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Filed by Comcast Corporation Pursuant to
Rule 425 under the Securities Act of
1933 and deemed filed pursuant to Rule
14a-12 under the Securities Exchange Act
of 1934
Subject Company: AT&T Corp.
Commission File No. 1-1105
Date: February 7, 2002
The following conference call was held by Comcast with its investors on
February 6, 2002:
Operator: Good day and welcome everyone to the Fourth Quarter and
Year-End Investor Conference Call for Comcast
Corporation. Today's call is being recorded. At this time
for opening remarks and introductions, I would like to
turn the call over to the Executive Vice-President and
Treasurer of Comcast, Mr. John Alchin, please go ahead
sir.
John Alchin: Thank you very much. Welcome to the Fourth Quarter and
Year-End 2001 Earnings Call. I have the whole team here
with me - Ralph, Brian, Steve, Larry Smith and the rest
of the gang. But just before we proceed, let me remind
everybody to read the safe harbor disclaimer and that
this conference call may contain forward-looking
statements that are subject to risks and uncertainties.
And would ask you all to refer to our 10-K for a list of
those risks and uncertainties.
Now, let us get into the results. On a consolidated
basis, we are pleased to be reporting for the full year
17.7% revenue growth to $9.7 billion and for the quarter,
17.3% revenue growth to $2.8 billion. Excluding the $140
million of excess costs incurred with the Excite@Home
transition, over what we historically incurred for
comparable service from Excite@Home in prior periods,
cash flow for the quarter is up 13% at $796 million and
for the full year 12% to $2.9 billion. We are delighted
with the results in all 3-core business segments - Cable,
Content and QVC. In fact, for the full year, Cable's cash
flow is up 12.1% excluding those excess costs that I just
referred to. QVC up 19% prior to the expenses associated
with launching the operation in Japan. And Content up 45%
due to the results of the E!, Golf Channel, and Outdoor
Life. In fact, it is pretty amazing when you look back at
what has happened on the last year. In the Content group
that we have, we have acquired full control now, 91%
ownership interest of the Golf Channel. Outdoor Life is
now 100% owned by Comcast. We acquired Home Team Sports,
which is now being rebranded to Comcast SportsNet. And E!
continue to report great results quarter after quarter.
As well, QVC had another terrific year. This is QVC's
15th year of operation. They celebrated their 15th
anniversary in November. They launched operations at
QVC-Japan in April and finished the year with a record
year. In Cable, we completed system swaps and
acquisitions that resulted in adding 2 million new subs
to our cable operation, finishing at almost 8 1/2 million
subs. At the same time, we rebuilt nearly a quarter of
our company's plant, a faster rebuild rate than we have
ever had in our history before. Through all of that, we
have continued to report very solid margins. In fact,
despite the fact that we have incorporated some 2 million
new subs, we improved our operating margins fully
110-basis points, finishing the year at 42.4%. We
finished 2001 with over 3.28 million new revenue
generating units, exceeding our initial guidance of 2.75
million units at year end. We added a total of 1.28
million net new RGUs throughout the 12-month period.
This morning, we are pleased to report that we had
substantially completed the transition of our high-speed
Internet customers over to our own network. And while
each of these divisions have reported really amazing
accomplishments and great operating results, that we will
review in a moment or two, we also announced back in
December our intention to merge with AT&T Broadband. We
have never been more bullish about cable and the value
that can be created with 22 million subs and 38 million
homes passed.
But let us dive into the Cable division numbers.
Excluding the excess @Home transition costs of $140
million, the Cable division in the fourth quarter
reported 12% cash flow growth at $583.3 million and for
the full year 12.1% growth at $2.25 billion. The single
most important driver of fourth quarter cable revenue is
the new service RGU Growth. Last month, early last month
on January 7th, we released the RGU numbers for 2001,
reporting 30% year-over-year increases. We finished, as I
said before, with 3.28 million new RGU units, well over
our goal that we announced initially at the beginning of
last year of 2.75 million. That represents a rate of
24,000 new additions each and every week for the 12-month
period.
In the Digital category, we finished the fourth quarter
with 2.336 million digital cable customers, representing
a 54% pro forma increase over year 2000 and a
subscription penetration rate of nearly 28%. We added
213,000 subscriptions in the quarter, 815,000
subscriptions for the full year. In 2001, we saw digital
penetration growing significantly throughout all of our
markets. And in fact, as we look back as to what happened
in markets that were launched 2 and 3 years ago, we
continue to see significant increases in the penetration
rate in those markets. As we look to markets that were
launched in late 1998, they started the year last year at
an average of about 25% and finished the year at 33
percentage points. Those that were launched in 1999
started the year at around 21% and finished at 31%. So on
average, we are looking at increased penetration rates
between 8 to 10 percentage points. At the same time, the
average revenue that we are generating from each one of
those units continues to increase. We finished the year
with average revenue per digital unit at $10.53, up 4%
from where we were at the beginning of the previous year.
And as we continue to rollout the enhanced version of
this product that we call Digital Plus. This helps drive
that number with a product priced at $14.95 and we
continue and we believe it helps to continue to drive
higher penetration rates as it has broader appeal than
the originally launched classic version of that product.
