康卡斯特 (CMCSA) 2002 Q1 法說會逐字稿

Good day and

welcome everyone to the first

quarter earnings release 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 Executive Vice

President and Treasurer of

Comcast, Mr. John Alchin.

Please go ahead, sir.

Thank you, operator and

welcome everybody to our first

quarter 2002 earnings call.

Just before I proceed, I would

like to remind everybody about

Safe Harbor disclaimer and

that everyone on this

conference call -- this

conference call contains

forward-looking statements

subject to certain risks and

uncertainties.

I would refer to you to our

10-K for a full list of those

risks and uncertainties as

outlined.

The call this morning, we have

everybody here with Ralph,

Brian, Julian, Larry Smith,

Steve Burke, Bill Costello.

Steve will give you some

additional color on the

terrific results that we have

out of the cable division this

quarter.

Bill will be available for

Q&A on the great results

that have come out of -- out

of QVC. And we will then open

to general questions and

answers.

The results have really been

fantastic this quarter. It is

one of the best ever results

out of the cable division in

terms of revenue and cash flow

growth.

Revenue and operating cash

flow are driven by over 60%

growth in additions of

revenue -- new service revenue

generating units.

In fact, our digital and

online products represented

over 6.8 percentage points of

growth.

That is more than half of the

12.3% growth that the cable

division reported in revenue for

this quarter. And we did this

even though we had a transfer

of 100% or -- sorry, transfer

100% of our high speed data

customers in the first quarter.

QVC results remain very strong

in a rather soft retail

environment. I would refer

everybody to the front page

Wall Street Journal article

this morning that just

highlights how QVC continues

to attract new -- new buyers,

and also people who want to

get their products onto QVC.

Further more, we had a great

quarter in our content

division in the face of rather

soft advertising, with almost

34% growth in operating cash

flow, including our new

channel, G4, which

launched just recently.

The final point I would make

before we go into the details

of the call, is that we have

just about complete the final

documentation on a $12.8

billion bank line of credit

that, along with our existing

lines of $4.4 billion, gives us

over $17 billion of credit

availability to meet the needs

that we have at closing, and

leave us with about $3 billion

of undrawn availability at

close.

But to drill down into the

results. On a consolidated

basis, we reported 19.7%

increase in revenue to $2.7

billion, and 28% increase in

operating cash flow to over

$800 million.

When we adjust those numbers

only to reflect the timing of

acquisitions to present a pure

apples-to-apples comparison,

revenues increased 12% and

operating cash flow, 18.3%.

And every one of our divisions --

cable, QVC and content

divisions -- all reported double-digit

revenue and operating cash

flow growth.

If we drill in then to the

cable division, we reported

12.3% revenue growth to $1.47

billion.

That is up from fourth quarter

growth of 9.1%, up from first

quarter last year, 8.5%.

And as I mentioned a little

earlier on, fully 6.8% of the

points of growth, the 12.5% -- or

12.3% growth that we report

for the quarter, came from our

digital product and our online

data product.

That is up 36% from the level

of contribution made by those

two products in the first

quarter of last year.

Other drivers of revenue

include consistent subscriber

growth at almost 1%, 0.9%, bringing us to a

subscriber count of 8.511

million at the end of March,

adding about 40,000

subscribers in the first

quarter of this year.

Further contribution from ad

sales, which was up 13.6%,

better than the 7% that decline we

had in the fourth quarter of

2001.

So we really couldn't be more

pleased with cable's operating

cash flow growth.

An increase of 13.5% to $598

million for the quarter.

There is a very strong trend

line developing here.

We were up 11% in the first

quarter of last year, 12% by

the time we got to the fourth

quarter of last year, 13.5%

first quarter of this year.

Margin was -- on a pro forma

basis restated for the

treatment of franchise -- new

accounting treatments of

franchise fees -- up 50 basis

points to 40.7%.

That is up from 40.2% a year

ago.

And even if we go back to the old

accounting treatment for

franchise fees, you would

still see an almost similar

increase in the operating

margin.

As I mentioned before, the

single most important driver

in the first quarter cable

revenue and operating cash

flow continues to be new

service, RGU growth.

We added fully 300,000 new

service RGU's in the first

quarter, and over 1.3 million

in the last 12 months.

That is a 59% increase in the

number of 2.25 that we had at

the end of first quarter last

year. Bringing us to a total

number of 3.5 million at the

end of the first quarter this

year.

In the Comcast online product,

our high speed data product, we

continue to see strong demand

despite the fact that we had

to transition 100% of our

customer base from the Excite

At Home network to our own

network in a six-week period.

We finished the quarter with

an 81% increase in the number

of data customers from where

we were a year ago. An

increase of almost 575,000

over that period of time.

I'm sorry, an increase of

466,000 over that period of

time from a base of 575,000 a

year ago.

We finished the quarter with

1.04 million customers.

And if you look at what

happened to our weekly ads

during that period, weekly ads

throughout the quarter were

about 7,000 a week. But if you

drill in behind that number,

you find that in January, we

were adding less than 5,000 a

week.

That increased throughout the

quarter to give us an average

of 7,000.

We are now adding almost

10,000 a week.

So the momentum has really

built from the slow down that

we incurred because of the --

all of the effort that was

required in the transition.

Furthermore, another really

strong development in this

product line is that you see

an 8.5% increase in average

revenue per unit for this

product.

