康卡斯特 (CMCSA) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

And welcome to the Comcast first quarter 2005 earnings call.

At this time all participants are in a listen-only mode.

Please note that this conference is being recorded.

I would now like to turn the call over to Executive Vice President and co-CFO, Mr. John Alchin.

Please go ahead, sir.

Thank you, operator and welcome everybody to our first quarter call.

Please refer first of all to slide number 2 which contains our Safe Harbor disclaimer.

This conference call may include forward-looking statements subject to certain risks and uncertainties.

In addition in this call we will refer to certain non-GAAP financial measures.

Please refer to our Investor Relations Website for reconciliation of the non-GAAP financial measures to GAAP.

For opening remarks, please let me pass to our Chairman and CEO, Brian Roberts.

Thank you, John.

And good morning.

We're very pleased to report this first quarter, which is a great start to 2005.

As you will see, we had approximately $2 billion in operating cash flow, and that's a growth of more than 17% versus the first quarter of '04.

John and Steve will give you more detail on how that's made up.

But our strategy of differentiating our products by adding valuable new features continues to show promising results.

With 414,000 net adds in high-speed internet in the first quarter, some 200,000 digital net adds, and very strong demand for High-Def and DVR boxes with over 425,000 boxes from our digital customers.

In addition to our success with High-Def DVR another great example of a product differentiation continues to be Comcast ON DEMAND.

We reported in March, or we are reporting in March, over 100 million ON DEMAND views, three times the number reported in March of last year.

Total ON DEMAND views in the first quarter were over 276 million, and we're now well on track to do over 1 billion orders in 2005.

Today, we are therefore increasing our cash flow and our CapEx guidance reflecting the increased demand for these new advanced services.

I strongly support the minor increase in CapEx around 10%, because it is driving increased high value subscribers, and increased revenue and cash flow, and you will hear more detail of all of this.

The new services continue to drive our growth, and we believe we're striking the right balance between focus on growth and focus on free cash flow and profitability.

We continue to take a balanced approach between returning capital to shareholders and investing in growth and differentiation.

In the first quarter, we announced agreements with Motorola, TIVO and Liberate.

And all of these agreements help us to further differentiate our service, drive innovation, and accelerate the pace of new products for the next several years.

At the same time we have been returning value to shareholders through our stock buyback.

In the first quarter, we repurchased 326 million of stock and 1.6 billion in the last 15 months.

Pleased therefore to announce that the Board has today authorized a $2 billion increase to our stock repurchase program providing 2.4 billion of repurchase capacity.

We've really never been more bullish about the cable business.

I believe that we are in a great position both in the properties that we own, the scale that we have, the quality of the management team, to grow and build value.

The transactions that we announced last week with Adelphia and Time-Warner show and demonstrate this continued belief in the prospects of the cable business.

Plus, we are now in a position to convert passive investments into more OCF generating subscribers, and providing a timely exit from the Time-Warner cable and Time-Warner entertainment partnerships, provide us with additional growth in key markets, fill in existing markets to gain efficiencies, and we will be able to continue to expand the new product rollout that we're so excited about.

John?

Thanks a lot, Brian.

Let's move on to the next slide, slide number four on the web, if you're following through with us there.

The consolidated results for the quarter grew 9.3% to almost $5.4 billion, while consolidated operating cash flow grew over 17%, to $2.03 billion.

Cable revenue for the quarter was up 9.7%, and operating cash flow up 15.9%, as Brian said to almost $2 billion.

I will review the drivers of cable results in the following slides.

The content revenue increased 20.9% to 213 million, while content operating cash flow grew 12% to 77 million.

The revenue increase was due to increased distribution and higher advertising revenue across all networks.

Operating cash flow was driven by strong growth in the Golf channel, offset by losses at our developing networks.

The corporate and other category is highlighted on table 5, includes the results of our Philly sports teams and arena businesses.

Revenues in this area was affected negatively by the hockey strike, although the flip side of that coin, is it had a positive impact on operating cash flow.

Operating income for the consolidated entity was up 31% to 866 million.

And the bottom line consolidated net income was reported at 313 million, or $0.14 a share, compared to $0.03 a share in the first quarter of 2004.

These numbers do not reflect any settlement of certain AT&T At Home lawsuits.

AT&T is currently involved in advanced settlement discussions of these lawsuits.

