康卡斯特 (CMCSA) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to Comcast's fourth quarter and full year 2005 earnings conference call.

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

Please note that this conference call is being recorded.

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

Please go ahead, sir.

Thank you operator, and welcome to our fourth quarter and full year conference call for 2005.

I'd like to first of all refer everybody to Slide #2, which contains our Safe Harbor disclaimer, and remind you that this conference call may include forward-looking statements, that are subject to certain risks and uncertainties.

In addition, in this call we will refer to certain non-GAAP financial measures, please refer to our press release and Investor Relations website for reconciliation of non-GAAP financial measures to GAAP.

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

Thank you, John.

Good morning.

In 2005, we delivered solid financial results in all of our businesses, and at the same time and perhaps even more important, we have made significant steps in laying the foundation, that is going to help us dramatically accelerate new product growth in 2006.

I'm very bullish, and want to explain to you a little bit, why we are as upbeat about all parts of the Company as we start out the new year.

First of all, the Cable group is very healthy in all parts of the business.

We have accelerating CDV, Comcast Digital Voice growth, and a group of content assets, where we are extending and enhancing the value of our programming grants.

In 2005, results once again demonstrated the health of these businesses.

John and Steve are going to drill into the details, but despite hurricane effects, and an unusual fourth quarter in that regard, and certain investments, opportunities in the content business that we believe are going to pay off in years to come, we achieved near double-digit revenue growth, double-digit cash flow growth, generated $2.6 billion in free cash flow, and used a significant portion of which to reinvest in Comcast stock.

We are now focused on new products as the engine for a whole new growth era, and 2005 was a terrific year in RGU growth, with 2.6 million units.

But that's going to accelerate, as you can see in our guidance in 2006 by some 35%, to 3.5 million units.

Our strategy of differentiation in both cable, high speed data, and content is going, and is paying off.

In 2005, in addition to the results that you've heard about, we were very busy laying the foundation, to set us up for this accelerated RGU growth era that we think we're headed into.

We were busy building a national back bone.

We were busy completing our bedrock foundation, which is a converged network with one infrastructure, that enables all products to be provisioned seamlessly.

We have 75% of the Company now offering digital simulcast signals in our markets, and we're ready to ramp up the delivery of yet a new product, enhanced basic cable. 100% digital service that will include our ON DEMAND features, that enhance the video experience for many more customers from where we're at today.

Speaking of ON DEMAND, and our leadership role in developing this differentiated product, we have the opportunity now to continue to expand high-def ON DEMAND.

We have the opportunity to expand the quality of the content ON DEMAND, and in 2005, we had 1.4 billion views of our ON DEMAND service, only by our existing digital customers.

As you know, our strategy is to take that product through the enhanced cable, and make some form of it available eventually to most of our 22 million customers.

ON DEMAND is now available to more than 90% of the digital home, and we have had some markets where the average home uses the product 30 times a month, for a half an hour per view.

We also added 1.5 million DVR boxes and high-def boxes, so the 25% of our digital customers now take what we call advanced digital services.

The consumer, and we believe we bet right, wants to be empowered and control their viewing experience, and the combination of DVR and ON DEMAND is unparalleled, unprecedented with any of our competitors.

In our content area, we launched Sprout.

We partnered with the NHL for Outdoor Life Network, and we partnered with the PGA tour for the Golf Channel.

These new initiatives, although perhaps depressing cash flow growth in the short run are going to we believe, pay off many fold in the years ahead, with the ability to have a richer and more robust programming channel, get the distribution expanded, and create more value in the long run, and that's been our pattern in programming for many years.

We signed a 20-year wireless JV during the year with Sprint/Nextel that many of you have heard about.

That's going to help us innovate into the wireless space as it interconnects with cable, and available to Comcast customers for years to come, all without having to need to go into the wireless business directly.

So I believe the technical foundation is now in place, and because of that fact, our network and all the work that we've put into our back office, we are in a unique position today, to offer a bundle that no other competitor can offer, and we recently have reorganized at the beginning of the year, and Steve can talk a little bit about this, the Company internally to have one operations, marketing and product development team, regardless of what products are in the bundle, so that there's one team driving the bundle.

And we have one engineering team for all our products doing the same thing for video, voice, high speed data, and wireless.

So we've done the work.

We're ready to go, and you're going to hear about that in greater detail.

As you look out at the opportunity for Comcast, which is I think, different than perhaps any other company in the space, we have multiple products now that we can sell, including CDV, to the 42-plus million homes in our market.

Now, we have a great opportunity to increase RGUs, by selling to our own customers.

Approximately 20, 21, 22 million homes, but that leaves another 20 million homes where we have built this state-of-the-art fiber-based network, and we have no relationship with the consumer.

That 20 million homes is probably larger than almost all but one other cable company in existence, and as we launch more services and features, we hope that the power of that bundle will allow us to extend our customer relationships into more of those homes in the years ahead.

Finally, in 2005, we invested more than $2.5 billion in our stock through stock repurchases and related securities.

