康卡斯特 (CMCSA) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Comcast's first-quarter 2010 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 Senior Vice President-Investor Relations, Ms.

Marlene Dooner.

Please go ahead, Ms.

Dooner.

Thank you, operator, and welcome, everyone, to our first-quarter 2010 earnings call.

Joining me on the call are Brian Roberts, Steve Burke, Michael Angelakis, and Neil Smit.

As always, before we begin, let me refer you to Slide 2, which contains our Safe Harbor disclaimer, and remind you that 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 see our 8-K for the reconciliation of non-GAAP financial measures to GAAP.

With that, let me now turn the call to Brian Roberts for his comments.

Brian?

Thanks, Marlene, and good morning, everyone.

Today, we are pleased to report a solid start to 2010.

We achieved healthy financial and operating results in the first quarter driven by stronger customer growth, a rebound in advertising, continuing momentum in business services, and a steady focus on expense and capital management.

This quarter, we added 590,000 video, high-speed Internet and voice customers, a 7.5% increase over last year's first quarter.

We added more than 1 million RGUs as we continued to deploy all-digital, and also more customers upgraded or added higher levels of digital service.

The first quarter marked a real turnaround in advertising, which helped our results in both Cable and Programming.

While it's not clear whether we are entirely out of the woods on the economy, we are cautious and optimistic, and are clearly executing better in this environment and against the competition.

We achieved growth in revenues, operating cash flow and strong free cash flow of $1.9 billion, a growth of 38%, even as we reinvest to build a better and stronger company.

Our results include ongoing investments in our products, in marketing and customer service, and in new high-growth businesses like Comcast Business Services.

We also continue to make significant progress deploying All-Digital and DOCSIS 3.0.

We reach nearly 80% of our footprint with DOCSIS 3.0, reinforcing our leadership position in broadband.

As we deploy this capability, we are doubling the speeds to our existing customers and introducing new, higher-speed services in these markets.

Today, we offer 50 Mb speed service to 40 million homes where it is available and will soon begin to roll out 100 Mb service.

We are now actively deploying All-Digital in many of our markets, recapturing and more efficiently using our bandwidth.

This project has dramatically increased our product offerings, particularly in HD television and foreign-language programming.

We now offer 100 or more high-def channels, and we've doubled the amount of foreign-language programming available to between 50 and 70 channels in each of these Xfinity markets.

As the year progresses, we will also significantly increase the amount of content available on demand to nearly 20,000 choices with 3000 HD options available to our digital customers each month.

These strategic initiatives, together with our focus on the customer experience, are beginning to bear fruit as we see lower volumes of calls into our systems, improved customer satisfaction and retention.

So across the board, I believe we are in a solid position as we begin 2010.

Let me spend just one moment on NBC Universal.

We are 4.5 months into an approximate 9 to 12-month regulatory process.

We are well underway in the planning.

Once the transaction closes, we believe we will be ready to execute.

We remain very excited about the prospects of this combination and the opportunity to deliver the best entertainment experiences to our consumers and to drive value creation for our shareholders.

So let me now pass to Michael to cover the first-quarter results in greater detail.

Thank you, Brian.

Let me begin by briefly reviewing our consolidated results, starting on Slide 4.

Overall, we are pleased with our first-quarter results reflecting solid execution as we continue to balance revenue, operating cash flow and customer growth.

We remain very focused on expense and capital management.

First-quarter consolidated revenue increased 3.8% to $9.2 billion, and operating cash flow grew 3.5% to $3.6 billion, resulting in a consolidated operating cash flow margin of 38.7%.

This quarter's operating cash flow results include approximately $14 million of operating expenses related to the NBC Universal transaction, which is included in our Corporate & Other segment.

Excluding these costs, consolidated operating cash flow grew 3.9%, and our operating cash flow margin increased to 38.9% from 38.8% in 2009.

As I have mentioned previously, in addition to revenue and operating cash flow, we are also very focused on free cash flow, free cash flow per share, and earnings per share as important metrics in evaluating the strength of our consolidated businesses.

In each of these key metrics, our performance during the first quarter was very strong.

We generated consolidated free cash flow of $1.9 billion, an increase of 38.1% versus the first quarter of 2009, reflecting growth in consolidated operating cash flow and declining capital intensity.

Compared to the first quarter of 2009, free cash flow per share of $0.67 increased 42.6%, and EPS increased 14.8% to $0.31 per share.

Excluding total NBC-related costs of $29 million this quarter and tax benefits in last year's first quarter, EPS would have grown 24% to $0.31 per share from $0.25 per share in 2009.

Let us review our Cable division's first-quarter results in more detail.

Please refer to Slide 5.

First-quarter Cable revenue increased 3.5% to $8.7 billion, reflecting continued growth in high-speed Internet, voice and business services, as well as a significant improvement in cable advertising, partially offset by a decline in video revenue.

Total revenue per video customer increased 6.3% to $123 per month in the first quarter and reflects the increasing number of customers taking multiple products.

At the end of the first quarter, 29% of our video customers took all three services, compared to 25% at the end of last year's first quarter.

We had stronger customer growth in the first quarter with 590,000 total video, high-speed Internet and voice customer additions, a 7.5% increase from last year's first quarter.

This quarter's customer metrics were healthy across every product category.

In video, we lost 82,000 customers, similar to last year's first-quarter losses even though the RBOCs added 5 million more homes to their footprint, and last year's first quarter included a benefit from the broadcast digital transition.

In high-speed Internet, net additions increased 21% to 399,000.

In voice, net additions were solid at 273,000, indexing at 92% of last year.

