Charter CEO: Operator Focused on Selling Phone and Internet to Non-Video Subs

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New York – With four consecutive quarters of double-digit revenue and cash flow under its belt, Charter Communications will continue to focus on growing new services by targeting non-video customers with a double play bundle of voice and high-speed Internet service and through introducing commercial phone and data services, CEO Neil Smit told an audience at an industry conference here.

Smit, speaking at the UBS Securities Media & Entertainment conference Tuesday morning, said that Charter has had growing success in selling the two-product bundle, targeting satellite TV customers that may be satisfied with their video services but more apt to change their voice and data providers.

“If someone wants to leave our video service … We don’t mind having two high margin services in the household,” Smit said.

Chief operating officer Mike Lovett said the double play offering also presents an opportunity to upsell video services once the customer’s contract with its satellite TV provider expires.

“We’re not opposed to coming in with voice and data until they come out of contract,” Lovett said. “It enables us to upsell them to the triple play.”

Charter was late to the game in launching its phone product – it has the service available to about 8.3 million homes within in 11.8-million home footprint – but has annualized penetration rates of between 6% and 7%, in line with its peers.

Smit said that achieving 25% penetration “over time” is the goal.

One of the benefits from the phone rollout has been reduced churn – Smit said that there is a 40% reduction in churn between single-play video customers and triple play subscribers.

While Charter has experienced increasing basic customer losses – the company shed 40,000 basic subscribers in the third quarter – Smit said that Charter has created a four-pronged strategy to address that downturn in subscriber growth: refining its offers by introducing multiple tiers of service, targeting packages to specific groups, trialing data and phone in its non-video households and introducing a digital home trial, which places a low-end digital set-top box in a home to offer VOD and HD VOD.

Charter also is testing a $69.97 per month triple play bundle – high-speed Internet, phone and a broadcast basic video service – that is enjoying some early success.

Lovett said that the bulk of customers for that package end up taking more advanced video services – he estimated that average monthly revenue for those customers is between $120 and $130.

“Once the phone rings, we can upsell to other digital video packages,” Lovett said. “A very small percentage ends up with the low-end video service.”

That, coupled with past deals with Wal-Mart – which allows Charter to sell products in 700 retail stores – has allowed Charter to increase its bundled penetration from 37% to 43% in the third quarter.

“Virtually all of that [growth] was triple play,” Smit said.

Charter is also high on the potential of commercial services. Chief operating officer Mike Lovett said that Charter already sells high-speed data service to businesses in its footprint – representing a $300 million business annually – but believes small and medium sized businesses within its footprint spend between $5 billion and $5.5 billion annually.

Lovett estimated that there are about 2.2 million small to medium sized business within Charter’s footprint.

“We have the opportunity to go to the imbedded base first and deploy beyond that,” Lovett said. “We are marketing as we speak today,”

Smit also said that Charter will begin rolling out switched digital technology throughout its footprint in 2007 and 2008, expanding capacity to offer more HDTV channels. He said that Charter currently offers about 100 HD channels, both linear and VOD.

Finally, Smit said that while Charter has made some recent acquisitions and swaps to improve its clusters – including a purchase of a small system in Covington, Ga., and a swap of its Sacramento, Calif. system for Wave Broadband’s operations in Ventura and Los Angeles – he said that major asset sales are not in the cards.

“Selling assets doesn’t solve our balance sheet,” Smit said.

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