In the last two years, we've invested a total of $5 billion in our stock buyback and our retirement of exchangeables.

While at the same time maintaining a strong investment grade rating.

Today, I'm pleased to announce that the Board has approved an additional $5 billion buyback authorization, hopefully demonstrating our belief and confidence in the business, and our commitment to long-term shareholder value growth.

With that, let me pass it over to John and Steve.

Thanks a lot, Brian.

We had a very strong fourth quarter, despite the impact of a number of hurricanes, particularly on our cable business, but first of all, I'll review the consolidated numbers and then the cable results in subsequent slides.

Consolidated revenues for the fourth quarter increased 9.2% to 5.7 billion, and for the full year, they grew 9.6% to 22.3 billion.

The growth is driven primarily by the terrific growth that we've had in our cable business.

Consolidated operating cash flow for the quarter grew 8.5%, but adjusted for the hurricane impact, it actually increased 10.3% for the quarter.

For the full year, consolidated operating cash flow grew 12.8%, but when adjusted for the impact of hurricanes, was actually 13.2%.

So bottom line, we met our consolidated guidance of approximately 10% revenue growth and 13% operating cash flow growth.

Consolidated operating income for the year was up 27% to 3.7 billion, and consolidated net income for the quarter was 133 million, or $0.06 a share.

EPS for the quarter of $0.06 a share reflects declines in investment and other income totaling 495 million for the quarter, in addition to a higher tax rate than we reported for the full year.

We've added a table 7-B to our press release that shows that adjusted EPS for the quarter increased to $0.09 from $0.04 a year ago, and to $0.41 for the year from $0.20 a year ago.

Adjusted net income excludes investment and other income, net of tax, and excludes a fourth quarter refinement to our effective tax rate.

So let me just make a couple of comments about the content division, before I move on to cable.

Content revenue for the quarter increased 14.2%, and for the full year 17%, to $919 million, reflecting increases in network ratings and advertising revenue for all of our networks.

Cash flow declined in the quarter to $35 million, as we continue to invest in programming and production, as Brian highlighted, expenses related to OLN coverage of the NHL began in the fourth quarter, along with other programming initiatives, and certain restructurings.

For the full year, content operating cash flow increased 7% to 283 million.

We continue to build value in our content business, as shown by our recent announcements with the NHL and PGA, as Brian described. 2006 will reflect a full year of NHL costs, but none of the PGA-related costs will commence until we get into 2007.

Ratings for all channels are up.

Some of them to all time highs.

We'll be investing in new programming across the board, and while this will put pressure on aggregate content, operating cash flow for 2006, we're really excited about the long-term outlook for our content division.

For the full year, corporate and other revenue decreased 12.4% to 178 million.

Operating cash flow decreased 43 million to a loss of 248.

Results for the year were impacted by the resumption of NHL games in 2005, offset by transaction and other expenses, primarily in the fourth quarter.

Now I'll drill down into the cable results.

We finished 2005 with solid unit growth and near double-digit revenue growth of 9.5%.

Total video revenue increased 5.7%, driven by a number of factors.

Total revenue per basic sub increased 9% to $84.12, driven primarily by new product success.

But the core video business is also in very strong shape.

We added 40,000 basic subscribers in the fourth quarter to end the year with 21.4 million.

Due to hurricanes, basic subscriber additions reflect an estimated loss of about 20,000 subscribers in the quarter.

So adding those back to the number that we added for the quarter, we would have had 60,000 net adds, which would be basically the same as we reported for the fourth quarter of 2004.

We continue to believe that RGU growth as a metric that measures the growth of our multiple products is a more important measure of the strength of the business than basic subscribers.

Nonetheless, we're very encouraged by the strength of our basic subscriber net adds in the fourth quarter, and by the experience of other MSOs who have bundled phone and other service offerings.

In addition, we added 1.1 million digital customers.

This is our highest level of digital net adds in three years.

This reflects increased consumer demand for new digital features, including Comcast ON DEMAND, high-definition television programming, and digital video recorders.

We ended the year with a total of 9.8 million digital subs, representing a penetration rate of 46%, up from 40% last year.

During 2005, we also doubled the number of HD-DVR set-top boxes, adding 1.5 million advanced set-top boxes, giving us 73% of the boxes deployed, had this advanced capability, up from 51% in 2004.

And we actually ended the year with 2.7 million of those boxes in service.

This means approximately one out of every four of our digital customers have one of these advanced set-top boxes.

That's 25%, up from 13% a year ago.

We also added about 70,000 enhanced cable customers in 2005.

We now have digital simulcasts in 75% of our footprint, and expect the number of enhanced cable subscribers in 2006 to increase substantially.

And we continue to see very strong results in Pay Per View, which is up 16%, making it the third year that we've had an increase in excess of 15%.

High speed data business is also in great shape, delivering $4 billion of revenue, an increase of about 28%.

Today, high speed data accounts for nearly 20% of cable revenue.