Average revenue per unit

increased to $40.10 from

$36.95 in the first quarter of

last year. But, in fact, if

you look at the increase over

where we were in the fourth

quarter last year, we are up

in excess of 14%, because of

some promotional activity that

was taking place in the fourth

quarter.

So, customers are now paying

us $39.95 for the monthly

service, plus $5 for the modem

if they lease the modem from us,

and over 75% of the base -- of

the customer base do in fact

lease the modem from us.

And now that we are out of the

transition, we are continuing

to see very stable churn in

this product, absent the

impact of the transition in

January, as we wrap up the

quarter and went into April --

into -- yeah, April.

The churn numbers stabilized

at around 1.5 to 2% on the

product. This is a product that

is now available to over 80%

of our customer base.

Out of the 13.5 million homes

that we have, fully 11.3

million homes have access to

this product.

That is up almost a million

homes from where we were at

the end of 2001.

This is a product that by the

end of this year will be

available to 86% of our homes,

over 12 million homes will

have access to the product at

year-end.

It is also a product that we

are seeing rapid improvement

in our operating cash flow

margins.

Operating margins increased

from about 10 to 15% in the

first quarter of last year to

about 25% in the first quarter

of this year. And we believe

that this margin can further

improve into the 30 to 40%

range over the next 12 months

as we continue to increase the

subscriber base.

The four-point improvement --

four percentage point improvement in operating

cash flow growth from the online product reflects

our ability to cut costs from the

level that we incurred when we

were on the Excite At Home

network, where it was costing

us 12 to $13 a month, down to

a level of about $7 to $8 per

customer per month.

Steve is going to say more

about the online rollout

strategy when I wrap

up the commentary on the cable

division.

Digital had another terrific

quarter.

Demand was much stronger than

we expected.

We finished the quarter with

2.54 million digital

subscribers, representing 51%

growth or fully 862,000 additions over the last

12 months from the 1.7 that we reported at the

end of the first quarter last year.

We added over 204,000

subscriptions in the first

quarter, up 29% over the

first quarter last year,

and essentially flat with where we

were in the fourth quarter of

last year. And at the same time,

we continued to hold the

average revenue per unit for

each box at about $10.60, up

sequentially by about 1%.

We have added additional disclosure

in our pro forma disclosure at

the back of the press release

at this time, showing that

approximately -- each home has

approximately 1.3 boxes, and

this now means that we are

disclosing both boxes and

subscribers.

Average digital customer is

now paying us approximately

$14.40, about 9% higher than

the $13.25 we reported in the

fourth quarter -- sorry, in the

first quarter of last year.

The margin on this product

continues to remain very

strong, in the 80 to 85% range.

So, it continues to be a

significant contributor to

operating cash flow.

Just before I pass to

Steve to describe the next

phase of digital and an update

on the online rollout, let me

just reiterate guidance for

the quarter.

All of the trends in the cable

division bode well for a very

strong year in this division.

We have accelerating revenue

and cash flow growth,

declining capital expenditure.

Capital expenditure in the

cable division this quarter, at

$358 million, is down 18% from a

year ago. And in act, our

Cap-x in the cable division

is slightly front end loaded this

year.

We have completed rebuild of

almost twice as much plant in

the first quarter as we had

budgeted some 4,000 -- or 3,800 miles of

an 8,000 mile rebuild that we

planned for this year, was

completed in the first

quarter.

So we finished the quarter

with

83.5% of our plant at 750 or

860 megahertz of capacity, and

we are reiterating our guidance of

1.3 billion dollars for cable

Cap-x for the year.

The acceptance of both digital

cable and the online service is

far outstripping our

expectations, and this is

further contributing to our

confidence in our ability to

meet the guidance at year end.

With that, I will just pass over to

Steve to go into further

detail before we go on to QVC.

Thank you, John.

When we put our budget

criteria together this year

in September or October, we

were looking at a world that

was post-September 11th, and

thinking about the impact of

that on our add sales and the

rest of our business,

consumption of new products,

uptick of new products.

We were looking at At Home

literally disintegrating,

and the need to shift to the

new network. And we were also

realizing that at some point,

without a product enhancement,

digital growth would start to

slow down.

The good news is now, after the

first quarter, it appears in on

all of those measures, all of

those worries, we are in much

stronger shape than we thought

we would be when we put our

budget together.

So it has been, I think, both a

strong quarter with solid

results across-the-board, but I

also a very strong indication

that 2002 is going to be a

better year than we had

originally budgeted a few

months ago.

If you look at the key

indicators that we look at

whenever we analyze our

business, all of our key

indicators are in good shape.

As John mentioned, basic sub

growth of 40,000 during the

quarter, or .9% growth

trailing.

The digital net add number of

203,000 is the strongest first

quarter we have ever had for

digital. And it now appears

that we are going to be

rolling out our Video-on-

Demand product quickly enough

that there is really no reason

that we can see for our

digital net adds to slow down

this year, if we can get Video-

on-Demand out to 6 million of

our 13 million homes by the

end of this year, which is our

goal.

High speed data. The net add

number was comparable to last

year but as John mentioned, it

was really two different

stories. In January -- the first

two or three weeks in January,

we focused 100% of our

attention on getting everyone

converted to the new network,

and getting that network

stabilized.

The good news is, for the last

eight weeks, we have had a

very stable network.

