Charter Seeks to Soothe Investors

3/24/2006 7:00 PM Eastern

Charter Communications Inc. stock got an unexpected lift from CEO Neil Smit, who, during a conference call, reassured investors that the impact from phone-company competition would be minimal.

Charter stock earlier this month fell below $1 a share, as investors feared the impact of competition from the merger of telephone giants AT&T Inc. and BellSouth Corp.

The conference call, held March 17, was led by UBS Warburg cable debt and equity analyst Aryeh Bourkoff, who noted that “following the announcement of the AT&T-BellSouth deal, the Charter securities reacted in a violent fashion.”

Charter's stock dipped under $1 per share prior to the conference call, trading between 94 cents and 95 cents each between March 14 and March 16. Smit's talk seemed to have some impact — Charter stock was priced at $1.03 per share (up 8 cents) in 4 p.m. trading March 17. The stock rose slightly in subsequent trading, closing at $1.07 per share on March 22.

Smit said that Charter had accomplished its major goals in 2005 — executing a large debt-for-debt swap that extended maturities on a large portion of its bonds, completed asset sales that further rationalized its footprint and hired key personnel to its management team.

Charter has been active recently in the deal market. In late February, the cable operator said it would sell 240,000 subscribers in West Virginia, Virginia, Kentucky and Ohio to Cebridge Connections for $770 million, and 76,000 customers in Kentucky and Illinois to New Wave Holdings for about $126 million. Last week, it reached an agreement to sell 43,700 subscribers in northern and southeastern Nevada, Colorado, New Mexico and Utah to Orange Broadband Holding Co. LLC.

In 2006, Smit said, Charter will focus its operational and capital resources on high return products, mainly cable telephone service.


Smit also addressed what he said was misinformation regarding Charter's Keller, Texas market and its reaction to Verizon Communications Inc.'s launch of video, voice and data services there. Smit said that contrary to some reports, Charter did not lower its prices in Keller because of Verizon's entrance into the market. He said the discount was initiated a year before the arrival of Verizon's bundle and came in response to lower digital-subscriber-line pricing in the market.

Since then, Charter has raised its prices in Keller by $10 per month, with no major impact to its customer base.

Smit also questioned Verizon's claims that it has 23% penetration of FiOS in Keller, as Charter has experienced a 4% drop in market share. He added that the decline came when Charter only had a video and data bundle to offer and its position could change once it launches telephony in the next few months.

Smit said Verizon may be getting most of its customers from direct-broadcast satellite service providers: Keller has a 32.5% DBS penetration rate.


Smit also downplayed the impact of the pending AT&T Inc. merger with BellSouth Corp. on Charter, even though the resultant company would have revenue of $120 billion, a total exceeding that of the entire cable industry, something that has made many on Wall Street nervous. Smit said that AT&T-BellSouth would overlap Charter in just six of the top 50 markets in the country.

“Due to the nature of our markets, we're not likely to be the highest priority,” Smit said.

And given the time it will take for the AT&T-BellSouth merger to be completed, Smit added that Charter will have the advantage.

“We'll have telephone rolled out long before they'll have video rolled out,” Smit said. “It's going to take time for the merger to be completed — AT&T said it would take 12 months, not unusual – and it's also going to take time to complete the integration of the two companies. It's going to take AT&T-BellSouth some period of time to build out their infrastructure to offer video and the product quality just isn't the same. They have one HDTV stream for the next 24 months; we have 10 to 12 streams, depending on the market.”

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