We continue to focus on adding value to customers, by increasing speeds and adding features, with the goal of growing units and maintaining average revenue per unit.

During 2005, we added a number of feature enhancements, including increased speeds, up to 6 and 8 meg.

Free McAfee internet security solutions, NHL On Line, Photo Show Deluxe, and much more.

We ended the year with more than 8.5 million high speed data customers, adding more than 1.5 million units for the year.

This is a 22% increase in the number of subscribers and our penetration rate is now 21% of available homes, up from 17.5% a year ago.

We continue to believe that there's significant growth potential in the high speed data category, as we enter 2006 and our sell-in rate continues to be strong, ending the year at 40%, up from 33.5% in the fourth quarter of '04.

For the year, average revenue per subscriber was stable, roughly in-line with the year ago at $42.82.

So we continue to be successful, achieving strong growth and profitability in high speed data, despite competitive pricing pressure.

In the phone category, we're very excited about the rollout of CDV, which Steve is going to cover in some detail.

But just let me make a couple of comments on revenue and operating cash flow for phone.

Cable phone revenue declined 2% to the year, which includes the increase in revenue associated with the addition of CDV customers through the year, offset by the loss of circuit switch customers, which generate higher revenue per customer.

Revenue growth in cable has been and will continue to be impacted by our legacy circuit switch phone business.

This is not a greenfield business for us.

The circuit switch business is declining, both in terms of number of subscribers and revenue, as we transition to CDV.

All new CDV customers will come in at lower revenue per sub than circuit switch, but we're significantly accelerating the growth of CDV in 2006.

This will result in mid-teens phone revenue growth in 2006, as opposed to the 2% decline that we're reporting for this year.

Over time, phone revenue growth will drive higher growth in total cable division revenue, and contribute to revenue and operating cash flow growth, as we scale and gain efficiencies in this area.

A brief comment on advertising, which increased 6% for the year to $1.4 billion.

We expected advertising growth to be impacted by a decline in political advertising when compared to 2004.

Overall, the advertising market was soft, as advertising spend slowed in the second half of the year, particularly in the auto sector.

The increase in other revenue, primarily reflects the growth in regional sports, because of the launch of Chicago SportsNet, which occurred in October of '04, and we expect in terms of outlook for 2006, cable revenue to grow 9 to 10%, driven by growth in digital and high speed data, and mid-teen growth in the CDV category that I just described.

Moving on to Slide #6 that describes the operating cash flow that we report for the year for cable, which grew 13.2% to 8.5 million.

For the full year, margins were 40%, up 130 basis points as a result of strong top line growth, and continuing success in controlling the growth of certain operating costs, including programming expenses, which increased 5.4% to 4.4 billion.

During 2004 and 2005, a number of major hurricanes impacted systems serving communities in southern, southeastern U.S.

Including the costs associated with the hurricane-related repair expenses of 15 and 37 million in the third and fourth quarter of 2004, operating cash flow grew 14% to 8.5 billion and 12% in the fourth quarter of the year.

2006 operating cash flow guidance is 10 to 11%, driven by double-digit revenue growth in all of our new product categories, offset by higher costs associated with the rollout of CDV, which we estimate creates a drag of approximately 100 basis points on operating cash flow growth.

We do not expect this drag to continue beyond 2006, as the business scales.

The strength of our business is really evident in Slide #7, where we highlight the number of RGUs.

For each of the past three years, we've added approximately 2.6 million RGUs and at the same time, we've reported an increase in the increase in total revenue per basic subscriber to $82 from $62, a compound growth rate of almost 10%.

We added more than 2.6 million in 2005, beating out guidance our of 2.5 for the year.

We expect CDV to have a significant impact on RGU net additions in 2006 and beyond, as we move from early deployment to more aggressive rollouts and mass marketing of this product.

Including the decline of our circuit switch customers, as we transition to CDV, we expect to add roughly 750,000 net new phone customers in 2006.

The net adds from CDV, along with continued strength in digital and high speed data translate to total RGU guidance for 2006 of 3.5 million.

Moving on to Slide #8 that describes capital expenditures, these were relatively flat in 2005 at 3.57 billion.

If we net out the 25 million of hurricane-related capital costs, cable capital for the year was 3.54 [million].

Capital reflects-- billion, I'm sorry.

Thanks, Brian.

CapEx reflects a 71% decline in rebuild capital, offset by increased purchases of digital set-top boxes, to meet the strong demand for HD and DVR services, and costs associated with deployment of CDV.

In 2005, roughly three quarters of cable capital expenditures were variable and demand-driven compared to 58% in 2004.

We expect 2006 to look very much like 2005 in that regard.

As shown on this slide, both CapEx per RGU and CapEx per subscriber, declined in 2005 from 2004.

Over the past two years, CapEx per RGU and CapEx per sub, has declined 24% and 13% respectively.

The rollout of CDV and continued customer demand for advance services will continue to drive capital expenditures in 2006, but we expect to maintain CapEx at similar levels in 2005, similar levels to 2005 or approximately $165 per subscriber.

