24/7 Wall St.

Charter Communications Extends Debt Refi Date (CHTR)

Charter Communications, Inc. (NASDAQ: CHTR) has extended the early participation deadline for the pending private offer of its indirect units until 11:59 PM ET on June 27, 2008 and the exchange ratio range will remain as previously announced.  The original May 29 offer was a modified dutch auction for the exchange of up to $500 million principal amount of CCH II's existing 10.25% Senior Notes due 2010 for additional 10.25% Senior Notes due 2013 of CCH II.

Holders must submit tenders in the range of $1,047.50 to $1,077.50 principal amount of new notes per $1,000 principal amount of old notes with amounts in the range specified in increments of $2.50 principal amount of New Notes per $1,000 principal amount.  The clearing exchange ratio does include an early participation payment of $30.00 in new notes per $1,000.00 in principal amount.

We have covered Charter in our weekly "10 Stocks Under $10" newsletter frequently, and have noted over and over how the company needs to do something about its debt and capital levels.  As of march 31 it listed some $15.157 Billion in assets.  That sounds fine on the surface, except that more than $9.2 Billion of that was fluff assets of goodwill, intangibles, and the beloved "other assets."  As of that date it carried more than $20.6 Billion in long-term debt. 

Its credit facility at the end of 2007 was $6.844 Billion.  The good news is that if this is fully tendered it will put off the maturities somewhat.  Below is a debt schedule of maturities (besides the revolving credit facility) coming dues in 2008 to 2010 (with principal amounts in Millions) from the annual report:

• Charter Communications, Inc.  5.875% convertible senior notes due 2009 $49
• Charter Holdings 10.000% senior notes due 2009 $88
• Charter Holdings 10.750% senior notes due 2009 $63
• Charter Holdings 9.625% senior notes due 2009 $37
• Charter Holdings 10.250% senior notes due 2010 $18
• Charter Holdings 11.750% senior discount notes due 2010 $16
• CCH II 10.250% senior notes due 2010 $2,198

There were 398,227,512 shares of Class A Common Stock and There were 50,000 shares of Class B Common Stock outstanding as of January 31, 2008.  If it can put the large maturity dates off further and further, maybe it won't need a recapitalization as we fear.

Jon C. Ogg
June 12, 2008

Set-Top Box Deal, Another Set-Back For Motorola (MOT)

The cable company will not be the sole provider of TV set-top boxes any longer. According to MarketWatch, "Industry officials said that by eliminating the set-top box, cable companies can simplify installation and reduce costs, while consumers can worry about one less component in their home theater systems."

Almost of of the boxes currently in use come from the old Scientific Atlanta division of Cisco (CSCO) and the former General Instruments operation now owned by Motorola (MOT). Cisco can take the potential reduction in its revenue. Motorola cannot.

While Motorola's handset division lost $418 million last quarter on $3.3 billion in revenue, The company's home and networks mobility operation made $153 million on revenue of $2.4 billion in the same period.

Some of that is going to go away.

Douglas A. McIntyre

Charter Slides On Earnings (CHTR)

Charter Communications Inc. (NASDAQ: CHTR) managed to post narrower losses for Q1 in 2008.  The highly in debt cable company posted a net loss of $358 million, or -$0.97 EPS.  This compares to last year's loss of $381 million, or -$1.04 EPS.  Revenues came in up over 10% at $1.564 billion pro forma basis and more than a 9% rise on an actual basis.  First Call had estimates pegged at -$0.75 EPS on $1.55 Billion in revenues.

Revenue gains were attributed mostly to increased telephone and high-speed internet revenues.  Here were some of the other internal metrics:

• Revenue generating units rose 7% from Q1 2007 with some 302,000 net adds.
• Video revenue generating units increased 90,900 and video average revenue per user rose over  6%.
• Digital video customers rose 102,800, while basic video customers fell by 11,900.
• Internet customers rose by 85,700.
• The decrease in the company's loss was attributed to 10.5% higher adjusted pro forma EBITDA of $545 million.
• Net cash flow from operations was $204 million, down from a pro forma number of $263 million in Q1 2007.

Interestingly enough, the net interest expense came in at $465 million for the quarter, and it had a derivative value change that grew to an expense of $37 million (from $1 million in Q1-2007).  If you deducted that derivative expense you could derive an implied raw pro forma earnings per share number of -$0.87 EPS.  As we just noted this weekend in our "10 Stocks Under $10" newsletter, Charter Communications' last seen short interest was more than 81.88 million shares (about 24 days of volume).

Right after the open, shares were up more than 1% at $1.205; after about 12 minutes of being open, Charter shares were down 5% at $1.14.

Jon Ogg
May 12, 2008

Charter (CHTR) Gives Away $40 Million In Gas

Yesterday, Charter Communications (CHTR) said it would give up to $100 in gas to all new subscribers or existing subscribers that make some upgrades to their service packages.

Investors are worried that they'll lose more money on this.  Today the shares are off 7% after a rapid sell-off early this morning, so the company has given up $40 million in market cap.

Gas has gotten expensive.

Douglas A. McIntyre

Charter Communications Tries Gas & Tax Rebate Gimmick Before Earnings (CHTR)

Charter Communications, Inc. (NASDAQ: CHTR) has announced a new gimmick tying the coming tax checks with the high gas prices.  The company said that new and current customers can stretch their tax rebates with Charter services, and by ordering online receive a $25, $50 or $100 gift card for gasoline.

Here is their comment on it from Barbara Hedges, Senior Vice President of Consumer Marketing for Charter:

• “This promotion is in addition to the everyday value the Charter Bundle™ already represents and is a great opportunity to stretch your rebate dollars even further.  Add Charter Digital Cable® and get access to On Demand and the stunning clarity of high definition, High-Speed Internet® for a fast and reliable Internet experience, or Charter Telephone® for savings of up to $150 per year versus the service provided by traditional phone companies. Order any of these services online and we will help you keep more of your tax rebate in your pocket – instead of your gas tank.”

So this shows that customers can order online one or all three of its services and receive a gift card for gasoline in the amount of $25 for ordering one service, $50 for ordering two services, and $100 for ordering all three of Charter’s services.