We are liable for a portion of any liability that might be assessed in settlement.

But resolution has not yet been reached.

So let's move on to slide number 5 and look at the drivers of cable revenue.

Video revenue growth was 5.6%, driven by increased revenue per subscriber, and as well, by increased digital cable subscriptions.

RGU net adds remain very strong.

We added 590,000 RGUs in the quarter, powered by strong high speed data and digital service growth.

Basic subscribers were down slightly at 29,000 on our base of 21.5 million.

As in the past, we expect to lose subscribers in the second -- sorry, in the second quarter due to seasonality, but also as in the past, we will gain subscribers in the second half of the year.

We're thrilled with the robust growth of our digital and high speed data products.

Digital selling rates continue to increase, now 58% in the first quarter, up from 55% in the fourth quarter of last year.

Higher digital penetration of 41% and the increased availability of ON DEMAND usage is also driving increased Pay per View revenue.

In fact, Pay-per-view revenue increased 18.5%.

This is the fourth consecutive quarter of double digit gains in the mid-teen region for our Pay-per-view category.

The number of digital boxes per digital customer also increased in the first quarter.

We're now up to two boxes per customer in the first quarter versus 1.5 a year ago, reflecting the really strong demand for our High-Definition and DVR advanced set-top boxes.

High speed data sales and ARPU are equally robust with net adds of 414,000 in the quarter, up fully 20,000 over the a year ago, and at the same time we are maintaining very strong ARPU levels coming in at $42.81 for the quarter.

Phone revenues for the quarter declined about $6 million, or 3.1%.

This is about in line with what we expect for the year, as we transition from circuit switch phone service to Comcast digital voice.

The decrease in revenue for the quarter reflects a 1.6% decline in cable phone customers during 2004, as well as a slight decline in ARPU.

Advertising revenue grew 9.8% in the quarter, to $296 million, reflecting growth of 9% in the local market, but 15.4% in regional and national advertising.

This strong growth includes the expected decline in political advertising.

Total political advertising in 2004 amounted for approximately $45 million in revenue.

This is an amount that will not recur in 2005, and will continue to have an impact on the year-over-year comps, particularly in the second half of the year.

If we move on then to the next slide, number 7, cable operating cash flow.

Here we highlight cash flow, cash flow per sub and our cash flow margins.

Margins increased fully 210 basis points year-to-year to 39.1%.

The increased margins and operating cash flow results from higher top line growth of 9.7%, as well as continued meaningful expense controls in categories such as programming, billing, high-speed data network costs, and phone operating expenses.

I would also highlight on this slide that annualized operating cash flow per sub for the entire company in the first quarter is now in excess of $370.

Moving on to the CapEx slide number 8, capital expenditures for the quarter of 883 million represent an increase of 8.5%.

The increase in the first quarter is due to front end buildout for projects that we've talked about in the past, including equipment for digital simulcasting, and our integrated service platform, as well as additional purchases of set-top boxes to meet the strong demand for advanced boxes, as I talked about earlier on.

As Brian mentioned, in his opening comments, we are increasing 2005 CapEx guidance by 200 to $300 million.

This is in comparison to increased cash flow guidance of approximately $200 million, almost fully offsetting the increase in capital investment.

As a result of this combination of increased operating cash flow, alongside increased capital investment, we're able to report a cash -- free cash flow for the quarter of $722 million, which leaves leave us in-line to meet the expected increase for the year of about 35 to 45%.

The first quarter free cash flow, though, reflects the impact of strong cash flow growth offset by the investments in CapEx, but we do expect to pay higher taxes in the third quarter through the end of the year.

Our steady run rate tax payment should be around about $250 million a quarter, because there was little payment in the first quarter, you will see higher payments in the second quarter, and then annualized in the second half, on a running rate basis in the second half of about 250 a quarter.

Brian mentioned as we highlight on slide number 10, that the Board approved a $2 billion increase in our share repurchase program.

We have now repurchased a total of about 57 million shares with repurchases in the quarter amounting to 326 million or 9.3 million shares, at an average price of $32.40 a share.

On slide number 11, I will close with this slide, we're highlighting the update and reaffirmation of guidance.

I have already covered off the increase in capital expenditures, and operating cash flow, and most importantly point out that this enables us to reaffirm the free cash flow growth of 35 to 45% for the quarter.

