康卡斯特 (CMCSA) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Comcast's third-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 third-quarter 2010 earnings call.

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

As always, let me first refer you to slide number two 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 refer to our 8-K for the reconciliation of non-GAAP financial measures to GAAP.

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

Brian?

Thanks, Marlene, and good morning, everyone.

Please join me on slide three.

Today we are pleased to report strong financial results.

This marks the third consecutive quarter of accelerating growth in revenue, which increased 7%, and an operating cash flow, which increased 8%.

We generated free cash flow of $1 billion this quarter and almost $4.3 billion year-to-date, an increase of 17% compared to the first nine months of last year.

These results reflect our continued focus on profitable growth, a very resilient residential business, a robust advertising market, and a continued focus and strength on business services.

We obviously still have a tough economy, which combined with the anniversary of the broadcast digital transition continued to impact video units.

However, as Michael will discuss in a few minutes, we started to see some real year-over-year improvement toward the end of the third quarter and for October.

Overall, we are executing well, delivering strong financial results as we focus on high-value video customers, on growing our relationships in broadband and phone, and expanding business services.

We are also continuing to invest to foster growth and to further strengthen our competitive position with all digital now in about 65% of our markets and DOCSIS 3.0 deployed in more than 80% of our footprint.

As we near completion of these important projects we are starting to see the fruits of those investments.

In video we have tripled the number of high def channels and have doubled the amount of foreign language programming.

In HSD we are reinforcing our product superiority as we double the speeds to our existing customers and introduce new higher-speed services with 50 Mb currently available to more than 40 million homes and 105 Mb to more than 25 million homes.

Our on-demand service is also expanding.

With our new library server infrastructure, which takes advantage of our scale we call the Comcast Content Delivery Network or CCDN, we now have the capacity to offer 70,000 hours of content.

As a result, Comcast customers in more than 20% of our footprint now have access to over 25,000 on-demand choices including 11,000 movies.

By the end of this year a majority of our markets will have this level of choice and with CCDN we have the ability to continue to expand the on-demand choices we offer our customers.

As we do this we are rolling out enhanced guides with better linear and on-demand search, improved DVR functionality, and more interactivity, including a unique new feature that automatically informs you if the content is available in high definition and just with the click of one extra button immediately takes you to the HD version which our customers really love.

Our new guide has already been rolled out to three-quarters of our markets and will be in all our markets in the next six months.

We are also deploying remote DVR and multi-room DVR and they are available in a majority of our markets today.

Please turn to slide four.

This week we relaunched Xfinity TV, our authenticated on-demand online service, with a new and I think great marketing campaign.

Xfinity TV gives customers online access to 150,000 entertainment choices including movies, TV shows, premium and HD content with a compelling search and discovery platform.

All of our digital video customers will receive a customer ID to access Xfinity TV for no extra cost.

It's a tremendous value-added service.

And before the end of this year we will be launching the Xfinity TV remote app which will work on all the iPhones and iPads and eventually, right after they come out, on the Android-based tablets.

This is an entirely new form factor and device for consumers, these tablets, which I think makes the search and discovery and the enjoyment of television that much greater because we have all been looking for how to navigate these 150,000 choices or whatever the consumer actually has.

And this, with the touch of a finger, allows you to change channels as well as do search and discovery.

I think you will like it when you get one.

So as you can see, we have an exciting roadmap for new product introductions and we are delivering more and faster innovation to our customers.

All of these enhancements and new features really are starting to bring to life our Xfinity brand and you are going to continue to see and hear many new products from Comcast in the months and years ahead.

In order to deliver the best customer experience you have to marry great products with consistently good customer service.

We have worked hard to improve our service but under the leadership of Neil Smit, who has now been with Comcast for seven months, I have never seen the organization as focused on the customer experience and making it better all the time.

Neil's commitment to take service and also this rapid product innovation and getting it completed and to the next level, while at the same time keeping us focused on strong operating performance like you are seeing this quarter, makes me really excited about where our cable business is going.

Finally, on NBC Universal, the regulatory reviews are continuing and we believe they are on track to enable us to close by the end of this year.

The integration of NBC Universal is a huge task and I am delighted that Steve Burke will become the new CEO of NBC Universal upon closing.

Over the past 11 months of Steve has been spending a lot of time planning so we can hit the ground running when the deal closes.

I believe we are in a strong position to deliver a great entertainment experience to consumers and to really drive new value creation for our shareholders.

