Its Official: Charter Files for IPO

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Charter Communications Inc. has filed for its much
anticipated initial public offering -- the third largest in U.S. history, at $3.45 billion
-- taking advantage of growing cable valuations and the name recognition of its
controlling shareholder, Microsoft Corp. co-founder Paul Allen.

Charter filed the offering July 28, ending speculation that
had been surrounding the company since February. But while Charter is expected to use the
proceeds of the IPO to finance acquisitions and pay down debt, it could have another
purpose -- making a play for a top-10 MSO.

Charter's Class A shares will trade on the National
Association of Securities Dealers Automated Quotation system. Although the number of Class
A shares to be sold has not been determined, Allen will retain voting control of the
company as the majority holder of Charter's super-voting Class B shares. Lead underwriters
for the offering, which is expected to commence late in the third quarter, are Goldman
Sachs & Co., Bear Stearns & Co. and Morgan Stanley Dean Witter & Co.

Charter has not released how many shares it intends to
offer, or the price of those shares.

The company is already the fourth-largest cable operator in
the country, with 6.2 million subscribers. And Charter has spent about $20 billion on
acquisitions in the past 18 months -- $12 billion this year alone -- so it would be
understandable if the company decided to hold off on acquisitions for a while. However, at
least one analyst believes the IPO will give Allen the deal currency to make at least one
major push for a large MSO.

"Charter is full with 6 million subscribers, but I
think they absolutely would be willing to use their [stock] currency to make future
transactions, and I don't think it will be on a small scale," said CIBC Oppenheimer
Corp. cable and telecommunications analyst Aryeh Bourkoff. "I think it could be one
of the top eight MSOs."

Bourkoff didn't expect Charter to rush into a big deal
right away. "I don't think Charter has a sense of urgency," Bourkoff said.
"I don't think they would do anything in the next 12 to 18 months, but who knows?
Charter is ambitious. It's not inconceivable that they could be a bidder for an Adelphia
or a Comcast."

Mega-deals aside, Charter has more pressing issues at hand,
mainly upgrading its plant, rationalizing its existing cable systems and rolling out new
services such as high-speed Internet, digital cable and telephony.

Charter has rolled out some new products on a small-scale
basis -- it offers the WorldGate Internet-over-TV service in three of its markets and
Charter Pipeline, a computer-based high-speed service, in 10 markets. But for the most
part, the company has been quiet on the advanced-services front.

"The company needs to focus on all of the new
services, including telephony," Bourkoff said. "We'll probably hear more on that
on the road show."

Stephens Inc. analyst John Corcoran added that execution is
the most pressing issue for every cable operator, not just Charter. While Charter has been
on an acquisition binge, he added, it has bought companies that are spread out over large
geographic areas, with different management teams and employee bases. The challenge now
will be to consolidate those systems into a cohesive unit.

"Do I think they have their work cut out for them?
Absolutely," Corcoran said. "I think the cable sector has set the bar very high
and left themselves very little room for error. If you can't execute beautifully, Wall
Street is going to punish you."

Still, Corcoran believes that the Charter IPO will be a
successful one, based on the market for cable stocks and the cachet of Allen's name.

"Allen has something the other cable operators don't
-- a portfolio of investments on the content and application side to help make that 'wired
world' vision a reality," Corcoran said.

Most analysts expect the company's stock to go for a
premium.

Based on the latest pure cable IPO -- Insight
Communications Inc. went public July 21 at $25.25 a share, raising $563 million -- Charter
should have little problem raising the intended funds. In fact, it may end up raising
more.

Insight, for example, had initially priced its IPO at $23
per share. But the day prior to the offering, the company upped the price to $25.25 and
the number of shares offered from 2 million to 2.3 million shares based on demand.

The public markets are hungry for a new cable stock -- as
the Insight offering showed -- and with the consolidation frenzy in the industry over the
past two years, several publicly traded cable stocks have been taken out of the market.

AT&T's acquisition of Tele-Communications Inc. removed
an estimated $70 billion to $80 billion in equity value from the market. Some other stocks
expected to drop out of the market as a result of acquisitions include Jones Intercable
Inc., which was purchased by Comcast Corp. in April; Century Communications Corp., which
was purchased by Adelphia Communications Corp, in March, and TCA Cable TV Inc., which was
bought by Cox Communications Inc. in May. AT&T's pending acquisition of MediaOne Group
Inc. is expected to take another player out of the public market when that deal closes in
the first quarter of next year.

The Insight IPO was the first in the cable industry since
Cox Enterprises Inc. spun off its cable assets in 1995. Before then, the last true cable
IPO was Cablevision Systems Corp., the Bethpage, N.Y.-based MSO, which went public in
1986.

Bourkoff added that Charter's IPO could attract more
operators to the public markets.

"Charter is now confident in the potential success of
an IPO given the success of Insight," Bourkoff said. Bourkoff also is optimistic for
Charter bondholders -- Charter has about $10 billion in public debt -- because Allen has
agreed to pump even more money into Charter Communications Holdings LLC, the company's
bond vehicle, to allow bondholders some participation in the IPO.

According to the prospectus, Allen's Vulcan Ventures III, a
subsidiary of his Vulcan Ventures Inc., will contribute $1.3 billion to Charter
Communications Holdings for membership interests at the same price investors would pay for
the parent company's Class A shares. In addition, Allen has personally committed another
$750 million to Charter Communications Holdings for the same purpose.

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