The customer contact rate in

the last couple of weeks,

which is a very good surrogate

for service quality, is

actually lower than it ever

was under At Home.

So we think we are in very

good shape with a more secure

stabilized network. And the

good news is, in the month of

March, after we have made the

transition, our net -- our

weekly net adds were 30%

higher than last year.

So I think as you come out of

the first quarter into the

second, third and fourth

quarter, you are going to see

an acceleration of our high

speed data business, which is

positive both in terms of

revenue growth, but also with

the improving economics that

John mentioned in his

overview.

As it relates to add sales, we

signalled in the fourth quarter

that we thought or hoped that

that was going to be a

bottoming of the add sales

business.

We were down 7% in the fourth

quarter.

We were up 13% this quarter,

and when we look out into the

future, we see that those

positive trends continuing

into the second quarter and

hopefully beyond.

The good news is, the regional

interconnect strategy, which

we have talked about on these

calls before, is really what is

driving this growth.

We were up over 20% in the

regional portion of our

business, and we see that

continuing at the 16

interconnects that we have put

in place over the last year or

so are really starting to kick

in.

So when you combine all

that, it leads to a cash flow

growth of 13.5%, which is also

the strongest cash flow growth

we have had in the first

quarter for a number of years.

Typically our business -- the

programming increases click in

on January 1st, and we take

rate increases through the

year. So the first quarter is

typically lower than where we

would end up for the year.

It is typically our lowest

growth quarter.

So I think we are well

positioned for the rest of the

year.

Our organization, I feel is in

very strong shape.

95% of our plant is rebuilt,

which means we are competitive

in 95% of our plant and we're also

stable.

We don't have the stress and

strain on our call centers and

organizations that rebuilds

bring.

It also means, as John

mentioned, that our free cash

flow for the quarter rose to

almost $240 million.

In addition, all of the

integration work that we have

been doing over the last two

and three years is now

essentially complete.

So we are stable from a

management point of view in

terms of integrating all those

systems and bringing them up

to Comcast's levels of profit-

ability.

So as we look towards some

time in the second half of the

year, merging Comcast Cable

with AT&T Broadband, I think

we are in as good shape as we

could reasonably hope to be,

and we look forward to the

challenges ahead.

John?

Thanks a lot, Steve.

Let's move on to QVC.

As I said at the beginning, for

those of you that missed it,

great QVC article on the front

page of the Wall Street

Journal this morning.

So, congrats to the QVC team

for the results, and to the PR

team for the timing on that

article. Just couldn't have been better.

The revenue increased 12.4% to

$994 million in the first

quarter.

In fact, if you go back and

look at the trailing 12-month

results QVC, over $4 billion

in sales over the trailing

12-month period.

A new threshold for QVC.

The same time, operating cash

flow improved 11.4% to $192.3

million.

Domestic operations delivered

growth of 11.5%, driven by

home's growth of 4%, now in front 73

million homes, and sales per

FTE growth of 7.4%, now up to

$11.46 from $10.67 a year ago.

Cash flow growth in domestic

operations up 11.6%,

consistent with the revenue

growth, and

resulting in bottom line cash flow margins

being stable at 22.6%.

If you look back to the gross

profit margin though, you see a

slight decline down to 36.9%.

But what is interesting with this

number, this is the result of

a change in mix of the

products that QVC has

been selling, selling more in

computers and the home

category, and less in jewelry,

a higher profit margin

business. But if you look at

the trend lines though, still

very, very encouraging. Going

back to '98, the number was

35.1, increasing to 35.6 in '99,

36 in the first quarter of

2000, and the 36.9 in the first

quarter 2002 continues that

very stable upward trend line.

QVC continues to keep very

tight control on both fixed

and variable expenses.

Telecom expenses are

now about a third

more than they were -- a

third less than we were, I'm

sorry, five years ago.

If you look at the numbers that they were

paying five years ago, it was around about 8

cents a minute. That's now 3 cents a

minute, or down from 3.7 cents

a minute in first quarter last

year.

You take into account that in the first quarter

this year, they handled

over 26.7 million calls with a

total minutes of 67 million

minutes, you understand why

having just a marginal change

like that has a huge impact on

bottom line efficiency.

The results out of Germany.

Germany is now in the black

for the first time in the

history of the German

operation.

Very encouraging to see

revenue up 31% to over $60

million for the quarter, and

continued increase in carriage,

up over 1 million homes

in the carriage to 24 million

homes for the quarter. Still

operating about the about 40%

acquireness, given the

idiosyncrasies of television

channel tuning in

that country.

No real news out of the UK operations.

Basically flat in the first

quarter. Revenue at $67.6

million, essentially flat. And

operating cash flow up 5% to

$5.8 million from $5.5 million a

year ago.

And we now have QVP Japan

celebrating its first

anniversary at the beginning

of last month.

Revenue there almost $12

million for the quarter,

running very strongly relative

to the budget.

Moving on to our content

division, great results. 11.8%

increase in revenue, 34%

increase in operating cash

flow, representing an increase

or reflecting an increase in

carriage across virtually all

fronts in the content division.

The numbers for each one. E! seeing a

6% increase in carriage for

that channel, up to 71 million

homes. Style up 85% to almost

20 million homes -- 18 million

homes. Style is now in front of --

with contracts within a couple

of years to be in front of

over 40 million homes.