Overall, we are pleased with our customer additions in the first quarter, but please remember we are also heading into a seasonally slow second quarter.

For the first quarter of 2010, total video revenue decreased 1.8%, reflecting the impact of fewer rate increases in the fourth quarter compared to the prior year.

Importantly, video revenue did improve sequentially by 1.1% as we saw an increasing number of our customers add or upgrade to higher levels of our digital services as we had continued growth in advanced services, adding 353,000 advanced service customers, which now represent over 50% of our digital customer base.

High-speed Internet revenue increased 8.5% during the quarter, reflecting strong new additions and a slight increase in ARPU to almost $43, reflecting the impact of rate adjustments.

Our HSI customer mix also remains strong, as we continue to add more than 2.5 times as many higher tier customers than those on the economy level service.

Our overall HSI penetration is now 32%.

Voice revenue increased 12.9% for the quarter, reflecting continued growth in our customer base and a 3.6% decline in ARPU to $38 per month.

We now have almost 7.9 million voice customers with penetration now over 16%.

As I mentioned, cable advertising experienced a notable improvement in the first quarter of 2010, up 23.5% as compared to the 15% decline experienced for the full year of 2009.

While the improvement was led by the return of the automotive category, we saw a solid recovery in almost every category.

Steve will review this in more detail in a few minutes.

In addition, we continue to have real success in the small end of the business market with business services revenue increasing 49.1% to $263 million for the first quarter.

We expect the momentum in the small end of the business market to continue, and we are also enthusiastic about the opportunity to develop our cell backhaul business and our capabilities to serving the midsized businesses.

Please refer to Slide 6 to review our Cable division's operating cash flow results.

First-quarter Cable operating cash flow increased 4.1% to $3.5 billion.

Our Cable operating cash flow margin remained relatively stable at 40.8%, a 20 basis point improvement compared to last year's first quarter.

Total expenses in our Cable segment increased 3.1%, reflecting higher programming and marketing expenses.

Program expenses increased 5% this quarter, reflecting the addition of new programming, contact resets, and a higher level of rate increases during last year's first quarter.

We expect programming expenses to increase at a higher rate in subsequent quarters, though we continue to expect full-year programming costs to grow at a slower rate than the 9% reported in 2009.

Marketing expenses increased 16% this quarter, reflecting the upfront costs associated with the launch of our new Xfinity branding campaign and a continued investment in direct sales in the retail channel.

We will continue to invest in marketing, though we expect the rate of increase to be more moderate for the remainder of the year.

We are constantly evaluating our cost structure to gain more efficiencies.

As a result, we continue to extract scale benefits in our voice and high-speed Internet businesses.

Compared to last year's first quarter, our direct costs for voice declined 8.7% and our high-speed Internet costs reduced by 1.2%.

Customer service expense declined 5.2% and technical labor expense declined 4.3% in the first quarter as we benefited from lower activity levels, higher call automation in customer self-service, as well as other efficiencies related to our Challenge 2010 initiative.

These benefits were achieved even as we continue to expand the rollout of All-Digital and Wideband to a majority of our markets.

Given the economic backdrop, we've also been very focused on delinquencies and bad debt expense, and are now seeing bad debt expense decline for three consecutive quarters.

Please refer to Slide 7 so we can review our capital expenditures for the quarter.

In the first quarter of 2010, capital expenditures decreased 20% to $925 million, representing 10.1% of total revenue.

The level of CapEx spend this quarter benefited from timing, as we accelerated some equipment purchases in the fourth quarter of 2009 to take advantage of favorable tax treatment related to the economic stimulus and also attractive vendor discounts.

In addition, the decline in first-quarter CapEx was a result of improved efficiency, lower spend in new construction and scalable infrastructure, and continued reductions in equipment pricing.

Over the past three months, we deployed 3.2 million digital settops and adapters, including almost 2.6 million digital adapters, in support of the All-Digital rollout.

We have now deployed approximately 9 million digital adapters since the inception of the All-Digital project.

This quarter, we also deployed almost 600,000 advanced HD and/or DVR settops, as we added 353,000 advanced service customers in the first quarter.

We now have more than 9.5 million HD and/or DVR customers, equal to 50.5% of our digital customer base and 41% of all video customers.

Looking ahead, we expect CapEx will increase from first-quarter levels as we continue to invest to sustain momentum in business services and develop its efforts for midsized business and cell backhaul.

With approximately 80% of our footprint now Wideband-enabled, we have substantially completed our Wideband project but we will continue our rollout of All-Digital and expect to substantially complete this project by year-end.

For the full year we continue to expect our capital expenditures will be both lower in absolute dollars and as a percentage of revenue when compared to 2009.

Please refer to Slide 8.

Our priority for allocating capital remains the same -- to profitably invest in the operating and strategic needs of our business.

We will continue to deploy capital to our businesses that provide attractive incremental returns, enhance our competitive position and deliver sustainable organic growth.

Our discipline and returns-focused approach to capital expenditures has helped drive significant free cash flow generation.

As I mentioned previously, this quarter's free cash flow increased 38.1% to $1.9 billion, and free cash flow per share increased 42.6% to $0.67.

When we consider potential acquisitions or any external investments, we remain extremely disciplined and execution-oriented, focused on the opportunities that extend our services or add features that allow us to build complementary revenue streams.

During the first quarter, we closed two small transactions, CIMCO and NGT, to help support the expansion of business services.

Both of these acquisitions will accelerate our efforts and provide us with operational and technical expertise.

However, our primary focus is to continue to grow this business organically.