Moving on to free cash flow for the year, we generated 2.6 billion in consolidated free cash flow, which is a 33% increase, driven primarily by the increase in cable operating cash flow.

We generated 699 million in the fourth quarter, a 40% or almost $200 million increase when compared to the fourth quarter last year.

We've consistently disclosed in our press releases, in tables 4 and 7 each time, that our definition of free cash flow is uneffected by fluctuations in working capital, and payments associated with intangibles and other noncurrent assets, acquisitions, and investments.

At the same time, we have provided supplementary information in our press releases, that disclose the working capital and intangible numbers.

We take pride in maintaining the highest of financial reporting standards, and in providing useful and transparent financial information.

In this regard, we're changing our definition of free cash flow in 2006 to reflect the impact of working capital and intangibles.

So if you move to Slide #10, you'll see that our new definition of free cash flow is consistent with most company's free cash flow definition, and responsive to investor's requests.

Effective in 2006, free cash flow will be defined as cash provided by operating activities from continuing operations, as reported in our GAAP statements, reduced by capital expenditures and cash paid for intangible assets, and increased by payments related to certain non-operating items, net of estimated tax benefits.

Slide #10 recalculates the 2005 free cash flow based on the new definition, and expresses a conversion rate of operating cash flow into free cash flow.

For '05, our conversion rate was 25%, and we expect to match or beat that number and have guidance for 2006 of 25 to 30%.

Moving on to the next slide, #11, Brian's already described how we significantly accelerated the pace of our share buyback in the second half of 2005, buying back 901 million in the quarter.

So for the full year, we repurchased $2.3 billion, and when adding the exchangeable securities, invested $2.5 billion in our securities.

So we're pleased to report the additional Board authorization of $5 billion.

If you would move, then, to my closing slide looking at the outlook for 2006, we expect a very strong year in 2006, leading to continued growth in 2007 and beyond.

I would point out that none of the Adelphia, Time Warner, or Susquehanna transactions are included in this guidance.

As I mentioned earlier, the rollout of CDV will have a negative impact of about 1% on cable operating cash flow growth in 2006.

In addition, our investment in content will impact operating cash flow growth by about another percentage point.

Following 2006, we expect CDV growth will contribute positively to cable and consolidated operating cash flow growth, and we believe it can help us continue to drive double-digit EBITDA growth in cable over the next several years.

CapEx guidance incorporates RGU guidance expectations of at least 3.5 million units, to the extent we are successful in driving RGU growth to a higher level in guidance, this in turn could have an impact on our variable capital requirements.

With that, let me pass it to Steve for his comments.

Thank you, John.

Normally on these quarterly calls, I cover all of the key aspects of our business from basic subs to high speed data to digital and add sales.

But I think this time it makes sense just to highlight the importance of our phone business, and give you a more complete update on what is really our key initiative for 2006 and beyond.

So I'm just going to concentrate on Comcast Digital Voice, CDV, during this section of the call.

If you turn to Slide 13, let me start with 2005 results.

We ended the year with 16.1 million marketable homes.

We actually passed 21 million homes, but some of those homes are not immediately marketable, because we can't get into apartment complexes, or don't have the right interconnection agreements, but 16.1 million marketable homes is where we ended the year.

We launched 25 new markets during the year, and during the fourth quarter, we added 134,000 CDV subscribers, or about 10,000 subscribers per week.

By the way, in the beginning part of the first quarter of 2006, we're up to 14,000 to 15,000 per week for the first weeks of this year.

And finally, we met our target of 200,000 net adds for the year.

Moving on to the next slide in our plans for 2006, you'll see we plan to end the year with about 80% of our homes marketable for CDV by the end of the year.

We'll also be launching 15 new markets.

We plan to add 1 million new CDV subscribers during the year, and as importantly as everything else, as we move to an integrated Triple Play offer, we think we're going to start to see CDV help our video and data business, the way it has with other MSOs, and the way it has in various test markets.

Now let me give you a little color behind the numbers.

In 2005 we really laid the foundation for the growth we're going to enjoy in 2006 and beyond.

And some of this is a bit, a bit boring and under the surface of the water, but it's very, very important, and we made a lot of major progress during 2005 on these items.

We now have a single integrated provisioning system called bedrock.

What that allows us to do when we sign up a new customer, whether it's high speed data or phone, we can now do that in an integrated way, on a system we control in every single system in the country.

Secondly, we have converged regional area networks, which are really the skeleton upon which we're going to be driving our CDV business.

Those are all now in place in the markets where we've launched phone.

We have integrated three product billing for all of our markets.

So a customer gets one bill for all three products.

We have a website for all of our phone customers, so that people can go in and look at the call activity, and we don't need to send that in every single bill.

We put in place a management structure in every single region of the Company where we're going to be launching phone, and we've trained over 20,000 people.

The Company is so large, the training process has been very extensive.

These are really the building blocks for our phone business, and they are behind us, and for the most part, we're ready now to concentrate on the part of the phone rollout, which is going to impact our customers, and going to help us grow our business financially.