Golf almost to 25% increase to

47 million homes.

And Outdoor Life, now

consolidated in our numbers,

up 23% to 42 million homes.

Great news out of E!.

On Sunday, March 25, was the most

watched day in the network's

history, driven by record

numbers at the Academy Awards

preshow, a 3.6 rating, over

3.7 million viewers watching

the channel on that day.

Let me wrap up with a couple

of quick comments on two

important items, the free cash

flow that we generated for the

quarter, and just reiterating

the point that I made on

shoring up the liquidity

requirements that we need to

close the AT&T deal.

We generated over $200 million

of free cash flow in the first

quarter of this year. And

essentially all of this is

driven by results out of the

cash flow.

I'm sorry, out of the cable

division.

Cash flow for the cable

division increased over $70

million to $597 million, and

Cap-x declined $155 million.

So, when you look at the

components of free cash flow,

you can see the results of the

completion or, you know, near

completion of the rebuild as

Cap-x declines and cash flow

increases.

We delivered the metric that has

been talked about for so long

in very large numbers. And the

outlook for this year is for

consolidate free cash flow

generation between $750 million

to $1 billion dollars for the

year.

And my final comment relates

to the fact that we have now

arranged a $12.8 billion dollar

new financing to effect the

close of the merger of AT&T

Broadband. And this financing,

along with the existing

availability gives us over $17

billion of availability, and we

will have a need of close

between $12 to $13 billion. So

we should have a comfortable

cushion over and above the

availability that we have

secured.

With that, let me pass to

Brian for some closing

comments before Q&A.

Thank you, John, thank you,

Steve.

A fantastic quarter, and I

think reaffirms our belief and

commitment that this is a

fantastic industry, and Comcast

management team in the cable

division and in content and in

QVC and in the corporate group,

I couldn't be more pleased and

proud of where we are at.

As we embark on what is

clearly a major challenge and

a major opportunity, as we get

further along here toward

closing. AT&T Comcast and

making it a reality.

We -- talking about AT&T

Broadband, we were obviously

disappointed with the cable

subscriber losses that they

reported. But in the big

picture, I think the current

management team is doing a lot

of the hard work that we all

knew needed to be done to

begin to move this massive

operation in the kind of

direction that Comcast today

enjoys. And that involves

redesigning the digital

package, rebuilding customer

care, beginning the

cost-cutting effort which they

announced that they reduced

the work force, and restarting

and really re-energizing the

all-important rebuild program

to get their plant at the same

level that our plant now

enjoys.

But they are a small team

of -- a handful of senior

experienced cable executives

who AT&T brought in, led by

Bill Schweir and others. But

we can expect and count on

building on their efforts once

our really army of

infrastructure, 250-plus

strong, is able to work with

their existing system

management and their team to

put the best possible team on

the field. But it will be a

much, I believe, accelerated

program of getting the

business moving at a direction

that we want it to end up

being at.

But there is nothing that I

see that deters us on our

basic concept, which was a sub

is a sub.

When we made this transaction, that

was basically how it was

valued. And when you get to

22-plus million customers, and

you talk about how to

integrate it, you don't go

that with 22 million at a time.

You break it into small units,

and that is how we are going

to approach it as we begin the

post-merger planning process.

But the most important metric

in analyzing the business is

the network rebuild. And they

have properly focused on

getting that cranked up to

begin to improve not just

system reliability, but overall

competitiveness. And that is

what, as they pointed out,

seems to be distinguishing or

differentiating them from

everyone else in the industry,

and the sooner that rebuild

completes, the better.

And we are committed to that.

But when I step back and

certainly take any questions

on any subject, John's

absolutely right, all the

business fundmental metrics

are, -- you know, this is a

fantastic moment for the cable

industry, and it is ironic

given where the marketplace is

right now.

This is the highest revenue

and highest cash flow growth

we have ever reported in the

last five years. And at the

same time, the new products

are selling better than we

even thought ourselves.

And it's only the first quarter.

So, with that, let's open it up

to questions. And we have

members of all the senior

management, as John said, to

take your questions.

Thank you, sir.

Investors wishing to ask a

question may signal us by

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numbers.

And our first question today comes from

Richard Greenfield from

Goldman Sacks.

Please go ahead.

When you look at the number

of boxes for digital that you

are shipping or selling per

home, it looks like the number

was about 1.8 boxes per home

versus your aggregate

was about 1.3, 1.4.

Is that a trend in terms

of really focusing on driving

multiple boxes that we should

expect to continue, and what

does that mean from a pricing

standpoint? Or is it really

more of the new product you

have added to digital, like VOD

and et cetera?

The second, you mentioned $240

million in free cash flow.

John, could you just give us a

little bit of clarity on how you

get to that number, and how

much is cable, and how much is

QVC, et cetera? Thanks.

Okay. Steve, you want to handle

the box, and then I'll do the free

cash flow number?

Sure.

I'm not sure where you're

getting the 1.8 boxes per

home.

The -- I think the real number

is more like 1.3.

That is the number if we

look at just the first quarter,

the results there, Steve, show

that the additions for the

first quarter have customers

coming on with, on average, 1.8

boxes.

I understand.

Okay.

So the basic strategy on

digital that we have right now

is to continue to extend

digital with the existing

assortment, and then in the

second half of the year to

really start to push Video-on-

Demand.

