Charter posts better-than-expected quarterly results

Charter Communications did even better than it expected in its first quarter of the year.

Revenue grew 13.1% to $1.1 billion, and operating cash flow increased 10.4% to $449.2 million compared with first-quarter 2001. The company had predicted first-quarter revenue growth of 11% to 12% and operating cash flow to 8% to 9%. The highly leveraged cable portion of Microsoft co-founded Paul Allen’s empire lost $174.2 million, or 59 cents a share, compared with $280.7 million, or $1.20 a share a year ago.

“In this choppy economy and especially irrational financial markets, we posted solid financial results,” said Charter President and CEO Carl Vogel.

The results leveraged an ongoing strategy of bundling voice, video and data services--and particularly data and digital video--to attract and maintain subscribers, Vogel said. Charter added 64,000 net digital customers in the period and 750,000 over the last year--and that was not the high point.

“The most impressive component of our performance in the first quarter was in the cable modem service product category,” where Charter added 423,000 customers compared with a year ago, a 130% increase, including 140,000 who joined during the first quarter. This averaged to about 10,800 cable modem subscribers per week. That number is expected to grow as Charter has now upgraded 77% of its systems to two-way, Vogel said.

“Bundling high-speed data with our video products greatly improved customer satisfaction,” he said. “Basic customers with high-speed data churned 20% less than basic a la carte customers, and digital customers with high-speed data churned 32% less than customers with only digital.”

A key reason for the continued growth is that “DSL is not widely deployed in our markets, and where it is, bundling announcements don’t extend the serviceable footprint,” Vogel said, alluding to a recent partnership announcement by SBC and EchoStar.

“They’re responding to our competitive advantage , and I think we have strong price points and certainly strong products to compete,” he said.

The company also said its fledgling Charter Business Networks [CBN] was starting to flex its muscles by providing high-speed Internet service to small businesses as “one more weapon in our arsenal we can use to leverage our networks and operational infrastructure,” Vogel said.

As with other cable announcements recently, Charter is hinging its future on bundled services. A package that includes digital basic and high-speed data, priced between $70 and $80 per month, is expected to generate 20% of new sales.

“That really is where we think the future of our business is, bundling those two products together. Everything is focused around selling that product,” said Dave Barford, Charter’s executive vice president and COO.