At the same time, we expect to be able to meet guidance as outlined at the beginning of the year of approximately 10% for revenue, and to meet or exceed revenue generating unit additions for the year of 2.5 million.

With that, let me pass to Steve for his commentary.

Thanks, John.

I think it was a very solid quarter for Comcast Cable, and as importantly a really good start to 2005.

The way I look at it, there were really three highlight areas for the quarter, operating cash flow, high-speed data, and the rollout of the advanced High-Def DVR boxes, and let me talk about each of those three.

In terms of operating cash flow, I think it was a superb quarter.

We were about $95 million ahead of our budget for the quarter, which is a record for us.

We had 15.9% year-over-year cash flow growth versus about 10.5% that we had projected in our budget.

Our margin was 39.1% for the quarter.

As those of you who follow the industry know, the margins tend to build during the year, the first quarter is traditionally the lowest margin quarter for any cable company.

So we were happy that the first quarter got off to such a strong start, it is particularly important because the first quarter tends to set the run rates, or it is the first time when you can see the run rates that go throughout the year.

So if you are ever going to have a quarter that you want to exceed budget, you would want it to be in the first quarter.

And the real stars in terms of operating cash flow were high-speed data, programming where we continue to see excellent scale results, and High-Def DVR boxes.

Moving on to high-speed data, we had a very strong quarter.

We now sit at about 7.4 million customers, and this is now a $924 million revenue business in the first quarter, which is a 32% jump versus the quarter, same first quarter last year.

Every year, when we sit down and do budgets, in the late summer and fall, we wonder when our net adds are going to peak, and every year for the last couple years, just in the interest of conservatism, we have assumed that our net adds are going to be slightly lower than the year before, but the answer clearly this year, is that our net adds have not peaked the first quarter we had 414,000 net adds, which was up 5% versus the first quarter last year, when we had 394,000 net adds.

And as important as the net adds, and we constantly talk about this internally, and try to make the point externally as well, is ARPU.

And our ARPU was $42.83 for the first quarter, which was actually up from 42.46 last year, which is really important.

As this business gets bigger, a dollar in ARPU is unbelievably important, and in some ways more important than really knocking the cover off the ball in terms of units.

While our ARPU is up, our network costs per unit continue to decline.

So the financials of this business look better and better.

We sit today at about 18% penetration of the 40 million homes passed that we market high-speed data to.

And we think sitting at 18% leaves us lots of upside, in that this business is going to be one that is going to continue to fuel our growth for many years to come.

We also think that our pricing and promotional and positioning strategy of positioning our product as a faster, more interesting, better portal, more -- just a better overall product is working very well, and that's a key part of fueling our growth, and maintaining that ARPU.

Moving on to High-Def DVRs, Brian mentioned the great success we're having with VOD, but we're also having great success with High-Def and DVRs.

We used to think going back a couple of years ago that digital would plateau at about 40%, and we picked 40%, because traditionally that was the level at which the premium business had plateaued, and we figured there is just about 40% of people who are willing to pay extra for a differentiated and more robust television experience.

We have now gone beyond that 40%.

And I think because of VOD, High-Def, and DVRs, we now should be able to take digital subscriptions into the mid-50s, maybe 55% penetration rate over time, so we think there is more growth in this business, as we pass the 40% penetration level.

During the first quarter, we added about 200,000 digital subs, but interestingly we added 425,000 advanced High-Def DVR customers, and in fact, we got a couple hundred thousand digital boxes back, the low end boxes actually came back into inventory, as we installed more advanced boxes than we did total net digital boxes.

For those of you who don't know, we charge 4.95 for High-Def, and then for a combination High-Def DVR we charge 9.95 per month, and at these price points we're seeing really great adoption rates.

On average, these advanced boxes cost about $250 per box more than low end boxes.

So let's assume $250 is the incremental investment, and we get back 9.95 a month.

So that's an IRR well in excess of 40%, and you're putting a service into the field that our customers love, and when they get will make them much more sticky to us.

So basically, we look at this as a business that we should accelerate, not decelerate, and what's happened is we installed about 200,000 more high end boxes during the quarter than budget, at $250 incremental each box, that equates to about $50 million in capital.

Given the recent trends in the way we feel about the importance of this business, we would assume this would continue, maybe accelerate slightly, maybe decelerate slightly, but assuming it continues, that is a big part of raising our capital guidance by 200 to $300 million for the year.