And our feeling is that is

something that is going to

happen at exactly the right

time when we would normally be

plateauing digital.

For the first quarter, what we

did is sold a certain number

of AO, additional outlet

units, most of which were at

$6.95, to sort of further

solidify our very top end

customers. And we'll continue

doing that in the second or

third quarter.

But we to would see that 1.3%,

1.3 boxes per home average

maybe nudge up a little bit,

but not dramatically.

Yeah, one of the things we

are not sure of, Rich, is what

was that number in first

quarter last year?

We put this out as just

additional disclosure, because

others were doing it this way.

But what is really, really

important to us is to measure

the average revenue per unit.

And, you know, in the fourth

quarter, average revenue per

unit for digital boxes was

about $10.45.

And here we seen an increase to

$10.61.

So, however these box are

selling, on average across the

entire base, we are generating

$10.60 of revenue per box for

each and every box.

To hit the question on the

free cash flow, $212 million,

that is after gross Cap-x of

$399 million, cash taxes of

about $30 million, and net cash

interest of $167 million,

delivering $212 million for

the quarter.

That is split approximately

50/50 between cable and QVC,

with virtually 100% of the

growth in that number coming

from cable, because of the

metrics of increased cash flow

and declining CAP-X, as I

described in the formal

comments.

Let me just close with one

other point on that question.

One of the things that we have

now gotten better at is

something that is intuitive

but took -- it requires a lot of

training and having your

operation up, and is having the

call centers sell the new

products.

With the amount of volume of

phone calls that we take, that --

for new customer orders we

keep track of something called

the DSI, the digital

selling rate.

Our DSI was over 40%.

So, whether we are

better off selling

multiple sets of digital or

higher product, these are -- there is no

real sales commission, no

marketing costs. Our HSI, our

high speed selling rate, is now

over 10%. So, all the people

calling up to get cable

television, we are selling

the new products much better.

And that is something we track

every month in every call

center around the country. And

that may also contribute to

our ability to now be moving more

of these boxes, both first and second

set boxes, and high speed data.

Thanks a lot.

The additional disclosure is

really appreciated.

Thanks, Rich.

Next question?

I have Niraj

Gupta from Salomon Smith

Barney.

Please state your question.

Hi, good morning.

First question. John, you

talked about how the -- just the

provisioning costs were down

to $7 to $8 a month, which

is largely consistent with

what you guys have been saying

recently.

Could you give us a sense of

what an all-in inclusive

incremental cost for each high

speed data customer is, if you

include marketing?

Could you guys take a stab at

that? And I guess the other two

questions is, given what we saw

with respect to the QVC

domestic margin in the first

quarter, i.e. flat year over

year, should that be the

assumption we carry for the

balance of the year? Or

should we expect, you know, a [INAUDIBLE] modest

expansion on the top line?

And lastly --

Niraj, how many parts are

there to this question?

Just three, John, so this will

be the last one.

On QVC, second question is, do

you guys pay cable [INAUDIBLE] up

front distribution fees each

year like HSN does? And if so --

in addition to your 5% of

revenue. And if so, how do you

guys treat that? Is that

something you guys capitalize

and amortize below the EBITDA

line, or take through your cash

flow line?

Thanks.

Let let me handle the data

questioned, and the up front paying question on

QVC. Or maybe I can give it to Bill as well,

and have Bill handle the

margin part of the QVC

question.

If you look at the data

product, we generated all in,

including acquisition costs

and everything, approximately

25% operating margin. Reflecting

a month or six weeks of so of

having relatively smooth

operations on our own network.

That's an operating cash flow

margin on that product that we expect to continue

to see improvement throughout

the remind over the year on a

run rate basis. We are

currently probably just north

of about 30, 33%, and by year

end, we expect that number to

increase to about 40%.

So without getting into any other

break down, that is the

profitability that's coming out of

that product.

Our business in QVC, and I will

have Bill kind of add further

color to this, is a retail

model driven by a 5% commissions

to each of the MSO's who carry

the signal.

It does not rely on other

launch payments or anything

else that is made.

Anything else that is done in

that model is all relatively

immaterial to the overall

scheme of things, which is

driven by the 5% commission

line.

Bill do you want to pick up

anything else on that, and also

add color on the margin?

Yeah, I think that is

correct, John, with regard to

the launch fees.

Once in a while -- you know, every

agreement with the cable

operator is different. And once

in a while, we might give some

additional payments for

channel placement. And if we do --

as John mentioned, it is not

that material -- but when we do

that, that would be for

getting a lower channel

position, if you will, over a period

of years. And that would be

amortized and included below

the line. It is not really a

launch fee, per se.

With regard to the question on

the margin, and I assume you are

talking about our EBITDA

margin, you know, which was flat. 22.6%

this year versus 22.6% last year.

Assuming we hit our top

line goal, which is revenue

increases for the base and

qvc.com business, in the low

double digit area, we should

see some improvement in the

margin improvement and the --

in the EBITDA margin. But I

would expect somewhere in the

area of 25 to 35 basis points

throughout the rest of the

year.

We won't see the phenomenal

increases that we have had in

the past, because I think that

we are operating the business

right now at a very, very high

efficiency rate. And all though

there is some other cost

benefits to be had, we have

really done a good job over

the last several years of

bringing out as much as we

can.

