Charter 2005 Annual Report Download - page 24

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
Internet access and telephone, we face competition from other DBS customer exceeds that of a cable customer, the initial
providers of each type of service. We operate in a very equipment cost for DBS has decreased substantially, as the DBS
competitive business environment, which can adversely affect our providers have aggressively marketed offers to new customers of
business and operations. incentives for discounted or free equipment, installation and
In terms of competition for customers, we view ourselves as multiple units. DBS providers are able to offer service nation-
a member of the broadband communications industry, which wide and are able to establish a national image and branding
encompasses multi-channel video for television and related with standardized offerings, which together with their ability to
broadband services, such as high-speed Internet, telephone and avoid franchise fees of up to 5% of revenues and property tax,
other interactive video services. In the broadband industry, our leads to greater efficiencies and lower costs in the lower tiers of
principal competitor for video services throughout our territory service. We believe that cable-delivered VOD and SVOD service
is direct broadcast satellite (‘‘DBS’’), our principal competitor for are superior to DBS service because cable headends can store
data services is digital subscriber line (‘‘DSL’’) provided by thousands of titles which customers can access and control
telephone companies and our principal competitors for tele- independently, whereas DBS technology can only make availa-
phone services are established telephone companies and other ble a much smaller number of titles with DVR-like customer
carriers, including VoIP providers. Based on telephone compa- control. We also believe that our higher tier products, particu-
nies’ entry into video service and the upgrade of their networks, larly our bundled premium packages, are price-competitive with
they will likely increasingly become an even more significant DBS packages and that many consumers prefer our ability to
competitor for both data and video services. We do not economically bundle video packages with data packages. Fur-
consider other cable operators to be significant one-on-one ther, cable providers have the potential in some areas to provide
competitors in the market overall, as traditional overbuilds are a more complete ‘‘whole house’’ communications package when
infrequent and spotty geographically (although in any particular combining video, high-speed Internet and telephone services.
market, a cable operator overbuilder would likely be a significant We believe that this ability to bundle, combined with the
competitor at the local level). As of December 31, 2005, we are introduction of more new products that DBS cannot readily
aware of traditional overbuild situations in service areas covering offer (local high definition television and local interactive
approximately 6% of our total homes passed and potential television) differentiates us from DBS competitors and could
overbuilds in areas servicing approximately an additional 4% of enable us to win back some of our former customers who
our total homes passed. migrated to satellite. However, joint marketing arrangements
Although cable operators tend not to be direct competitors between DBS providers and telecommunications carriers allow
for customers, their relative size may affect the competitive similar bundling of services in certain areas and DBS providers
landscape in terms of how a cable company competes against are making investments to offer more high definition program-
non-cable competitors in the market place as well as in ming, including local high definition programming. Competition
relationships with vendors who deal with cable operators. For from DBS service providers may also present greater challenges
example, a larger cable operator might have better access to and in areas of lower population density, and we believe that our
pricing for the multiple types of services cable companies offer. systems serve a higher concentration of such areas than those of
Also, a larger entity might have different access to financial other major cable service providers.
resources and acquisition opportunities. DBS providers have made attempts at widespread deploy-
Our key competitors include: ment of high-speed Internet access services via satellite but
those services have been technically constrained and of limited
DBS appeal. DBS providers continue to explore options, such as
Direct broadcast satellite is a significant competitor to cable combining satellite communications with terrestrial wireless
systems. The DBS industry has grown rapidly over the last networks, to provide high-speed Internet and other services.
several years, and now serves more than 27 million subscribers DBS providers have entered into joint marketing arrangements
nationwide. DBS service allows the subscriber to receive video with telecommunications carriers allowing them to offer terres-
services directly via satellite using a relatively small dish antenna. trial DSL services in many markets.
EchoStar and DirecTV both have entered into joint marketing
agreements with major telecommunications companies to offer DSL and other Broadband Services
bundled packages combining phone, data and video services. DSL service allows Internet access to subscribers at data
Video compression technology and high powered satellites transmission speeds greater than those available over conven-
allow DBS providers to offer more than 200 digital channels tional telephone lines. DSL service therefore is competitive with
from a single satellite, thereby surpassing the typical analog high-speed Internet access over cable systems. Most telephone
cable system. In 2005, major DBS competitors offered a greater companies which already have plant, an existing customer base,
variety of channel packages, and were especially competitive at and other operational functions in place (such as, billing, service
the lower end pricing, such as a monthly price of approximately personnel, etc.) offer DSL service. DSL actively markets its
$35 for 60 channels compared to approximately $45 for the service and many providers have offered promotional pricing
closest comparable package in most of our markets. In addition, with a one-year service agreement. The FCC has determined
while we continue to believe that the initial investment by a that DSL service is an ‘‘information service,’’ and based on that
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