Which we think is an excellent trade-off to make.

Basic subscribers for the quarter declined slightly by about 28,000 subscribers.

This sub loss was almost exclusively from low-end analog-only customers, and it really had a minor impact on our financials.

Moving on to telephony, we made very good progress during the quarter, as we start expanding our IP-based phone business.

Which we call Comcast Digital Voice.

As of today, we have about 10 million homes passed for circuit switched, and a little over 1 million homes passed for IP phone.

We have 1.2 million customers in total, almost exclusively circuit switch customers, and a 10.9% penetration.

By the end of 2005, we will almost double the number of homes passed, as we accelerate our IP phone rollout, and in the next 30 days, we are rolling out big markets like Boston and Hartford, Connecticut, and then in the next 60 days or so, we will be rolling out markets like Chicago and Portland.

Historically, since the AT&T deal, the phone business has been a drag on our revenue growth.

As we took the AT&T existing phone business, and in effect put a fence around it and actually reduced subscribers and reduced revenues.

But I think you will see as we go forward that as we start to launch the IP phone business, the phone business is going to go from something that detracts from our revenue growth to something that is additive to it.

In addition, we are very encouraged and optimistic that the IP phone business is going to help power our high-speed data business, and create some interesting bundling opportunities as well.

So we're off to a very good start for 2005.

And feel very optimistic about the outlook for the rest of the year.

John?

Thanks a lot, Steve.

Operator could you open up for questions and answers please?

[OPERATOR INSTRUCTIONS] The first question is from Jessica Reif Cohen from Merrill Lynch.

Please go ahead.

Thank you.

Steve, I have a question for you on advertising.

The number was really good.

And particularly when you think about it versus where the broadcast industry is, the TV stations are probably down 4 to 6% in Q1, could you just give us a little detail about initiatives, what's going on there, you know, why such a big difference, are you stealing share from TV and radio?

Well, I think we had a good quarter in terms of advertising, and as John mentioned in the second half you start to comp against increasingly tough political comps, but I think we're going to have a very good year.

The inter connect strategy continues to bear fruit.

We also have launched local people meters in a number of markets, and that is more clearly showing how well cable is doing versus broadcast.

So I think it is sort of a maturation of the strategy.

We're very excited, if you look out over a 2, 3, 4-year period with the ability to do truly addressable advertising, which is going it to be a by-product of the all-digital strategy, but I think it is just really good execution by Charlie Thurston and his team, and I think we've been on a roll with advertising, and would expect that to continue.

Thanks a lot.

Next question, please, operator?

The next question is from Douglas Shapiro from Banc of America Securities.

Please go ahead.

Yes, thanks.

Just one question on the margin.

You mentioned that they surprised you in the quarter.

And obviously, your guidance implies that you expect them to continue to be strong, and you pointed to a couple of drivers, but which of those is actually a surprise?

I mean what changed so dramatically from when you gave us guidance just a few months ago?

Well, I think it was a variety of different things.

You know, traditionally the reason why the first quarter margins are lower is that we get price increases that are effective on January 1st for many programmers, and our price increases to consumers go, you know, at different times through the year.

I think what happened in the first quarter was we had a variety of factors that were higher than we thought.

Programming was a piece of it.

A piece of it was High-Def DVRs starting to click in with the extra $10 a month, and then a big piece of it was high-speed data.

You know, we would certainly anticipate being ahead of our projections for the next three quarters, it may not be as much as -- probably won't be as much as it was during the first quarter, but I think -- I think it was a combination of factors, as opposed to one big thing that made us look better than budget.

Thanks, Doug.

Next question, please, operator?

The next question is from Ray Katz from Bear Stearns.

Please go ahead.

Hi, good morning.

You've raised your OCF guidance but you have not raised your revenue guidance.

I was wondering if you can give us a feel for the dynamics behind that?

And also, how much of the -- how much would we see revenue up with the addition of the HD DVRs, and how much of that is the cash flow increase?

I think you can -- you got to realize that we're in the first quarter of the year.

And a lot of different things that could happen.

We could do better in terms of revenues than are in our plan are, we did slightly better in the first quarter, than are in our internal plan and that can continue.

You know, I think people are naturally very focused on OCF and free cash flow, and you know, we've said that our revenues would be around 10% higher this year than last year, and I think that's probably a good place to stay.