Frankly, there isn't really anything wrong with Charter as an operating company.  The only thing wrong with Charter is its massive debt levels.  But that is like saying the only thing wrong with your new neighbor is that he put cars up on blocks in the front yard and that he overpaid for the house and isn't making his payments.  The company as of December 31, 2007 carried $19.973 Billion in long-term debt alone, and total liabilities were listed as $22.553 Billion.  For comparing the size of this, its market cap is roughly $550 million and  it is expected to show roughly $6.5 Billion  in revenues for all of 2008. If Paul Allen was reading the Bible right after looking at his cable company's financials, he might mistake a passage and read "Walking in the valley of the shadow of debt."

Charter has earnings scheduled for Monday, May 12, 2008.  This report may be one of the most important earnings reports in recent times as the economy weakens while it tries to keep growing revenues.  We'll be previewing this one in our "10 Stocks Under $10" weekly newsletter this weekend.

Shareholders better hope that Charter got a great deal on their gas card partners in this bundling effort, or at least hope that there are some strict terms on offering these out.

Shares of Charter closed  up less than 1% at $1.41 today, and its 52-week trading range is $0.61 to $4.93.

Jon C. Ogg
May 8, 2008

Jon Ogg produces and edits the "10 Stocks Under $10" weekly newsletter for 247WallSt.com.

Comcast (CMCSA) Keep Pressure On Phone Company

Comcast (CMCSA) had a very good quarter, and did especially well taking phone customers from its Bell rivals.

Revenue was up 14% to 8.389 billion. Operating income moved up 23% to $1.555 billion.

One the VoIP side of things, Comcast picked up 639,000 phone customer, raising its penetration of homes served to 5.1 million households. Phone revenue increased 65% to $587 million in the first quarter of 2008 from $356 million in 2007. The addition of 2.6 million subscribers in the last twelve months drove revenue from VoIP by more than doubled to $573 million in the first quarter of 2008 compared to the same period of the prior year.

Not good news for Verizon (VZ) or AT&T (T).

Douglas A. McIntyre

Cablevision (CVC) And Newsday: Another Round Of Muddled Thinking

Cablevision (CVC) is apparently looking at buying Long Island newspaper Newsday with Jared Kushner, a rich youngster who owns the tiny weekly The New York Observer. As far any anyone knows, the Observer has never made a dime.

The word from Reuters is that the bid would be above the $580 million already offered by NY Daily News owner Mort Zuckerman and Rupert Murdoch's News Corp (NWS), which owns the NY Post.

Cablevision's board has already shafted its shareholders. The controlling stockholders in CVC, the Dolans, made the rash offer of $36.26 for the company in mid-2007. That was just before cable companies began to report weaker earnings due to increasing competition from phone operators like Verizon (VZ). CVC now sells for $23,

There are no savings for Cablevision if it buys a newspaper. If it makes an offer in partnership with the Observer, the NY-based paper is so tiny that any cost cutting would be meaningless.

The reasons behind the NY Post and NY Daily News offers have some sense to them. By combining with another large daily paper which has overlapping geographic distribution, the chances of taking out tens of millions of dollars in costs a year are excellent.

Putting a cable company with a daily newspaper is like crossing a chicken with a polar bear. It just won't work out.

Douglas A. McIntyre

Verizon (VZ) And Time Warner Cable (TWC) Have At It

Verizon (NYSE: VZ) went sniveling into US District Court to complain that Time Warner Cable (NYSE: TWC) was running misleading ads about the phone company's new fiber optic TV and broadband product. TWC better do all the lying it can. Verizon's new product is, according to most analysts and the company, taking cable customers from the cable company. Time Warner Cable's shares are down over 30% during the last year.

According to The Wall Street Journal "Verizon says that Time Warner Cable's ad implies FiOS requires a satellite dish for TV service and that it isn't able to bundle together high-speed Internet, video and phone calls." Since VZ is betting $23 billion on its product it may not be amused by the cable company claims.

There is after all, a lot at stake. Cable firm have been taking phone customers for the better part of five years. They have offered VoIP as a cheap alternative to regular phone service. The cable guys quaintly call their product the "triple play" of voice, broadband, and TV".

It was a good game while it lasted. But, with fiber-to-the-home, telephone companies can offer a similar service. It might even be argued that fiber has more bandwidth than most cable connections, making it easier to deliver a large number of HD programming channels.

Lying and cheating to get customers is nothing new in business. The cable companies just may have to do a bit more of it over the next few years.

Douglas A. McIntyre

Can WiMax Save The Cable Guy? (CMCSA)(TWC)(S)(CLWR)

The phone companies came up with a "cable slayer" when they went into the market with fiber-to-the-home. Suddenly they could deliver ultra-fast broadband and 500 channel TV. They have high def to boot. Cable lost all of its edge and so far the fiber products are selling well.

One critical advantage for big phone operators like Verizon (NYSE: VZ) and AT&T (NYSE:T) is that they can "bundle in" wireless phone service and give the consumer one-stop shopping for all of his communications and entertainment needs.

The new programs from the telephone companies have helped push shares on Comcast (CMCSA) and Time Warner Cable (TWC) down by about 30% over the last year. But, it appears that cable may now have a way to fight back.

One of the most promising technologies introduced in the last five years is WiMax. It is a sort of WiFi which can work over many miles and it has the potential of blanketing most of the US with a broadband signal. It is an expensive proposition. The management at Sprint (NYSE: S) says that building out the infrastructure will cost about $5 billion. Sprint planned to do this. So did WiMax start-up Clearwire (NASDAQ: CLWR). But, Sprint's core business fell apart and the money went away.

Intel (NASDAQ: INTC) and Motorola (NYSE: MOT) have already put hundreds of millions of dollars into WiMax. They see it as a way to sell chips for new devices and handsets. So far, they don't have much to show for the capital they have thrown into the WiMax pot.

It has now occurred to cable companies that they can use WiMax as a flanking maneuver against the cable guys. Comcast, Time Warner Cable, and others are considering putting over $1.5 billion into the Sprint and Clearwire initiatives. Intel would probably be good for a few hundreds million more. All of the money would get the WiMax dream closer to a reality.

WiMax is the only technology around now that could devil the big cellular companies. It is the only way cable can put together consumer packages which include portable broadband. Comcast has lost $30 billion of its market cap. Some shareholders want the management sacked.

WiMax only has one disadvantage but is probably hurts the telephone companies more than cable. More competition, in this case for wireless services, drives price cutting. That compresses margins. Wall St is already concerned about a cellular service price war. WiMax gives them another reason to worry.

