康卡斯特 (CMCSA) 2002 Q4 法說會逐字稿

Good day.

Welcome to the fourth quarter and full year 2002 Comcast corporation conference call.

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, Mr. John Alchin.

Mr. Alchin, please go ahead sir.

Thanks operator.

It's great to welcome everyone to our first call since we closed the AT&T Broadband acquisition.

While the balance sheet and the P&L may look a whole lot larger, we have the same team here to review the results with you.

In fact, Ralph and Julian are here and look as confident as the day they acquired [inaudible].

In addition to Ralph and Julian, we have Brian and Steve, who will be walking you through the slide presentation that's available on our website, along with Larry Smith, David Cohen and a whole host of people available to answer questions after the formal presentation.

With respect to the slides on the website, we're going to try to remind you to click with us as we do the presentation.

If you don't, you can follow along from the website directly.

Let me remind you of the safe harbor disclaimer included in slide No. 2.

The conference call will contain forward-looking statements subject to risks and uncertainties.

You can you refer to the company's filings with the SEC for a list of the risks and uncertainties.

At this point let me pass over to Brian for opening remarks.

Thank you, John.

This is a historic day for us, and I am very excited with what we're about to lay out and, hopefully, we'll do so in great detail.

If you look at the first slide, we begin with Comcast historical, which, obviously, ended on November 18th.

As best we look at the consolidated results for the full year, we can confidently say we met or exceeded all of our financial goals in 2002.

It was a great year.

Revenue, on a consolidated basis, was close to 12% and EBITDA for all various parts of the company would consolidate to 18.6% growth.

If you turn to the next slide, you can see how that breaks out.

We had a 10% to 12% cable revenue guidance, and we grew 12.2%.

The EBITDA was 12% to 14%.

We came in around 12.9%, but, as footnote 2 demonstrates, between the third and fourth quarter, we had between $7m and $10m of one-time deal-related transition costs that were eaten into the cable EBITDA.

That would be Steve Burke and his management team going and visiting all the various properties, various people beginning to incur costs as they plan to relocate.

If you add back just $7m to $10m, you get a 13.8% EBITDA growth for the full year, which is at the high end of the 14% range.

The cable business, we were quite pleased with the year '02.

QVC, another outstanding year by almost any measurement.

The strategy of building around the world, including now Japan, if you look at QVC revenue, 11.8% growth, EBITDA 18.7% to $858m of EBITDA.

Even if the guidance was excluding Japan, we would be at the high end with 16.1%, excluding Japan at 18.7%, including Japan for EBITDA.

The content division, in addition to having new developing networks like G4 and Outdoor Life had a fantastic year as well, 25.7% EBITDA growth for the year.

Excluding the developing networks, that would have jumped all the way up to 40%.

So as I begin, you've got to just take a moment and look at '02 without any acquisition.

It would have been the best year we had in the last five years measured by so many ways.

Of course, the real story and what I want to focus on today is how is the integration going and giving you our first public comments on the integration since, really, announcing the merger.

We had a long period of time where we were able to -- if you turn to the next slide -- to plan for this integration, and one of the reasons that, personally, we can today express great confidence is that we have waited until 60 days into the new year to make sure we have uncovered those things that would cause any problems, and, most of all, is that this is a cable company acquiring another cable company.

We are very focused on the cable business.

We had nine months of preparation.

We have done this before.

We've had five acquisitions in the last three years, doubling the size of the old Comcast, and in each case within two years we've been able to achieve Comcast cash flow per subscriber and Comcast margins within, approximately, two years for all of those acquisitions.

The track record is there and, as John said, the same management team, led by Steve Burke, and so many others, are hoping to do the same thing here.

And the early results are very, very promising.

If you turn to the next slide, is what allows us to, therefore, offer the following key guidance.

John will go into even more guidance and more metrics on his part.

Let me tell you what I believe the priorities are in the way we have designed the budget.

First, EBITDA will go to $6.2b to $6.3b.

If you take the combined AT&T Broadband and Comcast for the year '02.

Again, it is hard to be perfectly precise because of one-time costs at AT&T that involved the deal, and some of the workforce reductions.

But if you best -- best guess is $4.9b of combined EBITDA for the two companies.

We had previously said we thought the combined enterprise should grow at least 20% a year.

If you do that exercise, you, obviously, get just shy of $6b.

If you take the midpoint of the 6.2 to 6.3 range, let's call it $6.25b, that is, obviously, closer to 28% or so EBITDA growth and substantially more than 20% growth.

Number two, the combined margin for the new Comcast will be 36% all inclusive, if we make approximately the $6.25b or 6.2 to 6.3 range.

So first point, which was job one, was to take kind of the low 20% margin AT&T business and move it into the low 30s, and that is being done and probably even further -- clearly, this is higher than we have previously suggested would be possible in the first year.

Steve will detail how we are accomplishing that, but it is vast majority expense related and expense savings related, and of that, it is the vast majority workforce and just a different philosophy of management in terms of de-centralization versus a centralized structure.

I'll leave it to Steve to take you through more detail.

Second point, critical to stop or stem the loss of basic customers which, last year, were more than 500,000 at broadband, and on a combined basis, we wanted to slow that trend.

We are more pleased than I even thought with the ability to make a statement that we actually are going to give guidance for '03 of the stable outlook, that the same customers we end the year with in '02 we end the year with in '03.