In addition, in 2010, we expect most of our M&A energies to be spent on planning the NBC Universal transition.

Reflecting our strong commitment to returning capital directly to shareholders, we repurchased 19.2 million of our common shares for $300 million in the first quarter.

As of March 31, we had approximately $3 billion of availability remaining under our share repurchase authorization.

As we have previously indicated, we intend to complete this repurchase, subject to market conditions, by the end of 2012.

Also during the quarter, we paid a cash dividend totaling $268 million.

Today, we paid our second quarterly dividend totaling $267 million.

The combination of dividends and stock buybacks results in a total payout ratio of approximately 50% of our last 12 months free cash flow.

Based on our current stock price, this combined return of capital represents an excess of a 4% yield.

Okay, let me turn it now to Steve.

Thanks, Mike.

As you just heard, as we are pleased with our first-quarter performance.

We are executing well, effectively balancing financial and customer growth.

Financially, we increased top and bottom-line growth compared to the second half of last year.

On the unit side, we saw strong results across the board, particularly impressive considering that last year's first quarter included some activity related to the country's digital transition.

Beginning with high-speed data, we had another very strong quarter.

Our net adds of 399,000 marked the second consecutive quarter of year-on-year unit growth for this service, which is tremendous given the fact that this service is over ten years old.

We think there are several factors behind our success.

First, we've largely completed our DOCSIS 3.0, or Wideband, rollout, which enabled us to increase speeds.

We have real product superiority over DSL in most of the country and believe this is translating into significant share gains.

Second, as we gain new customers, we are also seeing fewer disconnects with our existing customers, and not just in our data service.

We think our product and customer service investments are resulting in improved customer loyalty.

We also continue to see more of our customers sign up for higher-speed offerings.

Currently, over 20% of our customers subscribe to higher-speed tiers at 16 Mb and above.

We are excited about this, given the incremental revenue potential and the distinct competitive advantage we have at these higher speeds.

Even as we complete DOCSIS 3.0, we are committed to delivering more exciting value-added products and services for our customers in the future.

We've now launched Wireless 2go in five markets -- Chicago, Portland, Seattle, Philadelphia and Atlanta -- and will be adding two more major markets during the second quarter in Boston and Houston.

Turning our attention to video, our All-Digital effort is now 43% complete, and we are currently active in about 70% of our footprint.

Our rollout pace is right on plan and as we said before, we expect 80% of our systems to have made the conversion to All-Digital by the end of this year.

Our All-Digital conversion is a major initiative for the Company.

In addition to the product enhancements, including more standard-def and high-def channels, we are already starting to see real operational benefits.

After going All-Digital, markets can automate many connects and disconnects that previously required manual intervention.

In Portland, Seattle and San Francisco, all markets that completed their conversion during 2009, were already realizing significant savings.

In these markets, we've eliminated about 25% of truck rolls associated with connect and disconnect activity.

While not all markets are equal, we estimate these early markets will generate up to 1 incremental point of operating cash flow growth over time just based on these financial savings.

I mentioned before that about 80% of customers self-install the digital adapters used in our all-All-Digital efforts.

There are significant opportunities to drive down costs as we offer customers more opportunities to help themselves.

We continue to focus on enabling customers to do self-installs and we are driving more self-installations across the board in other products as well.

We are also seeing some early signs of revenue lift in markets that have converted All-Digital.

For example, we are seeing an increase in pay-per-view revenue because, when people convert to All-Digital and we complete our market convergence, all customers, except for Lifeline basic customers, will have a digital set-top box in their primary outlet enabling them to access our guide, watch VOD and order pay-per-view movies.

We're also seeing early signs of reduced theft of service, particularly customers who previously were paying only for Lifeline basic but accessing higher priced offerings.

In addition to our All-Digital efforts, our focus on the triple play is working and we actually had the highest triple-play sell-in in the last 12 months, during the month of March.

As mentioned previously, our disconnect activity has improved with churn better across all products this quarter.

While it is early, this trend is very encouraging, given the economics of retaining customers versus going out and getting new customers.

We attribute this reduced churn to three major factors.

First, there is no doubt in our minds that our products and services are better today than they were a year ago.

Product enhancements, improved reliability and a better customer experience is resonating with our customers.

As we roll out our Xfinity media campaign, customer awareness is growing.

Second, based on improvements in credit screening and qualification and with better economic conditions, we are realizing fewer non-pay disconnects.

Third, while the marketplace remains highly competitive, the pace of the RBOC overbuild expansion has begun to moderate.

Moving on to business services, we continue to have strong momentum in this business.

We are now generating over $1 billion in annual run rate revenue, and we continue to drive strong growth rates in the 40% to 50% range.

At the same time, we are growing our sell backhaul business and are putting the building blocks in place for the medium-sized business market.

We are hiring additional sales and support staff this year, and we're in the early stages of an exciting opportunity in medium-sized business, just as we were several years ago in the small end of the business market.

Lastly, moving to advertising, you may recall from the last call that we mentioned some early signs of strength in our advertising business as we ended 2009.

The good news is that advertising has continued to strengthen into 2010.

The 23% growth in ad revenue for the first quarter that we achieved was our first quarterly growth since the first quarter of 2008.

The turnaround in this business has been dramatic, particularly compared to last year's first quarter, when advertising went backwards 23%.

Pacings continue to improve and we are cautiously optimistic as we head into the rest of 2010.

As Mike mentioned, the strength in ad sales has been fairly broadly based, and we are seeing improvement across many areas, including local, regional and national.