Next question, please, operator?

The next question is for Richard Greenfield from Fulcrum Global Partners.

Please go ahead.

Hi, could you just talk about revenue growth on the video products specifically?

Steve, you talked about the importance of HD DVRs and HD in general, in terms of lowering -- or in terms of the revenue add.

I assume it is also having a pretty significant impact on churn reduction.

When will we start to see revenue growth on the video product accelerate?

It actually decelerated from full year last year, up 6.5 to first quarter up 5.5, and I would like to understand that a little bit better, and then just a quick housekeeping point, John, you made a comment about cash taxes.

Should we assume based on that comment are you looking at a cash tax number somewhere around 650 to 700 million for the full year?

Thanks.

I think the main point on the video, when we look at our business, we assume that the video business is essentially a mature business, and we're going to try to grow at 5 or 6%, and then power in terms of sort of operating cash flow.

And then power our operating cash flow growth into double digits through the new services.

So I don't -- I don't really think that we're deluding ourselves into thinking we can make the video business 10% OCF growth business.

There is no question that digital customers that we have are churning less and are happier, more satisfied customers, and a lot of the development work that we have been doing has been dedicated toward those digital customers.

One of the optimistic things that we have in our business plan, is two or three years from now, you're going to start to see us it take markets all digital.

And in effect, give all of our customers low end digital, really converters, because they're not really set-top boxes, and when we do that, we will be able to offer VOD and a lot of the other services to a much broader base, and I think that can change the competitive dynamic, but even when we do that, I don't think we're looking at the video business as being anywhere near the kind of growth rate that the overall Company will have, thanks to high-speed data, telephone and all the other business.

And Rich, with regard to taxes, thanks for raising that, we -- as we said, I think the beginning of the year, we expect tax, cash taxes for the year to be around about a billion dollars with this run rate going at about 250 a quarter.

But given that the first major payment was made on April 15 of this year, you should expect in the second quarter a number, probably between 400 to $500 million with each of the third and fourth quarters being around about 250 a quarter.

So that's the way it will average out across the year.

Next question, please, operator?

The next question is from Jason Bazinet from Citigroup.

Please go ahead.

Good morning.

Just one quick question on the CapEx.

I think you raised the high end of CapEx guidance by 300 million, and said earlier in call that the cost, incremental cost per box is about $250, implying that you're kind of budgeting for 1.2 million of these, you know, advanced boxes this year, or about 300,000 a quarter.

I think you said you did 400,000 in Q1.

Does that imply that the run rate for these boxes is 4X, four times your original expectations?

Thanks.

No, probably not as high as that, but I think what you should expect is, you know, somewhere order of magnitude between 1.5 to maybe 2.

Times?

Times, that is, yes.

Perfect.

Okay.

Thank you.

Thanks.

Next question, please, operator?

Next question is from Craig Moffett from Sanford Bernstein.

Please go ahead.

Yeah, hi, a question about voice-over-IP.

It is my understanding that you've recently said you're planning to swap out your legacy circuit switch markets with voice-over-IP.

Is that already contemplated in your CapEx guidance?

And then secondly, as you roll out markets, like Boston and Chicago, can you just detail what, if any, specific plans you've got for targeting the small, medium business segment with voice and data services?

Well, let me just pick at the word swap out.

I think what our strategy is on circuit switch versus IP phone, and I will use Chicago as an example, if we have say 100,000 customers in Chicago that are circuit switch customers, what we would do once we launch IP phone, is all go forward new customers would be IP, the circuit switch business would not be changed like a blood transfusion but would be allowed to, as customers leave and churn out, churn down, and then maybe two or three years from now, we would take existing customers and try to promote them over.

But it is not a binary, now we're IP, and we're switching people over.

In terms of small and medium-sized businesses, we get asked that question a lot.

And it -- in hindsight I think people might five years from now say you should have been faster, but we're trying to be disciplined.

We're doing a lot of different things right now inside our Company, and the real focus now is getting IP phone launched on a residential basis.

We are doing some commercial business on the high-speed data business, and we will do some on the telephone business, but it is not a specific target at this point.

Thank you.

Thanks, Craig.

Next question, please, operator?

Next question is from Kathy Styponias from Prudential.

Please go ahead.

Thanks.

