CABLE GUY'S RESIGNATION RATTLES CHARTER'S FOUNDATION

The MSO's stock also is recovering slowly after investors fled in reaction to Kent's departure amid rumors of a disagreement with Allen over whether to join the bidding for AT&T's broadband unit or to merge with RCN-rumors Kent denied.

"There is absolutely no truth to us having any major disagreement," said Kent, who plans to "take a short rest and... go back into another venture."

Kent's timing was predicated on legal issues concerning the contract's December termination date. Nevertheless, "the timing couldn't have been worse given Sept. 11 and the economy and all the economic indicators," a Charter executive said. The company's challenge now is convincing the market that Charter is more than just Jerry Kent.

Kent is a bona fide cable guy, and Charter-even in its ever-diversifying state-is at heart a cable company, said Adi Kishore, analyst for The Yankee Group.

"Somebody with Jerry Kent's background is so important for the company. He knows all the nooks and crannies. Even if this had happened a year ago, it would have been terrible timing." Cable is a peculiar institution, and "you need somebody with an in-depth understanding of the cable industry," Kishore said.

That in part explains why companies such as Charter and Comcast have thrived while AT&T has struggled.

Last week, Charter quickly locked Executive Vice President and Chief Financial Officer Kent Kalkwarf and Executive Vice President and Chief Operating Officer Dave Barford into long-term contacts and gave them interim responsibility for Kent's duties.  But even that move was questioned.

"I don't know how confident people are that the people who got kicked up and are in charge of the company are going to be as good as [Kent] is," said Keith Kennebeck, analyst for The Strategis Group. "There's a lot of uncertainty. In today's market you don't want anything that would cause a lot of investors to hesitate."

While Kent's departure sparked a rumor mill, he said there was no single issue-"no smoking gun, so to speak"-that pointed him to the door, though he didn't deny that deteriorating relationships played a part. "It's a number of things that I've looked at over the past three years... a number of things that added up as I look forward. Did I want to continue to work in this environment, or did I want to go on and do something else? I just felt it was best for me and the company to part ways."

The decision stunned company insiders.

"We knew he had this [employment] agreement, but I was totally surprised he would leave," said one employee. "Jerry just has never gotten used to the fact that Paul is now the owner of this company he started. It's always been really hard for him to take orders from this guy."

The failing relationship was a well-kept secret in the industry as well-no small feat in cable's close-knit community.

"It was quite a surprise to everybody," said Cynthia Brumfield, president of analysis firm Broadband Intelligence. "It would not have been something I predicted, and it was not something that Wall Street predicted either."

Industry watchers may have been disturbed Kent sold his stock-albeit through an apparently amicable transaction with Allen-but that, too, was innocuous and had more to do with breaking clean than any animosity toward the company, Kent said.

"I usually bet my money on myself, things that I can control. I didn't want to leave money in a company that I'm not involved in," he said. "That's no reflection on the management team that's still left with Charter. I think it's an exceptional team."

The industry remains skeptical, though. "Paul Allen has a strong vision of the wired world, but as far as understanding the technology-business factors, subscriber behavior, competition across the board-that's really Jerry Kent's area," Kishore said. "There's no question this really impacts the company adversely."

For Charter, though, that's water over the dam.

"Nothing has changed in terms of the direction of this company with Jerry's departure," said a company spokesman. "Paul remains firmly committed to carrying out his wired world vision through Charter and the current management team."

Kent, meanwhile, said his farewells at a difficult luncheon with employees at Charter's St. Louis headquarters. "He really didn't want it," said one company source.

Saying good-bye to the people was more difficult that saying good-bye to the job, Kent said.

"I'm really going to miss these people. They're like family to me, and this company is like a child," Kent said. "Unfortunately, it's a fact of life-we all know someday our children are going to leave us."

While most eyes are glued to the funeral pyre consuming the remains of Excite@Home, a smaller, less visible flame also flickered out when High Speed Access sold its principal assets to Charter Communications for $81.1 million. The sale, which has been in the works since Charter offered a $73 million bid in July, signals the end of independent cable ISPs.

"It's kind of indicative of the whole dotcom death spiral," said Michael Harris, president of Kinetic Strategies. "Are there any cable ISPs left? As stand-alone entities, I think the answer is generally no."

For HSA, the decision was difficult but ultimately necessary.

"The customers they were serving-the cable operators-were ultimately better served from a margin and cash flow standpoint by doing it themselves," Harris said.

HSA President and CEO Dan O'Brien agreed, noting there is a "trend in the domestic cable business where cable operators know that high-speed data is a business they can run, and you see a lot of these now going in-house."

HSA has been shrinking its domestic business and is left only providing cable-based Internet services to Kabel Nordrhein-Westfalen GmbH in Germany. Proceeds from the sale likely will be used to shut down all operations.

Taking Charter's offer, O'Brien said, was difficult because HSA had eight consecutive quarters of beating analysts' estimates but could not raise more funds beyond a $75 million infusion from Charter and its parent company, Vulcan Ventures, last year.

The demise of high-speed ISPs proves that the industry is maturing, Harris said.

"HSA and @Home and Road Runner jump-started [the cable operators'] business [and] helped them get to market more quickly and get some scale in the early days. Once they got a little further up the hockey stick in terms of growth, they realized how much money they were sending out the door" to pay those ISPs, Harris said.

Taking over the business makes financial sense, "even if that means laying out some more capital" to acquire the necessary assets, he added

The dotcom flameout also has put a wealth of Internet-savvy talent into the market at bargain-basement prices, meaning cable operators cannot only buy the assets but run them much cheaper than previously anticipated. Charter, for instance, will acquire about 70% of HSA's work force. "Given the environment, the closed nature of the capital markets and the fact that Charter wanted to take this in-house, we think it's a good outcome for shareholders and for employees," O'Brien said.
by Jim Barthold