While we are seeing a pickup in automotive advertising, we are also seeing it in many other categories, such as restaurants and retail, which also posted double-digit increases.

We are also seeing advertising strength in our Programming businesses.

Ad revenue was up 6% this quarter, compared to an 8% decline in the first quarter last year, driven by real ratings strength at our entertainment networks, but also fundamental strength in the advertising market.

In the first quarter, E!

and G4 both had their highest quarterly ratings in their history and Style had its strongest ever first-quarter total viewership.

The scatter market is very strong, and we are optimistic about continued strength through the rest of the year.

In conclusion, we had a solid first quarter and are in good shape for the rest of 2010.

We think we've struck the right balance between unit and financial growth.

At the same time, we continue to make good progress on our strategic investments such as All-Digital, Xfinity and business services, and are already seeing signs that these investments are paying off.

Now, let me pass back to Brian.

Thanks, Steve.

Before we take your questions, I am pleased to formally introduce, on this call, Neil Smit, who is President of our Cable division.

As we mentioned previously, one of the most important things that I think have happened in the Company's last 90 days would be the recruitment by Steve and myself of Neil to Comcast to complement the fabulous team we have in the Cable division, also then freeing up a lot of Steve's time to help with the integration of NBC Universal.

So, on Monday morning, the day Neil started about four weeks ago, Steve and I both showed up in Neil's office to see how he was doing on his first day at work.

His family hasn't quite moved to Philly yet -- will move in a few months -- asked Neil "What's going on?

What did you do yesterday when you got here?" He said "I came to the office, and I listened to customer phone calls" which somehow he had arranged to be able to do.

I said to myself, "I think we got our guy."

Neil?

Thanks, Brian.

In the last month or so, I spent most of my time out in the field meeting our teams.

I've been to all of our divisions, the majority of the regions, and a number of call centers and data centers.

My broad impressions are that, first, we've got great people out there that are smart, enthusiastic, motivated and want to win.

Second, Steve and the senior team have worked hard to put growth platforms in place that will enable strong future growth.

We've rolled out over 9 million DTAs, launched DOCSIS 3.0 to over 80% of our footprint, built a thriving business services enterprise, and Challenge 2010 has streamlined processes, which speeds up our time to market.

I think my job is now to leverage these platforms and processes to drive profitable revenue growth and to really focus intensely on transforming the end-to-end customer experience.

I came to Comcast because I think the Company is well-positioned to define the future of the industry.

I'm looking forward to working with Brian, Steve and the rest of the senior management team to accomplish just this.

Marlene, back to you for Q&A.

Thanks, Neil.

Operator, let's open up the call for Q&A, please.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions).

Jessica Reif Cohen, Banc of America Merrill Lynch.

Please go ahead.

Thank you very much.

I've got a couple of questions.

I will just throw them all out.

You guys have mentioned the medium-sized business several times on the call, and I was wondering if -- and you haven't really changed your official forecast, revenue forecast, for 2012 from the $2.5 billion to $3 billion range.

Can you provide any updated targets, given the size of this market?

Second, on NBC Universal, can you give us any update in terms of expectations for timing of the close?

As you go through the integration process, can you talk about any new business opportunities that you found?

Then finally, my final question is, can you give us any update on progress at Canoe?

Okay, so that's probably four questions.

Let me see if I can answer a couple of them.

Canoe is actually progressing quite well.

We are really concentrating on interactivity that will drive off the EBIF interactive platform that the industry is rolling out.

Actually, I think, in June, we're going to have about a 7 million subscriber footprint throughout the industry, and that ramps up to 20 million or 30 million pretty quickly.

So we are pleased and really focused with that in terms of a Canoe.

On the medium-sized business front, the medium-sized business overall size is about the same as the small business overall size, so it's a very substantial opportunity.

We've spent a lot of money on staffing up, which is embedded in the numbers, starting to spend real money in terms of capital to sort of equip ourselves for that business.

We haven't yet said this is exactly the size of that opportunity, which was your direct question, but it's substantial.

You could argue if the overall market is the same size as the small business market, that it's an equally attractive opportunity.

I think, on NBC, there's not much we can say, Jessica, except that yesterday was another good milestone in the progress, which was they were able to access the capital markets in a very successful offering of about I think $4 billion of the financing, long-term financing, that we need at the NBCU level -- I think oversubscribed and a very successful offering.

On the timing, we are still hopeful later this year.

We have put in our public interest filing at the FCC.

We have completed or we've had four Congressional hearings.

We've had the beginning of the documentation phase with the Department of Justice and things are on track there.

I think, as business opportunities go, the only real comment I think we could make specifically about NBC is that it appears the advertising market has really turned around.

It's not just one segment.

Clearly, automotive is very robust.

The overall health of advertising appears to be very pent-up demand and I think bodes well for the timing of the transaction for Comcast in terms of when we chose to make the investment.

I also think, without getting into it in great specificity, we've all read and seen a lot of transactions involving retransmission consent in the last six months.

There is real I think understanding that there is cash being paid and value being created.

We hope to play a constructive role in finding a way that can happen over the industry and over at least our share of Comcast and not be super-disruptive.

So again, I think nothing but good developments, and we are in the middle of the process.

Thanks, Jessica.

Operator, let's have the next question, please.

John Hodulik, UBS.

Good morning, guys.

It looks like the strength in the broadband numbers were one of the highlights of the quarter, and you appear to be taking market share and driving ARPU.

I mean, in your guys' opinion, has broadband reached a tipping point where you are seeing less competition, or just the strength of the product is so far overshadowing DSL that you can expect to do both of those things for the foreseeable future?