There will be no more loss of basic subscribers.

We are hopeful -- you'll see in the first hundred days we have made dramatic inroads in that trend.

We will show you some detail on that.

But both bullet one and bullet two are the single most important things, in my opinion.

It was an alarming trend.

It needed to be dealt with.

The focus, moving 150 executives in and now having visited all the markets myself, when we talk to any employee in a place and you say, what is the number one priority, it is getting basic subscribers.

So we are pleased with that report.

Third, new products.

Particularly high-speed internet are growing and accelerating from what we thought in '02 so that we are able to give guidance for the combined company, which John will detail.

But if you add it together, it will get you to about 5 million high-speed internet customers.

When we saw that number at management, it struck us for the first time that that really makes us the most unique broadband internet service provider in the world and, probably, the most with only a broadband focus.

Of course, behind AOL and Microsoft network, in terms of all people who provide connections to the internet, and the business opportunity that will come from our acceleration of broadband and our investment in broadband will pay dividends to come.

We are expecting a very strong year.

We have put a huge focus on selling high speed data.

Finally, in terms of the guidance that I think is critical is the work that's been done to accelerate the rebuilds so we can make the following statement. 93% of the new systems will be upgraded by year end '03 and substantially complete by '04.

That is a much higher number than what I had thought we could get done this quickly.

When we first looked at the project but we have the biggest rebuild under way in the history of the cable industry for 2003, and the best part of it is we've been able to negotiate the rates and the contractors such that we are able to, today, give more specific guidance for capital spending that, in the $4b to $4.5b we previously said we thought the year would be, we're going to revise that toward the lower end and closer to the$ 4b.

Not only will it be further along, it will cost less to get there.

We are quite confident that we can do this.

Obviously, it is the end of February.

We've got a couple months under our belt, and we think this is off to a very fast start.

With that, let me turn it over to John.

Thanks, Brian.

I'm going to move fairly quickly through the next few slides and minimize the commentary on numbers so that we can pass to Steve to talk about strategy.

First of all, on slide No. 9, just highlight here that the reported consolidated numbers don't have a lot of meaning in that they're a comparison of apples to oranges, given that six weeks of AT&T Broadband cable system operation included in this.

What we're presenting on this slide is a comparison of pro forma numbers that are pro forma only to show the acquisition as though it were made on 1/1/02.

The numbers on that basis show EBITDA up 15% for the quarter, 19% for the year.

If we flip to the next slide, one thing I want to draw your attention to here is we're showing a segregation of historical Comcast and AT&T Broadband revenue and cash flow.

We're only going to do this for this quarter and four quarters next year.

We'll not be showing this segregation of the business in 2004.

The reason for that is this is not the way in which the business is managed.

The business is managed on a consolidated basis, so to come up with this segregated presentation, we have done an allocation of overhead based on the number of subscribers, applied it to what used to be historical Comcast and AT&T Broadband to do this presentation.

On this basis, we're showing cash flow for the fourth quarter in Comcast up 12.2%.

If you add back the $7m to $10m that Brian referred to, and for the full year of $2.56b, if you add back the $15m to $20m of charges associated with the acquisition for the full year.

Moving on to the next three slides, on these three slides, Steve will take you through the strategy for digital, data, and phone.

The only thing that I want to highlight here is in digital we finished with 6.6m subs on a combined basis, up 1.5m subscribers.

More importantly, historical Comcast exceeded our guidance.

We had guidance of 7-800,000.

We came in at almost 820,000 for the year.

With high-speed internet, again, historical Comcast exceeded our guidance, even more significantly in this category.

We had guidance of 400,000 to 500,000.

We came in at 578,000.

With respect to phone or telephony, we finished with 1.4m subscribers, up 390,000 for the year.

What you should expect for 2003 is a complete focus on cash flow contribution and not unit growth.

This will have an impact on 2003 revenue growth.

We've reported for 2002 that we saw a revenue increase of 62% to $818m.

Growth for 2003 will come in margins, and in profitability.

The -- moving on to the next point, then, with respect to the rebuild.

Slide number 14 highlights that, again, historical Comcast delivered on our $1.3b target for Capex for 2002, and we finished the year with 95% of our plant now two-way.

We're now in great shape to deliver on our target to complete the rebuild on a combined basis by the end of 2004.

By the end of this year, 2003, we'll have rebuilt almost 45,000 miles of AT&T Broadband plan, taking their two-way plan percentage from 73% to 90% two-way.

And if you put to the next slide No. 15, you see even more good news, as Brian outlined, with the rebuild and Capex being completely studied at this point.

We are revising our Capex outlook for 2003 to $4b.

The absolute lower end of the range that we had previously announced.

We have done this for a couple of reasons.

We have the experience of rebuilding 170,000-miles of our own plant, and with that experience under our belt and all of the budgeting and detailed analysis of the 65,000 miles of plant of AT&T Broadband that has to be rebuilt, we fully under the timing and the costs of this rebuild.

This, obviously, has an implication on our free cash flow as well.

One point that I did forget to mention earlier that we also delivered on the target 800 to $1b of free cash flow.

We delivered from Comcast historical $1b of free cash flow in 2003.

Just a couple of brief comments, then, on -- 2002.

I'm sorry.

A couple of brief comments on QVC and our content division.

QVC, as Brian mentioned, gained in excess of the targets that we had for the year.