Before I pass the call over to Michael I want to mention that we are following a new format for today's call, shortening the prepared remarks from Michael and me and allowing more time for your questions for not only Mike and myself but also for Steve and Neil.

So, Michael, with that please cover the results of the third quarter in more detail.

Thank you, Brian.

Let me begin by briefly reviewing our consolidated results starting on slide five.

We are pleased with our third-quarter results which reflect a consistent focus on profitable growth.

We are executing well and continue to balance revenue, operating cash flow, and customer growth as well as remain very focused on expense and capital management.

For the third quarter consolidated revenue increased 7.3% to $9.5 billion and operating cash flow grew 7.6% to $3.6 billion resulting in a consolidated operating cash flow margin of 37.7%.

Cable was the largest driver of these results but our programming businesses also performed well with revenue growth of 9% and operating cash flow growth of 26%.

These results reflect the impact of a strong advertising market across all of our networks and ratings strength at E!, which had record viewership in the third quarter.

This quarter's consolidated operating cash flow results also include approximately $21 million of expenses related to the NBC Universal transaction which is included in Corporate and Other.

Excluding these transaction-related costs, consolidated operating cash flow grew 8.2% and our operating cash flow margin increased to 37.9% from 37.6% in 2009.

We also remain very focused on free cash flow, free cash flow per share, and earnings per share as important metrics in evaluating the strength of the Company.

In each of these key metrics our performance during the third quarter and on a year-to-date basis was strong and reflects solid progress and growth.

During the third quarter we generated consolidated free cash flow of $1 billion, a modest decline compared to last year primarily the result of higher cash income taxes and a slight increase in capital expenditures.

However, we prefer to evaluate free cash flow on an LTM or year-to-date basis and year-to-date free cash flow has increased 17% to $4.3 billion from $3.6 billion in 2009.

Year-to-date free cash flow per share increased 19.8% to $1.51 per share.

Earnings per share in the third quarter grew 14.3% to $0.32 per share from $0.28 per share last year when you exclude NBC Universal-related costs of $66 million and tax benefits and a one-time financing expense in 2009.

On a year-to-date basis EPS grew 17.1% over the comparable period in 2009, again excluding NBC Universal-related costs of $154 million and last year's tax benefits and one-time financing expenses.

Please refer to table 4 in the press release for more detail on these items.

Please refer to slide six to review our Cable division's third-quarter results.

Third-quarter Cable revenue increased 6.9% to $9 billion, reflecting accelerating growth in our residential business and continued strength in business services and cable advertising.

Total video, high-speed Internet, and voice customers grew 202,000 for the third quarter and on a year-to-date basis we have added 875,000 customers compared to 1.2 million in the first three quarters of last year.

As discussed on the second-quarter earnings call and at recent investor conferences, customer addition trends were soft in July and August reflecting a continuing weak economy, the impact of last year's broadcast digital transition, the roll-off of customers on discounted promotions, and continued competitive pressures.

However, year-over-year customer trends improved in September and now that the impact from the broadcast digital transition is substantially behind us we have experienced steady improvement in October.

This quarter's loss of 275,000 video customers was impacted by the factors I just mentioned and we are very focused on improving our retention efforts.

Year-to-date we have lost 622,000 video customers compared to 424,000 in 2009 where we benefited from the broadcast digital transition.

Over 40% of this year's video losses are in our lower-end basic video package and the impact from these customer losses is more muted on the financial side as their average ARPU is less than half of our normalized video ARPU.

With regards to the economy, we remain cautiously optimistic about its overall direction and strength.

However, the housing market is still weak and unemployment remains high which we believe continues to impact many consumers.

Even with these macroeconomic challenges, we are optimistic about our ability to continue to execute.

We continue to manage the business for profitable growth and we have been effective in driving organic revenue.

Total revenue per video customer increased 10% to almost $130 per month in the third quarter, reflecting strong ARPU management and an increasing number of customers taking multiple products.

At the end of the third quarter 32% of our Video customers took all three services compared to 27% at the end of last year's third quarter.

The third-quarter total Video revenue continued to accelerate and increased 2.2%, reflecting rate adjustments and an increasing number of our customers taking higher levels of our digital and advanced services.

This quarter we deployed over 500,000 advanced high-def and/or DVR set-tops and we added 228,000 advanced service customers.

We now have 9.9 million advanced service customers, equal to 51% of our digital customer base and 43% of all Video customers.

High-speed Internet revenue increased a healthy 12.2% during the quarter reflecting rate adjustments and continued growth in our customer base.

