One week after hiring a veteran cable executive to shore up its sagging operations, Charter Communications Inc. unveiled a sweeping restructuring that splits the company into five divisions and will mean "significant" work force cuts.
The No. 3 U.S. MSO with some 6.7 million customers, Charter would not spell out the job reductions, which are to be identified later this month. Sources familiar with the company estimate that 1,000 to 1,500 positions could be lost, or 5 percent to 8 percent of Charter's 18,700 employees.
Charter, reeling from huge subscriber losses, government inquiries into its accounting practices and a precipitous decline in its stock price, announced the changes on Dec. 10. That was six days after it reported the hiring of former Cox Communications Inc. operations chief Margaret Bellville as its new executive vice president of operations.
The St. Louis-based operator said it would reorganize around five geographic divisions focused on "customer-oriented execution" within key markets that serve an average of 250,000 customers apiece.
Changes in the corporate office will target redundant practices and excessive reporting structures, and will attempt to find other cost savings.
Each division head will report directly to Bellville. Charter said the restructuring should be completed by the end of next year's first quarter.
The job cuts, while not unexpected from a company that's straining to generate more cash to service a huge debt load, generated sympathy from other MSOs.
"It's a sad day for St. Louis and for Charter," Millennium Digital Media senior vice president of marketing Peter Smith said last week. Millennium, an MSO with about 160,000 subscribers, is also based in St. Louis and has several current and former executives with close ties to Charter.
"We have a lot of friends over there, and we hope they're able to weather the storm and come out OK," he said.
In a research report, UBS Warburg cable debt and equity analyst Aryeh Bourkoff called the restructuring a good start, but said that more is needed. "We think a financial restructuring is also still necessary in the 2003 timeframe to employ a capital structure fix," he said in a research note.
Charter is trying to stem subscriber losses and pare $18 billion in debt at a time when its stock has been down about 90 percent since January. Charter stock was priced at $1.45, off 2 cents, in 4 p.m. trading on Dec. 12.
At the UBS Warburg Media Conference in New York last week, CEO Carl Vogel said subscriber retention and debt reduction are his top priorities.
Unfortunately, one avenue for paying off debt — a previously announced intention to sell off some non-core systems with about 600,000 subscribers — is on hold.
Vogel said Charter's initial round of bidding for the systems was quite disappointing. Charter had been looking for at least $3,000 per subscriber for those properties.
The restructuring is the latest in a series of events that have battered the company. Earlier this month, it was revealed that the FBI was contacting programmers about a letter vice president of programming Patty McCaskill had sent out, demanding rebates pegged to lower subscriber counts. Investigators appeared to be interested in possible disparities between the subscriber numbers Charter may have given programmers and those released to the public. The FBI inquiries were first reported by CableFAX Daily.
At the CS First Boston Media Conference in New York last week, Vogel said the rebates involved $12 million to $15 million. Charter spokesman Dave Andersen said virtually all of those disputes have been resolved.
The FBI inquiry stems from a federal grand jury investigation into Charter's accounting practices that began in August. According to sources, the feds were looking into possible irregularities in Charter's method of counting subscribers.
At the UBS Warburg conference, Vogel said Charter continues to cooperate with the grand jury investigation. He said no Charter officers or directors are under investigation, including himself.
According to sources, former Charter Western division senior vice president James "Trey" Smith III has been contacted by government officials involving the inquiry. Smith, who left Charter in 2001 for AT&T Broadband, was supposed to become president of the Mountain division of Comcast Corp. after that company completed its acquisition of Broadband. Comcast announced Smith's appointment in a July press release, but a Comcast press release in August named long-time Comcast executive Brad Dusto president of the division, and made no mention of Smith.
A spokeswoman for AT&T Broadband at the time reiterated last week that Smith left the company for personal reasons.
Andersen said he was unaware Smith was no longer with Comcast and was not privy to the circumstances surrounding his departure.
Jan Diltz, a spokeswoman for the U.S. Attorney's Office for the Eastern District of Missouri, which is handling the investigation, declined to comment.
Smith could not be reached for comment.