Douglas A. McIntyre

Verizon (VZ) Flanks The Cable Guys Again

Verizon (NYSE: VZ) has started to give the cable companies fits with its new fiber-based TV and broadband services. The offering has all of the advantages of cable products and claims to have faster connection speeds. Even if it does not, cable now has direct competition from a company with a hefty balance sheet and plenty of landline and cellular customers who may want to add another service.

Cable did still hold one fortress which was its wiring of large apartment buildings where it could pick up hundreds of customers at a time. There is a breach in the wall around that business now as well.

According to The Wall Street Journal "Verizon's fiber-optic service, mainly available to suburbanites, is making a big push into Manhattan with a deal to connect an 11,232-unit apartment complex."

If Verizon can duplicate the deal in a number of other very large apartment buildings in it service area, cable will have lost one of its best advantages which was its exclusive access to this kind of real estate.

Douglas A. McIntyre

Charter (CHTR) Raises Money For A Lost Cause

Charter Communications (NASDAQ:CHTR) raised another tranche of junk debt, about $1 billion. That will sit on top of the $19 billion which the company, controlled by billionaire Paul Allen, already has.

Just because Charter can raise some cash does not mean it can be saved. It is a lost cause, at least financially.

Charter now competes in the world of telecom fiber-broadband offerings and satellite TV which can bring in a dizzying number of high definition channels. As an old-world cable company, it has to upgrade its plant to compete. That is a multi-billion dollar proposition. Charter does not have that money. The telecom and satellite guys know that.

Last quarter, Charter had operating income of $85 million. Its debt service was $464 million. That is, as they say, a bad ratio. It is nearly impossible to see how the company can operate without destroying the value of its commons shares. Wall St. seems to have figured that out. Charter trades at $.93, down from a 52-week high of $4.93.

The common stock in Charter will be worthless soon, a good bathroom wall-paper or covering for the floor of a bird cage.

Douglas A. McIntyre

Cable TV Goes After Ad Target Business (CMCSA)(CHTR)TWC)

The Big Six cable companies will team up to sell advertising, targeted by geography and subscriber behavior. It is the fondest hope of television which has seen much of the ability to get to specific demographics taken away by online video. Among the companies in the group are Time Warner Cable (TWC), Comcast (CMCSA), and Charter (CHTR)

According to The New York Times "Getting the right advertisement to the right person, based on that individual’s own tastes and lifestyle, has been the promise of cable television for years and the reality of the Internet."

On paper, the project looks promising, but gathering data on tens of millions of cable subscribers and running the gauntlet of privacy advocates may keep the project from ever becoming a success. It will also be interesting to see if the cable companies and advertisers can find a reasonable way to divide the spoils if the systems works at all.

As the man from Missouri said "show me".

Douglas A. McIntyre

The Death Of "Net Neutrality" (CMCSA)

The FCC is going after Comcast (NASDAQ: CMCSA) for cutting bandwidth to some file-sharing services which use huge amounts of capacity on the cable company's network. The agency believes that all telecom and cable companies delivering broadband should abide by "net neutrality", a concept that all consumers and websites are treated the same no matter how much bandwidth they use.

According to The Wall Street Journal "Comcast stands accused by software companies, public-interest groups and academics of degrading customers' ability to use file-sharing software, which enables users to send high-quality video files over the Internet." Leaving aside the fact that much of the file-sharing on the internet is an illegal transfer of material which carries copyrights from content companies, broadband providers do not have limitless capacity on their systems.

The FCC and other groups want operations like YouTube, which uses a lot of bandwidth by sending video over the internet to be treated the same as a website which contains only text and uses very little capacity. The idea that both should be charged the same is egalitarian, but it puts broadband providers in an untenable position.

As the amount of video and data moved on the internet increases, broadband providers can spend billions of dollars to upgrade their fiber capacity, or they can limit demand by charging different tolls based on different levels of bandwidth usage.

The government would like to mandate a practice without any consideration of what it costs companies or their shareholders.

Douglas A. McIntyre

Comcast (CMCSA) Turns On The After-Burners

Revenue at Comcast (CMCSA) grew 14% in the fourth quarter to over $8 billion and operating income was up 20% to almost $1.5 billion. EPS came in a $.20, up 54%. Analysts had been expecting $.17.

The company also initiated a dividend of $.25

The company forecast free cash flow growth of 20% in 2008 and revenue growth of 8% to 10%.

Video revenue increased 7% to $17.7 billion in 2007, reflecting growth in digital cable customers and increased demand for advanced digital features including ON DEMAND, DVR and HDTV, as well as higher basic cable pricing.

During the year, 1.8 million additional digital cable customers subscribed to advanced services, like DVR and HDTV, either by upgrading their digital cable service or as new customers. As of December 31, 2007, 6.3 million, or 42% of our digital cable customers received advanced services, 5.4 million, or 36% received full digital cable, and 3.5 million, or 23% were digital starter subscribers.

High-speed Internet revenue increased 18% to $6.4 billion in 2007, reflecting a 1.7 million or 15% increase in subscribers from the prior year and relatively stable average monthly revenue per subscriber of approximately $43. Comcast ended 2007 with 13.2 million high-speed Internet subscribers, or 27% penetration of homes passed.

Phone revenue increased 85% to $1.8 billion due to significant growth in CDV subscribers, offset by a $229 million, or 50% decline in circuit-switched phone revenues as Comcast transitions to marketing CDV in most areas. Comcast ended 2007 with a total of 4.4 million CDV customers or 10.4% of available homes.

Perhaps now the stock, which trades at $17.81, near a 52-week low, can trade back up again

Douglas A. McIntyre

Verizon's Next Patent Target: The Cable Guys (VZ, CHTR)

From Silicon Alley Insider

Last year, Verizon milked $117.5 million from Internet phone upstart Vonage in a long, ugly patent war. This year, it's going after its real rivals -- the cable companies -- with similar suits.

Over the weekend, Multichannel News reported that Verizon is suing Charter Communications (CHTR) for infringing eight Internet phone patents, including two that Vonage was busted for infringing contined here.

As Charter (CHTR) Moves To Penny Land, Market Thinks Chapter 11

Charter (CHTR) recently traded as low at $.92 recently and hit $1 early in today's trading. At a $425 million market cap, the company now trades at .07x revenue.