At one point I believe management had suggested they might think about putting together a data phone bundle, in other words looking to tap those customers that don't currently take video, with I presume with hopes of upselling the video eventually.

Could you comment on where you stand on those potential efforts?

Thanks.

I think that is a big part of our enthusiasm for IP phone.

And our plan is to sell a bundle of IP phone and high-speed data for $69, is the price point we're talking about now, on a promotional basis, and you got to remember, we passed 40 million homes, only 21.5 million of those homes are video customers, so we've got another 18 to 20 million homes out there that we can target that are currently not -- the majority of which are currently not our customers, and a $69 bundled cost, given the fact that we provision and service IP phone customers and high-speed data customers on the same network, a $69 cost.

We make good money, and I think we're going to see a lot of success with that, and our initial trials in places like Indianapolis have suggested that that's going to have a tremendous impact.

Thanks, Kathy.

Next question, please, operator?

The next question is from Aryeh Bourkoff from UBS.

I just wanted to ask about the telco business a little bit.

Obviously, it is going to ramp as you get closer to your full 15 million homes rolled out this year.

Can you talk about that in the context of the margin improvement expected or implied by your guidance?

If you did better in telephone than you're expecting, would that margin then come down a little bit?

What kind of loss is baked into that margin improvement in the second half of the year?

And they announced a buyback obviously which is consistent with what you said last year.

I just wanted to get a sense of did you think about a dividend this time around, and I just want an update on your thought process about dividend versus stock buyback.

Thanks.

We are projecting to lose a little money in the second half of the year as we roll out phone, and it is tens of millions but it is in the -- it is nowhere near 100 million.

That is baked into all of our projections.

And I don't think we could go fast enough, and nor would we want to, from a management point of view, that would change that in any material way.

And this terms of unit numbers, Aryeh, we said at the beginning of the year, and I think we still hold to an expectation that Comcast digital voice will add approximately 250,000 for the year, and then net out probably a decline of about 100,000 to 150,000 from circuit switch so net-net we will be up about 100 on the year.

I think on the buyback question versus dividend, you know, as we talked to different investors, we get very different feedbacks, this has been a good model for now, we also wanted to see how Adelphia was going to play out, and what the final terms of that would be, and I think we're very pleased, one way or the other, to continue, you know, returning capital to shareholders while at the same time investing in the business.

Thank you.

Thanks, Aryeh.

Next question, please, operator.

Chris Hussey from Goldman Sachs.

Please go ahead.

Hi, guys.

Just a quick question on the basic subscriber.

And we did see it slip in the first quarter.

This seems like this is the first, first quarter where you guys have seen a decline in basic subs.

Are you guys getting a feeling that you've created a little bit of monster in your digital business is so good, that you've created a product perception gap between your digitaland analog subs, that is sort of hurting your analog sub base?

Is there anything that you might do?

You mentioned two or three years, maybe you would go to all digital on some of these, but would you accelerate that if you saw your analog base eroding even further?

I think we're pretty aggressive already in saying that we, you know, we see this happening with other, you know, with other operators.

You're talking about one-tenth of 1%, I think, so we're not going to totally change strategies for something like that, but I think we've been saying for a while now, that there is a value gap, and that we see a solution.

An all-digital cable system with a low end set-top box, which a lot of people had a chance to see at the Cable convention in San Francisco, where there is the ability to offer ON DEMAND, and all digital pictures, and theoretically, additional tiers of service through the digital delivery system is going to deliver more value to that analog customer, and that's going to happen in some markets in the second half of this year.

And we're testing that now.

When you visit us on -- for our investor conference next month, you are going to see that product working.

And so it will create another platform.

Right today, we have around 3,000 to 4,000 shows available to a digital customer, that are not available to an analog customer.

We may not make all of those shows available, but we're going to have the ability to dial that up and dial that down, and have promotions an do all sorts of things that we don't today do.

Steve?

Thanks a lot.

Next question, please, operator?

The next question will be from Thomas Eagan from Oppenheimer & Company and company.

Please go ahead.

Great.

Thank you.

Steve, you went into some detail on the financial impact of PVRs.

If you could talk a little bit about say the financial impact, whether it is an IRR, whether it is an impact on the margin, of the impressive results of ON DEMAND?

Thanks.

Well, ON DEMAND, as you know, the majority of our ON DEMAND business, 96% of it or thereabouts, is free.