Yes, if you could just comment on that, that would be great.

Well, I think one of the real striking stories to me is that, after over a decade in the high-speed data business, that our growth is accelerating, and businesses normally don't do that.

They reach a maturity level and your net adds slow down, and that's what was happening with the high-speed data business until about a year ago.

Then we and other cable companies, frankly, have started to -- we accelerate our net adds.

I think, in each of the last two quarters, our net adds for Comcast alone were as much as the entire big RBOC footprint combined.

We ask ourselves what's going on there?

I think there's a bunch of different things.

The most important one for me is that the need for very, very large broadband capacity, which is probably related to video consumption on the Internet but also related to gaming and other things, seems to continue to grow steadily.

We made our investment in DOCSIS 3.0 in really making sure that, in the majority of the country, something like 75% of the country, our speed is just so significantly superior to DSL that that really shifts the competitive balance.

I think there are a bunch of different factors that measure into our 399,000 subscriber high-speed data net adds for the quarter, but I think there's something going on because we've noticed, in previous quarters, that the other cable companies are seeing similar results.

I think, once these trends start to happen, they tend to continue for a while, and hopefully they will in this case.

One other point that I would make is you are seeing new devices all the time.

We've said for a while we think video over the Net is more friend than anything else.

If you just take an iPad, for those that are already early adopters, only with WiFi, it's fantastic because that WiFi goes to your broadband and you are now able to consume more, enjoy more, use many more applications off yet again another device.

But it all starts with "who's got the best broadband?" I think the investment strategy has been and continues to be to both at the technical level, at the consumer branding level, to put Comcast in the position where we have the superior broadband, and that's the strategy that we've laid out for several years.

Operator, let's have the next question, please.

Jason Bazinet, Citi.

Yes, I just have two questions, maybe for Mr.

Smit.

I guess some of the European operators that we've looked at in the cable industry have elected to use DOCSIS 3.0 as a way to gain even more share as opposed to capturing incremental ARPU for the less price-sensitive users.

Have you looked at all at their results, and do you think there are any sort of potential changes in the way you've positioned DOCSIS 3.0 here in the US for Comcast?

Well, as we said, DOCSIS 3.0 we've rolled out to about 80% of our footprint.

I think, as Steve mentioned, the speed is a real factor, and I think that's what's driving the numbers.

I also think we are seeing a good mix in the higher speed tiers, so there is a consumer trend there.

With regards to Europe specifically, I think it's a similar trend in terms of the need for speed, and I think we'll continue to make investments in the rollout of DOCSIS 3.0.

I think it's also important to link the speed with what you get for that speed.

Can you stream faster, or can you play games better?

You're just getting better quality.

So I think it's not just speed for speed's sake.

It's also combining it with the features and functionality that come with it.

Can I just ask a slightly separate question?

I guess some of the disclosures that used to occur over at Charter suggested there was a fair amount of the CapEx budget that was actually, at least within the CPE category, that was capitalized labor.

Do you see any risk at all, as the CapEx numbers come in, that labor flows onto the income statement, hurting margins, or is there enough sort of activity coming out of the system, given what you talked about in terms of reduced truck rolls, that that's not really a risk two to three years down the road?

Jason, it's Michael.

I really don't see that as a risk.

We've been managing obviously our capital as well as obviously our labor expense and been taking costs out as activity levels decrease.

Okay, thank you.

Thanks, Jason.

Operator, let's go to the next question, please.

Spencer Wang, Credit Suisse.

Thanks, good morning.

So as your broadband business has accelerated, the I guess other side of the coin is that video revenues declined, as Mike mentioned, year-over-year, I think for the second quarter in a row.

So I was just wondering if that was a function of maybe timing of video rate increases which may get stronger over the course of the year, or if there is something else going on.

Then Mike, if you could just speak to the voice/ARPU decline which seemed to have accelerated a little bit in the first quarter, and give us a little color there, that would be great.

On video ARPU, let me start and then I will pass to Mike.

We made a decision, which I think we talked about on previous calls, a little over a year ago to not take price adjustments in a lot of our markets a year ago.

Clearly, part of the revenue ARPU situation in video is related to that.

We are now taking price adjustments and have been for about a quarter in the normal scheme of things, so that portion of video ARPU, as you get into the second, third and fourth quarter of this year, will start to reaccelerate.

But part of what's going on in the video business overall is we are losing subscribers.

We lost subscribers in each of the last four quarters, and that puts a drag on that business.

Thank goodness we have invested in all of the other businesses.

Increasingly, we look at overall ARPU being up I think 6% for the quarter as the real way to measure a business that in total encompasses, I don't know, half a dozen business lines, not just video.

Video is the biggest.

We would like revenue to go forward in all of the businesses, but thank goodness we have the others.

Overall, we think the most important metric is looking at total ARPU, which went up 6%.

Mike?

Yes, I agree with everything Steve has said.

Also, Spencer, I think it's important to look at sequentially.

Sequentially, actually video revenue increased as well as video ARPU increased.

I think, as Steve said, we hope to see some acceleration in that as we move into this year.

With regard to voice, the primary decrease is related to bundling.

We are continuing to bundle aggressively with regards to voice.

We are increasing the number of customers that take three products and that has had an impact on voice.

But still voice is doing terrifically well and we are happy with the progress.

Thanks, Spencer.

Operator, let's go to the next question, please.

Doug Mitchelson, Deutsche Bank.

I'm going to try to keep up with Jessica and ask a few questions here.

Given your comments and everything [about] broadband service and the increasing online video usage, at what point do you think you'll need to allocate more than four channels to your broadband service?