The revenue growth in the fourth quarter reflects the slow economy in the U.S. and the strong comps in 2001.

Revenue of 1.15 was up only 6% for the year, but they continued to watch costs and improve margins.

We delivered EBITDA of 263, up 13.7% for the quarter.

The reason for this is while there is some slowness in the domestic market, we've got very strong results out of the international market.

Germany reported a great year for the full year 2002.

They reported cash flow of $6 million.

This is a complete turn-around from 2001 where they reported a loss in cash flow for the year of $7m.

Also, in Japan we anticipated fairly significant losses in the start-up of those operations of approximately $20m for the year.

In fact, the losses came in at only $3m, and we expect, in its third year of operation, that Japan in 2003 will be break-even, giving rise to the guidance that we have for 2003.

On the content front, the content division is continuing to report very strong results.

Our established brands at E! and Golf had a great year, and the team at E! has made terrific progress in developing and distributing their new channel Style.

Also, the team at G4 and OLN have made great strides in developing brands for their target audiences, and they're delivering 2003 guidance, which will be high single digit revenue growth and mid-to high teen EBITDA growth.

Let me make a couple quick comments on the balance sheet and the debt profile we have.

If you move to slide No. 18, we're reporting here a debt profile that shows debt of $29.5b.

If you add short-term and long-term debt on the balance sheet, you'll see a total reported of $35b as we indicate in footnote number 1 on this slide, this excludes $5.5b of notes that are exchangeable into common stock, and those liabilities are completely satisfied with deliverance of that common stock.

So what we face, then, in 2003 is a funding need for short-term debt of $7b in total, as shown in the current portion, but netting out of that amount $1.6b.

The funding need in 2003 is $5.4b.

Given we expect to be free cash flow break-even in 2003, 5.4 as we show on the next slide, number 19, is the funding need that we have for the year.

We've already addressed $2.2b of that funding need. $1.5 of it through a bond offering, the remaining $700m through long-term refinancing and repayments.

The sources that we have for that $3.2b are, first and foremost, undrawn lines of credit of $5.5b, and, also, $5b of non-strategic assets, excluding Time Warner cable.

If you turn to the next slide, we have detailed the $5b of non-strategic assets we have available for sale.

The $3.3b that is represented by $2.1b of cash that we'll get with the closing of the TWE restructuring and net proceeds that is we're estimating at $1.2b, representing, approximately, 80 cents on the dollar from $1.5b we get at the close of this deal, amounts to $3.3b that more than satisfies the remaining funding needs we have for 2003.

We will still have available to us the proceeds from the sale of assets to Bresnan.

Proceeds from the put that we have to Paul Allen, and proceeds from our ongoing sale of investments such as AT&T and Sprint PCS stock.

With respect to the AT&T stock, we have already sold a significant portion of that and have only a small position of that left to monetize.

We remain confident that the TWE restructuring will close by the end of the first quarter, and we expect that around about the same time the sale to Bresnan will close.

So we feel very good about the liquidity position that we have on our balance sheet.

If you move to slide 21, the estimated debt position at the end of 2003, with those pay downs, will be, approximately, $25b to $26b, leading us, I think, in a terrific position, with leverage at year-end of approximately 3.4 to 3.6 times.

I would highlight for people that at the time we announced this acquisition of AT&T Broadband at the end of 2001, our leverage ratios were slightly above these levels.

So we've only put ourselves back for one year in terms of going for even stronger investment grade ratings.

The next slide, then, highlights all of the financial guidance so we have this in one place.

With respect to the high single digit target we have for cable, I would make two comments.

First and foremost, with the loss of almost 500,000 subscribers in the AT&T Broadband systems during 2002, this represents anywhere from 250 to 400 basis points of potential growth we would otherwise have reported in 2003.

Secondly, as I referenced with respect to telephony, the revenue line is not expected to increase in that category.

Otherwise, that would be another 150 or 200 basis points of growth.

We feel comfortable with what's happening.

As Steve goes about the job of fixing AT&T Broadband systems, with all of the cost improvement we'll deliver on the EBITDA line, along with high single digit growth on the revenue line.

With that, let's pass to Steve for comments on the cable division.

Thank you, John.

We've now had almost exactly 100 days of operation since close.

I think you could best describe our attitude as being very confident that we know what we've got.

We now have 3.5 months of operating data, which really allows us to look at the run rates in the business, where we are with basic subscribers.

I think all along Brian and I have felt before we made projections, we ought to have some experience under our belt.

We now have that.

If you turn to the next slide, we really begin work on the process of integrating AT&T into Comcast about nine months ago.

We had six months of post merger planning and the three months of operations that I just spoke about.

The process really started, in earnest, in July, when we named our senior management team.

It was important to get that management team in place, because the way we operate, that is really responsible for getting the plans and priorities in budgeting.

In August we visited most of the major markets and reviewed rough plans and that was the time when we really determined the priorities for the business.

In October, we announced headcount cuts of about 1,700 people in the Denver headquarters area.

The deal closed on November 18th, and we had 150 people in all the markets, who started work on the day that the deal closed.

They really hit the ground running.

In January, we've announced right sizing efforts which have eliminated about 3,000 incremental jobs, bringing the total to about 5,000 heads taken out of the business since close.

In February, this month, we have changed the name and launched the brand throughout the company.

