Charter’s account practices questioned

Published 12:00 am Sunday, August 18, 2002

Associated Press business writer

ST. LOUIS – Federal prosecutors are investigating Charter Communications Inc., the nation’s fourth-largest cable television company, for how it accounts for some expenses, Charter officials said Friday.

The company, controlled by billionaire Paul Allen, received a grand jury subpoena from the U.S. Attorney’s office in St. Louis on Thursday, seeking documents related to how the company accounts for costs for current and disconnected cable TV subscribers.

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St. Louis-based Charter serves more than 6.8 million customers in 40 states.

The cable company is also facing troubles in Suffolk, where the City Council began the process of revoking the company’s franchise in the city two months ago. The council’s action at that time gave the company 60 days to meet criteria set forth in the settlement agreement it signed two years ago.

That 60-day period ends Tuesday, said Dana Woodson, spokesperson for the city. Although the item is not on the agenda, it is likely to come up for discussion during Wednesday’s council meeting.

Charter, which in June completed a two-year, $10-million digital rebuild of the city’s cable system, upped its rates for basic and expanded service in Suffolk last month. Customers received several additional channels at the same time.

Charter denies any wrongdoing and will work with investigators, said corporate spokesman David Andersen. &uot;We are taking this very seriously and cooperating fully.&uot;

An attorney with the U.S. attorney’s office would not comment.

In February, Charter announced a change in accounting for how it deals with customers who don’t pay their bills. The company said it had tightened its collection policy and procedures relating to those customers, and that it expected to disconnect approximately 120,000 &uot;marginal&uot; customers from its basic customer account in the first quarter of 2002, a number that later rose to 145,000.

Analyst Juli Niemann of RT Jones in St. Louis said the steep decline is the result of uneasiness about debt the company took on through a series of mergers combined with a leveling out in the number of new cable subscribers. The company has $17.6 billion in debt.

The subpoena is a response to just how worried the market remains about corporate honesty in the wake of allegations against the likes of Enron, WorldCom and Adelphia Communications Corp., the No. 6 cable company, Niemann said.

&uot;I think it’s a case of you’re guilty until proven innocent,&uot; she said. &uot;Everybody is going over everything with a fine-tooth comb. This is that kind of market where you have to prove your accountability.&uot;

A class-action lawsuit by shareholders filed on Thursday in federal court in East St. Louis, Ill., accused Charter of issuing a series of false and misleading statements to the market from 1999 through July of this year. Among other things, the suit said Charter issued quarterly reports that inappropriately boosted earnings by improperly capitalizing the firm’s labor costs. It said the company also artificially inflated its subscriber count by listing internet-only subscribers as cable customers.

The suit is one of about nine class-action suits filed against Charter in the last few months after a Forbes magazine article in which a Merrill Lynch analyst questioned how the company accounts for some internet subscribers.

Shares of Charter stock fell 18 cents, or 6.6 percent, to close Friday at $2.53 on the Nasdaq Stock Market.

Charter is now the second big cable company whose bookkeeping practices have been called into question. Adelphia Communications Corp., the nation’s sixth-largest cable company, is also under investigation.

Allison Williams, Suffolk News-Herald staff writer, contributed to this story.