Charter Gains by Losing Some Subscribers


Charter Communications Inc. beat analysts expectations in the first quarter, growing revenue by 13 percent and cash flow by 10 percent despite jettisoning 145,000 customers during the period for not paying their bills.

Charter had said in January it wanted to remove non-paying and deep-discounted customers. And despite losing about 1.6 percent of its basic customer base — including almost 80,000 digital subscribers who had deeply discounted packages — Charter managed to increase its average monthly revenue per unit, or ARPU, by more than $1 per subscriber.

ARPU rose to $36.52 for the first quarter, compared to $35.50 in the same period last year. In March, ARPU averaged $37.50 per customer.

Charter, which in the past had the highest basic subscriber growth rate in the industry (about 2 percent), switched its focus to more high-quality customers in the third quarter, shortly before Vogel replaced former CEO Jerald Kent.

Charter stock rose 10 percent, or 77 cents, on April 29. It lost some ground on April 30, dropping 29 cents, to $8.19.

Although digital-subscriber growth declined in the period — Charter added 64,000 digital-cable customers, as opposed to 194,000 adds in the fourth quarter — that was partly due to the disconnects.

High-speed data additions grew in the period, to 140,000 from 99,000 in the fourth quarter, ending with about 780,000.

Charter reiterated guidance for the second quarter: revenue of $1.145 billion to $1.155 billion and operating cash flow of $500 million to $505 million. Charter also plans to add 250,000 to 275,000 revenue generating units in the period.

Charter has been among the rumored suitors for the systems Adelphia Communications Corp. is putting on the block to pare down debt — especially for Adelphia's 1 million Los Angeles subscribers. Charter already has about 520,000 customers in the Los Angeles area.

Vogel said Charter would only pursue acquisitions that would be accretive and lessen debt leverage. Charter's debt to cash flow ratio is currently about 8.3 times. Officials said the goal is to reduce that leverage to 7.9 times by the end of the year.

"We would like to use an acquisition event as a way to improve our leverage statistics, to bring our debt-to-cash flow [ratio] down," Vogel said on the call.

"Despite the rumors, we're going to be respectful of the process. If things come our way, great, we'll go from there. If nothing comes our way, we're happy with our current footprint. There is certainly opportunity for swaps and trades that will improve our operating efficiencies."