Our Digital Platform has made tremendous progress as
well, as we have integrated the ability to rollout Video
on Demand. Comcast now has more than 3 million VOD ready
homes in 16 markets. And you will recall that initially
we projected we would have 2 million VOD ready homes by
the end of the year, so exceeding that number by over
50%. The integration that was required to do that was a
huge job. Just think of the combination of integrating
exercises that are required to integrate the various
boxes, billing platforms and guides along with VOD
vendors. Everything from Motorola, to SA, TV Guide, Sara,
TV Gateway, Cable Data, Convergence, Seachange,
Concurrent, all of those various combinations had to be
integrated in various permutations and combinations. We
expect this footprint of 3 million homes to nearly double
by the end of this year.
On the Data Front, last month we announced strong
sequential and quarterly growth in the data product. We
finished the year with 948,000 customers, a 33%
sequential increase over the third quarter and a 39%
increase over fourth quarter last year. This represents a
penetration rate of 9% of marketable homes and in the
fourth quarter represents weekly adds of 12,000. We met
our guidance at year end despite the bankruptcy of
Excite@Home.
2
In 2001, we expanded availability of the high-speed
Internet service by more than 3.6 million homes on a pro
forma basis. We ended the year with a service in front of
10.4 million homes or close to 75% of the homes in the
Comcast universe. We expect, by the end of this year,
that this product will be available to 85 percent of the
homes increasing to about 11 1/2 million by the end of
2002. But the real achievement for Comcast@Home Internet
Service, which would essentially complete the transition
onto our network 5 months ahead of what was originally
planned. In December, we began the transition over to our
network. We hired in the intervening period more that
2000 extra phone reps to handle the job. We learned from
some early mistakes in Northern New Jersey to the point
that the more recent transitions have been made very very
smoothly. We are paving the way with all sorts of flyers,
reminders, letters, post cards and calls to prepare the
customers for the change and the changes have gone very
very smoothly, all things being considered. We are now
building a robust network to deliver better service,
including remote e-mail, personal web space, multiple
e-mail addresses that will be available to our customer
base.
At the same time, we have remained focused on the basics
of the industry. Other growth drivers that are
fundamental to the industry, such as subscriber growth
and revenue growth continue to remain on target.
Subscriber growth finished the year at 1% adding 34,000
customers in the fourth quarter, 84,000 customers for the
full year. These metrics help to offset some softness
that we saw in the type of new category, pay-per-view in
the fourth quarter was down 7% over the comparable period
last year. And even ad sales down 7 1/2%. In fact, if you
compare the ad sales figure down 7 1/2% in the fourth
quarter to the increase of 11 1/2% that we saw in the
third quarter, you will see almost a 20% swing on a
quarterly number of $80 million to $90 million, obviously
having a fairly significant impact. This is because of
the lack of political advertising in the fourth quarter
this year compared to that of 2000, the impact of general
market conditions after September 11th and overall
economic conditions.
So across the board, we have delivered on every one of
our goals to 2001. We have integrated 2 million subs,
increased margins 110-basis points, finishing the year at
42.4. Exceeded all initial RGU estimates. Delivered 12%
operating cash flow growth, despite the disruptions from
the Excite@Home bankruptcy and the soft advertising
market, and rebuilt more of our plant than ever before.
At year end, our upgrades were nearly complete. We
upgraded nearly 2 1/2 million homes in 2001. 95% of our
plant now has at least 550 megahertz of capacity. During
the year we made significant progress upgrading recently
acquired cable systems to at least 550 megahertz of
capacity so that acquisitions such as Prime and Lenfest
are now 100% rebuilt, at Adelphia at 83% rebuilt and AT&T
systems that we swapped or acquired, 88% rebuilt. We have
invested $454 million of capital in this rebuild and
ongoing maintenance program in the fourth quarter. I
would remind people that included in that number is some
$75 million for the transition from the @Home, Excite
plant. So if you look back to the capital number that we
invested in the second quarter, it was over $500 million
and we have seen progressive declines in the third
quarter and fourth quarter from $513 down to $380. Our
run rate capital investment program is now about $600
million on an annualized basis, below what we were
running at in the second quarter of this year. This will
have a significant impact on our ability to generate
dramatically increased free cash flow from ongoing
operations.
So as we look forward to 2002, you will continue to see
further declines in our Capital Investment Program. From
the $1.85 billion that we invested this year, we will
invest approximately $1.3 billion in 2002 to finish the
year with about 87% of our plant, at it least 750
megahertz of capacity. That is at least 12 million of our
13.8 or 9 million homes with 750 megahertz of capacity.