The really important thing for us is, I think we are years ahead of where our competitors are and will be.

Right now we can offer three products to 25 million homes, if you include our old circuit switch phone business, and we can do that immediately and are doing that.

If you look at the Bells combined, we think they can only offer an integrated three-product bundle over their platform to about 1% of just our number, about 250,000 homes.

We also think they face a number of very significant hurdles to get to where we are, and what they are doing today frankly is just not a scalable or financially feasible solution.

So we think we have a real head start.

We're ready for prime time, and we're going to be very aggressive in 2006 and beyond.

We've also made a lot of progress in the last six months thinking about what an integrated three-product bundle can do for our business.

When we launch a market, we really go for phone, we really go through four gears.

The first gear is to get the infrastructure ready.

The second gear, about six months before we launch commercially, we go to friendly homes or employee homes, and really start to debug the process.

The third gear is commercial launch, and that gear lasts for about six months after we go commercial, and then the fourth gear is what we call Triple Play.

And in that fourth gear, you're really offering the business, the Triple Play as your major marketing message to the market that you're marketing to.

The real payoff is getting to fourth gear.

When a market enters this Triple Play gear, a bunch of very important benefits occur.

First, you increase the number of CDV net adds, because it's your major marketing message.

Secondly, the high speed data business gets a booster rocket, because everybody who gets CDV by definition also gets high speed data.

So it dramatically ramps your high speed data business.

And then finally, you get a basic subscriber trend improvement, because the competitive dynamic was satellite, and the price-value relationship with satellite shifts quite significantly.

We know these benefits occur in Triple Play markets, because we've been testing this now for a number of months.

We recently, in early January, launched our New England market, which is about 10% of our Company, around 2 million subscribers, as a Triple Play market, and we've also seen these kind of results with Time Warner and Cablevision.

So our plan is to, as we go through the year and the phone markets mature, and more of them go into Triple Play mode, to continue to launch Triple Play markets, as we enter the second, third and fourth quarter.

Our plan is to have an entry level price point of $99 for one year, and then upsell to a higher ARPU.

That upsell process is very important, and really sort of key to our whole strategy.

We would target this offer in our marketing to new subscribers.

And as Brian mentioned, we have about 20 million homes in our footprint that don't take any products at all from us, and virtually all of those homes have a phone.

So it's a very big target market that we're going to aim at, as we launch this Triple Play.

We want to do this very methodically.

Traditionally, what we do when someone calls us, is we cross sell and then we upsell.

What we'll be doing once we launch Triple Play is concentrating on the upsell process, which is very important.

We also want to make sure that we're concentrating on new customers, and really using CDV to drive our entire business, high speed data, basic subscribers, and phone.

It's very important that we're ready to handle the volume.

These three product bundles drive a lot of business, and we want to make sure we handle the volume efficiently from an operating point of view, making sure that our truck rolls are done with as many times as possible all three products, and we're not running multiple truck rolls for individual installs.

We want to make sure that the marketing is as efficient and integrated as possible.

We also think that there are efficiencies from a capital point of view, if we do the Triple Play the right way.

Our first major market was New England.

We're seeing very strong results.

Others will follow.

Indianapolis, and other markets will be launched in the not too distant future.

And as Brian touched on, we have realigned our entire organization.

You can't market with three marketing departments, if your marketing focus really is in integrated bundles.

From marketing to engineering, we've realigned the entire Company around this strategy, and a lot of that planning work and our play book for how to do this is now complete.

I think it's very fortuitous that we are now entering this Triple Play mode at exactly the right time.

It's about a three-year time period since we integrated AT&T Broadband.

Their margins were 20% when we arrived.

We now have a combined company margin of 40%.

All the rebuilding work there is done.

Our video business is in very good shape, with VOD and DVRs, et cetera.

Our high speed data business, we're now over 8.5 million subscribers, a level that we never thought we could achieve just a few years ago.

But that high speed data business is now ready for a booster rocket, which CDV is going to provide.

And as I mentioned, the infrastructure is ready.

Most importantly, we're going to have a first mover advantage here.

I think we're going to have it for a very long and sustained period of time.

So I think we're right where we want to be.

We're very excited about 2006 and beyond.

Our organization is very excited about what CDV can do as a new business, but as importantly, what the Triple Play can do for our entire business and our outlook competitively.

So with that, John?

Operator, could we open up for Q&A, please?

Thank you.

We will now begin the question and answer session. [OPERATOR INSTRUCTIONS] Your first question comes from Aryeh Bourkoff with UBS.

Yes, thanks.

Good morning.

I wondered if you could, you mentioned obviously the voice revenue growth in '06 being, I think you said mid-teens.

Clearly EBITDA, negative the first year.

Could you talk about what kind of ramp-up do you see beyond '06?

When does voice become a cash flow contributor to the company?

And then secondly, I was wondering if Brian could talk a little bit more about what the company's doing with respect to content.

Obviously some investment right now in the Outdoor Life Network.