With nearly $20 billion in debt and a possible drop in consumer spending on telecom and cable services as part of a slowing economy, Wall St. trying to figure out how the company will make its debt service this year.

Paul Allen, who has de facto control of the company, could put in more debt, but that would squeeze existing common shareholders down to zero. That could be legal nightmare for Allen.

Douglas A. McIntyre

Comcast (CMCSA): A CEO Who Can't Be Fired

Chieftain Capital Management owns over 60 million Comcast (CMCSA) shares, which is  2% of share outstanding. The investing firms want CEO Brian Roberts to leave. The problem is that his father founded the company and the family has voting control. In other words, Chieftain is fighting an uphill battle against an entrenched enemy.

What Chieftain really wants is its money back Comcast traded above $30 last year and now sits around $17. Perhaps, the investor says, Comcast would borrow money and pay a "meaningful" dividend; revise its executive compensation and dismantle its dual-class voting structure as The Wall Street Journal writes.

Comcast is not going to do any of those things. For good or ill, the Roberts family owns Comcast. As 24/7 Wall St. has pointed out, he is not leaving. The other shareholders are along for the ride. Cable made many investors a lot of money. CMCSA stock went from $17 in late 2006 to over $30 early last year. It is hard to debate that the return there is fairly good.

Chieftain also does not mention that all cable stocks are down. Comcast is up against the same forces that plague Cablevision (CVC), Time Warner Cable (TWC), and Charter (CHTR). Because of its size and balance sheet Comcast may be better off than the rest.

As for sending Chieftain and other shareholders a big dividend check, that money is likely to be used to upgrade current infrastructure to better compete with fiber-to-the-home offerings from telephone companies. That new technology is a real threat to cable's franchise in broadband and TV. Comcast has already said it will increase high definition channels and move thousands of movies onto its VOD service.

Chieftain can sit outside the Comcast headquarters and cry all it wants to. The tears would be better shed elsewhere.

Douglas A. McIntyre

Cable Tries To Beat The Devil

Time Warner Cable (TWC) will begin testing a program where internet subscribers pay based on usage.

According to Reuters "the company believes the billing system will impact only heavy users, who account for around 5 percent of all customers but typically use more than half of the total network bandwidth."

The move could be a gradual shift in the way broadband companies bring in money. Subscribers who do a great deal of data or video downloading eat up a huge portion of total bandwidth used by residential customers putting a load on cable company facilities.

The move raises the issue of whether internet fees could completely change in the US. If the cable companies can pull it off, it might represent a substantial increase in the revenue that the firms can pull out of their markets.

The cable customer is about to have the screws put to him.

Douglas A. McIntyre

Comcast (CMCSA): More Nutty Ideas From Cable Guys

The telecom companies are all over cable with their new-fiber-to-the-home offerings. The new tech from AT&T (T) and Verizon (VZ) seems to be taking broadband and TV customers from firms like Comcast (CMCSA).

The largest cable company is firing back with a plan to offer almost unlimited movies and TV shows on its VOD service. The number of total films could hit 6,000. The library of content will be made available to the general public via the interenet, even to people who do not buy Comcast services.

Why not buy some more content? According to The New York Times "Comcast is already the world’s largest buyer of content, and it is spending about $4.5 billion a year to assemble content from around the world to offer on demand." But, all of that content, even delivered via cable and the internet, may not get Comcast any new customers and may not be the magic bullet that kills new products from the telephone companies.

A wide range of video is already available on the internet. YouTube to Hulu, AOL to MSN. The largest content firms are already pushing TV and films across dozens of delivery portals. The new Comcast online product would not seem to have much advantage here.

On the TV, VOD has always been an attractive product, but the reason most companies do not offer huge film libraries is that no one wants them. Consumers watch the most popular movies. Having an extra 5,000 films that 1% of the subscriber base wants to see is hardly a solution.

Cable is grasping at straws. It will have to come up with something beyond some extra programming which most people can get elsewhere.

Douglas A. McIntyre

Virgin Media Almost Half of Old Buyout Price (VMED, NWS, CMCSA)

Can you recall at the start of 2006 when Virgin Media, Inc. (NASDAQ:VMED) was deemed as in-play as a buyout candidate and then later in 2006 when it looked like a buyout might occur in the $27 to $30 stock price range?  This is the broadband and content company that operates in the United Kingdom.  If you want to go way back in time, it used to be NTL and traded under the NTLI ticker; and the old Telewest is part of it.  It also offers mobile and IP phone services.

In early January 2007 before this changed to Virgin Media, this was Jim Cramer's #5 Foreign Pick at the time.  It was noted that Virgin owned 10% and he like many others noted that the past $27.00 bid from private equity in the past had been rejected.  At that point the shares had seen a 52-week high of about $31.00 and its market cap was over $8.5 Billion.

Shares are down over 5% today at a new 52-week low of $14.86.  Virgin Media's 52-week trading range is $15.39 to $30.00 and the market cap at current prices is under $5 Billion.  A couple more days like this and shares will be at half of the old buyout price.

Sure, there has been client turnover, added competition, and the company even had content carrying problems with some key content partners.  It has seen some changes in the board. Regulators want BSkyB to cut its stake in commercial broadcaster ITV, which means that Virgin Media may get to after it again in a bidding.  BSkyB is roughly 39% controlled by News Corp. (NYSE: NWS).

In its November earnings report, Virgin Media narrowed losses by 36% to 61 million pounds ($127+ million at the time) but revenues were down 1.8% on a 13,000 subscriber add to roughly 4.8 million.  It looks like the company had lost almost 120,000 subscribers in the two quarters before.

On a dollar translated basis, it looks like its books are inverted and leveraged like many of the old cable companies inside the U.S. used to be.  With almost $16 Billion in liabilities and a slightly negative tangible book value you can see the leverage. 

It seems this has a lot stacked against it.  We don't think that with the high debt levels that a private equity firm will go pursue this one with any vengeance.  But we'd also expect somewhat of a floor to come into play if this trades down under $13 or $14 per share as long as the company doesn't fall into an "at-risk" status. 

Comcast (NASDAQ:CMCSA) recently was hitting 52-week lows as well and News Corp. (NYSE: NWS) is well off its highs too.  So it isn't alone.  The truth is that someone has to own the content and the delivery platforms.  These don't stay down and forever, but calling an exact bottom in today's market would honestly be more guesswork on potential capitulation than it would be omniscient.

