Charter Communications addresses multiple issues in third-quarter call

Charter Communications, the nation’s fourth-largest cable operator, continues to struggle with multiple issues that are negatively affecting cash flow, operational expenses and the company’s overall drive to free cash flow, company executives said during a third-quarter earnings call this morning.

The company reported a third-quarter revenue increase to $1.18 billion, from $1.05 billion a year earlier and operating cash flow that rose 8.7% to $497 in the period and predicted fourth-quarter revenue to rise 8% to 9% with operating cash flow up 4% to 5%. Charter said it expects 2002 revenue growth between 11% and 12% and operating cash flow to rise 9% to 10%.

Charter said further it could adjust past tax expenses related to pre-1999 acquisitions and, according to Carl Vogel, president-CEO, was “evaluating opportunities to divest certain geographically non-strategic assets” with a hope to have final bids by the end of the month.”

Charter’s problems are multiple:

• An ongoing federal grand jury probe into accounting practices, announced in August. “We’re cooperating, although I can’t tell you when this investigation will be completed,” Vogel said.

• A decision to place COO Dave Barford on paid leave. His management team now reports to Vogel, who said this will provide “direct contact with our operations as I evaluate what changes need to be made to improve our operational execution.” Those changes should be announced “as soon as possible,” he added.

• The ongoing loss of basic analog subscribers, even as digital and data service customers increased. Vogel blamed the analog bleed on “competition, coupled with sagging consumer confidence in many of our markets” and said the company is testing 50-to-60-channel package pricing under $40 per month in an effort to compete with lower satellite prices.

• Continuing problems with “customer-facing performance” including technical operations and customer service. Vogel blamed these partly on system rebuilds, and channel and price restructuring the company has implemented. Charter has 18,700 employees, about one per every 358 customers, which, Vogel said, “is less than many of our peers” and “is a significant cost of our business that may provide an opportunity for improvement over time.” While intimating that the company would cut its workforce, he said he could not offer specifics as to where those cuts would take place. “I can tell you that my general philosophy is we need to have our best people closest to the customer,” he added.

Vogel said a number of changes would be implemented to correct the problems, reduce subscriber churn in both digital and analog, and help Charter deliver “double-digit revenue and cash flow growth.” “We will need to stabilize our customer base and gain operational efficiencies,” he concluded.