Maybe talk about what the goals were, with respect to the NFL package, and what we're expecting to come from here, in terms of cost to develop content?

Thank you.

Okay.

I'll try to hit them both, John, you can jump in on the first one.

Obviously we're not doing '07 guidance here today.

So I will generally say that it's our belief, as we put this budget together, if you looked at the various things management has to look at, which would be pushing EBITDA, push for that maximum EBITDA growth we could, push for the maximum RGU growth we could, try to have the minimal capital expenditures we could, and some of the other kinds of variables that go into putting a business plan together.

If had you to pick one that we said we want to accelerate, obviously I think Steve did a wonderful job just now explaining the strategy.

We are accelerating RGUs, and if at some level that is putting some pressure, downward pressure on EBITDA, as John tried to estimate, in my opinion, if you can be double-digit cash flow, convert 25% of that to free cash flow, and at the same time have a 30-some percent increase in your growth rocket engine for the future years, it should then in logic lead to, in the years beyond '06, to the same or better, hopefully better growth rates for the Company.

We don't think this is a one-year phenomenon with telephony, but we will reach scale when you're talking about a million units of volume, and having the company trained, and all the service issues that that will create.

And so I think we're very bullish on cable's prospects, which is a different answer perhaps than what the market sees, in terms of our business prospects.

We can't be certain obviously, put all the caveats around it, and we'll give you the '07 view when we get there, but we believe this business is going to remain healthy and, you know, obviously people are entitled to their own opinion.

John, do you want to add to that?

The only thing I would reiterate, Aryeh as I said in my comments, this drag of 100 basis points created by the CDV business in 2006, we do not expect to extend into 2007.

And from a revenue standpoint, the circuit switch business will decline probably about mid-teens in 2006, but then in the aggregate, CDV is going to lift total phone revenue for the year to mid-teens.

So we're in a different position from a lot of other people, because of that legacy CDV business.

So we think the outlook for '06 and '07 is very, very strong.

Okay.

On content, we have always said that there's an opportunity to build cable programming brands, and when we looked at NFL football or PGA golf, or any other activities like hockey, NHL hockey and other things, that haven't been reported publicly, our goal is the same.

We are trying to take our brands and extend the number of homes.

In most of our channels, we don't have any channels, maybe E! is the exception, that is north of 70 million homes or 80 million homes, like some other cable channels.

We have an opportunity to reach into more homes, which will add revenue and cash flow in the years ahead.

We have an opportunity to lift ratings, and continue to get revenues from advertisers and cable operators, as you become more relevant.

And so each one is opportunistic.

There's a financial discipline in the Company, in each situation.

If I might, I'll dwell on the PGA golf tour more than I will on the one that's not happening.

We have a potentially a 15-year relationship that will, any golf tournament, 40 week as year that's happening in the Professional Golf Tour, the only place to see cable television golf in those 40 weeks will be on the Golf Channel.

That's a tremendous leap forward for that network and going to add great value.

So in the short run, if that's a drag on cash flow, again, our strategy is to build for shareholder growth in the long-term.

That's what has served this Company so well, and I think in the content area, these are relatively small impacts to the overall corporation, but may be very significant opportunities to each individual network.

Next question, please, operator?

Our next question comes from Ray Katz from Bear, Stearns.

Please go ahead.

Yes, thank you.

Your operating cash flow guidance for cable, 10 to 11%, I'm assuming obviously that's after the options expense, but I'm assuming that that's a reported number, in other words, not adjusted for the hurricane impact.

If you adjust for the hurricane impact on that number, you lose about 80 basis points of growth.

Am I doing that correct, and if we look through the hurricane impact, are we really talking, about 9.5% to say 10% operating cash flow growth in cable?

No, I don't think that's the case, Ray.

I mean #1, yes, it's adjusted for the options expense, and what we're looking at here is guidance for the full year of 10 to 11.

I mean there's no attempt here to sort of exclude from those numbers, or anything like that.

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

Please go ahead.

Thanks.

I also have a question about the guidance.

It looks like, Steve, based on what you just said about the run rate heading into '06 that you're currently on a run rate already for something between 750,000 and 800,000 VoIP adds this year, and your footprint is still set to double by the end of the year.

So my question is, does your EBITDA guidance leave a little bit of wiggle room, if you end up exceeding the 1 million net VoIP adds?

Doug, we're trying not to, you know, anticipate things that may happen beyond the guidance that we've got in here.

We're guiding to VoIP adds of 1 million to the extent that we're more successful, you know, we'll address that when we get to it.

But I think this is an integrated package of RGU VoIP growth, and let me pass to Steve.

Let me make one quick point.

It is a massive undertaking to take a business and ramp it the way we're going to ramp our phone business, and we saw firsthand what happened to AT&T Broadband when they ran the business for units.

They went out and said we're going to have X amount of phone subscribers, and the entire company ran to get units.

And we're not going run the business that way.