We added 249,000 high-speed Internet customers in the third quarter and year-to-date we have added 766,000 high-speed Internet customers, slightly above the 755,000 we added in the first three quarters of last year.

Our penetration continued to trend upward and as is now at 33%.

In addition, we continue to see more customers take our high-speed services compared to our economy service.

Today 22% of our residential high-speed Internet customers take our blast or above levels of service.

Voice revenue also posted strong growth increasing 12.6% for the quarter, reflecting continued growth in our residential customer base as well as a growing contribution from business services.

We added 228,000 Voice customers in the third quarter and year-to-date we have added 731,000 Voice customers compared to 906,000 in the first three quarters of last year.

Compared to the third quarter of last year our penetration has increased 150 basis points and is now at 17%.

We also had a strong quarter for Business Services with revenue increasing 54.5% to $333 million.

Excluding the contribution from Cimco and NGT, which were acquisitions that were completed in the first quarter, revenue increased 44%.

We expect the momentum in the small end of the business market to continue and remain very enthusiastic about our opportunity to serve mid-size businesses and to expand our cell backhaul efforts.

Our Cable advertising business continues to perform well as third-quarter revenue increased 27.2%.

This improvement was again led by strength in automotive as well as higher political revenue.

Excluding the impact of political, core Cable advertising revenue increased 19% this quarter.

We expect advertising growth to remain strong in the fourth quarter, particularly given all of the political activity.

Please refer to slide seven to review our Cable division's operating cash flow results.

Third-quarter Cable operating cash flow increased 7.1% to $3.5 billion.

Our cable operating cash flow margin remained relatively stable at 39.5%, a 10 basis point improvement compared to last year's third quarter.

Total expenses in our cable segment increased 6.8%, primarily reflecting higher programming and marketing expenses as well as continued investment to expand our capabilities and business services.

Programming expenses increased 4.9% this quarter, reflecting a real focus on controlling costs, offset by an increasing number of our customers taking higher levels of our digital services, the addition of new programming, and contract resets.

In addition, we are receiving more value in our programming contracts, particularly with more on-demand programming and increasing availability of content across multiple platforms.

Marketing expenses increased 17.3% this quarter as a result of higher overall advertising and media spend, including Xfinity branding as well as a continued investment in direct sales and our retail channels.

Customer service expense declined 2.7% in the third quarter as we benefited from a number of efficiency initiatives, such as higher call automation and better call center optimization.

Please refer to slide eight to review our capital expenditures for the quarter.

In the third-quarter capital expenditures increased $139 million to $1.4 billion, representing 14.4% of total revenue.

The level of CapEx spend this quarter principally reflects the timing of CPE purchases, primarily advanced set-top and DTAs, offset by more favorable equipment pricing.

We have now deployed over 15 million digital adapters since the inception of the all-digital project, including 2.2 million during the third quarter.

We have also continued to increase our investment to support growth and expansion in business services.

We view our capital expenditure program on an LTM or a year-to-date basis and year-to-date capital expenditures have decreased 2.2% to $3.4 billion equal to 12.2% of revenue.

In addition, consistent with prior years, our growth-oriented capital expenditures represents approximately 72% of our year-to-date total spend.

With regards to the fourth quarter, we expect CapEx to increase sequentially as we continue to invest to sustain our momentum in business services, expand our efforts for the mid-sized businesses in cell backhaul, and complete our rollout of all digital.

However, we still expect our full-year capital expenditures to be lower in both absolute dollars and as a percentage of revenue when we compare it to 2009.

Please refer to slide nine.

Our priority for allocating capital has been consistent -- to profitably invest in the operating and strategic needs of our businesses, deploy capital to areas that provide attractive incremental returns, and enhance our competitive position and deliver sustainable organic growth.

This disciplined and returns-focused approach to CapEx has helped drive significant growth in free cash flow generation.

And as I mentioned previously, year-to-date free cash flow increased 17% to $4.3 billion and free cash flow per share increased 19.8% to $1.51 per share.

With the recent extension of bonus depreciation for 2010 we anticipate the Company will realize a benefit by paying lower income taxes in the fourth quarter.

As we have done in the past, we will continue to report comparable results that both include and exclude cash impact on free cash flow from the economic stimulus packages.

Year-to-date we have returned approximately 40% of our free cash flow to shareholders or $1.7 billion, including three dividend payments totaling $800 million and $300 million per quarter of share repurchases totaling $900 million.

The remainder of our free cash flow, which is currently reflected in our cash balance, will be used to fund a portion of the NBC Universal transaction, which will be approximately $6.5 billion.

