News

Charter Charges Modem Subs for TV

8/11/2002 8:00 PM Eastern

The counting of non-video cable-modem and telephony subscribers has been a tricky situation for some MSOs, which want somehow to be properly credited for having those customers — who pay as much as $45 per month for fast Internet connections — on their basic-subscriber rolls.

Last week, Charter Communications Inc. disclosed its bite at the apple: It's been charging modem-only customers $10 per month extra for a lifeline video service —major broadcast stations and some basic-cable networks — whether they watch those channels or not.

In Charter's case, the number of modem-only customers getting charged the $10 is small, at about 40,000. But Charter has hit on a way to extract extra value from customers who already pay a relatively high amount for a service they'll typically keep far longer than they'll hang onto premium channels or digital cable service.

"Since 1998, when we originally launched our cable-modem product, we've charged $10 to households not subscribing to our video service, which entitled them to receive lifeline basic-video service," Charter chief operating officer David Barford said on the company's second-quarter conference call with analysts. "We've allocated this extra fee as analog revenue and included the customer in the basic-video count."

Barford said the number was up from about 18,000 on June 30, 2001.

INSIGHT'S THOUGHTS

Charter might be the only MSO doing this at this time, but at least one other operator is contemplating counting customers in a different way to extract additional value from non-video subscribers.

Insight Communications Co. chief operating officer Kim Kelly said her company is contemplating moving toward counting "customer relationships," rather than relying solely on video-customer numbers.

"I think we have to get a uniform method of approach toward statistics, and make sure that everyone knows what is in there," said Kelly, who was promoted to president last week. "As you're passing all of these homes, you probably should report on how many of these homes are taking one product and how many homes are taking multiple products."

Insight has about 13,000 customers who buy products that are not tied to video, a small percentage of its total basic-subscriber count of 1.4 million.

Moving to that method would lower average revenue per subscriber, but only by a small amount, said Kelly. Currently, Insight's average revenue per customer is about $57 per month, she said.

"It will be average revenue per home that you're going to go to, or homes serviced," she said.

SENSITIVE TOPIC

Of course, it could be seen as a sensitive subject, at a time when stocks are down and regulators are scruitinizing operating numbers. Merrill Lynch & Co. analyst Jessica Reif Cohen last month downgraded Charter, partly over concerns about counting modem-only customers as basic subscribers.

Some of the many headlines in the Adelphia Communications Corp. scandal of the last several weeks concerned accusations of basic-subscriber inflation, including 33,000 modem-only customers counted in the basic rolls.

Other cable operators last week were adamant in saying they intend to keep their methods of counting subscribers where they are.

"We do not count high-speed data customers as basic-cable customers if they do not also subscribe to cable," Time Warner Cable spokesman Mark Harrad said. "In certain places we may charge them extra — customers who are only high-speed data — but we do not count them as cable customers or account for them as cable customers in any fashion."

Cox Communications Inc. takes the same tack, according to spokeswoman Ellen East, counting only those subscribers that take video as basic subscribers.

AT&T Broadband does not mix its data, telephony or video customer numbers, according to spokeswoman Sarah Eder. While customers may subscribe to combinations of the three services, they are accounted for separately. It also does not charge data customers for a basic-video hookup fee, she said.

"We count all of our subscribers in the categories to which they subscribe," Eder said. "They could subscribe to all three, but there is no sort of marketing arrangement like that."

Mediacom Communications Corp. chief financial officer Mark Stephan also said that his company does not count modem-only customers in its basic-cable subscriber count. The company has no intention to do so in the future, he added.

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