A lot has happened in the last nine months.

If you go to the next page, you'll see that our priorities for the integration really were the same as they were on the last call.

First priority is to move rapidly and decisively.

We looked at this and figured the size and the situation called for moving quickly.

So we've had a real bias for action in everything we've done over the last nine months.

We don't think it's acceptable to lose a hundred thousand subscribes a quarter.

We don't think it's acceptable to leave 15 margin points on the table.

Everything we've done we've had a bias to move quickly and decisively.

Secondly, we thought we needed to revamp the organization.

Our feeling is the key to developing a problem is to break it into manageable pieces.

In the 150 executives we put in the field in the area of management structure we put in place has really been designed to do just that.

The third priority is to shift the entire organization's focus to fixing the video business.

The real problem with AT&T Broadband's performance, we believe has not been the telephone business but has been a degradation in the profitability and the growth of the video business.

So we have made video cash flow and basic subscriber growth the real top priorities for the organization.

Next priority is the rebuilds.

Interestingly, I think we have found that the AT&T systems from a rebuild situation are actually in better shape than we thought initially.

We define about 73% of the ex-AT&T systems as being competitive from a rebuild point of view, and we're going to take that number, as Brian and John have mentioned, to 90% by the end of this year and 97% by the end of next year.

We plan -- the next priority, we plan to shift the new product focus from one of units to new product profitability.

We think, obviously, new products are the key to our future.

We also believe we ought to make money on new products right off the bat.

We've made major changes and will continue to make major changes in the way the digital and paid packages are put together and also how we market and manage the telephone business.

We're going to continue a very strong emphasis on high-speed data.

We think high-speed data, perhaps has the best profile of our products.

Obviously, it is a very fast growing business and is very important to us strategically.

Finally, we're going to try to continue to improve customer service and improve the customer experience.

We believe that's an area we have to concentrate on as we make all these changes.

We have a lot of activity, planned to bring calls back in-house and streamline the processes.

Make the company easier to do business with.

What I want to do is update you how we're doing, the progress we're making against these key priorities over the last 100 days.

The next slide is our progress in terms of the organization.

This is the prerequisite for everything else we have done and, probably the biggest single accomplishment we have made over the last 90 days.

All of our senior management was in place at close.

We're very pleased with the choices we made and the meshing of the Comcast and AT&T management team and priorities is going well.

We started life with six strong operating divisions, each headed by Comcast executives with on average 20 years of cable experience.

We took four existing divisions and added 1.5 to 2 million subscribers and created two new divisions as well.

Below the divisional level, we split them up into regions and areas.

Each of those regions and areas have clear P&L's.

For example, the bay area used to be one P&L.

Today it's five.

That's a recognition of the difference between marketing in San Francisco, marketing in Napa Valley, and marketing in Oakland.

In the process of doing this we actually added overhead.

It is the way our cable company has always operated the way we believe most successful cable companies have operated.

I believe that was worth it.

We have set very, very clear priorities for the business.

We've gone through a very detailed budgeting process, had multiple satellite broadcasts, e-mails, monthly P&L calls.

I think it's fair to say the ex-AT&T employees and all of the existing Comcast system employees understand what the priorities are in the new company.

Moving on to the next slide, which I believe is slide 27, which is headcount, Comcast had about 20,000 employees managing and implementing our business for about 8.5m subscribers.

During the summer, we said if AT&T Broadband is, roughly, 50% bigger, that would imply that AT&T Broadband should have about 30,000 employees.

We then looked at it and said that's not a fair comparison because AT&T Broadband is in the phone business in a much bigger way than we are.

If you adjust for phone, we believe the AT&T Broadband business, right size, should be between 33,000 and 35,000 employees.

At close, AT&T Broadband's business had about 40,000 employees.

What we've done in the last few months is eliminated 5,000 jobs.

The interesting thing is that the vast majority of those jobs had no customer contact.

So they were really jobs that were behind the scenes, and, in fact, eliminating those jobs, I believe, is making the operation run more smoothly, and our service levels are higher now than they were before the cuts of the combined company last year.

We will be adding back some heads later in the year as we bring call centers back in-house.

Those heads will be added on staff, and we will have a commencer reduction in outsourcing heads and costs.

If you add all of the head count cuts together they result in excess of $500m worth of run rate savings for 2003 and beyond.

If you then move to the next slide, basic subscribers, as the summer wore on and into the fall, we realize our biggest challenge and, really, the biggest unknown was going to be turning the basic subscriber situation around.

No cable company has ever lost anywhere near 400,000 or 500,000 subscribers.

It wasn't something we've never dealt with before.

I think now we can safely say this is going to be, perhaps, our biggest accomplishment.

Our feeling is a well-run cable company should gain subscribers.

If you look at the slide, you'll see that the combined company, Comcast plus AT&T Broadband lost 412,000 subscribers in '02.

As the budgets started to roll in, we set a goal for ourselves to break-even or gain subscribers in '03.

It is a big goal, a big shift from losing 412,000 to break-even in '02.

The good news is, with three months of actuals -- and these don't quite line up to a quarter.

If you take December, January, and February actuals, we have swung as a combined company from a loss of 170,000 subscribers last year during those 90 days to a loss of 8,000 subscribers this year during those 90 days, or an improvement of 160,000 subscribers.

The good news is we're projecting to gain subscribers in the month of March, and for the first quarter.