Jon C. Ogg
January 7, 2008

Comcast (CMCSA) Slashes Projections

Cable companies are taking a beating, and Comcast (CMCSA) has cut some of it guidance, which will make matters worse.

The firm said that reflecting an increasingly challenging economic and competitive environment and consistent with trends across the sector, Revenue Generating Units (sum of all digital cable, phone, basic cable and high-speed internet) are now expected to increase by approximately 6 million to 57 million, versus previous guidance of approximately 6.5 million additions.

In addition, cable capital expenditures are expected to be approximately $6.0 billion for the year, a 5% increase from originally issued guidance, reflecting increased advanced digital set-top box purchase, Comcast's digital acceleration program, expanded network enhancements and acquisition-related investments.

Due to the changes, the firm's consolidated free cash flow is expected to be approximately 80% of 2006, compared to previous estimates of 2007 consolidated free cash flow of at least 90% of 2006.

The news took Comcast shares down almost 5% after hours to $19.75 and is likely to hit Time Warner Cable (TWC), Cablevision (CVC), and Charter (CHTR) tomorrow.

Douglas A. McIntyre

Watch Cable Stocks Rally (CVC)(CMCSA)(TWC)

The FCC wants to further regulate cable companies. The firms have too much power over what programming gets on the air. The big cable firms continue to expands though acquisitions. The monopoly power gives them control over what people see and how it is priced.

At least that is what the FCC says, and it uses an old law which says that once 70% of households that can get cable actually become subscribers it can increase regulation. Two weeks ago, it looked like a lock for the agency.

The fear of more regulation plus new competition has pushed cable stocks to one-year lows. Comcast (CMCSA) traded at over $30 earlier this year. On a good day its sees $20. Shares in Cablevision (CVC) and Time Warner Cable (TWC) have also been scalped.

But, it now appears that the FCC's 70% calculation may be a bit off. And Republican Congressmen are all over the agency with concerns that regulation could become too heavy handed.

All of the fighting means that the FCC may not change its rules at all and its may not ask Congress for new laws governing cable. Even if it does, Congress may simply turn a deaf ear.

The odds are that cable shares are going to rally.

Douglas A. McIntyre

For more coverage of cable and other parts of the media industry, get the 24/7 New Media Newsletter.

Salvation For Cable? GOP Hates FCC Plan

It looked like the FCC was going to have cable companies for dinner. The commission was talking about forcing cable systems to open channels to small networks, and perhaps planning to halt future acquisitions by giants like Time Warner Cable (TWC) and Comcast (CMCSA).

But, GOP Congressmen think that the FCC is getting a bit heavy on the regulation side of things. In a quote picked up by The Wall Street Journal one representative voiced his concerns: "It is a concern that he may be moving away from the light-touch regulation to a much greater role for regulation," said Rep. Marsha Blackburn of Tennessee.

The movement in Congress may be good news for the cable companies. They are losing HD customers to satellite TV companies. And, as Verizon (VZ) and AT&T (T) roll out fiber-to-the-home, the telecom companies are beginning to take cable customers who want packages of TV, voice, and broadband. Last month, the FCC said it would open up bidding for TV service in apartment buildings. That used to be a franchise cable could count on as its own.

Most cable stocks trade at 52-week lows. That has been fueled lately by concerns that the FCC would do more damage to the industry with its planned changes to how the companies could operate.

The GOP wants to keep the FCC out of it, Look for a rally in cable shares

Douglas A. McIntyre

EchoStar Feels The Subprime (and FTTH) Pressures Too (DISH, T, DTV)

This morning's post-earnings downgrade of EchoStar Communications Corp. (NASDAQ:DISH) from a "Buy" to a "Hold" at Citigroup, is having a much broader impact than it originally seemed.  Shares were not indicated this much lower at 7:15 AM EST, but shares are now down almost 13% at $42.28 in mid-morning trading.

It seems that the subprime mortgage mess is increasing the churn rates in the customer base, at least that is what the company indicated on Friday with its earnings filing.   If AT&T (NYSE:T) is really looking to acquire the satellite television operations, it sure looks like the price of playing poker just got a lot cheaper.  What will this mean to Echostar's review for a restructuring?  The woes at cable companies and the fiber-to-the-home initiatives from the Bells has created a perfect storm where maybe they all lose, at least on pricing power and on margins from the old triple-play packages.

For some reason, DirecTV (NYSE:DTV) is not down as much with only a 3% drop.  That doesn't make much sense, although a 13% drop at EchoStar seems exaggerated as well if it is really a potential buyout candidate.  This drop won't assure that EchoStar gets covered in the Special Situation Investing Newsletter from 24/7 Wall St., but it is definitely worth a more in-depth review on this pullback.

EchoStar's 52-week trading range is $35.16 to $52.54.

Jon C. Ogg
November 12, 2007

The Death Of Cable (CMCSA)(TWC)(CHTR)

The largest cable company in the US, Comcast (CMCSA), hit $30.18 last January. Mark that down. The shares may well never get that high again. Time Warner Cable (TWC) hit $44 in January. It is the last times it will see that price. Charter (CHTR) hit $4.93 in July. The company could be bankrupt next year.

Shares in Comcast and Time Warner Cable are down well over 20% in the last three months. Charter is down closer to 60%. The stocks in their biggest competitors, the big telecom firms AT&T (T) and Verizon (VZ) are flat over that period. Shares in the two satellite TV companies, DirecTV (DTV) and Echostar (DISH) are up over 20%.

Cable was on top of the world coming into 2007. Wall St. assumed that it had a multi-year lead over telecom companies for providing voice, broadband, and TV to American homes. The large cable companies had pricing leverage with many channels that provided programming. If video content firms wanted carriage to the home, they had to talk with the cable guys.

But, there is early evidence that the fiber-to-the-home initiatives from the telecom companies are stealing customers from cable. The satellite TV companies offer more high definition channels, which has become attractive to many consumers.

It turns out that cables biggest enemy is not the competition. It is the industry's own size and the fact that Washington has grown to view that size as something akin to a monopoly.

The FCC recently approved "a rule that would ban exclusive agreements that cable television operators have with apartment building," according to MSNBC. That gives the telecom companies a shot at about 25 million homes that "belonged" to cable.