We expect to generate revenue growth of between 10% and
12% in 2002. We expect to generate operating cash flow
growth between 12% and 14% for the year. And I would
emphasize that that is 12% to 14% growth over the $2.25
billion of cash flow
3
that we generated in 2001, excluding the Excite@Home
charge, so of the higher number, 12% to 14% growth. We
expect to add between 600,000 to 700,000 digital cable
boxes, finishing the year at close to 3 million digital
boxes in all of our systems. Furthermore, we expect to
add between 400,000 to 500,000 high-speed Internet
customers. This is a huge target that we are setting for
ourselves, but we are confident of our ability to meet
those numbers. And I would remind listeners that the
targets that we have for revenue and cash flow assume no
advertising growth. This is our attempt to be
conservative in estimates for next year and we believe
that with that in mind we will still be generating 10% to
12% revenue growth and 12% to 14% cash flow growth.
So let's move on to QVC. QVC had another terrific year
generating, prior to the $19 million of losses in Japan,
19% cash flow growth for the year at $741 million and
revenue growth of 10.4% of $3.9 billion. This exceeds the
guidance that we gave out at the beginning of the year to
low to mid teen cash flow growth excluding Japan. The
results for the quarter are just as exciting, 18.2% cash
flow growth and 11.4% revenue growth. And if you consider
that these are comparisons to a particularly strong
quarter in the fourth quarter last year when we reported
24.4% cash flow growth in fourth quarter 2000. The real
machine behind QVC is the domestic operations. Domestic
accounts fulfilling 86% of the revenues and generates
$726 million of operating cash flows. So as you look at
the international operations, the cash flow generated out
of the UK offset the losses reported by Germany and Japan
delivering the full load from the domestic operation.
Furthermore, for those of you that missed it, I draw your
attention to an analysis that was done and published
towards the end of the year showing that QVC is now
considered the number 2 broadcaster in the country in
terms of revenue, surpassing CBS, surpassing ABC, only
behind NBC. The domestic operation for the quarter showed
revenue up 10% and operating cash flow up 18% inline with
the consolidated numbers. This is driven by continued
housing growth or homes growth that get the service
finishing the year at 73 million. Sales per FTE, up 6.3%
continuing to help drive those numbers as well. In fact,
in the later part of the quarter on December 2nd, QVC
reported a record breaking day with global orders
exceeding $80 million, surpassing the previous record of
$60 million that had been reported just a year earlier.
On that particular day, over 405,000 units were ordered,
over 30,000 Dell Intel Pentium 4 personal computers were
sold at almost $2000 a unit. And that momentum continued
into the Christmas rush with Christmas orders for the
week of December 10th, exceeding $110 million.
Profitability continued to improve in QVC as well with
the operating margins up 140-basis points to 21.3% from
the 19.9% reported in the previous period. In Germany, we
continue to make terrific improvements with the fourth
quarter revenue up 63% to $64 million and continued
improvement in operating cash flow losses, finishing the
quarter with a loss of only $1 million, so very close to
break even. For the full year, cash flow loss contracted
from $12 million in 2000 down to $7 million in 2001.
Continued expense containment also helped in the United
Kingdom. The UK finished the year with cash flow up 25%
at $25 million, up from $20 million in the previous year.
And as I mentioned before, we are now broadcasting live
in Japan 15 hours a day where we launched on August 1st.
We incurred a loss in the fourth quarter of $4 million
and for the full year $19 million, significantly below
the guidance that we gave of $30 million to $35 million.
Consolidated revenue and cash flow guidance for QVC for
2002 will look very much like the numbers that we guided
the market to in 2001. We expect to see low double digit
growth in revenue and low to mid teen growth in operating
cash flow. This is before the losses that we expect to
generate out of Japan, which will be approximately $20
million to $25 million.
4
Capital investment in QVC for 2001 topped out at $138
million, well within the guidance that we gave for the
year of $158 million. We expect in 2002 to invest about
$175 million, approximately 50% or north of $80 million
of that will be in international markets spread between
Germany, Japan and the United Kingdom.
Now let us finally move on to the last operating division
and describe the results in our Content division. We have
made one minor change to the Content Reporting Group. Our
consolidated Content properties going forward will
include E! Networks, Comcast-Spectacor, the Golf Channel
and Outdoor Life, but not the sports channel. The
regional sports network has become an intricate part of
our cable operations in the Mid-Atlantic super cluster.
This business is largely vertically integrated and there
are real operating benefits to managing them together and
in fact this business now reports directly to Steve
Burke. The cross-promotional activities are huge and have
a dramatic impact on the business. We will be using this
platform for an early introduction of HDTV for a number
of the team games. This change has no impact on growth
and little impact on absolute numbers of either segment.
And the changes reported in the footnotes to both the
total company and the cable segment data presented in the
press release. So for the full year, the Content segment
reported revenues up 17% to $742 million and operating
cash flow up 45% to $189 million. The cash flow is
significantly in excess of our 20% guidance that we had
given early in the year.
The results at E! are very strong. Revenue growth for the
year was 14% finishing at north of $300 million. This
reflects the strong upfront for the first 3 quarters of
the year and cash flow growth finished at about $110
million, 26% over the same period last year.
Ad sales were down in the fourth quarter, as we had
expected, but this reflects just the market conditions.
At the same time, affiliate revenues are up because of
continued subscriber growth and E! reported 15% full year
increase in the number of Nielsen subscribers, finishing
the year at 76 million, up 15% over the prior year.