So I think the leveraging of

the fixed cost over a higher

revenue base, should continue

to boost our margin, bottom

line, EBITDA margin by about 35

basis points a year.

Thanks a lot, Bill.

Next question, operator?

Our next question

from Jeff Dorsey from Wellington

Management.

Please state your question.

No question, sorry.

Thanks, Jeff.

Next question?

Our next question

from Richard Bilotti from

Morgan Stanley.

Please state your question.

Good morning.

Obviously, margins improved

in the overall cable business.

And some of that is the

acquired properties from last

year.

But one you didn't mention

on the call was programming

costs, and I'm specifically

interested in understanding,

now that you're almost done

with the rebuilds, what

are your programming cost

trends looking like going forward?

For instance, are program cost increases on the

basic, or the video side, lower in systems that

have been rebuilt, where you are no longer adding

channels? Does that apply therefor to next year?

Meaning, when we look [INAUDIBLE] in there are

no new launches on the analog side, do we see

some abatement of the growth of programming

cost pressure? I'm talking about basically,

programming cost trans X whatever savings that

you might get from the AT&T merger. More related

to your channel addition strategy and the

underlying organic growth of programming.

Okay, this is Brian.

Let me take a shot at that.

I think you're absolutely right

that when the rebuild activity

abates -- and I don't have a

specific breakout done that

way -- the Expanded Basic, if you

will, which is not then adding

lots of new products, will

logically begin to

slow down. And I think we've, you know,

seen some trends that are --

that are encouraging. But what

is really part of the equation,

is constantly trying to tweak

the digital to come up with

more and more appealing

digital content, such that the

digital package can continue

expand in its revenue, as John

was outlining earlier, each

year.

And so we have found ways -- we

have layers of digital.

We have Digital Basic and

Digital Plus. And now we are

beginning -- and what I'd like to

shift that question to a little bit,

if I might, is our excitement

with VOD, Video-on-Demand.

We really see somewhat of

a replication of the cable

model, and perhaps an

improvement on, if you will, the

internet model.

And that is that there will be

three buckets of VOD content.

For years we have all

talked about movies on demand.

And we are making great

progress -- and think we'er going to

see some announcement this

week and next -- on major studio

relationships with various VOD

providers.

Which is going to [INAUDIBLE]

our benefit.

But impulse on demand product

is one bucket.

The second bucket is

subscription VOD, which is -- you know, the

best example is if you buy

HBO Plus -- whether we charge

more for that or not is a

separate issue, or they

charge us more or not is a

different question -- you can

access any of the HBO movies

or Sex and the City, or

Sopranos, any time you want,

and maybe earlier than it's

broadcast.

And these kinds of experimentations are

going to be very exciting.

But the latest category is what we

are calling "Free VOD", or free

video on demand.

Where if you come into digital -- and this

is what Steve was talking

about. Giving folks a reason to

take a digital box who maybe

don't want to subscribe to HBO

or Starz or Showtime, or who

haven't yet done movies on

demand. That in our 1500 hours

of content that we can put on

a digital server that we'll

have running this summer in our first market,

750 hours of that 1500, we are

going to offer to the same

content companies you are

talking about in your question.

To say, would you like to take,

you know, the best

biographies on A&E and have

them available to customers,

including the commercial. Or

would you like to have the

nightly news broadcast

rebroadcast any time the

consumer wants it, until the

next night. Or a sporting event

that they couldn't watch live,

but they want to get it any

time. It's a controlled

personal video recorder, where

there is a relationship

between the content company

and the cable company to create the best

of experience for the consumer.

And in that mix -- and

the reason I bring that up now --

if you take the combined AT&T/Comcast, around

$3.5 billion of content purchasing, can we

find ways -- win/win ways, to

expand the content to this new

platform? Do it in a way where

we begin to get the consumer

to want to buy or want to push

the okay or the buy button, and

pay nothing for it.

If you look at the internet,

every time you clicked, if it

cost 10 cents, we all

would not be out there surfing

the net the way we are today,

where it is "Free."

And think that it is a marvelous

model that we are now in

conversations with the content

company.

So we don't break out the

relationship just by Basic or

VOD or new launches or now

digital. It is a relationship at

how to make the best value add

using the cable technology to

expand their reach and to make

a compelling consumer

proposition.

All in all, we are quite

satisfied with the progress we

are making, look forward to

testing this new product this

summer.

Thank you very much.

Next question please,

operator.

Our next

question comes from Jessica Reese Cohen

from Merrill Lynch.

Please state your question.

Thank you.

Your data growth was

phenomenal.

Where do you think peak

penetration as a stand alone

ISP will be, and how much

further can multiple ISP's take your

business?

And can you also comment on,

given the growth in margins

throughout the year, what do

you think peak margins on this

side of the business will be?

Well, let me kick it over

to Steve after one up front

comment on data growth,

because I think you are

absolutely right. Given the

transition -- and in fact, if you

look at the weekly add rate in

January was -- John?

We started out at less than

5,000, and we're now doing very close to

10,000 a week.

So the trend is only

getting better.

And one of our problems,

Jessica, is really knowing

where does data, where does

digital end?

Our goal is to keep coming up

with compelling propositions

in the description of the product

that just makes that

answer unlimited or

unanswerable at this moment.

So what are we going in data?

Well, one thing would be multiple

ISP's.