That is not the worst of it  According to The New York Times "the FCC is preparing to impose significant new regulations to open the cable television market to independent programmers and rival video services after determining that cable companies have become too dominant in the industry, senior commission officials said." Part of the new rules that the commission may force on the cable companies would make them offer small content channels more access to channels that reach tens of millions of homes.

And, the government may put a cap on any more acquisitions of new cable systems by Comcast and perhaps some of the industry's other large firms.

All of this adds up to one ugly sum. Cable now has competition from a a very well-funded source in the telecom operators. And, the FCC is opening up what was once a closed system which kept cable with high cash flow and little competition.

The multi-year-high stock prices that cable companies hit earlier this year were a peak.

Douglas A. McIntyre

Get a free trial subscription to the 24/7 Wall St. "New Media" newsletter and follow our stock opinions on companies from Comcast to Verizon and Google to Gannett.

Has Charter (CHTR) Reached The End Of The Road?

Charter Communications (CHTR), the over-leveraged cable company, is down 21% today to $1.41, a new 52-week low. Not that long ago, the stock traded at $4.93.

Wall St. does not like cable companies right now. Even mega-cable company Comcast (CMCSA) is near a 52-week low. There is too much concern that satellite TV high-definition and telecom fiber-to-the-home products will steal cable subscribers.

But, Charter is much weaker than most other cable operators. It carries $19 billion in debt. At its current stock price, the company has a market cap of only $550 million.

Today Charter reported third-quarter pro forma revenues of $1.526 billion grew 11.2% year over year and actual revenue grew 9.9%, driven by significant increases in telephone and high-speed Internet revenues.

Digital video customers increased by only 15,800 in the quarter. Analog video customers decreased by approximately 40,200. Not a very good balance.

But, investors are looking beyond subscriber counts and pro forma numbers. Operating income from continuing operations increased to $107 million in the third quarter of 2007 from $66 million in the third quarter of 2006 and the net loss for the third quarter of 2007 was $407 million, or $1.10 per common share. For the third quarter of 2006, Charter reported a net loss of $133 million and loss per common share of $0.41.

The number that scares shareholder is the $453 million in interest expense. That is an awful lot for a company that reported only $210 million in cash flow.

Charter is in real trouble now. Billionaire Paul Allen controls the company. And it is going to cost him some real dough to get out of this.

Douglas A. McIntyre

Another Big Blow To Cable Companies

Most cable company stocks are already trading at 52-week lows. Last week, Comcast (CMCSA) reported earnings and subscriber growth that were below Wall St. expectations. And AT&T (T) came out with earnings that showed its fiber-to-the-home cable killer U-verse was growing quickly. The combination of the two pieces of news pushed cable stocks down even further.

Verizon's (VZ) earnings are likely to confirm that telecom TV products are picking up new customers at an accelerating pace.

And, cable's prospects had seemed so rosy at the beginning of the year, when Comcast shares hit a multi-year high. The cable "triple" play of voice, broadband, and TV had the big telecom companies by the throat. Cable was picking up telephone landline customers with its inexpensive VoIP products.

But, now its appears that the telecoms are the ones taking market share.

And, one of cable's key advantages will disappear this week. The FCC "hoping to reduce the rising costs of cable television, is preparing to strike down thousands of contracts this week that gave individual cable companies exclusive rights to provide service to an apartment building," according to The New York Times. Those apartment building deals were part of cable's impregnable fortress, keeping out both telecom and satellite TV products.

While the FCC deal does not throw the cable firms out of these apartments, it puts hundreds of thousands of customers at risk. And, it invites Verizon and AT&T to come in with lower priced packages that could badly hurt cable's margins if the competition turns into a price war.

With so much at stake, there will be price cutting. And, that will send cable stocks down even more.

Douglas A. McIntyre

Charter Communications (CHTR) Moves Toward Chapter 11

Comcast (CMCSA) gave bad news yesterday. It earnings were poor and the growth of its digital cable and VoIP customers were more modest than expected. Comcast is the largest cable company in the US, so it has time to try to fix its problems and hold off the new voice/TV/broadband offerings from Verizon (VZ) and AT&T (T).

Still, Comcast's shares were down over 10% to a 52-week low of under $21.

Smaller cable company Charter (CHTR) does not have the luxury of time and a strong balance sheet. Its shares dropped almost 20% yesterday to under $2. The 52-week high for the shares was close to $6.

Charter has long-term debt of over $19 billion. It stock is so low now that the company's market cap is below $800 million. In the last reported quarter, Charter had operating income of $200 million on revenue of under $1.5 billion.

Charter does not have the capacity to go head-to-head marketing "triple play: services against the big phone companies. It does not have the money for capital expenditures to upgrade its infrastructure to the level that the phone companies can offer with their brand new fiber deployments. Their systems offer much faster connection speeds and can deliver many more HDTV channels.

Charter is running out of time. Perhaps more important, Charter cannot compete in the current market and pay its debt service. That means that the common shareholders are likely to get pushed down to zero.

Douglas A. McIntyre

As HDTV Moves In, Cable's House Gets Trashed (CMCSA)

Cable companies had all of the competitive advantages. They could offer broadband, TV, and voice service in one package. Satellite TV could only offer television. Telecom companies had slow DSL, and building fiber-to-the-home was expensive and would take years.

So, why is Comcast (CMCSA) trading at a 52-week low while DirecTV (DTV) and AT&T (T) trade near their period highs?

Part of the answer is that homes with HDTV capacity are growing quickly as are the number of TVs that have HDTV capacity.

DirecTV can now offer 55 HDTV channels. Comcast and Time Warner (TWC) are at about half of that. Small cable systems may have no HDTV channels.

Verizon's (VZ) FiOS fiber product has so much bandwidth that it will be able to top what any other HDTV delivery system can. As The Wall Street Journal writes "the new fiber network that Verizon is building has greater capacity than the average cable system."

Cable is working on new technology to increase bandwidth to allow for more HDTV channels.

But, the question is, why did the cable companies wait so long? They had an advantage, but did not exploit it.

Cable let the competition back in the game.

Douglas A. McIntyre

Cablevision (CVC): Big Shareholder May Block Buy-Out

Uber fund manager Mario Gabelli owns a big piece of Cablevision (CVC) which is being taken private by the founding Dolan family. The problem is that Gabelli thinks the $36.26 price being proposed is $15 too low.