We also had great results out of the Golf Channel. Golf
Channel reported revenue growth of 18% and cash flow
growth of over 27%, finishing the year north of $40
million. Golf also reported a 25% increase in the number
of subscribers, finishing the year at about 46 million
subscribers worldwide. We expect the Golf subscriber
number to continue to increase over the next couple of
years and would expect by year end '03 to be reporting a
number in excess of 50 million.
Our guidance for 2002 is to generate high single digit
revenue growth in this group and mid to high teen cash
flow growth. This is with excluding the results for
Outdoor Life and our start up channel G4, the new video
games network that was announced at the Western Show at
the end of last year.
So with this across all of our operating divisions, we
are really pleased with the results. 2002 is shaping up
to be a great year for Comcast and we have never been in
better shape, either financially or operationally, to
deliver on the opportunities that lie ahead.
So with that, I think let's open the call to any Q&A.
Operator: Thank you sir. Investors wishing to ask a question may
signal us by pressing the digit 1 on your touch-tone
phone. If your question has been answered and you wish to
be removed from the queue, please press the pound sign.
If you are using a speakerphone, please pick up the
handset before pressing the numbers. We have Richard
Bilotti from Morgan Stanley online with at question,
please state your question.
5
Richard Bilotti: Good morning gentlemen. Specifically with respect to
data, a lot has changed in the last 3 months. One, I
think this is the quarter or the last 2 quarters, fourth
quarter and this quarter, when a lot of your price
increases finally rolled through on that product. Two,
you have gone through the @Home transition. If you look
at your markets that are now done with both of those,
meaning great increases and the rollout, where are we at
with respect to run rate additions? Are you back to the
levels that you were seeing in the early fall or are they
running slightly slower, running slightly faster? Kind of
an apples-to-apples comparison after the impact of both
of those 2 products and decision since this is probably
the most important product.
Steve Burke: Rich, this is Steve Burke. I will try to answer your
question as best I can. First of all, our conversion is
essentially done. We convert another 50,000 subscribers
tonight, but all of the rest of the subscribers have been
converted, so this time tomorrow we are done with the
transition. The first thing that does for us, obviously,
it puts the service under our control and therefore
allows us to guarantee service quality, allows us to
launch new product. But it also has an immediate
financial impact. We were paying about $12.00 to $13.00 a
month @Home. The comparable number of post transition is
more like $7.00 to $8.00, so there is a $5.00 per month
per subscriber impact. And if you assume we hit the
midpoint of our guidance that works out to approximately
$70 million a year in incremental cash flow. So that is
sort of the first thing. In terms of regaining momentum,
what we tried to do with the agreement with @Home is
continue the momentum in our biggest quarter, which was
the fourth quarter. We feel we did that. We hit the
950,000 number. We added 155,000 subs and also positioned
us for the first quarter of '02 and subsequent quarters
to come out with a little bit of momentum. We did have a
slow period the first week or two of January, but right
now we are at weekly ad rates that are comparable to last
year. And what happens is when you convert a market, you
have sort of a week before and a week after of slowness,
because you do not want to put somebody on and convert
them right away and similarly you have some mop up work
to do after a conversion. But that is essentially behind
us. So what we are seeing on a go forward basis is a
business that looks just like it did before the
conversion and the good news is it is over. One nice
thing about having this happen in a very short time
period is had we waited until June, which was the
original plan, it would be a drag on our operation for
the first 2 quarters. It is now behind us and we are back
on track.
Richard Bilotti: And all of your price increases are now in effect for all
your markets and high-speed data?
Steve Burke: Yes. What happened was there were markets that took price
increases with their normal cable price increases during
the fall. But as of January 1st, everybody is converted.
So what you are going to find, as the business goes
forward, is you get the run rates back to where they were
in prior year. You also get an increase in ARPU from both
the price increase and the fact that during the fourth
quarter there were a variety of things we did
promotionally, primarily because @Home was out in the
newspaper every day declaring bankruptcy and we were
pulled off the shelves at Radio Shack. There were a
number of things that happened due to Excite@Home's
bankruptcy that we felt we needed to combat with
promotions. That is now behind us. So I think you are
going to see the run rates stabilize and you are going to
see ARPU increase.
Brian Roberts: This is Brian. I just want to add - congratulations to
the Cable Team. Because if we made one mistake in '01, it
was not fully anticipating Excite@Home going into
bankruptcy. And I will certainly take responsibility for
that. It was not expected. We were on a different
timetable. But when it is all said and done, we had the
results we had in '01 and now we are poised for a great
'02. And I just think the final outcome is perfect. So
Steve and a lot of hard work and we had some consumer
interruption and we were unhappy about that, but it was
very much
6
minimized by the way we went around (Inaudible) this
transition given the kind of unexpected nature of the
bankruptcy. Next question.
Operator: We have Raymond Katz from Bear Stearns online with a
question, please state your question.
