Data Slows Charter’s Bleeding

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Charter Communications Inc. continued to bleed basic subscribers in the third quarter -- losing about 58,600, in line with estimates -- but the MSO showed some gains in advanced services.

Charter’s third-quarter results were basically in line with estimates the St. Louis-based MSO released last month -- revenue was up 8% to $1.25 billion and cash flow rose 2% to $471 million.

Revenue growth was fueled mainly by gains in its high-speed-Internet product, which added about 108,500 subscribers during the period. Charter also reversed a second-quarter loss of 7,200 digital-cable customers, adding 38,700 in the period and ticking up penetration to more than 44%.

CEO Carl Vogel said the MSO was continuing to focus on more profitable customers -- he added that more than one-half of the basic-subscriber losses in the quarter were lower-end customers -- and gains in advanced services seemed to back that up.

Charter ended the period with 61,000 digital-video-recorder subscribers, up from 24,000 in the prior quarter, and it totaled 76,000 HDTV customers, a 30% increase over the second quarter.

While those were encouraging trends, Charter gave little insight on its ability to pay a $580 million convertible note that is due in October 2005. In a press release, the MSO was vague about that ability -- it said it will require additional funding to service the debt and it was investigating its options -- and on a conference call with analysts Thursday morning, the company did little to expand on that position.

Many analysts believe that either Charter will renegotiate with its bondholders to extend the maturity date of the note, or it will work out an equity deal with its chairman and largest individual shareholder, Paul Allen.

On the conference call, Charter executives offered no specific answers.

“We’re looking at all of our alternatives,” Vogel said on the call. “I’m not in a position to speak for what Paul may or may not do from an investment standpoint.”

Vogel said reducing debt remains a priority, and the company has identified additional nonstrategic markets it could sell to help pay down than debt. Last year, Charter has sold about 250,000 subscribers in nonstrategic markets, raising about $835 million.

Vogel would not identify those new markets, but he added that the MSO has received interest from several private-equity firms recently. However, he said Charter is not in active discussions on any asset sales.

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