Charter 2003 Annual Report Download - page 24

deÑnition channels per system, focusing on providing at least two local high deÑnition broadcast
channels per system.
‚Telephony Services. We continue to explore development and deployment of voice communications
services using VOIP to transmit digital voice signals over our systems. At December 31, 2003, our
VOIP telephony service was available to approximately 33,000 homes passed in one market and
traditional switch-based telephony was available to approximately 86,600 homes passed in another
market. We have identiÑed systems in key markets to expand our VOIP telephony oÅerings, and we
anticipate a growth in our telephony service from just over 120,000 homes passed on January 1, 2004 to
nearly 1 million homes passed by year-end.
‚i-TV Service. We ended 2003 with interactive television service (""i-TV'') available to over 1 million
digital video customers. In 2004, we expect to increase availability in strategic competitive markets and
we are working on making our i-TV channels local-content oriented. Although we do not charge our
customers for this service, we believe our ability to enhance our interactive content with local
information such as local movie times, local sports and local weather provides us with an important
advantage over satellite competition.
‚Commercial Services. We oÅer integrated network solutions to commercial and institutional custom-
ers. These solutions include high-speed data and video services. In addition, we oÅer high-speed data
services to local businesses.
Digital Video Recorder
In December 2003, we launched digital video recording capabilities service in four Los Angeles systems
serving 121,000 digital video customers at year-end. In April 2004, we launched DVR service in our
Rochester, Minnesota market. We expect to further expand DVR deployment in 2004 and we expect to end
2004 with DVR deployment in systems serving approximately 1.38 million digital video customers, which
would be approximately 52% of our digital video customers as of December 31, 2003.
Sale of Advertising
We receive revenue from the sale of local advertising on satellite-delivered networks such as MTV»,
CNN» and ESPN». In any particular market, we generally insert local advertising on a minimum of four
networks, and have covered up to 45 channels. Our system rebuild and digital service launches have increased
the number of available channels on which we are able to insert local advertising. We also provide cross-
channel advertising to some programmers.
From time to time, certain of our equipment vendors have purchased advertising from us. For the years
ending December 31, 2003, 2002 and 2001, advertising revenue from equipment vendors was recognized in the
amounts of $0, $13 million, and $14 million, respectively. These revenues resulted from purchases at market
rates pursuant to executed binding agreements. However, in connection with our restatement announced in
April 2003, we reversed all advertising revenues, approximately $17 million, from two set-top terminal
manufacturers recognized in 2000. Based on a reassessment of the underlying structure of the arrangements
during 2000, the prices paid for the set-top terminals and the advertising revenue recognized were determined
to be in excess of fair value. See ""Management's Discussion and Analysis of Financial Condition and Results
of Operations Ì Restatement of Prior Results.''
Pricing for Our Products and Services
Our revenues are derived principally from the monthly fees our customers pay for the services we oÅer. A
one-time installation fee, which is often waived during certain promotional periods for a standard installation,
is charged to new customers. The prices we charge vary based on the level of service the customer chooses and
the particular geographic market. Most of our pricing is reviewed and adjusted on an annual basis.
22