And we, as you know, announced

United Online, NetZero, AT&T

Broadband announced Juno, and

a regional Massachusetts ISP,

we really do believe that if

the -- again, in a win/win,

non-governmental mandated way,

multiple ISPs can help us.

We are working with other

broadband content, just as

with VOD to enhance digital,

whether that is VoiceOver IP,

or whether that is folks like

Real Networks and what they

are doing, or whomever, we want

to create the experience. But

the first job was to stabilize

the network, to get it to

perform better than the At

Home network was performing,

to allow us to have multiple

ISPs, and finally, probably

most importantly, was to get

it to DOCSYS 1.1, so that we

can begin to differentiate the

experience by charging people

who are interested in more

consumption, more -- and people who are

interested in more speed, or people

who maybe interested in always

on but not high speed, less. And

to have, you know, bandwidth

on demand. And to also have the

ability to have two-way at

higher bandwidth rates, which

is what Cable Labs is working on.

All of that is what was the benefit of

this painful conversion that

we had to go through, and I think

we did a fabulous job.

Steve?

Well, if you look at our

mature markets, we have

penetrations significantly in

excess of 20% now.

We also have in many of our

markets, our online sell in

rate. In other words, the

percentage of people who are

new to cable who have moved in,

who also take online, is over

20%. So I think going over 20%

for the existing configuration

should be no problem at all.

We look at this in a similar

way to digital, in that you

keep evolving the product, and

you need each evolution to occur

before the lifecycle starts to

flatten.

And the type of things we are

working on now that we have

our own network, Brian

mentioned tiering, introducing

a tier above the $45

rate. And also eventually

introducing a tier below.

Although I think you have to be

careful with cannibalization before you do that.

Multiple IP's we see as being

additive to the business.

I think the track record at

Time Warner Cable with EarthLink

and AOL would suggest that

they really are getting a lift,

so we are excited about that.

And then new products. Home

networking we think is clearly

an opportunity to get an extra

$10, $15, $20 a month in

recurring revenue.

Security, we had some ideas on a

security product. And then

audio, gaming, streaming media,

et cetera.

And I think the idea is, as with

digital, once you get a cable

modem in someone's house that

is just the beginning. And you

keep refining and making the

product more rich, so you can

layer on more revenue and

drive penetration deeper.

Next question --

Thank you.

I'm sorry, Jessica.

Next question please, operator.

Our next question comes

from Raymond Katz from Bear

Stearns.

Please state your question.

Yeah, good morning.

Two things.

First of all, digital

penetration looks like it is

going to be close to 30% by

the end of year, and

I'm sure there are systems

where you're at that now.

Could you talk to us about

spectrum -- analog spectrum

recapture?

Can you start that soon if you

are 30%, and you're pushing all

your premium customers now

onto digital?

Can you get that recapture

soon?

What should we expect rolling

forward, say a handful of

years?

What would you use that

spectrum for?

And Brian, can you just

elaborate a little bit more on

the model VOD that you talked

about, specifically with

movies on demand and release

windows?

Steve, go ahead.

Well, in terms of digital

penetration growing, and

recapturing analog spectrum.

Our feeling is that the cable

business is a gradual business

So what's been happening to us

as we have had individual

systems reach penetrations up

in the 25, 30% range, is we have

started to recapture analog

spectrum already. And we have

done it, we have taken back

pay-per-view channels, we've taken

taken back in some cases,

analog pay channels, and so

that is a process that has

been occurring.

That process will accelerate

as digital reaches a higher

penetration level. In terms of

uses, I think the most

immediate major use is going to

be video on demand, where we

have allocated four analog

channels to video on demand,

but have a feeling that our

video on demand product, as

Brian described, could be

robust enough that you may

went to allocate more than

four analog channels. Which I

think ultimately would be a

good problem to have, because

it could would indicate that

simultaneous usage would get

above 10% and into the 15, 20,

25% range. Which would

indicate that the product

would be going into a

completely different level of

attractiveness, which after

all is really the purpose of

the on-demand

strategy that we are looking

at expanding.

I think one of the things

with movie windows is,

obviously, the desire in the

cable industry to over time

find a model to move them from

where they are today, closer

to home video.

And in some event type cases, even

try to play around with some

special events only on cable

where, who knows, maybe it's

earlier or sneak preview or

whatever.

In order to do that, we have

got to get the product going.

And I think we are going to

show some real progress in

that regard. And the model will

allow for the studio, movie by

movie, company by company, to

determine if it wants to begin

to experiment with different

ways of making this more

attractive.

At the same time, what we are

talking about in the free

world, is getting people used

to pushing and getting what

they want now.

Give them a sample, give them

something that they want. And

of course with the broadcast

network, if I just did 60

Minutes, I'm throwing it away

until next week, and it doesn't

have a shelf life value, and

they can resell the

advertising and [INAUDIBLE] up their

rating. Isn't that something,

and to advertise their network,

why wouldn't we want to offer

that product? And that gets

people used to click and watch.

And then one day they see

a movie, they click and they

buy.

And I think it is --

if you could do the Internet

all over again, you would have

a lot of surfing around, and you'd a

lot of levels of clicking that

would have some fees. But

the free nature of it is --

was critical to its success.

And think that is a little bit

what we are thinking about

while we are waiting for the

volumes and the dollars to

allow for more meaningful

events to premiere on cable.

Next question please,

operator.