"Part of us says take the money and run because of what the world's going through with regard to the [lending-market] crisis," Gabelli told The New Post. "But it could be worth $65 to $70 a share in five years."

Cablevision is incorporated in Delaware, and under that state's law, Gabelli could ask a court to place a value on the shares.

Another buy-out deal that could fall apart.

Douglas A. McIntyre

Charter (CHTR): Bad News For Cable Catches Up

Recent comments from Comcast (CMCSA)t about the emerging strength of high speed fiber products being sold by Verizon (VZ) and AT&T (T) has pushed the shares of the largest US cable company down. According to Barron's the market may "have concerns about loss of basic cable subscribers, and some worries about a more aggressive challenge from the Bells on broadband." So, a battle has broken out among research firms who cover Comcast about whether the stock is cheap. Can the telecoms take a lot of the cable broadband and video customers or not?

One cable company that is almost certainly going to suffer a great deal more than Comcast is Charter (CHTR). The company's huge debt load gives it very little capital to upgrade its own systems to keep the telecom and satellite TV companies at bay. It balance sheet weakness make it unusually vulnerable against an operation like AT&T which has almost endless access to cable, and can bundle cellular service with cable, home phone, and broadband offerings.

Concerns about Charter show in the stock. It is off 6% to $2.68. And, if numbers show that Verizon and AT&T are picking up hundreds of thousands of new broadband customers per quarter, that price is likely to drop a great deal more.

Charter's operating income in the last quarter was $200 million. But, the company has well over $19  billion in debt. That does not leave much to dry powder.

Douglas A. McIntyre

Are Cable Companies Losing Their Attraction

Reuters is quick to point out that cable companies, which use to be good defensive plays in choppy markets, may be losing that distinction.  Maybe.

The old notion was that when the economy was tight, people stayed home and watched TV, but Reuters writes: "now that monthly cable bills are higher due to "triple play" packages that include telephone and Internet service fees, some analysts are questioning whether cable is still a defensive stock."

Comcast (CMCSA) now get over $100 a month for some of their entertainment and VoIP packages.

Cable firms still trade at low valuations to EBITDA, but shares of the big players have been falling. So far this year, Comcast shares are off almost 8% while telecom rival AT&T (T) is up 12%. Since AT&T is losing landline customers to cable VoIP, one would think the numbers would be the other way around.

The demise of cable companies as value investments in overblown. The "triple play" of broadband, VoIP, and TV may be rising above $100. But, the cost of buying those services from the telephone company and satellite TV firms is in most cases still higher than getting it bundled.

Cable will do well because it offers the largest number of services at the lowest price.

Douglas A. McIntyre

If Cable Is So Great, Why Is Comcast Down?

Barron's rank an article last week saying that Comcast (CMCSA) is undervalued. The financial magazine quotes one money manager as saying  "Comcast trades on a very low valuation, and investors need to wake up to the fact the threat from new competition is greatly exaggerated. When that happens, the stock will finally soar."

CMCSA has been very successful with its so-called "triple play". It now has passed Vonage (VG) in total VoIP subscribers, putting it into first place in the US market. It digital TV subscriber base is growing. Over the first six months of this year, Comcast's TV revenues rose 27% to $8.8 billion, and Internet climbed 42% to $3.1 billion. Some of this is clearly due to CMCSA buying certain assets from bankrupt Alephia, but the numbers are still pretty good.

Assuming that Wall St. is fairly efficient at valuing very large companies, it is odd that CMCSA is off 12% so far this year, while telecom rival AT&T (T) is up nearly 10%. Comcast has the triple play customers, so the numbers should be the stock prices should be the other way around.

Verizon may be building out a fiber network to compete with Comcast, but that does not mean it will get the customers.

The answer to the stock valuation mystery for CMCSA is perverse. It has all of the customers. It has customers to lose. Telecom fiber may be in the game late, but with almost no customers, it has a huge incentive to rip whatever it can from Comcast and its fellow cable companies. If AT&T and Verizon can even take 10% of the cable customer base, it will have a significant affect on cash flow and operating earnings.

CMCSA's stock is down because it has something to lose.

Douglas A. McIntyre

Housing Collapse To Burn Cable/Satellite, Analyst

From Silicon Alley Insider

Sanford Bernstein cable and satellite analyst Craig Moffett foresees bad news for TV giants like Comcast (CMCSA), Cablevision (CVC), Time Warner Cable (TWC), and DirecTV (DTV): the depressed U.S. housing market will ding subscriber growth and likely lead to net subscriber losses this year and beyond.

Moffett's predictions:  continued here...

Tough Days For Verizon And Comcast: Broadband Growth Slows

Verizon (VZ) and Comcast (CMCSA) along with all of their other telecom and cable friends have been hoping that the broadband growth party would never end. VZ has put $23 billion into its FiOS fiber-to-the-home project, and CMCSA is counting on rising digital cable and VoIP demand to keeps its revenue moving up.

CIBC says that sharp increase in broadband households that has shown up in quarterly earnings for the past several years is about to end. According to Briefing.com, US broadband growth will slow in 2008 and get worse in the years after that. The reasons the firm gives are that about 30% of households do not use the Internet, migration of value oriented dial-up subscribers is set to get more difficult, and incremental infrastructure upgrades have stalled around 85% coverage.

This means that VZ, CMCSA, AT&T (T), Time Warner Cable (TWC) and their smaller rivals will be faced with taking business from one another instead of from a growing base. If the broadband market is like all others, slowing growth means more price competition and lower margins.

The broadband business may be about to get worse.

Douglas A. McIntyre

More Evidence Of US Bandwidth Shortage

According to The Inquirer, ABI Research has issued a report that US cable companies are heading for a crisis because they do not have the bandwidth or switching capacity to handle the increase in video traffic over the web. There is a competing school of thought that says the bandwidth shortage reports are a smoke screen for cable to charge websites like YouTube more money for their services. It is, in essence, a way to break the "net neutrality" rule that says that all users and websites are treated the same.

ARS Technica reports that "local cable provider will soon be faced with a serious bandwidth crunch." One analysis shows that cable companies may have to go to the great expense to lay fiber the same way that Verizon (VZ) and AT&T (T) are to deliver high-speed internet and HDTV.

Is there a looming bandwidth problem for cable. Neither side of the debate has proved that it is right. But, if the size of the cable pipe becomes troublesome, US telecoms will pick up a big marketing advantage.