I mean, I know you are just getting there now but when you look out, how far off is that and how easy or difficult will that be?

Then Neil, when you said your focus is on improving end-to-end customer experience, would you share the two or three most important initiatives in that regard that you are focused on from the get-go here?

Then lastly, Michael, the last time CapEx was this low was 1Q '06.

Cable revenue is about 56% higher since then.

That's a great number.

There was a little over $4 billion of CapEx in that year.

I mean, are we headed towards the $4 billion range after the investment cycle over the last three years?

Okay, well there were a lot of questions there and I think a lot of different people on this side can answer each one of them.

Let me start on the amount of our capacity that's dedicated to broadband.

I think the real thing to really focus on is we have, over the last year or so, now got close to half of our footprint has converted to All-Digital, and that conversion is really strikingly fast.

We said we were going to be -- sort of the majority, the vast majority of our footprint is going to be All-Digital by the end of this year, so that's only seven or eight months from now.

Once you go All-Digital, you free up a lot of capacity.

There is no question in our minds that we have plenty of capacity to continue to increase broadband speeds in advance, as we have been doing, in advance of the applications that are there for them.

We have so much capacity right now, we are actually looking for bandwidth-intensive uses like 3-D video and high-def video and other things and trying to do whatever we can to stimulate that market.

So I think, if we weren't making that digital conversion, at some point -- and it would still be a number of years off.

You would say "Well, where are we going to get more capacity?" But once you make that conversion, I think we are going to have plenty of capacity for years and years to come.

So just the other point is, as you know, the last mile is only part of that whole experience that the customer gets on broadband.

So you have to look at nodes, splits, and what's going on with the rest of the Internet.

But CableLabs is working on initiatives that go -- I just read one that supposedly multi gigabits.

So we are on a long-term journey here consistent with the strategy we talked about a moment ago.

Neil?

Yes, I think with regards to customer service and my focus on that, I think there are a few real opportunities there.

One is the self-service side of things.

The customer I think, many customers would prefer to get their service online, whether it's billing or self-scheduling appointments or whatnot, so we're going to spend a lot of time on that.

I think another area is first-time resolution.

I think, whether it's on the phone or an install or a service call, I think, if we can get our reps focused on getting it right the first time, that's a real opportunity.

Then finally, having been out in the field, have been out to all of the divisions and most of the regions, and I think there are just some great things going on.

I think truck rolls are down and repeat trouble calls are down and our "Think Customer First" scores are up.

So there's a lot of great work going on throughout the business, and I think there's an opportunity to share those best practices that are happening.

I've been really impressed with the focus that we do have on customer service.

It is part of the bonus metrics for a lot of people.

I think Steve has made a lot of progress on that front and it's my job to leverage those things and even increase the focus more.

Doug, I will handle CapEx.

You know, we've been really pleased with how the teams have managed our capital program.

That being said, we do expect capital expenditures to increase a bit in the second, third and fourth quarter.

The first quarter was a bit low, as I mentioned, because we accelerated some in the fourth quarter for the economic stimulus effort.

That all being said, we clearly expect capital intensity to come down, both in absolute dollars and a percentage of revenue this year.

So I think we are on a good trajectory.

James Ratcliffe, Barclays Capital.

Good morning, folks.

A couple of questions -- first of all, in regards -- you've just won the bit torrent case.

Is that likely to affect how you actually run the business day-to-day?

Also, any thoughts or commentary around potential reclassification of broadband under Title II?

Secondly, in regards to Xfinity, what sort of benefits do you expect to get out of the rebranding?

How are we going to see this translate?

Well, let me start with Xfinity for a moment and just say that we've made so many improvements, whether it is speed, more choices On Demand -- and as Steve described, when you go All-Digital, you get back a lot of bandwidth.

So having literally 100 high-def channels, many foreign-language channels, international programming, it's a different experience for the consumer.

So market by market, as we get far enough along, then they become an Xfinity market.

I think, over time, we're going to plan to add many more features and improvements to the Xfinity experience, and we are pretty excited with how that has started, and perhaps part of what you're seeing in the strong subscriber momentum across all the various product categories.

The very specific answer is no.

Our behavior is not going to change as a result of the bit torrent decision.

We've said that repeatedly.

This was a very specific question about really due process, in our opinion, and whether there were any rules and what they were and whether we had been given any opportunity to talk about it.

We had changed that practice long before there were any FCC rulings whatsoever, and we haven't had any occurrences.

So regarding future regulatory actions, we continue to want to have a constructive dialogue with all of our regulators and the FCC in particular to try to find ways to have customers comfortable and knowing that investment is going to continue to flow, and at the same time that they are going to continue to enjoy the great Internet experience that they have that has really powered all of the innovation that's happened in the last 10, 15 years.

Mike McCormack, JPMorgan.

Can you make some comments regarding the economy in your markets and opportunity maybe for housing rebound, consumer demand for advanced services, and then also maybe some comments on the economic impact you're seeing in the small and medium-sized business market?

Well, I think it's fair to say that housing, we don't think housing has picked up in any kind of material way in our markets, neither on the new home side or the retail side.

We are not economists but we certainly don't see that picking up.

It's not getting worse, and when you're doing comparative analysis first quarter '10 versus first quarter '09 it's not getting worse, and maybe it's slightly better in some markets.

But we don't think that is a material impact.

We do think there is a modest impact on advanced services, pay-per-view, high-def take-up.

People appear to be a little bit more willing but it's not a dramatic thing.

The only dramatic thing that we are seeing is advertising.