Raymond Katz: Good morning. Thank you. Could we talk for a second about
facing sub growth? You have not given any guidance for
'02 on that. Could you clarify that for us? And could you
also talk about the dynamics behind basic sub growth,
whatever the number is, meaning are you seeing a
reduction in churn? Are you seeing acceleration,
deceleration in gross adds? What are the dynamics behind
that?
Steve Burke: Ray, we as you know came in at 1% sub growth last year
and we feel that that is where we are going to come in in
2002. If you look at our business over the last 4 or 5
years, as satellite became a more robust competitor, year
after year after year our basic sub growth has declined.
It stabilized about 2 years ago and we feel the primary
reason is the digital strategy that we have been on. As
we look out over the next year, our feeling is that we
have sort of stabilized at the 1% growth rate and where
we go in 2003 and 2004 is difficult to predict. But it
clearly is impacted by rebuilding our plant and getting
digital in the 5% of the company that is not rebuilt and
in the 1% of the company that does not have digital, you
can certainly see the negative impact. So we feel that 1%
is the right number going forward. We do not see anything
on the horizon that should change that and we will see
where it goes in 2003 and beyond.
Raymond Katz: Well Steve that sort of implies that your penetration
will continue to very slightly slip year- over-year,
because your homes passed are growing at a faster rate.
Is there any chance that you guys getting back the video
market share that you are slowly losing?
Steve Burke: Well I will say, we had about 20,000 dish win backs in
2001. And once you get Video on Demand into our digital
plant, you could certainly make an optimist's argument
that you are going to start to claw back and that you
have something finally that not only is comparable but
better than satellite. But I think at this point, it is
premature to say what that impact is going to be, because
Video on Demand, in terms of market presence, we are in
front of 3 million homes, but we are not aggressively
marketing yet.
Brian Roberts: Let me just, again, say, "Our philosophy is not to be as
focused on that statistic, because whether there is 10 or
20 to 30,000 on the edges, which are low value customers
and higher churn, we added 1.28 million RGUs. And the
focus, right or wrong, has been that while the base is
growing and holding its own and growing at 1% that the
bigger opportunity and what is powering the future here
is to aggressively get out and sell the RGUs." And I
think we have done that. It is amazing that were able to
get 20,000 customers who have a satellite dish to come
back to cable. I think that could go quite well for the
future but that is not the primary focus of the company.
The primary focus is keep selling RGUs.
John Alchin: Next question.
Operator: We have Jessica Reif Cohen from Merrill Lynch online with
a question, please state your question.
Jessica Reif Cohen: Thanks. Steve, you just mentioned that you are not
aggressively marketing Video on Demand yet. Could you
give us some color as to when you will ramp up marketing?
Will your focus be on VOD or SVOD? Kind of just give more
on expectations there.
7
Steve Burke: I realize it seems like Ground Hog Day, because we are
always talking about Video on Demand coming, but this
time we really mean it. The hard part of Video on Demand
we have always believed is not marketing it to consumers,
but making sure that the platform and all the integration
work is done. That is done. And our plan would be to take
the 3 million homes that we currently are in front of and
approximately double that during the next 6 months. At
the same time, we are doing a number of tests and the
initial testing results, I think, are very encouraging. I
think for the first time Video on Demand is going to
create a digital product which is appealing to people who
do not take premium services and therefore do not get the
multiplexing. If you think about it, if you can go to
somebody and say, "For $9.95 a month you have the ability
to avoid going to a video store or go to a video store
last and get all these movies." Our experience in the
test so far has shown that we really have a product that
can move digital to a different level. Our plan is to get
aggressive, come out of the marketing test mode, get the
rest of the homes added and get aggressive in our big
clusters in the second half of the year. And that is
going to coincide, we believe, with some positive
developments in terms of getting product. We believe
there is a couple more studios that are going to come
very soon and so you would have a combination of the
plant being ready, the marketing and testing process
being completed and the studio product. To me in a lot of
ways this is reminiscent to where we were with digital
and high-speed data. In the beginning, both of those
products, I think, went slowly and at a certain point
they hit a tipping point and really accelerated. As to
whether we are fans of SVOD or VOD, I think the future is
probably going to be some combination of the 2. Clearly
the ability to get a recurring revenue stream and teach
customers that digital and time shifting are synonymous
is a value. But also for some customers I think just
straight VOD is of value and we are testing every
combination you could imagine right now in the market.
Jessica Reif Cohen: Can you just comment on digital churn, like where is
digital churn now?
Steve Burke: Digital churn is pretty much where it has always been,
which depending on how you measure it is 5% when you do
it gross. But when you count moves and upgrades and
downgrades, it is more along the 1.5% range that we
believe satellite is currently operating at.
Jessica Reif Cohen: But once you offer VOD, I think where you are going with
this is that churn should start to come down.
Steve Burke: I think our strategy with digital, just to be clear,
because I know a lot of people are looking and watching
digital net adds. Our strategy with digital is to
continuously enhance the product, not so much so that you
can make money on SVOD or so that you can make money on
incremental pay units, but so that you can continue to
drive the penetration deeper. And our feeling is VOD, not
only reduces churn, which it clearly will, but gives you
a reason to sell to basic customers who do not take
premium services or reduce your churn of digital
customers who do take premium services. And it really
gives us the ability, I think, to do a lot of good things
for our digital rollout. So combination of all the above
and we just want to make sure that it is completely ready
for prime time. We only have one chance to walk in the
front door and make the right impression, particularly
among your very best customers. And we want to make sure
that when we do that we take our best shot.