We're going to run the business based on what's right, and we're going to expand markets based on when the markets are ready, and when we can deliver a quality product, and I think it would be inappropriate for us to put numbers out there that would cause us to stretch, and push the business faster than when it's ready.

But our 10 to 11% number for cable OCF does include that 100 basis point drag that we expect from CDV roll-out, before the business scales by end of 2006.

Our next question comes from Craig Moffett with Sanford Bernstein.

Please go ahead.

Yes, good morning.

First John, I want to clarify your free cash flow guidance, if I could.

Am I correct in based on your conversion rate, to understand that free cash flow guidance is 2.3 to 2.8 range for 2006?

Yes, that's right, Craig.

Thanks.

And then second for Steve, Steve, you talked about your fourth gear marketing.

I guess it sounds like you're now hitting fourth gear marketing in Boston.

How much of your footprint right now is in that fourth gear window, as you describe it?

And what's your lead offer in that fourth gear window for, especially for non-subscribers?

Are you leading with the Triple Play bundle, or are you leading with a Double Play bundle of voice and data?

The answer is we are a Triple Play right now in 10% of our footprint, around 2 million subscribers.

And what we're leading with aggressively, and in the market in the Boston Globe, and on broadcast television, is $99 for one year, all three products.

Our experience in Boston so far has been that that's the lead offer, but the average revenue per subscriber is significantly higher than 99, when they come in on that Triple Play bundle, and that's probably 80% of our marketing effort in that market.

And what we're doing is watching the results in Boston very carefully.

We had a meeting last week with the top 25 executives in our Company and all of our division presidents, and essentially we're taking the Boston play book and then refining it, and then using that to roll-out other markets.

We would anticipate, once you get into the second, third, fourth quarter, that that 10% of our Company, would go up to 40, 50, 60% over time when markets are ready.

But the thing that we're noticing in Boston is once you do that Triple Play, and once you put that offer out in the market, the phones ring, and people are very, very interested in our services, and you have to be ready for it.

Our next question comes from Kathy Styponias with Prudential.

Please go ahead.

Kathy?

Could we go to the next question?

Hello, can you hear me?

Hello?

Go ahead.

We hear you.

Great.

First question is for John.

John, your working cap needs went up dramatically in the fourth quarter.

A lot of it seemed to be related to the AT&T merger, in light of the fact that you are now including working cap in your definition of free cash flow, can you give us a sense of how much we can expect, well what can we expect for working cap needs in 2006, and how much of that will be, how much is still left, I guess, related to the AT&T merger?

Then second question for either Steve or Brian, there's lots of discussion on net neutrality.

I was just wondering if you can give us a sense of when you think the cable industry in general and Comcast in particular, might look to try to basically manage their bandwidth for more greater operating and financial efficiency, and when you might be looking to start charging certain content providers for higher speeds, if they so desire it.

Thanks.

Kathy, in response to the working capital part of your question, as we point out in Table 4 and Footnote 4, $557 million of the $585 million negative impact, or negative working capital for the fourth quarter, relates to an AT&T Broadband income tax-related payment.

So for the full year, we had about $994 million of AT&T-related payments.

So the 557 was really, you know, something that is out of the ordinary, not expected to recur.

So where we end up for the full year working capital net of the AT&T payments is about $271 million.

That's netting the 994 out of the 1.265 billion that we had for the year.

We're expecting that the AT&T-related needs, if you look at how that has continued to come down, net of this tax payment, we're down in the 250, 300 range for the year.

That should be even lower in 2006.

And then ongoing working capital needs are factored into our new free cash flow guidance, and we expect that they will be, if you go back to 2004, they were 300 positive, about 300 negative for 2005.

Over time they tend to wash out.

Our next question comes from--

No, no, for Brian.

Let me answer the question on net neutrality, if I might.

We continue to believe that proponents of the so-called net neutrality are pursuing a solution in search of a problem.

Neither Comcast nor any other major cable operator has ever blocked access to my knowledge of customers to any websites, and the competitive market, in fact there are multiple ways to access broadband and the high speed internet, and the internet in general, continues to be the ultimate governor of conduct in this context.

But we do also recognize and try to advocate for our right as a network manager, to manage the network, to make sure that the customer experience does not get degraded, due to outside influences like spam and other things.

And finally, we have not had any discussions with content providers with respect to any charges directly from such providers, and that's an area that at this time, that's where we're at.

So we don't believe that this is the right policy.

I don't see it at the moment, having a lot of, it is a regulation of the internet, and we're certainly going to try to fight anything like that.

Next question, please, operator?

Our next question comes from Vijay Jayant from Lehman Brothers.

Please go ahead, sir.

Thank you.

John, I just want to understand on the video ARPU, seems to be up about 6%.

I was hoping it would be higher, given the 25% of your digital substake are high-end service, BPU revenues are up, as well as adding 1.1 digital subs in the last year.

Is there any reason why that's not growing higher than typically your annual rate increase is?

Thanks.

It's growing slightly higher than the annual rate increases, Vijay, but if you think about the numbers that we're adding on a base of 21.5 million, it just takes a lot more than that, to move the entire base.