Douglas A. McIntyre

Taking Charter (CHTR) Private

Billionaire Paul Allen disclosed that he was looking that the possibility of taking Charter Communications (CHTR) private or "a recapitalization or restructuring designed to reduce Charter's leverage", according to The Wall Street Journal.

Dream on. Charter has $19.6 billion in debt, which is not ideal in any environment. In the current market it is deadly. Even with all of Allen's money, it is hard to see how he could buy-out current public shareholders and support the debt.

Charter's stock jumped up briefly on the news, but still traded as low as $2.45, close to it 52-week low. Charter would have to appoint independent directors to review any deal, as happened at Cablevision (CVC) when the founding Dolan family offered to buy-out its public shareholders. Charter traded near $5 in mid-July, so it may be hard to convince directors to take much less than that.

At $4.50 a share, the cost of buying in all of the public float would be close to $2 billion. The company simply could not support that amount plus the current debt load.

Allen could also try to sell the company's assets to another firm, perhaps Comcast (CMCSA). But, with the debt that would have to be assumed, the price would be at least $25 billion. The company's operating income run rate is about $750 million. So a sticker that high is not going to attract a buyer.

Charter is going to have to dig itself out the old fashion way. Costs and capex are going to have to stay low which is hard when it needs to compete with large telecom companies coming to market with fiber-to-the-home broadband and TV services.

Charter is a company with no good options.

Douglas A. McIntyre

Clearwire Scores with EchoStar & DirecTV Satellite Pacts (CLWR, DTV, DISH)

Clearwire Corp. (CLWR-NASDAQ) has done perhaps one of the best things it could have done: it partnered with both Echostar (DISH-NASDAQ) and DirecTV (DTV-NYSE).

The agreement enables both satellite companies to offer Clearwire's high-speed Internet service to their customers and Clearwire in turn will also be able to offer the video services of one or both satellite companies to its customers. This is expected to enable each of the three companies to offer high-speed Internet, video and voice in all current and future Clearwire markets.  DIRECTV and EchoStar will have access to Clearwire's wireless high-speed network, and will be able to market a bundle that includes Clearwire's high-speed Internet services to their residential customers. DIRECTV and EchoStar will also have the ability to sell Clearwire's branded services on a stand-alone basis.

Since satellite providers have an issue on the whole 'high-speed web and telecom,' this could be a great rounding out of the offerings outside of agreements they have with other telecom players.  DirecTV claims more than 16 million subscribers and EchoStar claims more than 13.4 million subscribers.  Even a 1% joint-venture sharing from each satellite provider would seem to be a significant add-on for Clearwire.  The only question remaining on this is "Why didn't I think of that?".

Clearwire shares are now up more than 6% at $21.00 pre-market on about 30,000 shares.  The range the shares have seen since the IPO is $15.81 to $27.95.

Jon C. Ogg
June 14, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Charter: Still A Big Cable Risk

Charter Communications (CHTR) is up 7% at the open to $3.50, which puts its one-year stock price increase at over 170%.

Charter did have good results. Revenue was up 8% to over $1.4 billion. Operating income was up to $156 million from a small loss last year. But, interest expense on the company's huge debt was $464 million, flat with last year.

Charter is doing fairly well with the new services it provides. VoIP subscriptions rose rose by 127,000 to 573,000.

Charter has also refinanced much of its debt, bring down the cost of debt service. But, the company still has over $19 billion in long-term debt.

This makes its potential for recovery going forward unstable.

Charter does not have the capital to fight the phone companies as the come to market with their own fiber-to-the-home TV, broadband and phone product bundles. Its larger sisters like Time Warner Cable and Comcast do.

There is an argument to be made the the transaction to take Cablevision (CVC) private proves that cable companies are valuable. But, the premium on that deal was only 11%.

Charter is still a very risky bet. Jim Cramer's take.

Douglas A. McIntyre

Cablevision: Another Low Ball Bid From The Dolans

The founding family of Cablevision (CVC), the Dolan clan, are making another run at taking the company private. This time they are offering $36 a share, a 10% premium. The stock price went above their last tow offers as shares in the cable firm are up 70% over the last year.

And, why shouldn't they go higher. Shares in Charter Communications (CHTR) are up 170% over the same period and Comcast's (CMCSA) have risen about 35%.

Shares in cable companies continue to benefit from their sales of "triple play" packages that bundle voice, TV and broadband services. Comcast signed up over 500,000 VoIP customers in the last quarter. It believes it will have seven million voice customers by the end of 2009.

Cablevision trades at 1.6 times revenue and Comcast at 3.1x. Cablevision has $12 billion in long-term debt. Comcast has $28 billion.

Hopefully, the Dolans don't get Cablevision this cheap.

Douglas A. McIntyre

Comcast Results Bad For Telecoms

Comcast (CMCSA) had a break-out quarter. Net income rose 80% to $837 million. Revenue moved up 32% to $7.4 billion.

Internet subscriptions rose 563,000, and VoIP customers moved up by 571,000, "nearly two-and-half times the subscriber additions a year earlier", as The Wall Street Journal pointed out.

Verizon (VZ) and AT&T (T) have tried to make the case to Wall St. that there new fiber-to-the-home initiatives will allow them to take TV customers from cable. But, the final build-out of those systems is at least two years away and there is no guarantee that they will work. In the meantime, Comcast is taking their landline customers at a breath-taking rate.

Douglas A. McIntyre

Comcast Earnings Preview Q1 2007

Comcast Corp. (CMCSA-NASDAQ) is one to watch on Thursday morning.  Consensus estimates are placing $0.17 EPS and $7.36 Billion revenues as expectations for it live up to.  The following quarter estimates from the street ate $0.20 EPS and $7.7 Billion in revenues.

There is a lot more at stake here than just Comcast.  This can also spill over to Time Warner Inc. (TWX-NYSE) and to Time Warner Cable (TWC-NYSE) because of the holy grail TRIPLE PLAY.  It doesn’t just stop there, because cable providers now know they have to deal with AT&T (T-NYSE) and Verizon (VZ-NYSE) as formidable competitors.  Welcome to the new communications and entertainment world. 

There are also a dozen equipment and service providers that could win or lose if the company says it wants to increase or decrease cap-ex spending.  We’ll know in the morning where this sits, but most are expecting a minimum of status quo and some are expecting higher cap-ex. 

Jon C. Ogg
April 25, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.