Oh, how big it's grown : Charter Communications becomes a real cable contender

America's Network, Sept 1, 2001 by Shira Levine

The surprise wasn't Comcast Communications' $44.5 billion offer for AT&T's broadband unit. Industry experts had suggested for some time that financially strapped AT&T might entertain offers for its cable division. And once AT&T rejected Comcast's bid as too low, no one was particularly surprised by most of the other suitors that came out of the woodwork -- AOL Time Warner, Cox Communications and Walt Disney Co., to name a few.

Analysts speculated that St. Louis-based cable operator Charter Communications might make an offer, although Charter CEO Jerry Kent denied that merger talks were under way.

Yet Charter seemed out of place among the big boys on the list -- until one realizes that Charter has quietly become one of the big boys over the last few years.

"This is a wonderfully managed company. The guys at the top really know what they're doing," says Morningstar analyst Todd Bernier. "They're setting the pace in the industry, especially for growth and cash flow."

For Charter to even be mentioned as a possible buyer of AT&T Broadband shows how far the company has come. In May 1998, Charter was the country's 12th-largest cable operator, with just more than 1 million subscribers, while the largest operator, Tele-Communications Inc. (TCI), had 14.5 million.

Microsoft co-founder Paul Allen bought Charter for $4.5 billion -- 14 times the company's 1999 cash flow -- just two months later and embarked on an aggressive expansion strategy, buying smaller cable companies such as Fanch Cable, Falcon Communications and Renaissance Media.

Today, Charter has nearly 7 million customers, including a little more than 500,000 cable modem subscribers. The company launched a $3.5 billion upgrade to its network last year and plans to have 88% of its customer base served by a two-way network by the end of 2002.

A Charter acquisition of AT&T broadband may have been only an industry rumor, but there's definite irony in its very existence. Cable industry whale TCI -- the country's largest operator in 1998 -- was bought by AT&T in 1999, while small-fry Charter was expanding its reach. The acquisition could have spawned a new motto: If you can't beat 'em, eat 'em.

Stats in brief

 (in millions)

                  Subscribers   2Q revenues

Charter           7             $928.5
AT&T Broadband    13.7          $2,570
Time Warner       12.8          $1,711
Comcast           8.5           $1,285
Cox               6             $1,002