Charter: Countervailing Evidence About Consumer Behavior

The problem with isolating economic from other drivers of consumer behavior and provider success is obvious enough when looking at Charter Communications third quarter 2008 results. You can't complain about the results.

For the third quarter of 2008, total revenue was $1 billion $636 million, an increase of eight percent over the third quarter of 2007. Phone and high speed internet, Charter's highest margin services, accounted for about 65 percent of Charter's revenue growth in the quarter. Telephone revenues totaled $144 million for the third quarter continuing as Charter's largest revenue growth driver with 55 percent year-over-year growth.

For the third quarter our commercial business revenues climbed 16 percent to $100 million driven by the expansion of commercial telephone product in the business bundle.

One of the broader assumptions about times of economic stringency is that consumers will be cautious about upgrading service to higher tiers. But that doesn't seem to be the case at Charter.

Demand for high definition continued in the third quarter with HD customers increasing nearly 50 percent year-over-year. Orders for on-demand content increased 57 percent and the number of users climbed nearly 30 percent over the year ago period. Orders for the DVR feature was up 33 percent.

Charter added 71,000 high speed customers during the quarter, more than 30 percent greater than net ads for the same quarter of 2007. And though you might expect customers to signing up for lower speed, less-expensive services, Charter says that wasn't the case. The majority of net gains came from higher speed products, company executives say.

Charter also added about 100,000 telephone customers in the quarter, consistent with year ago net ads, while voice customers increased nearly 60 percent year-over-year.

Early indications so far for the fourth quarter suggest that the economy may be having a "modest impact."  New connects were down year-over-year.

In the first two quarters of 2008 Charter did see losses in the broadcast basic tier, but the trend did not continue in the third quarter.

Charter made rate adjustments that might have lead customers to disconnect or possibly upgrade service in the first two quarters.

Third quarter customer retention and bad debt were generally in line to favorable with year ago levels, the company says.

Charter also increased its marketing spend in the third quarter, spending something like 4.8 percent of revenue on marketing, where Charter typically spends about four percent.

So there's some countervailing evidence about the impact of a recession on consumer spending for video, voice and data. Whatever else executives at other companies might think will happen, so far, Charter Communications has not seen anything yet that supports the theory that consumers are downgrading or postponing buying of higher-priced Internet access or video services.