So we believe at this point we have made a turn, and that turn should continue, and we should be able to hit our guidance of break-even for the year.

Next question is how have we done this?

I think the answer is we've done it the same way we always have, by setting clear priorities, by making sure we have the right experienced management in place, by making sure that that management has the right kind of incentive structure that our commissions for field sales force, people, for call center throughout the organization is aligned with those priorities and management.

Then allowing our management to make tailored local promotions, to make sure they're going after basic subscribers in the right way for their markets, making sure our call centers have safe teams and are aggressive about selling, making sure we're winning back customers from satellite with the dish win-back program we've been using in Comcast for some time, making sure we have theft programs to make sure the customers that have our product and aren't paying for it do so.

A variety of things that have been in place on the Comcast side of the company for some time are now in place on the AT&T side.

That's what has had such an immediate and positive impact on basic subscribers.

If you turn to the next slide, on customer service, our feeling is that customer service for the video side of the business is best handled in-house.

Every system in our company has different channel line-ups, different pricing.

AT&T, in an effort to save money, had outsourced call centers for their video business.

We think that was a mistake.

During the year we'll be opening eight new call centers, expanding seven existing call centers, and bringing 100% of all video calls back in-house.

This will improve service, and, I think, also improve our ability to sell and manage the business, but it will add expense during the year 2003.

We think that's an expense that is well worth it.

On the next slide, rebuilds, I think there was a general concern over the summer that the AT&T systems had bad plant, plant that was either never properly put together in the first place or hadn't been rebuilt.

We have discovered, after a lot of work in getting our arms around the actual state of the plant, that that is not the case.

The AT&T Broadband systems actually have very good markets.

Some markets with better growth profiles than ours have.

They have very good clusters.

The clustering has been done in such a way that it makes the marketing very efficient, so very strong clusters.

And there's been enough rebuilding in the last few years to be able to say that at close, 73% of the plant is competitive, the way we've always defined the plant as being competitive.

For those of you who don't know, that is a plant that's either 750mghtz or 550mghtz, two a plant.

The reason why we say that's competitive, is 550mghtz two-way plant has a video line-up that is identical with 750mghtz, and it also allows you to introduce high-speed data.

From a customer point of view, 552 way mghtz plant is the same as 750 or 860.

Our goal is to take the 73% at close up to 90% by the end of this year and 97% by the end of next year.

So, in effect, we're doing two-thirds of the rebuild work this year.

It represents about 45,000 miles of rebuild.

You can see on this slide that what we're doing here is taking the rebuild rate up very dramatically from where it was last year.

Last year during December, January, February, AT&T Broadband rebuilt about a thousand miles of plant.

During the same period this year we've rebuilt about 10,000 miles of plant.

We're currently averaging 3,500 miles per month which ties perfectly to the plan to rebuild 45,000 miles during the calendar year.

We're right on track.

We feel very confident that we will rebuild according to schedule and leave this year with 90% of the plant competitive.

If you then move on to the next side, which is new products, slide 31, I'd like to start with high-speed data.

High-speed data is, obviously a very important priority for us.

It is a marvelous business.

It is a business that, in 2002, added over $600m in revenue.

It's going to add more revenue in 2003.

It's a business that has margin that is are as good or better than our cable margins, very low churn, very good ratio of capital expenditures to pre cash flow generation.

So we're going to continue to push this business aggressively.

By the end of 2003, we will have about 20% of our customers, a little over 20% of our customers will have video and high-speed data.

We think the bundling of the high-speed data business is very important in the fact that 20% of our 21m customers are going to have high-speed data, we think, is a very good thing for the business.

We will be adding, as a result of the aggressive rebuilding, about 4m homes to our foot print in 2003 and adding about 1.4m subscribers to exceed 5m high-speed data subscribers by year end, which, as Brian mentioned, make us end the year as the number 3 ISP in the United States if current growth rates maintain and the number one broadband ISP by the end of the year.

In terms of digital, the key for digital is we're going to concentrate on profitability.

Digital and pay didn't make money in the kind of way they should in the AT&T systems during 2002.

So what we've done is repackaged digital, we will be remarketing digital in a different way.

We plan to still add subscribers.

The way we keep score, we'll look at profitability rather than units.

On the Comcast side, and it's probably best covered in the next call because we're concentrating so much on the integration effort, we are very encouraged about video-on-demand and high-definition television.

Those roll-outs continue to occur on the Comcast side of the house in -- at great speed.

If you then move on to the telephone business, when we look at it, the telephone business and the AT&T Broadband side grew awfully fast over the last few years.

It makes sense to slow down that business and concentrate on efficiency while we shift the focus of the entire organization to video.

What you'll see in the year 2003 is we'll be keeping the same telephone foot print, marketing in the existing foot print, but we won't be expanding the foot print.

We'll take the marketing that has been taking place and lower the level of it and rededicate some of that marketing to the other parts of the business.

We'll be concentrating on reducing error rates, lowering bad debt, running the business more efficiently for our customers and also in terms of the profitability of the business.

We expect to lose some subscribers during the year due to the normal churn in the business.

But, really, what we're doing is putting the business on hold, if you will, for the next 18 months or so while we work on voice-over IP while we fix the video business.

