Charter Weathers 22% Rate Increase

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Charter Communications Inc. has given consumers in its
Illinois cluster what regulators wanted: picture clarity, more reliable service and 28
more channels.

So, why aren't officials smiling?

Because the improvements came at a price. By the end of
October, when the 47,000-subscriber cluster across the Mississippi River from St. Louis
lights up all of its $15 million fiber optic upgrade, some customers' bills will have
increased by 22 percent in less than one year.

The hikes come at a time when such increases are lightning
rods for members of Congress who are looking to reopen the issue of rate regulation.
Indeed, National Cable Television Association president Decker Anstrom has repeatedly
warned operators to be very careful about rate hikes. They are the "third rail,"
NCTA executives said, alluding to the source of power and electrocution in subway tunnels.

Torie Clarke, the NCTA's vice president for public
affairs and strategic counsel, stressed that the Charter situation is very unusual: The
average rate hike this year will be 8 percent. Most customers, she insisted, know that
cable has competition and that it needs to upgrade to stay in the game against its growing
rivals.

"They see the DBS [direct-broadcast satellite] ads in
virtually every paper in the country; they know that they have a choice," Clarke
said. "In a context such as that in Illinois, consumers may not be completely happy,
but they recognize, 'I'm getting a lot more stuff,'" she added.

The local reaction?

"There's been some disappointment expressed at
the amount of the adjustment, but, overall, connects are up, and churn" is static,
said David Niswonger, regional vice president of operations for Charter.

Was this a "careful rate increase?" "The
packaging and price are definitely well worth it," Niswonger said.

Charter notified its customers in February that it would
adjust rates on core programming. Regulated basic rates increased by 2.5 percent, from
$8.25 per month to $8.45. In March, notices started hitting the rebuilt areas, such as
Granite City, Ill., that with the activation of new channels -- Charter has activated 68,
compared with the 40 that it had offered -- the operator would add $4.09 per month to the
bill to pay for several new channels on the expanded-basic tier. Now, the regulated-basic
plus expanded-basic package is $30.78 per month, a 22 percent rise.

City officials said they have heard a few complaints about
the higher rate, mainly by people who were angered that Charter didn't break up its
expanded-basic package into tiers so that they could selectively downgrade to cut their
costs. Niswonger explained that more than 50 percent of the customer base is cable-ready,
so scrambling and tiers would be very disruptive.

"They're [Charter] well within FCC [Federal
Communications Commission] guidelines" on price, said David Williams, Granite
City's cable administrator.

Williams added that during recent refranchising talks,
local communities asked Charter for a rebuild and a programming package comparable to that
offered in metropolitan St. Louis. There, Tele-Communications Inc. sells a 47-channel
basic package priced at $26.34 per month, according to customer-service representatives.
With the large rate increase, Charter has a broader programming lineup and a better
per-channel cost than its urban neighbor (approximately 46 cents per channel, versus
TCI's 56 cents).

In response to complaints, Jim Monday, Madison County
(Ill.) administrator, advised consumers, "[Cable's] not a regulated utility: You
can vote with your feet."

Indeed, local DBS dealers hope that consumers will do just
that. Retailers reported an increase in inquiries about DBS receivers, but they have not
yet reported a jump in sales. Historically, that occurs after the higher bills actually
reach consumers, they said.

DBS sellers will use the hike to beat up on Charter, they
added.

For example, the next EchoStar Communications Corp. Dish
Network "cable-buster" campaign will offer two months of free programming to
purchasers of its dish and a 40- or 60-channel programming package.

Marty Manny, owner of Manny's Satellite TV of Glen
Carbon, Ill., said consumers will receive the rebate through him by turning in their
Charter bills to prove that they downgraded.

Niswonger said the company has countered by aggressively
promoting its improvements, publicizing them on-air and in billstuffers. Subscribers who
called to cancel effective with the higher rates rescinded those orders after they viewed
the new channels for a few days, Niswonger said.

Customer polls helped Charter to select its new programming
lineup. It has added ESPN2, Nick at Nite's TV Land, Home & Garden Television,
Animal Planet, Classic Sports Network, Cartoon Network, Country Music Television, FX and Z
Music. Additionally, networks that formerly shared channels will get slots of their own,
including The Prevue Channel, CNBC, Fox Sports Midwest, C-SPAN, Black Entertainment
Television, Eternal Word Television Network and local-origination channels. New premium
services for the cluster are Home Box Office 2 and 3 and Cinemax.

Charter will add three more networks -- with no further
price increase -- before the end of the year, Niswonger added.

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