Charter 2012 Annual Report Download - page 23

11
branding with standardized offerings, which together with their ability to avoid franchise fees of up to 5% of revenues and property
tax, leads to greater efficiencies and lower costs in the lower tiers of service. Also, DBS providers are currently offering more
HD programming. However, we believe that cable-delivered OnDemand and Subscription OnDemand services, which include
HD programming, are superior to DBS service, because cable headends can provide two-way communication to deliver many
titles which customers can access and control independently, whereas DBS technology can only make available a much smaller
number of titles with DVR-like customer control. DBS providers have also made attempts at deployment of Internet access
services via satellite, but those services have been technically constrained and of limited appeal.
Telephone Companies and Utilities
Incumbent telephone companies, including AT&T Inc. (“AT&T”) and Verizon Communications, Inc. ("Verizon"), offer video and
other services in competition with us, and we expect they will increasingly do so in the future. These companies are able to offer
two-way video, data services and provide digital voice services similar to ours in various portions of their networks. In the case
of Verizon, high-speed data services (fiber optic service (“FiOS”)) offer speeds as high as or higher than ours. In addition, these
companies continue to offer their traditional telephone services, as well as service bundles that include wireless voice services
provided by affiliated companies. Based on internal estimates, we believe that AT&T and Verizon are offering video services in
areas serving approximately 30% and 4%, respectively, of our estimated passings and we have experienced customer losses in
these areas. AT&T and Verizon have also launched campaigns to capture more of the multiple dwelling unit (“MDU”) market.
AT&T has publicly stated that it expects to roll out its video product beyond the territories currently served although it is unclear
where and to what extent. When AT&T or Verizon have expanded their offering of video products, we have seen a decrease in
our video revenue as AT&T and Verizon typically roll out aggressive marketing and discounting campaigns to launch their products.
In addition to incumbent telephone companies obtaining franchises or alternative authorizations in some areas, and seeking them
in others, they have been successful through various means in reducing or streamlining the franchising requirements applicable
to them. They have had significant success at the federal and state level in securing FCC rulings and numerous statewide franchise
laws that facilitate telephone company entry into the video marketplace. Because telephone companies have been successful in
avoiding or reducing franchise and other regulatory requirements that remain applicable to cable operators like us, their competitive
posture has often been enhanced. The large scale entry of incumbent telephone companies as direct competitors in the video
marketplace has adversely affected the profitability and valuation of our cable systems.
Most telephone companies, including AT&T, Verizon and CenturyLink, which already have plant, an existing customer base, and
other operational functions in place (such as billing and service personnel), offer Internet access via traditional DSL service. DSL
service allows Internet access to subscribers at data transmission speeds greater than those formerly available over conventional
telephone lines. We believe DSL service is an alternative to our high-speed Internet service and is often offered at prices lower
than our Internet services, although typically at speeds lower than the speeds we offer. DSL providers may currently be in a better
position to offer telephone and data services to businesses since their networks tend to be more complete in commercial areas.
We expect DSL to remain a significant competitor to our high-speed Internet services.
Many large telephone companies also provide fiber-to-the-node or fiber-to-the-home services in select areas of their footprints.
Fiber-to-the-node networks can provide faster Internet speeds than conventional DSL, but still cannot typically match our Internet
speeds. Our primary fiber-to-the-node competitor is AT&T's U-verse. The competition from U-verse is expected to intensify over
time as AT&T completes the expansion plans announced in late 2012. Fiber-to-the-home networks, however, can provide Internet
speeds equal to or greater than Charter's current Internet speeds. Verizon's FiOS is the primary fiber-to-the-home competitor.
Our telephone service competes directly with incumbent telephone companies and other carriers, including Internet-based VoIP
providers, for both residential and commercial voice service customers. Because we offer voice services, we are subject to
considerable competition from such companies and other telecommunications providers, including wireless providers with an
increasing number of consumers choosing wireless over wired telephone services. The telecommunications and voice services
industry is highly competitive and includes competitors with greater financial and personnel resources, strong brand name
recognition, and long-standing relationships with regulatory authorities and customers. Moreover, mergers, joint ventures and
alliances among our competitors have resulted in providers capable of offering cable television, Internet, and telephone services
in direct competition with us.
Additionally, we are subject to limited competition from utilities that possess fiber optic transmission lines capable of transmitting
signals with minimal signal distortion. Certain utilities are also developing broadband over power line technology, which may
allow the provision of Internet and other broadband services to homes and offices.