If you move to the next slide and you look at what this all adds up to and how we get from the $4.9b base in 2002 to the $6.25b base, or guidance, in 2003, what you'll see is, first, we have about $300m worth of organic growth, normal growth, from the Comcast systems.

And that brings us from $4.9b to $5.2b.

We then have $325m from Denver overhead cuts.

Those cuts have already been made.

So that is a very firm number.

We have about $180m slated for field improvements and that's net about $50m of costs putting back in the region and area management structure in place.

This $180m is a variety of things, but the majority of it is cost related.

We have $280m slated from telephone, high-speed data, and customer service.

Some of this is headcount.

Some of it is efficiency.

Some of it is better arrangements with suppliers.

We have $270m slated from programming savings.

I believe this is a conservative number.

It may be higher.

We felt it was prudent, given the relatively early stage we are in the process.

This $270m represents what we feel are contractual rights we have.

There is no real scale benefit in the $270m, although we think in the final analysis, size has always mattered in this business.

Over time we can continue to get better programming deals with our programming suppliers.

That's how we reach the 6.25b total in '03.

I think when you look at this, we're really on the same trajectory as we have been on in previous acquisitions.

We had thought that as we looked at AT&T Broadband, it was so big that we ought to give ourselves more time and, perhaps, it would be more difficult.

Really, what we're finding after the first 100 days is this acquisition, although clearly bigger than anything we've ever done before, is following the same kind of trend we've had in previous acquisitions, which means not only have we -- are we projecting some real improvement in 2003, but we should have a good year and continued improvement in 2004.

When you look at the reasons why we're confident, I think there's several of them.

First, we really have waited over a year to talk about the numbers.

We had an intuition we could do the same thing we've done in previous acquisitions.

Given the size, we really wanted to get, really, time to be sure we knew what we had bitten off here.

In the last 100 days we have our general ledger system keeping track of results, our management team, the new management team, Comcast and AT&T executives reporting back.

We have real basic subscriber numbers that we monitor every week.

So with that real-life experience, we feel much more confident we can make the projections John talked about.

Our job now is to keep it going.

Obviously, it goes without saying we're only 60 days into the year.

If we keep going along the same trajectory for basic subscriber, for cash flow, for rebuilds, we'll hit our target for the year of $6.25b and break-even in terms of subscriber growth.

I think one of the final things that gives us comfort is the vast majority of the improvement, over 75% of the improvement is really related to expense savings.

Those expense savings are really blocking and tackling, nothing different then we've ever done before, and, for the most part, they represent actions they we've already taken in cost reductions that have been implemented.

Brian.

Thank you, Steve.

Let me wrap up on slide 34, by saying that as I think about the year 2002, it demonstrates how the cable model is truly working, with $1b plus of consolidated free cash flow and a slowing of capital spending while acceleration of EBITDA and new product sales and it becomes a variable capital model and a success base model.

This was the perfect time for us to, you know, make another commitment to this industry and really transform ourselves into one of the world's leading communications and media companies and one of the most widely held stocks in the U.S.

While we have great scale and size and a delivery track record of a blue chip, we have the growth characteristics of a more nimble, smaller, and faster company.

My number one personal goal is to retain the entrepreneurial spirit that has defined Comcast.

Recently, Ralph, Steve, and myself have actually gone around and met and our goal is to meet many, if not all, of the 35,000 new Comcast employees.

We will be north of 30,000 by the end of this month, and the senior management, in addition to the communications Steve has talked about, that's our goal to have the top thousand leaders come to Philadelphia over the next six months to go through a program called spirit of Comcast, which is -- which has worked so well for us in other acquisitions to immediately get everybody on the same page.

With the assets, management, and momentum we have in place, we're really confident that we can generate truly superior near-term growth through disciplined and focused execution.

It is going to get better long term.

Our unprecedented cable platform of 21.5m customers means we can provide an array of new products and services to our customers and launching innovative new ideas and programming and technology which will benefit our shareholders.

We now have the financial flexibility and strength to make all of this happen.

So if you click to slide 35, we will end by saying, stay tuned.

Because on May 16th in New York City, we will have a full investor day where we'll then update you on the first quarter's results and go even fourth than we have today into our integration update.

With that, operator, let me turn it over to questions.

Thank you, sir.

Investors wishing to ask a question, may signal us by pressing the digit 1 on your touch tone telephone.

If your question has been answered and you wish to be removed from the queue, please press the sound sign.

If you are using a speaker phone please pick up the handset before pressing the numbers.

Our first question today comes from Richard Bilotti from Morgan Stanley.

Please state your question

Good morning.

The question most commonly asked by investors, I think, as I travel around is your philosophy about QVC.

I realize you can't give away the store.

Can you update us on the mechanism of the put that liberty holds?

There's lots of misunderstandings about that.

Also, what your thoughts are about whether or not that asset remains crucial.

Obviously, before the AT&T merger, it was a much larger part of the company.

I think, Brian, in the past you've mentioned your tolerance for that and equity solution.

If you're comfortable, that would be helpful as well

Thank you for putting everything out there on cable.

We've been working away on for the last three weeks.

This is the zinger out of left field.

I will pass this on Brian

Look, it's a fair question.

There is not much we can say.

It is not a put.

The mechanism is quite simple, actually.

If -- as has been the case for the last three years, February to April, a 60-day period, liberty has the right and they have the same right next year to trigger an exit and the process is there is then an appraisal, several appraisals of what the full value of the company would be, and then Comcast gets the option to buy or say that it wishes to sell.

