Charter replaces president/CEO; new chief vows to win back customers

By Paul Deckelman

New York, Jan. 18 - Charter Communications announced the resignation of Carl Vogel as president and chief executive officer on Tuesday and his replacement by director Robert May, a former Cablevision executive who more recently had spearheaded the turnaround at HealthSouth Corp.

May, who was the interim chief executive officer at the Birmingham, Ala.-based hospital operator, and, he said "took [it] from the brink of disaster in March 2003, to return it to being a vibrant business" at present, will likewise hold the CEO post at St. Louis-based cable operator Charter on an interim basis, while the company looks for a permanent replacement for Vogel.

However, said director Lance Conn, "we will not wait for a permanent CEO to be chosen before taking action" aimed at winning back customers; over the past two years, Charter has struggled to stem customer churn - the rapid turnover by customers leaving the company for rival service providers.

"Our immediate focus," May said, "will be in instilling a renewed sense of operational excellence throughout the Charter organization."

First and foremost, he said would be the need to "generate significant improvement in the overall customer experience. In other words, we need to make our customers believe what is self evident - our business begins and ends with them."

He acknowledged that "at times" in the past, "Charter hasn't always made our customers feel that they come first - and that is impeding our growth."

On a financial basis, Conn noted that over the past year, the board had worked "hand-in-hand" with the company's management to restructure debt and eliminate near-term maturities, provide sufficient liquidity and other issues. This work, he said, had culminated in the bank refinancing and second-lien note offering last April, as well as high yield and convertible offerings last month. The latter transactions raised about $1.4 billion "which gives us the breathing room to make needed business and operational changes."

Conn added that the funding, "which was critical to the future of our company, would only make a difference if we could make sustainable and significant improvements in the company's operating and financial performance."

May said that Charter was "clearly going to be focused on improving cash flow," and would "look opportunistically at improving the balance sheet as we move on down the road."

Looking at assets that don't fit

Acting co-chief financial officer Derek Chang told an analyst during the question-and-answer portion of the company's presentation that Charter is "in the process of identifying assets that don't geographically fit," but had nothing concrete to announce yet on that front.

Chang also said Charter would have no comment on the situation with rival cabler Adelphia Communications Corp., which is currently restructuring via Chapter 11 and which is in the process of soliciting bids for its various cable assets from rival cable operators and other potential buyers.

Charter in its statement thanked Vogel for his contributions to the company, and said that his decision to leave Charter had been reached mutually.

Vogel became Charter's CEO in 2001, and his contract "was going to end later this year anyway," said Aryeh Bourkoff, media and cable analyst for UBS Investment Bank in Stamford, Conn., "so I'm not surprised by the fact that he's leaving so much as by the timing of the announcement - he's leaving a little bit sooner than expected."

Vogel, he said, "did a good job for the company boosting liquidity, which it enjoys for the next few years. But there is probably room for improvement operationally. So a little bit of a change trying to bolster operations may be healthy at the end of the day."

Bourkoff, director of cable, satellite and media research for UBS, warned that "it's important that the new management team does not disregard capital structure improvements, because that will be tied in to any operational fix at the end of the day, given that the more financial flexibility a company has, the more aggressive they can be in trying to reduce churn and rolling out new products."

He noted the fact that, while one could not judge on the basis of one or two quarters' results, "over the last few quarters, and certainly over the last two years, the company has experienced more subscriber losses and higher churn than the industry overall."

In terms of improving the balance sheet, the UBS analyst said that Charter will likely look to pursue some non-core asset sales, "but I don't think that's imminent as much as probably being a second half of the year event." Near-term, he said, "the focus is going to be on operations."

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