Charter 2005 Annual Report Download - page 32

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
the Charter Operating credit facilities and the holders of the Risks Related to Our Business
Charter Operating senior second-lien notes could foreclose on We operate in a very competitive business environment, which affects
their collateral, which includes equity interests in our subsidiar- our ability to attract and retain customers and can adversely affect
ies, and exercise other rights of secured creditors. Any default our business and operations. We have lost a significant number of
under those credit facilities, the bridge loan, the indentures video customers to direct broadcast satellite competition and further
governing our convertible notes or our subsidiaries’ debt could loss of video customers could have a material negative impact on our
adversely affect our growth, our financial condition and our business.
results of operations and our ability to make payments on our
notes, the bridge loan, and Charter Operating’s credit facilities The industry in which we operate is highly competitive and has
and other debt of our subsidiaries. See ‘‘Item 7. Management’s become more so in recent years. In some instances, we compete
Discussion and Analysis of Financial Condition and Results of against companies with fewer regulatory burdens, easier access
Operations — Description of Our Outstanding Debt’’ for a to financing, greater personnel resources, greater brand name
summary of outstanding indebtedness and a description of credit recognition and long-established relationships with regulatory
facilities and other indebtedness. authorities and customers. Increasing consolidation in the cable
industry and the repeal of certain ownership rules may provide
All of our and our subsidiaries’ outstanding debt is subject to change additional benefits to certain of our competitors, either through
of control provisions. We may not have the ability to raise the funds access to financing, resources or efficiencies of scale.
necessary to fulfill our obligations under our indebtedness following a Our principal competitor for video services throughout our
change of control, which would place us in default under the territory is DBS. Competition from DBS, including intensive
applicable debt instruments. marketing efforts and aggressive pricing has had an adverse
We may not have the ability to raise the funds necessary to impact on our ability to retain customers. DBS has grown
fulfill our obligations under our and our subsidiaries’ notes, the rapidly over the last several years and continues to do so. The
bridge loan, and credit facilities following a change of control. cable industry, including us, has lost a significant number of
Under the indentures governing our and our subsidiaries’ notes, subscribers to DBS competition, and we face serious challenges
upon the occurrence of specified change of control events, we in this area in the future. We believe that competition from DBS
are required to offer to repurchase all of these notes. However, service providers may present greater challenges in areas of
Charter and our subsidiaries may not have sufficient funds at the lower population density, and that our systems service a higher
time of the change of control event to make the required concentration of such areas than those of other major cable
repurchase of these notes, and our subsidiaries are limited in service providers.
their ability to make distributions or other payments to fund any Local telephone companies and electric utilities can offer
required repurchase. In addition, a change of control under our video and other services in competition with us and they
subsidiaries’ credit facilities and bridge loan would result in a increasingly may do so in the future. Certain telephone
default under those credit facilities and bridge loan. Because companies have begun more extensive deployment of fiber in
such credit facilities, bridge loan and our subsidiaries’ notes are their networks that enable them to begin providing video
obligations of our subsidiaries, the credit facilities, bridge loan services, as well as telephone and high bandwidth Internet
and our subsidiaries’ notes would have to be repaid by our access services, to residential and business customers and they
subsidiaries before their assets could be available to us to are now offering such service in limited areas. Some of these
repurchase our convertible senior notes. Our failure to make or telephone companies have obtained, and are now seeking,
complete a change of control offer would place us in default franchises or operating authorizations that are less burdensome
under our convertible senior notes. The failure of our subsidiar- than existing Charter franchises.
ies to make a change of control offer or repay the amounts The subscription television industry also faces competition
accelerated under their credit facilities and bridge loan would from free broadcast television and from other communications
place them in default. and entertainment media. Further loss of customers to DBS or
other alternative video and Internet services could have a
Paul G. Allen and his affiliates are not obligated to purchase equity material negative impact on the value of our business and its
from, contribute to or loan funds to us or any of our subsidiaries. performance.
Paul G. Allen and his affiliates are not obligated to purchase With respect to our Internet access services, we face
equity from, contribute to or loan funds to us or any of our competition, including intensive marketing efforts and aggressive
subsidiaries. pricing, from telephone companies and other providers of DSL
and ‘‘dial-up’’. DSL service is competitive with high-speed
Internet service over cable systems. In addition, DBS providers
have entered into joint marketing arrangements with Internet
access providers to offer bundled video and Internet service,
which competes with our ability to provide bundled services to
our customers. Moreover, as we expand our telephone offerings,
22