We are pleased that over the past six months NBC Universal has successfully raised $9.1 billion in the public debt markets.

This permanent financing for NBCU is now complete and was accomplished with a weighted average cost of debt of approximately 4.5% and an average duration of 13.3 years.

When we close the NBC Universal transaction we expect our consolidated leverage will be approximately 2.5 times and as we have said in the past, remain comfortable with the debt to OCF leverage target of between 2 and 2.5 times.

Last December we articulated a clear capital allocation strategy for 2010 and we have executed well on that plan.

Once the NBC Universal transaction is completed we will reevaluate and communicate a new financial strategy for 2011.

Now let me turn it over to Marlene for Q&A.

Thanks, Michael.

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

(Operator Instructions) John Hodulik, UBS.

Thanks, guys.

Good morning.

The Video losses were a little higher than we expected.

Can you comment on what do you think is driving that?

Is that -- now you said some hangover from the digital transition but is there evidence in the numbers that you are seeing more cord-cutting from over the top or even competition from AT&T and Verizon?

If you could also comment on just the competitive environment.

I think the carriers were a little bit more competitive or aggressive on the DSL side, at least on the lower end.

If you could just comment on what kind of competitive activity you are seeing there these days that would be great.

Hi, John.

It's Neil.

I think there were a few factors and let me break them down.

The first was the economic situation that Mike referred to, we are seeing fewer occupied housing units and the unemployment is still a factor.

I think the second is the digital transition and the promotional roll off.

42% of the customers we lost were basic customers.

The digital transition appears to be mostly behind us.

I think the third reason is the rate increases we took so this year we took rate increases over the last six months so Q2 and Q3 in about 75% of our footprint versus about 3% last year.

From an over-the-top impact, we have -- all our exit surveys have seen almost no impact.

We have seen customers who are disconnecting and not going to a competitor.

That small number of customers appear to be going over-the-air much more than any over-the-top impact.

The competitive situation really hasn't changed much.

We have seen year-over-year a buildout of the RBOCs, so AT&T about 2.2 million home buildout.

We haven't seen a significant increase of that competitive factor.

The DSL players appear to be playing more on rate but we are very pleased with our HSD numbers.

We once again gained share as we put on more HSD subs than Verizon and AT&T combined; we are pleased with that number.

Our HSD ARPU was up 4.9%; we are pleased with that number.

I think there is some really positive news in the quarter.

If you look at a year-over-year customer trending, so net adds per month, every month of the quarter improved.

So August was better than July, September was better than August, and we are seeing that positive trend continue into October.

The other piece of positive news is we are really pleased with our advanced services.

So we sold about 228 more advanced service customers, about 500,000 more HSD and HD and HD DVR boxes.

Our revenue for advanced services was up 11%, so we are seeing some positive trends.

I think net we are going to keep focusing on the quality of our customers.

As I said on last call, we are not going to chase volume.

We are going to keep looking at customer service and focusing on the customer experience and improving the value of our service.

Great.

Thanks, Neil.

Thanks, John.

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

Doug Mitchelson, Deutsche Bank.

Thanks so much.

Just one quick follow-up on the Video side, Neil.

Any sense of how much of 3Q was due to gross adds versus churn just so we can try to parse out some of those drivers that you were talking about?

Then I have got a question for Brian.

I think that versus Q1 and Q2, where our churn was really -- generally trended very good, we saw a slight uptick in churn in Q3.

However, I think the good news is we identified some of the cause of that which was the step up off of our promotional roll-off.

So there was a pretty significant step in pricing and now we are handling that in a much more effective manner.

I think the very good news was as we increased our marketing spend throughout the quarter we saw positive connect trends so the customer base was responding to our offers and we were pleased with that.

So was the improvement marketing spend, not a greater promotional or discounting or retention efforts then is what you are saying?

No, I think it was just marketing spend.

We were more active in the marketplace.

We weren't overly discounting.

As I said before, I don't believe in overly discounting the product but more looking at the value of the services we are offering.

So as Brian mentioned, we launched Xfinity TV.

We have launched WiFi in the Philly market to see how that breaks out.

We have increased our Infinity product so more VOD, so I am a big believer in not overly discounting but increasing the value of our service.

Thanks, Neil.

For Brian, when you announced NBCU a year or so ago you emphasized the risk averse nature of the JV structure, cable network advertising has to be better than anyone budgeted and that bodes well for NBC's results and value, and the financing markets have been remarkable.