John Alchin: Next question please, operator.
Operator: We have Karim Zia from Deutsche Bank online with a
question, please state your question.
Karim Zia: I had one general question, I guess, for Steve and Brad,
which is with regards to the 2002 outlook for AT&T
Broadband. Have the revisions there, I guess, on the
EBITDA side and the
8
margin for '02, Steve, changed your shorter-term
expectations as in 2003 for what that will look like? And
similarly for Brad, does the upgrade pace and capital
spending there change either the timing that you think it
will take to complete the rebuild in light of the pace
that you achieved in 2001 or the level of capital
expenditures you will need to get there?
Steve Burke: Let me jump in Karim. I think the fact of the matter is
AT&T is a separate company and it is just not appropriate
for us to comment on their results per say or their
rebuild program or any of the specifics to their
business. That having been said, it is an obvious
question - How do we feel about the transaction as a
management team? And I think if you look at our results
this year and everything we accomplished integrating 2
million subscribers, rebuilding the 95%, managing the new
products, doing the high-speed modem conversion, cash
flow up 12%. We feel that we are ready for this. And when
you really look at the deal, the deal makes a tremendous
amount of sense and we as a management team are ready to
tackle it. Beyond that I think it would be inappropriate
for us to comment on their results.
Karim Zia: That is fair. Steve can you just talk about then between
now and closing, the kinds of things you can yourself do
to kind of advance the process when it does close?
Steve Burke: Well I think the best thing we can do is continue to
manage our business and make sure that our management
team is focused on our results so that when the deal does
close we are in as good shape as we can be.
Brian Roberts: This is Brian. Let me comment that I think that is first
of all job one. We have always been about having good
execution. I think that is embedded in your question -
How do we feel about how the prospects look? Well nothing
is changed in terms of our hopes for how great the 2
companies together can be. But let me update you just a
month and a half later from where we are from where we
signed the deal. What we need to do is file a tax ruling,
file the franchise transfer request, the Hart-Scott
Redino filing and the shareholder vote, the proxy
materials to the shareholders. And all of those, all that
work product is underway. That involves both companies
working together, tremendous cooperation, a can do
attitude. We are completely respectful of - they have to
operate for '02 and we have to operate our business for
'02, as Steve said, and that is where we are principally
focused operationally. But we continue to be optimistic
that we can get this in front of all the necessary
governing bodies quickly, expeditiously and without a lot
of stress between the 2 organizations. And in fact I do
not think there is a month into it that I could say
anything has not gone as well as we would have hoped and
we have done a lot of deals. And this is the mother load
of all deals. But so far it is A+.
John Alchin: Next question please, operator.
Operator: We have Niraj Gupta from Salomon Smith Barney online with
a question, please state your question.
Niraj Gupta: Hi. Good morning everybody. First question, John could
you clarify, obviously like you said, you have
reclassified the sports networks and you put them into
core cable. But could you clarify whether or not there
was a positive or negative impact on revenue and cash
flow for the Cable business from the reclassification?
Secondly, could you guys update us on what your thoughts
are on the business telephony operations at this point? I
know you have moved it into the other line, so you did
not break it out in the quarter. But how do you feel
about that business given, I guess continued weakness in
the economy and ramp plans there? And then thirdly, just
a quick update, I know you are looking for flat
advertising growth in terms of your guidance this year,
but how is advertising shaping up early in 2002? Thanks.
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John Alchin: Let me handle the quantitative aspect of the move of
SportsNet. The impact on those numbers, full year, is
approximately $80 million of revenue and break even to $2
million of cash flow, no growth year-over-year, so from a
growth standpoint, no impact.
Steve Burke: From an operating standpoint on Comcast SportsNet, what
we found is that the sports networks, which exist as I am
sure you all in Philadelphia and Baltimore, Washington
are about as important as they could possibly be in terms
of branding and image. And what we are trying to do is
make sure that they are integrated into the cable
operations so that we cross promote, we use the
inventory, the branding opportunities. John mentioned
high definition television. That is a good example. High
definition television in these markets we think is going
to be great for consumers, great for digital rollout. But
the real benefit is probably on the cable side as opposed
to the SportsNet side. But it is something that is
clearly worth doing. And those transfer-pricing
discussions go away when it is all part of the same
entity.
Niraj Gupta: Steve, as a followup on that, the HDTV sports network, is
that something that you guys will do by the end of this
year? Obviously that would help improve the value
proposition of the digital product.
Steve Burke: Did you say ACTV?
Niraj Gupta: No, HDTV.
Steve Burke: Oh HDTV. Yes, our plan for HDTV would be to launch at the
end of this year and on a go forward basis, the idea
would be to do approximately 100 games in each of the
markets mixed between baseball, basketball and hockey.
