Charter faces big-time competition
Copyright 2007 St. Louis Post-Dispatch, Inc.
For a long time, Charter Communications has had millions of television screens pretty much to itself.
It could raise rates if needed. It could survive customer service stumbles. In many places, customers who wanted more than just the bare minimum of TV had few options.
Now, though, the competition is moving in.
AT&T and Verizon are spending big to roll out video service in cities nationwide. Satellite provider DirecTV is investing heavily in high-definition programming.
The days of the cable monopoly are fast coming to a close. While that may be very good for consumers, it poses a serious challenge to the nation's fourth-biggest cable provider, a perennial money-loser trying to overcome a poor customer service reputation and $19.7 billion in debt.
How Charter responds to this direct assault on its core business, and how customers react to a wide-open TV market, could go a long way toward determining the future of one of St. Louis' eight remaining Fortune 500 companies, and its 2,100 local employees.
"It's an all-or-nothing game now," said Jeff Kagan, a prominent telecommunications analyst. "They either have to win, or they lose."
The key, Charter says, is to keep, and even increase, its base of 5.4 million cable customers, while getting them to buy more, or more expensive, services like phone, Internet and advanced cable.
"We have to play offense as well as defense," said Chief Operating Officer Mike Lovett.
But Charter is playing with some big-league competition.
Phone giant AT&T, which shares about 63 percent of Charter's footprint, including most of metro St. Louis, plans to roll out its U-Verse video service across half its network by 2010. No. 2 phone company Verizon, which overlaps with about one-fifth of Charter's territory, is launching its FIOS video service as fast as it can and already has 717,000 customers. These companies have been battling cable operators for voice customers for years, and offer not just phone, Internet and video as Charter does, but also wireless services.
So far, Charter faces competition on just 6 percent of its network, mostly on the West Coast. It hasn't seen much impact on prices, or customer base, said Lovett.
"We're seeing very similar results to any other overbuild situation," where a small cable company shares the market, he said.
But eventually, competition will have an effect, Kagan said.
"The marketplace is changing," he said. "It used to be centered around companies. Now it's centered around customer needs."
That, he said, means lower prices and better quality.
That's been a goal of the Federal Communications Commission in recent years. It has been pushing for video competition, voting last month, for instance, to ban deals that give cable companies exclusive rights to wire apartment buildings. Its most recent study of cable rates showed that they were 17 percent lower in competitive markets.
These developments, coupled with the aggressive rollouts by Verizon and AT&T, have battered cable company stocks in recent months, none more than Charter. Since closing at $4.80 a share on July 19 it has lost 76 percent of its value. A big chunk of that came Thursday when shares dropped nearly 35 percent, closing at $1.16, after Charter posted a net loss of video subscribers in the third quarter.
Those losses were steepest, Chief Executive Neil Smit told analysts in Dallas and Los Angeles, in markets where AT&T and Verizon have launched their services.
It is now "exceedingly clear" that competition is hurting the cable companies, wrote Pali Research analyst Richard Greenfield last week. The industry, he wrote, is "looking at all-out war."
But Charter is confident it can compete, and that it can do so without too much damage.
"We're not playing on price," Lovett said. "The way to play competitively is to make sure you have the right viable products to serve the customer."
To that end, Charter is expanding its high-definition lineup; it now has 20 channels, plus various premium offerings. It is also continuing to develop On Demand services - programming that's instantly available - and is testing a new 16-megabyte high-speed Internet.
But the knock on Charter typically has not been programming. It's customer service.
Complaints are legion about the difficulties in getting a problem fixed. In April, the Better Business Bureau issued a warning about the company's customer service. And it seems many customers have a story like Nicholas Dragan's.
He and his family originally had Charter's "triple play" - phone, Internet and TV service - and they liked it. But in March, they moved from the Central West End to Sunset Hills, and that's when the problems began.
Charter picked up the old equipment from Dragan's apartment, he said, but never stopped billing him for service there. When he tried to get phone and Internet service at the new house, the company said he couldn't because he already had existing service, so he called AT&T for that. But Charter did set up cable. And continued to double-bill him.
"No exaggeration, this went on for five months," Dragan said. "I'd be on the phone for hours at night, talking to people in the Philippines who couldn't help me, and waiting on hold."
He kept paying the bills, figuring he'd build up credit once it all got sorted out. But that never happened. Finally he gave up, and switched to DirecTV.
"We have been prime clients," Dragan said. "We spent $150 or $200 a month and not even blinked. Now we will never, ever, ever go back."
Improving customer service is a major priority for Charter, Lovett said. The company has changed some procedures, like adding same-day appointments and cutting appointment windows from eight hours to two. And, Lovett said, it is seeing internal numbers showing complaints are down.
"We're turning the corner," he said.
The question is whether it can do so fast enough. Lovett acknowledges that reversing customer perception can be a long process. One bad experience can set someone against a company for life. The key is not just to solve problems, but to do so in a way that exceeds customers' expectations.
"There needs to be a 'wow' factor in service," Lovett said. "That's the quickest way to win someone back."
But Mike Unruh can't imagine anything "wowing" him enough to stay with Charter.
"They have put me through so much hell for so many years," said the Ballwin resident. "The moment I can escape I'm going to run as if I'm escaping prison."
He has a litany of complaints: unhelpful customer service reps, poor TV reception, slower-than-advertised Internet, cable lines that were supposed to be buried just laid across his yard.
"When AT&T comes," he said. "I'm gone."
Of course, there's no guarantee that the alternatives are better.
Creve Coeur resident Ken Bush wanted more channels, so he tried satellite service from Dish Network and DirecTV, but had such a "nightmarish" installation process with both that he decided to stick with Charter.
"I'd have to give (Charter) pretty high marks," Bush said
And AT&T has had its own stumbles with U-Verse.
This week, the company announced a slight slowdown of its build-out plans. And the telephone company is new to providing video, a service which Lovett notes is "extremely challenging" on the technical side. Last month, U-Verse suffered a day-long system-wide outage when a software change went awry.
And, as Charter has learned, service disruptions are often not taken kindly. Just ask Christina Pugh.
The St. Louis resident has been having trouble with her Charter Internet for a month. Sometimes it works. Sometimes it doesn't. She never knows why.
A graduate student at Washington University, Pugh does a lot of online research and can't work from home without a good connection. Lately, she's on the phone with customer service four times a week. She's had two visits from techs and she spends long hours at Coffee Cartel and St. Louis Bread Co., using the free Internet there.
"This has been driving me crazy," Pugh said.
So last week, she wrote an e-mail to Smit, describing her problem and asking for help.
Toward the end, she asked this question: "How can your business continue to operate when you drive all your customers away?"