Our next question

from Allen Gould from J.P.

Morgan.

Please state your question.

Yes, thanks. Two questions.

[INAUDIBLE, POOR AUDIO ON QUESTIONERS END]

Allen, we're having trouble

hearing you. Can you speak up?

Is that better?

Oh, that's way better, thank you.

Okay. Can you tell us a little

bit about the debt line that

you have? What the average

interest is, what the debt

maturities are? How much

you plan to eventually have fixed

floating? And secondly, when do you

expect your price increases of

basic cable to be this year?

Steve, want to handle the

price increase?

I think most of that is through

already.

Yes, I think in terms of

price increases we'd be in the

same range that we have been the

last few years, which is 5 to

6%.

And those went in the first

quarter, Steve?

No, those come in throughout

the year. We have a lot of increases

in the August through November

timeframe, they sort of come in

[INAUDIBLE].

We don't have a particular day

and time when all $8.5 million

subscribers take increases.

It comes in over time.

And Allen, our average cost of

debt is under 6%. At the end of the

first quarter, it was about 5.89%.

We have a relatively high

ratio of fixed to floating at

the moment in the 85 to, you

know, 15 range.

I think going forward, you know, we -- that is

something that we manage

constantly. We have had ratios

more consistently over time in

the 60/40 range.

Obviously, what we draw down at closing

of the merger, at the outset,

absent any activity in the

bond market in anticipation or

in advance of closing, would

result in initial drawings

being 100% floating, taking

this number down dramatically

from the 85/15 that we are at

now. And then subsequently, if

we did any bond offering into

the marketplace, we'd have the

ability through hedging to do

swaps back from fixed back to

floating.

So, somewhere between, you know, 60/40,

75/25 is where we have

historically been.

Okay, thank you.

Next question please,

operator.

Our next question

from Tom Wohldean from

Sanford Bernstein.

Go ahead.

Good morning, gentlemen.

Related in two parts.

One, how you are on maturity of

the debt going forward. And

secondly, does the fact that

you have resolved the cash

needs for closing, are you

okay for the next -- the

following year for your cash

needs, and does all of this

reduce any pressure on

you to try to do a fast

resolution, perhaps having to

pay taxes [INAUDIBLE]?

Sorry, Tom, I did not mean

to duck the maturity issue.

We have very modest maturities

on our own balance sheet in

the '02, '03, '04 timeframe.

The facilities that we have

put in place for the AT&T

merger are involved financings

that are about 50/50 split

between longer term, sort of

two to five years, and short

term being 364 day facilities.

The 364-day component of the

financing arrangement is

directed primarily at giving

us a bridge into the bond

market. And, yes, the financing

that we have arranged takes into

account virtually any need

that we conceive from here

through about the next 18 to

24 months. And, Brain?

Yeah, I don't want to comment on

[INAUDIBLE] publicly, except that we are

hopeful to get a, you know, private

resolution. But that

conversation I think is best

left to private discussions.

It's ongoing.

Do we have one last

question please, operator?

Our final question

from Michael Kapenski from A.G. Edwards and Sons.

Please go ahead.

Thank you.

With the company's focus on

advertising, given the merger

and the platform you had so

eloquently talked about, how

interested in getting those

L.A. systems and consolidation

in the L.A. market, especially with

the prospect of

having Adelphia L.A. Systems

on the market?

I know that AT&T owns an

interest in those. Could you

acquire those Adelphia Systems

prior to the approval of the

merger? And are lawmakers

looking at the aggregate

number of subscribers given

the AT&T partnerships and

ownerships that you might have?

Could you roll out some of

those companies and systems

without the ire of Congress?

And, so maybe if you could just give us an update

on maybe some of your hearings, what the

senators had concerns of

yesterday?

Right, last week -- this is

Brian.

Let me say that we were, you

know, what you are referring

to is the Senate Judiciary

Subcommittee hearing that took

place on the merger, and people

have to draw their own

conclusions. Although, a

number of of the senators

commented that they

did not see an anti-trust issue

with the merger.

So, we were pleased with that.

And I think it was a very good,

fair hearing,

and do not anticipate anything

that would have changed our

estimate of when the deal will

close. If anything, we are

hoping to make it happen a

little sooner not a little

later, not a little later.

But we will stand by our

estimates at this point.

Rather than get nothing any

specific market and potential

transactions about other

companies, I would just say

that the government, I think,

is looking at it in aggregate.

There could be lots of

swapping that goes on.

We are not any -- at this

point, we have plenty to work

on.

If we can make it less markets

with more concentration in

those markets for the way we

run the business in the

clusters, that is always

desirable.

Whether that is adding one

particular cluster or getting

out of a particular cluster

and adding systems that are

contiguous somewhere else,

we'll leave that to others. But

we are not looking at anything

except how to get the new

company to have the kind of

margins that our company today

enjoys, with the kind of new

product success and with the

kind of focus on operations

that I think has made results

like today possible. That is

really where we are focused.

And any one individual market,

you know, is not the center

of attention at this point.

Thank you all.

We are available for anybody

who has any followup questions.

So look forward to another

great quarter and a terrific

year.

Thank you.

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 5605377.

Once again the number for the

replay is 630-652-3000, and the

pass code is 5605377.

A recording of the conference

call will also be available on

the company's website.

This concludes today's

teleconference.

Thank you for participating.

You may all disconnect.