And we think high definition is something that is
approaching a point where it makes sense in general and
the ability to do high depth sports in our cable markets
is particularly exciting. So that is Comcast SportsNet.
In terms of Comcast business communications, we made a
decision a number of months ago to take that business and
slow down the expansion. So we were staying in the 4
markets that we have really concentrated on initially and
as a result the capital and operating expense loses are
lower than they otherwise might have been and at this
point we are taking a wait and see attitude. We still
believe there are strategic reasons why that is a good
business for any cable operator. But we thought given
everything else that was going on with the economy and
particularly the telecom space that we wanted to lower
and minimize our exposure there. Moving on to ad sales, I
think the worst is behind us. You can always have a
surprise. But I think if you are looking at this quarter
versus last quarter, we certainly feel the worst is
behind us. We continue to be very optimistic about this
business as we put these clusters together, set up all
these interconnects. But we tried to be very clear in our
previous call, at the end of the third quarter, that the
fourth quarter for a variety of reasons looked like it
was going to be weaker. Now at the same point in, looking
forward to our first quarter, we are pretty confident
that the worst is behind us and that we are going to have
a solid year, I would call it, in 2002.
John Alchin: Next question please, operator.
Operator: We have Doug Shapiro from Bank of America Securities
online with a question, please state your question.
Doug Shapiro: Thanks. I had a couple of things. One was, given the
importance of the sports networks that you were just
talking about Steve, I was just wondering, generally, if
you have an early read on what the FCC stance might be on
the program access rules and sun setting and whether it
might decide to actually close a loophole on terrestrial
distribution and what you think the ramifications would
be? And then just a couple of clarifications both on
things that Steve
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said. The first was, I think I heard you say that you
expected to have the VOD footprint doubled by mid year. I
just wanted to clarify that. And then secondly, I think
you also said that ad rates for data were now after a
couple of weak weeks in January that they were comparable
to last year's ads, if you meant comparable to where you
were in the fourth quarter of last year or you mean
comparable year-over-year in the first quarter?
Brian Roberts: On the program access rules, I do not think there is
anything new there. Obviously the size of the new company
it becomes less material on just the pure size. It only
effects one market, I think is what you were referring
to. With that said, there was a court case, court hearing
yesterday on whether the FCC decision was proper and we
will get a ruling in the next month or two. But based on
a lot of the questions, the number of the lawyers there
felt that once again it would be affirmed that what the
FCC ruled and what we did was appropriate with Comcast
SportsNet. I do not know what they will do with the
rules. But I do not know that this is the forum to talk
about it so, but I do not think it will have a huge
material effect either way. Steve, do you want to talk
about VOD?
Steve Burke: Well in terms of Video on Demand, I think to be safe you
ought to assume by the end of the year we would double
the homes passed. And then in terms of data add rates,
when we say comparable, we are talking about comparable
to the first quarter of last year, not the holiday fourth
quarter.
Doug Shapiro: Great. Thanks a lot.
John Alchin: Next question please, operator.
Operator: We have Jordan Lacob from Marisco Capital* online with a
question, please state your question.
Jordan Lacob: My question has been answered. Thank you.
John Alchin: Thank you. Next question.
Operator: We have Lara Warner from Lehman Brothers online with a
question, please state your question.
Lara Warner: Good morning. Thank you. First really quickly I just
wanted to clarify with Steve on @Home. You mentioned that
you were basically finished with the transition. Is that
both in terms of transitioning servers, as well as
customers actually installing the CD-ROM? And then the
second question is - could you maybe give us some color
on how the AT&T systems are performing now that you
purchased earlier last year, what type of margin
improvement or cash flow per sub improvement you have
seen in those systems over the last couple of quarters
and what were some of the main drivers?
Steve Burke: In terms of the conversions, what we are talking about is
customers who are converted all the way, so they turn on
their computers, they get Comcast.net. The conversion is
complete from servers all the way down. We do have a
limited number of people who are doing e-mail conversions
in addition to their connectivity, which are going to
take place over the next week or so. But when you talk
about the sort of conversion of the network, the network
conversion is essentially complete as of 24 hours from
now. In terms of the AT&T systems that we took over, I
think we could not have achieved the results that we did
this year in the margin stability without dramatically
increasing those systems in terms of margin improvement.
John, have we given exact numbers as to...?
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John Alchin: Yes, I think we have Lara. We have mentioned about a
600-basis point improvement across those systems that
were swapped at the end of last year. And cash flow in
those systems up about 30% for the year.
Lara Warner: Great. Thank you.
John Alchin: Next and I think last question operator.
Operator: Thank you. We have Tom Wolzien from Stanford Berstein
online with a question, please state your question.
Tom Wolzien: Good morning gentlemen. Two areas, one is - Do you have
anything quantitative in terms of take rates that you can
provide on VOD where you do have it established yet? And
secondly, Steve, on a broader basis with advertising - As
the cable market share continues to increase and as you
consolidate these markets, do you have any sense of how
your ad sales are going, vis-a-vis the broadcasters who
each individual one of which has a significantly less
market share actually in prime time?