I will just give you our slice of it here in local cable ads.

Local, national and regional cable ad sales, not the content businesses like VERSUS and E.

We were significantly negative a year ago.

We were down 23% the first quarter of '09.

That situation was still negative in the second quarter, third quarter and fourth quarter, although it improved slightly during the year.

To be positive 23% in the first quarter of 2010 I think is a big, big move, a big shift.

The good news is, it's very broad.

It's local, regional, national.

It's almost every category that's big that we track, and it appears to be continuing.

It's a little scary when you are down 20%; you wonder whether this business is ever going to come back.

Has it gone to the Internet?

Is it a new low watermark that's going to stay forever?

The good news is the majority of it appears to be coming back, a lot of breadth and depth to it, and it looks like it's going to continue.

As we mentioned, this is an even numbered year with political on the back end.

So once you get into the third and fourth quarter, not only do you have these positive trends -- hopefully they're going to continue through the year -- but then you layer in political.

So that I think is a very striking indication that maybe companies are feeling better about their prospects and prepared to spend.

So I think, in general, whereas six months ago we weren't really seeing many signs of economic activity, we are seeing modest positives and then when you get to advertising, a real positive.

Just to add on to that, you know the indicators obviously are local, national and regional advertising, which Steve mentioned, advanced service subscriptions which are up a bit, which we are happy about, and certainly delinquencies.

I think, as I mentioned in my comments, delinquencies are actually down year-over-year and have been down for a few months.

So, the best way to describe it, I think we are cautiously optimistic.

Okay, then just on the small and medium-sized business market?

You know, it's interesting.

The small to medium-sized business market was less affected by the bad economy than we would have thought.

Maybe that's because we are so early in the sort of maturity of that business.

And maybe also it's because one of our points of differences is price.

But we did better when times were bad than we thought.

That business I think this quarter -- revenues were up 49%, so you can't grow too much faster when you are a $1 billion business than 49% during the quarter.

So it's hard to say whether the improving economy is materially impacting that.

Was CIMCO any material impact on that growth rate?

No.

No.

Okay, great.

Thanks, guys.

Craig Moffett, Sanford Bernstein.

One of the concerns we've talked about a lot is how much cost the consumer can bear.

It's been a while since, Steve, I asked you what was going on in markets like Detroit, but can you just update us?

In the really hard-hit markets, sort of post-worst of the recession, what do those markets look like today and what did we learn versus -- with respect to ARPU, video, adoption rates, and cord cutting and those kinds of things?

Well, there's obviously a lot of different ways to slice our markets.

You can do Verizon markets versus AT&T; you can do markets where we have launched All-Digital versus not All-Digital.

I think, in general, what we are finding is a pretty broad-based strength in high-speed data, doing better on basic subscribers, net of the digital transition.

Also, as we are taking rate increases this year that we didn't take next year, those rate increases don't seem to be generating a lot of customer defections.

So, really I don't think there is any sort of trend that hard-hit cities are doing worse than not-hard-hit cities.

We have a lot of urban areas, as you know.

We have Detroit; we have obviously Chicago, Philadelphia, Atlanta, Boston, a lot of urban areas.

I don't think there's any real trend there, positive or negative.

Is the price of entry in the video market sort of a concern, the cost of a basic package and what it costs?

Is there any way you can sort of get at that to try to address the issue?

If you look at a triple play bundle that includes phone, people who are coming into a triple play bundle who previously were getting video, voice and maybe data from separate suppliers are saving a lot of money.

So a $99 triple play bundle for someone who is really worried about their paycheck is a pretty good deal.

So I think that mitigates some of that sort of economic concern.

But also, one of the things that you have in a bad economy is, if you take the cost of your video subscription and divide it by 30 days, it is pretty affordable entertainment.

I also think that, frankly, the main number to look at Mike hit earlier, which is overall ARPU to our Company is up 6%.

The fact is overall subscriptions to the Company -- the number of total products, excluding digital, it's up 0.5 million; including digital, it's up 1 million.

It's an acceleration, as Steve talked about, in the broadband category.

We are doing better against the -- in the video space, against the competition, which we have something like 5 million more homes that we are competing against this year, and we don't have a digital transition occurring and yet we lost 80,000.

So -- and I think if you add up -- and we will wait and see how the quarter comes out for all the other providers, but if you add up the total number of multichannel video homes in the country, all providers, I think you'll continue to see that being a very consistent number if not slightly up.

The time watching television continues to be steady or go up.

So, I don't see any statistics that would suggest any real major change or maybe some stratification going on.

But net-net for Comcast, we grew our revenue per customer 6%.

That's a pretty great number.

I think Brian hit it on the nose.

Also, one thing we're watching really carefully is sort of our premium broadband service versus our economy service, which we put in place a while ago in anticipation of really the economic downturn.

We are really outselling our economy service 2.5-to-1 or so because people are willing to pay for value and speed, and we see that across the entire country.

Thank you.

That's very helpful.

Let's have the next question, please.

Ben Swinburne, Morgan Stanley.

One for Michael, one for Brian.

Looking at the expenses, I guess last year you were able to hold margins in Cable.

You had Programming costs up but the rest of the expense base you managed aggressively.

This quarter, Programming and marketing were up.

But you have obviously done a good job on the rest of the expense base.

I think, ex those two buckets, you are flat year-on-year.

So could you help us think about the rest of the year on the fixed-cost side?

Are you seeing real sort of secular changes in what it costs to run the Cable business the cause of the digital transition, or your All-Digital project?

Are you reducing truck rolls?

