 20,000 digital subscribers and 94,000 high-speed data customers in the quarter.

Charter lost 209,000 basic video subscribers in 2004, and while the first-quarter numbers are encouraging, May said the company is not out of the woods yet.

CEO’S ENCOURAGED

“We’ve put a lot of initiatives in place in the first quarter,” May said in an interview last week. “We’re still not sure what the results are going to be in the long-term, but in the quarter we started to see some positive signs of those initiatives paying dividends.

“I’m encouraged by the way the organization has responded to putting these tactics in place. We’ll see how this plays out quarter after quarter. This is not a sprint; this is a matter of taking one hill at a time.”

May joined Charter in January, after former CEO Carl Vogel resigned. Soon afterward, May launched his “Focus on Excellence” initiative, aimed at improving customer service, improving technical and network service, investing in growth and selling Charter’s value proposition to customers.

May already has revamped Charter’s customer call-center operations: He started a pilot program at Charter’s Irwindale, Calif., center aimed at ensuring calls are routed to the appropriate representative and plans to have the same program in place at all Charter call centers by June 1.

On the investing in growth front, Charter has rolled out telephone service in four markets — Madison, Wis.; St. Louis; and most recently in Massachusetts and South Carolina — and plans are to expand that offering to additional markets by year-end.

Charter also stepped up its first-quarter marketing spending (by $4 million or 13%), launched a national marketing campaign and is currently targeting specific segments of its customer base to provide products specific to their needs.

In the meantime, Charter has abandoned its past practice of deep discounting, as evident by the 11% rise in total average monthly revenue per subscriber to $70.75 from $63.75 in the quarter. Overall revenue was up 7% to $1.3 billion and cash flow increased 6% to $475 million, in line with expectations.

May has high hopes for VoIP, adding that he is borrowing tactics from several different operators that have successfully launched telephone service.

“We’re certainly taking a page out of the Cablevision book, the NTL book and the Cox book,” May said.

So far, Charter has about 55,000 VoIP subscribers. While he would not go into specifics, May said Charter is testing several telephone product bundles in Wisconsin and St. Louis to see what packages will work.

So far, the customer-service initiatives appear to be having at least a short-term effect. Video churn improved by 9 basis points in the quarter, as did digital churn (down 16 basis points) and high-speed data churn (down 5 basis points).

Charter is also making progress in filling some key management spots. May said the search for a chief financial officer is about 80% complete and the St. Louis MSO has several attractive candidates to choose from. In addition, the search is continuing for a general counsel and a chief marketing officer. May did not give a time frame as to when those searches would be complete.

A special committee of independent directors also is searching for a permanent CEO for the company, said May. May would not comment on whether he wanted the job.

“Anybody would love the opportunity to run this company,” May said. “Whether I’m going to do it [on a permanent basis], I haven’t given sufficient thought.”

Charter also is continuing to pursue the sale of nonstrategic assets, he added. Although May declined to say how many subscribers are for sale or where they are located, Charter said two years ago that it had identified about 500,000 subscribers in non-strategic markets for divesture. Charter sold about 260,000 of those subscribers in two deals in 2003, raising about $835 million.

The remaining deals have been a tougher sell. Sources familiar with process said last week that Charter has been asking for high prices for the systems, which are said to include about 47,000 customers in four states in the West, with the rest located in small markets in Indiana and Illinois.

The books on the systems have been out for nearly two years and some sources said last week that bids are due in at the end of this month.

May would not comment on the systems sales.

COULD FORT WORTH GO?

Other sources in the cable M&A community said one Charter system — Fort Worth, Texas — not included in the nonstrategic cluster also could go on the block in the wake of Time Warner Inc.’s and Comcast Corp.’s successful bid for Adelphia Communications Corp.

As part of the Adelphia deal, Time Warner will gain control of Comcast’s Dallas system, with about 600,000 subscribers.

Charter had tried to swap the Fort Worth system and others with AT&T Broadband in 1999, but that deal was scrapped after Charter discovered some of the AT&T systems to be included in that deal weren’t up to snuff.

May said that any deal is possible at the right price, but quickly added that Fort Worth is an important market to Charter.

“I really, really like our portfolio in the Fort Worth market,” May said.

October