Subs Sinking Faster at Charter

Even when everything is aboveboard at Charter Communications (CHTR), subscriber numbers aren't always what they appear to be.

That, argues one short-seller, is evident in the second-quarter operating results that the St. Louis-based operator of cable systems released last week.

Charter, the nation's third-largest operator of cable TV systems, reported a net loss of 41,300 basic-cable subscribers in the second quarter ended June 30.

But judging from a footnote to Charter's statements, the company actually lost 52,400 basic subscribers in the second quarter on an apples-to-apples basis with first-quarter figures. That's to say that the company suffered 27% more departures than it reported.

The discrepancy -- a significant one, given the amount of attention Wall Street pays to subscriber gains and losses among the major cable operators -- is further evidence to cable TV investors that subscriber counts involve substantial judgment calls, even when such judgments fall within the bounds of legal behavior.

Moreover, the confusion illustrates the pitfalls of relying on company performance measures not based on generally accepted accounting principles. Those risks are not limited to the cable industry, as highlighted by recent concerns over AOL Time Warner's (AOL) America Online subscriber counts, as well as by investors' erstwhile infatuation with page views at long-defunct Internet companies.

The issue addressed in the Charter footnote, in fact, is related to the company's former practice, discontinued last fall, of counting high-speed Internet subscribers as basic-cable customers even if they weren't, in fact, subscribing to basic cable.

Though that onetime practice of counting data-only customers hasn't been a lightning rod for Charter, other subscriber count-related activities have. Last month, the U.S. attorney in St. Louis charged four former Charter executives with inflating the company's subscriber counts in 2001 -- an alleged conspiracy unrelated to the second-quarter 2003 number.

Charter, which plans to raise $1.7 billion to finance a tender offer for outstanding debt later this month, is fighting to pull itself back from a near-bankruptcy experience earlier this year. Charter's shares, which have ranged from between 76 cents and $5.50 over the past year, fell 34 cents Tuesday to close at $3.99.