The 4% that's Pay-per-view is actually doing extremely well, and interestingly as people become more and more habituated to ON DEMAND, the paid for portion is growing.

But the real IRR, if there is one, and we don't look at it that scientifically, is just providing more value to our digital customers, and the big idea which Brian alluded to is eventually offering VOD to all 21 million customers.

So I think it is one of those things that we're investing based on reduced digital churn and the obvious, you know, when Brian mentioned 100 million VOD sessions, the average VOD session is close to 30 minutes.

So that's 50 million hours that our customers spend in the month of March watching VOD, which is a product that didn't exist and a value that we have developed for our customers in the last couple of years.

That's why we do it.

You can't get it from satellite.

And someone in a Comcast system whose got a family that, you know, every member of the family has their own favorite stuff on VOD that is now using it is very unlikely in our opinion to go to satellite because we offer something they can't.

As I was saying earlier on, Tom, we're at a point now we had four consecutive quarters of double digit mid-teen growth with 18.5% growth in Pay-per-view revenue in the first quarter alone.

Great.

Thank you.

Thanks.

Could we take the last question, please, operator?

Yes, sir, the last question will be from Michael Kupinski from A.G. Edwards.

Please go ahead.

Thank you for taking the question.

I was just wondering if you could talk a little bit about the prospect of a wireless phone offering, and if you do have any plans, if you can talk about the bundle?

And since have you been in this business before, is there any way you can differentiate your wireless offering, and so if you could just talk about the wireless strategy, and if you have a particular timetable for an offering?

Well, we've made no secret that we are exploring wireless options with other MSOs, and with a variety of wireless companies.

There are ways to differentiate wireless offerings when you integrate it with the digital voice platform that Steve talked about, on our high-speed data platform where you're able to integrate a variety of features and services that will cross platforms.

And one of the things that I think we talked about at the -- again, at the cable show was a strategy of trying to build today the infrastructure, regardless of how and who and when we provide wireless, so that it will work cross-platform.

And we've been working on that cross-platform infrastructure, which is really hard plumbing, but we are making significant progress, so that whether it's your ON DEMAND shows being available on your PC and on your TV, and potentially some day on a wireless device, or whether it is parental controls that would work, again cross-platform, perhaps by user.

These are all the kinds of things that we're going to try to allow ourselves to do.

And then of course having a nationwide network that is broadband capable, that Dave Fellows has talked about, our CTO, I think we're taking these steps to try to have an integrated offering.

Today, this week, having a cell phone bundled with cable and high-speed data has not proved to be a marketing differentiator that we feel that we're concerned about, but we are very much focused on where wireless is going, and how we can work with that industry in a variety of different ways, and when we have something to talk about, we will, obviously.

Do you have a timetable, Brian?

No, but we're not slowing the development work.

Cable labs is working on, for instance, what some people call a smart phone, others have called it, a you know, an IP-enabled cell phone, a Wi-Fi enabled, so you bring the cell phone home, and it will automatically recognize the cable modem, and begin to do transmission throughout the house, the same way a wireless PC gets on to the broadband network, throughout the house.

So a phone would do the same thing.

And then when it goes out of the house, it converts back to a cell phone, so that way have you unified messaging, one voice mailbox, and a number of the wireless carriers are working on that, now the questions is how can we market that together, how do you split the revenues, how do you do the billing, and how can you make it advantageous?

But a lot of these applications are, as Steve was saying, in the voice space, and let's look at that product if that way, in driving broadband usage, whether it is X box live, or music, and now, you know, Wi-Fi enabled cell phones, people have to have a broadband connection, and that's where you go back to what's powering the company, the 35% or whatever the exact number was in high-speed data revenue growth, there are more and more applications getting developed and each, as Steve said, each year, we try to make our best prognostication, and we're pleasantly surprised with this quarter, and we hope with the whole year.

Thank you very much.

Thanks, Mike.

And we will see many of you at our investor meeting on May 10.

Thank you all.

We have no further time for questions.

There will be a replay immediately following today's conference call.

It will run through tomorrow night at midnight central time.

The dial-in number is 630-652-3000 and the pass code is 11274875.

Once again the number for the replay is 630-652-3000 and the pass code is 11274875.

A recording of the conference call will also be available on the company's Website beginning at 12:30 p.m. today.

This concludes today's teleconference.

Thank you for participating.

You may all disconnect.