Steve Burke: Let me start with the advertising. There is no question
that we are taking market share at a rapid rate from the
broadcasters in the places where we have major
interconnects, which we've got 15 or 20 of them now. And
we believe in most of the markets we are operating in.
The share changes is rather dramatic, which leads me to
believe, once you get to a normalized economy, normalized
ad sales growth, you are going to see us move up pretty
dramatically in terms of growth rate. We also recently
hired a gentleman named Charlie Thurston to be president
of our Ad Sales Group, who most recently has run the
Interconnect in Los Angeles, which is dramatically the
best Interconnect in the country by a wide margin. I
think the game here is what it has always been, the
ability for one company to speak for the majority of
subscribers in a DMA so that an advertiser gets the ad
placed at the right time with one bill, none of the
affidavits and all those things. And that is winning in
the marketplace. The problem has been obviously in the
fourth quarter. It is overshadowed by the overall market
decline. In terms of Video on Demand, we are really not
giving any quantitative indication right now because we
are testing so many different variables. I think you will
find us 3 to 6 months from now being very specific about
our plans, our strategy, but we are still trying to bake
that cake at this point.
Brian Roberts: Let me just add...This is Brian....just as we end the
call. From my vantage point this was a watershed year on
top of 12% cash flow growth in cable, QVC had an
incredible year. I do not know enough good things to say.
If you compare them to anyone in the industry, if you
look at them compared to other retailers, the performance
was nothing short of amazing with the EBITDA growth, the
new customers, the new kinds of products it just goes
extremely well and of course opening up yet another new
market and really continuing growth in Germany. So very
excited there. And the content side of business, we did a
lot of restructuring to get control of Golf Channel,
Outdoor Life, E!, successfully, got agreements on style.
to make that a growth engine, but stay focused on the
core business. Comcast SportsNet we expanded into
another market. And then of course the AT&T transaction
positions the company for really beginning in '03 a whole
new era of growth. As we have told many of you in
individual meetings and Investor Conferences and
announcements, almost with any set of assumptions you
want to make for AT&T Broadband combined with Comcast and
the overhead duplication, the programming cost synergies,
the capital savings, the combined entities, ability to
accelerate broadband in this country and to accelerate
new technologies and new innovations, it is one of the
most exciting opportunities and with our proven track
record of integration success and staying focused, we
think we are ready. It will be a frustrating year
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because we are not doing anything and cannot and will
not. But when the opportunity gets here, I think this
company is really ready and we are very excited, but we
are not taking our eye off the ball.
John Alchin: Thank you operator.
Operator: Thank you. There will be a replay immediately following
today's conference call and it will run through tomorrow
night at midnight. The dial in number is 630-652-3000 and
the pass code is 5254738. Once again, the number for the
replay is 630-652-3000 and the pass code is 5254738. A
recording of the conference call will also be available
on the Company's web site. This concludes today's
teleconference. Thank you for participating. You may all
disconnect.
13
Note: The following notice is included to meet certain legal requirements:
FORWARD-LOOKING STATEMENTS
The enclosed information contains forward-looking statements within the
meaning of the "safe harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements with respect to revenues, earnings, performance,
strategies, prospects and other aspects of the business of Comcast Corporation
("Comcast") are based on current expectations that are subject to risks and
uncertainties. A number of factors could cause actual results or outcomes to
differ materially from those indicated by such forward-looking statements.
These factors include, but are not limited to, risks and uncertainties set
forth in Comcast's filings with the Securities and Exchange Commission ("SEC"),
including risks and uncertainties relating to: failure to obtain and retain
expected synergies from the proposed transaction with AT&T Corp. ("AT&T")
relating to AT&T's broadband business, delays in obtaining, or adverse
conditions contained in, any regulatory approvals required for the proposed
transaction, changes in laws or regulations, availability and cost of capital
and other similar factors. Readers are referred to Comcast's most recent
reports filed with the SEC. Comcast is under no obligation to (and expressly
disclaims any such obligation to) update or alter its forward-looking
statements whether as a result of new information, future events or otherwise.
ADDITIONAL INFORMATION
In connection with the proposed transactions, AT&T and Comcast will file a
joint proxy statement/prospectus with the SEC. INVESTORS AND SECURITY HOLDERS
ARE URGED TO CAREFULLY READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE
PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of
the joint proxy statement/prospectus (when it is available) and other documents
containing information about AT&T and Comcast, without charge, at the SEC's web
site at http://www.sec.gov. Free copies of AT&T's filings may be obtained by
directing a request to AT&T Corp., 295 North Maple Avenue, Basking Ridge, N.J.
07920, Attention: Investor Relations. Free copies of Comcast's filings may be
obtained by directing a request to Comcast Corporation, 1500 Market Street,
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Comcast and its directors, executive officers and other members of its
management and employees may be soliciting proxies from its stockholders in
connection with the proposed transaction. Information concerning Comcast's
participants in the solicitation is contained in a filing made by Comcast with
the Commission pursuant to Rule 14a-12 on July 9, 2001.
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