That's sort of a permanent step function lower?

Then Brian, you mentioned the iPad.

If you look at the apps that are popular, I think, of the top 10, you've got Netflix and ABC -- just in case anyone needed any evidence that video is a popular thing to do on the iPad.

TV Everywhere is something we talked about on this call, but it looks like we could go in a couple of different directions.

One is sort of every content company has their own app at interface, a la ABC or the Netflix approach of aggregation, which at least to me, in my humble opinion, is the better solution for the industry and for the consumer.

Where do you think we are on that debate?

Do you think the content industry is trying to push the model towards the ABC where everyone has their own application?

Is that the right strategy, or how do you see that playing out?

Let me start on the cable cost base and then I will pass to Mike.

I think there's a couple of things going on.

One, for the first time in a decade, our contact rates and truck rolls and calls into our call centers are starting to decline despite the fact that we have more customers.

There's a whole variety of reasons for that.

A lot of it is we spent a lot of money making sure our plant is more reliable; we've spent obviously a lot of time and effort in the All-Digital markets, which are starting to have reduced truck rolls and the sort of -- all of the activity levels are declining.

That is a very material change to a cable company and that -- that historically we were always hoping that would happen some year, but every year we were launching new products and there was always a new reason for people to pick up a phone and call, and new issues that we were dealing with in terms of reliability.

So that is a major positive, and that's happening throughout many, many markets, throughout all three products.

Contact rates are on a downward trajectory.

So that's a very positive thing.

The second thing is you are seeing benefits from a program that we call "Challenge 2010" which we put in place about a year ago, coming up on a year ago, which was a sort of systematic way of trying to look at ways to make our business more efficient, to be able to move more quickly and also, as a side benefit, to financially have the business operate in a better manner.

Many of those things you're seeing in our P&L as well.

Neil, Dave Watson, Dave Scott, or our entire management team are working on making sure that we continue that process.

But you're right.

When you put that all together on a very large cost base, if you take out programming and even more so if you take out marketing and some of the new initiatives, the overall cost base is not increasing.

That this helping us maintain our margin.

Thank you, Steve.

I think Steve hit it.

I think it's important to note that we also are obviously selling some pretty high-margin products with high-speed data and phone, so that is helping.

We do have an offset.

We are making some real investment in business services, like we've talked about.

So overall, the margin has been quite stable for a while, and we are, where we can, taking costs out, at the same time being more efficient.

So, so far so good.

You know, I don't have any great revelation on your other question at this moment in time.

I think that there's a lot of experimentation, there's not going to be a one-size-fits-all solution to how different companies take on new technology, as people change their strategies as they go.

The fact is we are proceeding -- we are trying to find ways to get as much content available on as many devices as possible to our customers, and do it in a way that is seamless and easy to authenticate and easy to take advantage of the services.

Others are pursuing different strategies.

I do think there is a general recognition that we are in the early stages, that it is a nascent business.

I think professional content legally procured by the consumer is a small percentage of YouTube and other services that are different, but it is growing, and these new devices are allowing it to be made available.

I think, so far, it is proving to sell more broadband for us; it is proving not to take away from television.

Just going back to the consumer electronics show at year-end, the buzz on the floor was 150-inch 3-D TV and a really small cell phone that was a smart phone.

I think consumers want both ends of the spectrum, and our job is to find a way to get them as much of the content as possible on all of those devices.

Thanks for the color.

Thanks, Ben.

Operator, let's have the last question, please.

Marci Ryvicker, Wells Fargo.

Going back to the SME segment, it sounds like you're still in the planning stage for the medium-size business.

So when will you actually start going out to get this business, and when should we start seeing it contribute to both revenue and cash flow?

Then secondly, there's been a lot of excitement around 3-D, so how do you view this opportunity?

Well, I'm sorry if I gave you the impression that we hadn't started on medium-sized business.

We've started; we've hired a lot of salespeople.

By and large, it is a different salesforce; it's a different sell.

We spent a lot of money on capital starting to get markets enabled with a technology that we call "Metro Ethernet." So if you look at this year, there's a lot of capital, there's a lot of expense, and some revenue from that medium-sized business.

The capital and the expense will outweigh the revenue in 2010, so it's an investment year.

But we've started, in earnest, in many of our markets.

Look, 3-D is very much at the very beginning of 3-D in the home.

I think the consumer electronics companies just began selling the latest generation of 3-D TVs.

That said, the incremental price required to get a 3-D TV is so much less; it's a fraction of what HD started at.

So I think it will be not a big price point adder over the next couple of years.

It does require glasses, so I don't personally believe people are going to sit there for seven hours a day or three hours a day and watch 3-D 30 days a month.

I think it is a big event strategy.

If you look at what's happened in the movie theater, movie business, they've been able to get a premium experience and a premium revenue for that experience and maybe there are business opportunities for us to deliver events in 3-D.

We just had a very successful experience with the Masters in 3-D.

We demo-ed it all over the country, and I think it happened both on TVs and over the PCs.

So one of the things, I think we were the first with the Masters to ever do a 3-D live broadcast over the Internet.

A number of people commented to me how great that experience is and you can imagine 3-D gaming over the Internet, where these PCs are already 3-D enabled if you have the right graphics card.

So again, it's early.

I wouldn't put anything in numbers for a little while here, but as the technology goes, this appears to be something that will put us in a great position to offer that to consumers.

Over time, many of these events come out like a wow.

With Avatar and others, we've seen that it can be a wow for revenues because the consumer gets a better experience.

We will see.

Thank you, Marci, and thank you all for joining us this morning.

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