If it chooses to buy, that's one scenario.

If it chooses to sell, liberty has the option to buy or not.

There is no put.

That's a misnomer, in my opinion, because there's no party obligated to buy on either side.

And then if neither party chooses to buy at the appraised value only, then the property is put up for auction.

Either party or any other third-party is eligible to bid on it.

The way I look at it Rich, is it preserves full shareholder value under any scenario for all parties and, beyond that, we are, you know, it puts us in an impossible position to comment.

I will say, as you can tell from the rest of the call.

John's to tongue-in-cheek comment, which I'm sure you'll hear about, is simply our focus right now has been on execution and, you know, integration.

This is, it will be what it will be.

We're, obviously, believing here to fore, there has been a lot of investor question as to, what did we get.

Can we turn it around?

Can we stop subscriber losses?

How much would it cost to rebuild?

By having the beginning of our view and clarifying our perspective and, in the months ahead, executing toward that, you know, this has been a difficult period for equities in general, but, particularly, cable equities the last 12 to 15 months.

Beyond that, I don't want to go any further.

Hopefully, that helps clarify the process.

Operator, next question.

the next question is from Jessica Reif-Cohen from Merrill Lynch

Hi.

You'll never for give me for saying this.

I hope Steve gets paid more than the previous AT&T team is getting in their new jobs.

Wow.

Thank you, Jessica.

You did an amazing job in a short period of time.

I have a question on free cash flow.

On page 18 of your slides, the projection for cash flow break-evens in 2003, given the lower Capex and given the lower outlook for cash flow, what are we missing why won't you be free cash flow positive?

Jessica, what we're trying to do is be conservative in the estimate.

In fact, through this guidance, you could call come up with a scenario where we would be free cash flow positive.

We don't want to begin the process of giving guidance of free cash flow, per se.

We wanted to scope it out in the context of our liquidity slide to make people aware there was not negative free cash flow to be funded in 2003.

Well now that you're still talking to me, could I ask a follow-up?

Sure.

I thought from Richard's question we answered every single cable question that could have been out there

Advertising for Comcast was up 21% of the quarter.

Just wondering what your view is for the outlook, now that you have very strong management in place, you have the metropolitan systems.

Can you give a comment for '03?

Jessica, I think as you know we're real bulls on the advertising business going forward.

There's a certain amount of work to be done in some of the AT&T systems setting up interconnects.

So Charlie Thurston and his team will have a busy year doing that.

I don't see why we can't be double digit during 2003, except if there is a terrible advertising market related to the war or something.

We're in very good shape and will continue to be bold in terms of local cable advertising

Thank you.

for the record, Jessica, I agree with you about Steve Burke and his team.

It's been a fantastic 100 days and planning for this.

It's a great team effort.

Next question, please, operator.

Our next question comes from Douglas Shapiro from Banc of America.

Please state your question

Thanks.

I was wondering if you could elaborate a little bit on how you're going to extract the programming cost improvements.

Steve, when you talk about the $270m, is it just to enforcing existing contractual rights.

Is that just from the process that you've gone through of comparing the MFN's you have and AT&T or is it something else going on there?

This is Brian.

What we are, basically, saying today and in the billion 350 or 300 to 4m, if you go from 4.9 to 6.25, picking a midpoint, a billion 350 of improvement, the vast majority has nothing to do with programming costs.

It is something I've said consistently.

This deal was not constructed as any kind of programming centric deal.

This was done because of tremendous ability to improve operating margins.

As John analyzed the revenue, this is not rate increase driven.

This is good old fashioned getting back to basics, focus on the business, and, at this point, we're not going to go into the programming to say it's only been 100 days.

Obviously, all we're able to do is inherit two types of contracts, ours and theirs, and traditionally you, you know, take the better of the two rates and there you go.

Some day those contracts expire and there's an opportunity to have a renegotiation.

In some cases they'll expire right away.

In some cases that will be for years down the road.

Many companies may want to start renegotiations because they have a new channel.

They want to create video-on-demand product, high-definition.

There is always an ongoing dialogue that needs to be constructed between the distributors and the content companies.

This year's story is not driven by programming savings.

Obviously, it is part of the story.

We are mostly getting this from just the workforce efficiency, focus on not losing customers, but stopping losses and selling new products.

Next question, please, operator.

The next question comes from Laura Warner from Credit Suisse First Boston.

State your question

Great, thank you.

On high-speed data, the guidance you've given out suggests you don't see a slow-down in that product to date.

Can you give us some sense, Steve, of what you are seeing in the markets, particularly the AT&T markets that have not been upgraded and what you've assumed, sort of qualitatively, those markets are capable of doing in '03.

John, maybe you can touch in 4Q, the AT&T Broadband EBITDA was obviously low, even excluding the restructuring costs.

Are there other types of one-time costs or elaborate on some of the drivers.

First on high-speed data.

We are not seeing a slow-down.

In the places we've been in operation for four years, we see the business continue to barrel along.

It's a wonderful product and a wonderful business for us.

On the AT&T side, it is interesting.

There are some markets when we looked at them, we couldn't believe they weren't offering high-speed data.

To offer high-speed date in the San Francisco area when Silicon Valley is there, it is the one place in the world you want to introduce it.

