Charter’s Smit: We’re OK vs. Telcos

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In an apparent move to stem investor concerns about the impact of telco launches of video services in Charter Communications Inc.’s markets, CEO Neil Smit said in a conference call Friday held by investment bank UBS Warburg LLC that the St. Louis-based cable operator is competing well against the phone companies and should do even better once cable-telephone services become more widely available.

UBS Warburg cable debt and equity analyst Aryeh Bourkoff led the call, adding, “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 earlier this week, closing at 97 cents March 13 and trading at 94-95 cents from March 14-16.

Smit’s talk seemed to have some impact -- Charter stock was priced at $1.03 per share (up 8 cents) in afternoon trading Friday.

Smit said 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; completing asset sales that further rationalized its footprint; and hiring key personnel to its management team.

In 2006, he added, the MSO 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.

He said that contrary to some reports, Charter did not lower its prices in Keller because of Verizon’s entrance into the market. He added that the discount was initiated one year before Verizon launched its FiOS video, voice and data product, and it was a reaction to lower digital-subscriber-line pricing in the market.

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

He also took exception to Verizon’s claims that it has 23% penetration of FiOS in Keller. Smit said Charter has experienced a 4% drop in market share, adding that the 4% drop came when the operator only had a two-product (video and data) bundle to offer, and it could change dramatically once cable-telephone service launches in Keller in the next few months.

Smit opined that Verizon may be getting most of its customers from direct-broadcast satellite service providers. Keller has about 32.5% DBS penetration.

He also downplayed the impact of the pending AT&T Inc. merger with BellSouth Corp. While that mega-merger has made many on Wall Street nervous about the potential impact on cable -- the combined company would have revenue of $120 billion, more than the entire cable industry -- Smit argued that Charter is no more vulnerable to the phone giant than its peers.

He said AT&T-BellSouth overlaps with Charter markets in just six of the top 50 DMAs 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, he 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 10-12 streams, depending on the market.”

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