Charter's 'Digi-Swap'

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It's been fascinating to see Charter Communications Inc.'s star rise since Paul Allen acquired the MSO in 1998. Since then, the company has shot up like a rocket, growing its subscriber base from 700,000 to almost 7 million customers.

But though its corporate pockets are much deeper, Charter has not lost its entrepreneurial spirit, nor has it abandoned its decentralized management approach. It still lets managers at the grassroots level call the shots within their markets.

To that end, last week the Association for Corporate Growth bestowed its "Outstanding Corporate Growth Award" upon the MSO. At the same time, the company posted strong first-quarter earnings — an indication of why it got the award.

During the quarter, Charter added more than 274,000 digital subscribers and is well on its way to achieving its goal of 30-percent digital penetration by year's end.

Charter has signed up 21,000 subscribers per week — 18 percent ahead of its average weekly target for the year. If that pace continues, and its executives are confident that it will, Charter will be the lead dog in digital penetration.

And the way that Charter is getting there — its successful "digi-swap" program — is a bit unusual. Over the past year, Charter has won 20,000 direct-broadcast satellite customers over to Charter Digital Cable. The MSO has instituted a $150 to $200 bounty, plus a $75 installation fee, to buy back dishes from DBS subscribers and convert those customers to digital.

Subscribers in the program sign a document that says they'll stick with Charter for a year. Even though the MSO is spending $275 to win each customer, it still works out to a 60-percent margin. And Charter calculates that it will make back its expenditure in less than 10 months.

What's more interesting is how employees are given incentives to make all of that happen. Charter staffers get a piece of the action for each conversation in which they play a part, whether they're an employee sticking a door hanger on a home that sports a dish, or someone who talks up folks in a local coffee shop, leaving behind brochures that spark the conversation.

But that's Charter, a company in which every employee has stock options.

"Management can make edicts, but people have to buy into this," said Charter president and CEO Jerald Kent.

Its simplicity is mind-boggling. According to Kent, it's a heck of a lot easier to get people to switch from satellite to digital than to add new customers who don't already have services with lots of viewing options.

"The odds are five times better," Kent said.

In fact, Kent is so encouraged by this digi-swap strategy that he's privately predicting the company could grow its basic customer base by 3 percent to 4 percent, rather than the 2 percent that most MSOs will attain this year.

Clearly Kent is on to something here — and elsewhere. The company is experimenting with a tiered pricing strategy for Charter Pipeline, its high-speed data service, which gives subscribers the option to pay extra for faster speeds.

What's interesting here is that Charter recognizes that one-size fits-all solutions don't work for all customers. But again, that's the company's strategy: To listen to local managers, rather than just rubber-stamping some numb-nuts strategy emanating from corporate.

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