If you look at total video revenue for the year, we're moving off a base of $13 billion, so as you look year-over-year, we're gradually moving the dial, but it takes an awful lot to move the dial when the base is that big.

Next question, please, operator?

Our next question comes from Bryan Kraft with Credit Suisse.

Please go ahead.

Thank you.

You talked a little bit about the upsell in the Triple Play offer, Steve.

I guess more specifically, what has the actual customer bill been running at, and what percentage of customers have actually been taking the $99 product?

And then also, where have the voice costs per gross add costs been running, including marketing installation and CPE?

Okay.

We're very early on and I'm hesitant to give numbers, but there is a lift, and the lift is, you know, 10 to 20% over the offer price, in every instance where we have done this so far.

And that's really critical to the whole strategy.

What happens, is when you talk to a customer and sell them the $99 product, that is, that is cheaper than they can get the three products on an A-la-cart basis from our competitors, by and large, significantly cheaper.

So the person on the phone feels like they have saved money.

They have money in their pocket.

So then when you sell digital plus HBO, plus Showtime, or other services, DVR, for example, consumers are very, very willing to go there.

So what we're finding is that we're very consistently, significantly above the $99.

In terms of the percentage of people taking the $99, in terms of new connects, we have heard that there have been times that other cable companies like Cablevision, get to 40 or 50% of new connects on the Triple Play.

We're not that high yet.

We're closer to 20% in the New England area, but I think over time we will get higher, as we become more known for the Triple Play.

About 75% of our phone customers take all three products, and I think that's, that's a number that's likely to stay consistently high, and maybe even grow.

So it dramatically changes the operation, and the conduct of the system, and also the perception in the market, and there are four or five metrics that are very important to measure, and we're watching those very carefully in New England, and refining all of our call center policies and technical policies, to make sure that they stay where they need to be.

Next question, please, operator?

Our last question comes from [Wa Lee] with Goldman Sachs.

Please go ahead.

Hi, just actually two questions.

On the DVRs and the HD-DVRs, we've been hearing that the CPU costs have been declining much faster than expectations.

Can you pull out a little bit of color what you're seeing on the costs, and you've been trying to push more into the retail, as opposed to just buying directly from the true providers.

Have you seen that impact your costs?

And also on the wireless JV, when should we expect to see the product launched?

Thank you.

Well, let me start big picture and maybe Steve can comment a little bit on specifically where we're at.

But for those of you that did not go to the Consumer Electronics show, Comcast announced several initiatives with Panasonic and Samsung, at the Panasonic announcement, exactly to your point, a new entrant to the set-top box market, they believe they are going have boxes in a year or so available.

They will be high-def, I think really sort of three-tuner boxes.

That's more than we have now.

They will have 2X the capacity for storage for the consumer, and it will have the ability to quote, go to the net or live television or VOD.

It will be a much, it's an all digital box and it will come in at significantly lower prices than what we're paying today.

And we had, the Chairman of Panasonic, Electronics present us with their plan, and we put a purchase order in, and at the same time we worked with them on an initiative, this is unrelated, to have television theaters and home theaters produced by Panasonic integrate with Comcast and potentially other cable companies, so that with one remote control, you can control your volume, and your theater, control your DVD player, control your DVR box, and can turn on your Panasonic TV, all with the Comcast experience popping right up, no other provisioning required.

So the relationship with these consumer electronics companies, and the innovation that they can provide to our industry, and doing it on a combination of their balance sheet and our balance sheet, not solely our balance sheet, I think is the model that we want to pursue.

We had a similar exciting announcement with Samsung.

So you're talking about two of the three or four largest consumer electronics companies in the world, now have direct relationship with Comcast.

By no means does that mean we aren't interested in a major ongoing and increasing our relationship with Motorola and Scientific Atlanta.

But there's a lot of development going on, and I think this is all going to be good for us in both innovation, in consumer applications, and in reducing capital, so that this begins to be a more competitive marketplace.

And that's a lot of the initiatives that we didn't talk about in this call, that we also did in '05, have laid the foundation to make this kind of thing possible with all digital.

You couldn't do that if you didn't do digital simulcast.

You couldn't do this if you hadn't gone in Motorola's joint venture, had an agreement with Motorola up front that this was where the future of digital was headed.

Let's go there together.

You couldn't have done if we hadn't had our own guide, so that experience pops right up, seamlessly and easily across all platforms.

We're pretty excited about that whole space.

And the answer on wireless is, we would hope that the second half of this year, we would have some kind of joint product and joint marketing.

Thank you, all.

Great.

We have no further questions at this time.

There will be a replay available of today's call starting at 11:30:00 a.m.

Eastern standard time.

It will run through Friday, February 3rd at midnight Central time.

The dial-in number is 1-800-642-1687.

And the conference ID number is 4216292.

A recording of the conference call will also be available on the Company's website beginning at 12:30:00 p.m. today.

This concludes today's teleconference.

Thank you for participating.

You may all disconnect.