I think there are a lot of places we will be rebuilding and introducing high-speed data that have tremendous potential.

There are also some things we have been doing, particularly as it relates to retail, which is very important part of our high-speed data strategy was not important to AT&T Broadband.

I think combined we're going to continue to power that business.

But there's definitely no signs of slowdown.

I think we're quite early in the product life cycle and the best days are ahead of us

If the key systems are a little better, is that potentially an upside to the net forecast today?

We're certainly not saying that today

Okay.

With respect to the disclosure we have on table five for the breakdown of AT&T Broadband versus historical systems and cash flow in the fourth quarter and then showing in that table on a sequential basis, there are a lot of things, Laura, that go into that.

We've had a shift of a lot of expenses over to AT&T Broadband from Comcast as we prepared to put the systems into better operating order.

There's a small amount of change of capitalization policy to more capitalization reflected in that.

The most important message is all of these expenses are embedded in the base that we're setting ourselves for 2002, stepping off from there going to $6.2b to $6.3b in 2003.

The $4.9b that results from the add-back of $425m of acquisition related costs, includes all of this shift of expenses at the individual Comcast historical and AT&T Broadband level so the message is 4.9b includes everything and that is a stepping off point for $6.2b to $6.3b for '03

Thank you, John.

Next question please operator.

Our next question comes from Ari Borokov(ph) from UBS Warburg

Hi, good morning, thank you.

The free cash flow growth and the turn-around, obviously impressive by your guidance on EBITDA and Capex.

Can you give us a little more on the Capex reduction in '03?

It doesn't look like it's primarily driven by rebuild upgrade as much as CE and support capital.

As you look at the free cash flow trends in '03, John and Steve, when do you think about building that free cash flow into resuming revenue growth, back to double digit?

Is that midyear, is that '04?

If you could elaborate on that, thank you.

I'll take the Capex question and then pass to Steve on the revenue growth.

Ari, if you go back to slide No. 15, you'll see there is a savings across a number of fronts here.

As I have mentioned in my comments, we built 170,000 miles of our own plant.

We feel very confident now about the rebuild numbers that we have here.

We feel good about the $1.3b.

Where you do see reductions are in the areas of the phone capital.

That represents about a third of the decline, about another 15% is the fact we're not upgrading anywhere near the amount of mileage of Comcast.

That is won and done and behind us.

Third category would be in the area of digital boxes.

We won't be installing as many of them.

Probably about another 15% of the total relates to the fact we'll have lower unit growth in that in 2003.

So, bottom line, given all of the budgeting and planning that's gone on, we feel very comfortable with the $4m for the year and that we'll get the mileage done.

The only thing I'd add to that in terms of the capital, John, is we believe the cost for digital boxes is going to come down quite significantly during the year.

Whether it's digital boxes, cable modems or telephony, the CPE side of the business is declining and we're rebuilding more efficiently.

In terms of revenue growth, we're not giving any guidance on '04 much some of the things that are slightly lowering revenue growth in '03 like basic subscriber growth and the lack of being aggressive on some new products won't be there after 2003.

So you can you make your own conclusion about that.

Operator, next question.

I think we should make this the last.

Everyone has been on the phone a long time with us.

Our last question comes from Niraj Gupta from Salomon Smith Barney

Hey, John.

Thanks for letting me make the cut.

If I could ask two quick questions.

We said one question.

All right.

One person, two questions.

First on the basics.

Steve, you spent a lot of time on it.

Sub turn-around is fairly dramatic, especially when you talk about adding subs in Q1, which is not exactly your strongest seasonal quarter.

I know you emphasized a lot of things.

Is there one specific thing we could look to that is the key driver?

Is there some low hanging fruit here and just by getting everybody to focus on driving basic subs that did it?

I'm just curious how your turn around a ship this big so quickly.

Well, Niraj, the problem with giving you an easy answer is it's everything we do all day long.

I will say when we look at what happened at AT&T broadband, we think that was an abnormal situation.

Whether it's [inaudible] or Time Warner or Comcast, normal well-run cable companies should gain subscribers.

What we have found is there's nothing intrinsic in the systems or the situation that is causing it to be any different than any other cable situation.

So I wish I could give you a quick answer that says it's one magic thing, but it's everything we do.

We think the ship has turned.

With a lot of hard work from a lot of people, it will continue to keep going.

If I might, it isn't that the company wasn't rebuilt.

We're not going to use that as the cop-out.

It is -- the fact is, it was a company in transition, focus and the decentralized philosophy of how the marketing should be done and how the sales should get done and the customer service should get done, and it's incredibly impressive that as we go to each market, each city.

Of course, we have 16 of these markets that need to be turned.

It is not one it's 16.

If you take the 150 people and divide them up in key responsibilities, they're all in these markets.

When we're there, we're 3,000 people in a room.

The local person says, what's our number one goal, and the entire audience goes, basic subs, the message got out very fast, very focused.

It's running the business.

People want to compete better with satellite.

It is our job to give them the tools to compete better.

I think we can do that.

So they have done an incredible job.

There is no sound bite answer except good old fashioned focus and hard work.

That's what we've been consistently saying to investors, as much as people want to speculate about this possibility and that possibility, this is the year of execution.

I think we're pleased that we are in the position to give this kind of guidance and feel as good about 2003 as possible.

With that, we'll end the call

Thanks, Brian.

Thank you all.

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