Strong 2Q for Charter

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Charter Communications reported stronger-than-expected second-quarter earnings, boosted in part by growth in its high-speed-Internet revenue and its continued rollout of voice-over-Internet-protocol telephony.

Revenue, including discontinued operations, for the quarter was $1.438 billion, an 8.7% increase over last year, and cash flow rose 4.2% to $519 million.

In a research note, UBS Securities cable debt and equity analyst Aryeh Bourkoff said Charter’s results beat his estimates of $1.42 billion in revenue and $502 million in cash flow.

“[Second-quarter] results demonstrated continued fundamental progress, with top-line growth finally pacing with industry levels and outperformance on revenue, [cash flow] and subscriber metrics,” Bourkoff wrote in his report.

Charter managed to slow down its basic-subscriber losses to 37,800 during the period, compared with 41,700 during the same period last year. The St. Louis-based cable operator increased digital-cable subscribers by 22,600, high-speed-data customers by 52,700 and added 66,500 telephony customers to end the period with 257,600 voice subscribers.

In a conference call with analysts, Charter CEO Neil Smit said that while there is still work to be done, Charter is on track to providing consistent financial performance.

“I believe that we are building a solid foundation for growth,” Smit said on the call.

Later, in an interview, Smit said returning to industry-average double-digit cash-flow growth is a goal for 2007.

Driving that growth will be the continued rollout of phone service, currently available in about 5 million homes passed across the Charter footprint. Charter said it expects to have phone service available in 6 million-8 million homes passed by the end of the year.

“I don’t think our strategies will change dramatically,” Smit said in an interview. “We are going to aggressively deploy phone -- I think that’s a key driver -- and bundle up customers from a marketing approach. We see great value in that from an ARPU [average revenue per unit] perspective, a profit perspective and a churn-reduction perspective.”

On the conference call, Charter pointed to two of its most mature phone markets as an example of the impact phone service has on overall churn.

In New England, where phone service has been available for just over 12 months, Charter cut its analog-video-customer losses by 75%. In addition, about 44% of subscribers take at least two products in the triple-play bundle of voice, video and high-speed Internet, and 75% of its phone customers subscribe to the triple play.

In southern Wisconsin, where phone service has been available for just under 18 months, Charter has grown basic subscribers by 3,500, 47% of customers subscribe to at least two products in the bundle and 73% of phone customers subscribe to the full triple play.

“We look at our markets and as they mature, you see different trends,” Smit said in an interview.

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