So the question is, is it time to move up the risk curve and consider accelerating the purchase of the remaining 50% of NBCU from GE?

I understand the mechanisms of the deal, but GE might be open to completing the full transaction faster.

And if there was ever an environment where levering up might have made sense it's in this environment.

So any thoughts on that would be helpful.

Well, I am glad you like the advertising and the financing and put an underscore on that because, I totally agree with you, things have appeared to go quite well since we announced the transaction.

We are still awaiting the regulatory approvals so, no, we haven't even thought about that question.

I like the structure that we have.

It's, I think, exactly right for both corporations so I don't anticipate any change.

I just want to touch on one other thing that Neil said to just make sure everybody understood some of the step-up lingo.

Twelve months ago during the digital transition we gave a lot of customers a 12-month offer, many of those customers were for the first time coming on to multichannel television.

At the end of the 12 months they then went to kind of, quote, normalized rates and that is step-up.

And that happens sometimes in promotions but there was an awful lot of that happening in the second and the beginning of the third quarter.

Marlene?

Thanks.

Thanks, Doug.

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

Craig Moffett, Sanford C.

Bernstein.

Good morning, guys.

There have been some reports recently that Netflix amounts to as much as 20% of all the traffic carried on the net these days.

I know you guys have been working on beefing up core facilities to sort of create a VPN, if you will.

Can you talk about what you are seeing in terms of network traffic and how you think about addressing the simultaneous needs of on the one hand making sure the network is robust enough to deliver a good service and then on the other hand, as you think about TV everywhere and that sort of thing, maintaining neutrality and the like in the way that you deliver broadband services?

Hi, Craig.

It's Neil.

I think right now we feel comfortable, A, with our caps; we have 250 gig caps.

The average consumption, the media and usage is about 2 GB to 4 GB so we feel very comfortable with where we are.

That being said, we have rolled out DOCSIS 3.0 -- it's about 83% of our footprint -- to increase our ability to offer higher speeds.

I think with Netflix I did read the same report that about 20% of prime time usage appears to be streaming.

We will continue to monitor that.

We feel good about where we are.

As the all-digital initiative we have frees up more bandwidth we are looking at -- I should say recapturing even more bandwidth as we go to D1 or basic digitization in some of our markets.

So we feel very good about our bandwidth situation.

We will continue to monitor it.

We do have meters in place so consumers can see how much they are consuming.

We feel that is a useful consumer service and we will continue to monitor it as things progress.

But it's a very small percentage of the population consuming those large percentages of bandwidth.

We are supporters of TV Everywhere and we will continue to work on that as we said in our Xfinity TV launch.

Thanks, Neil.

Thanks, Craig.

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

Jessica Reif Cohen, Bank of America Merrill Lynch.

Thanks.

Two questions.

You mentioned that fourth-quarter subs are improving or you said each month is actually sequentially improving.

I was wondering if you could give us some color on kind of all the segments, not just Video but advanced services within Video and then maybe Data and Voice as well?

And then separately, Steve, as you wind your way through the integration process with NBC Universal can you highlight where you see the biggest pockets of growth or opportunity?

And maybe like a separate note, nobody mentioned Canoe.

Can you give us an update on that?

Why don't I take actually the first question?

Jessica, I don't think we are going to provide any more date related to where we are seeing trends.

I think we feel pretty good about how we are performing so I think we will just leave it at that.

We really wanted to address, I know, some of the concern related to primarily basic video.

So let me just push it over to Steve.

In terms of the opportunities for NBC Universal I think since we signed the deal last December almost all of the news has been positive.

Obviously, the NBC network still has its challenges but, if you look at advertising, the business is significantly better than we thought.

Universal Studios invested in an animation company that its first release was a film called Despicable Me that was a tremendous success.

Obviously the animation business is one of the best parts, if not the best part, of the film business.

Universal Studios opened Harry Potter down in Florida which has been a standing-room-only success.

And then really the cable channels that we will have when we get this company put together offer, I think, real opportunities to sort of cross-promote, provide new programming, just bring everything to a different level.

So I think we have done a lot of deals over the last number of years and I think sometimes everything happens to the negative between signing and closing.

This time it seems like the vast majority of things are very positive.

In terms of Canoe, we now have -- Canoe now has 10 million homes right now today where you can buy interactive advertising on the Style Network and AMC has also launched a number of other networks.

So Canoe is now live.

It's out selling and out sort of starting to do what we do what we have wanted the interactive advertising business to do for a long, long time.

And that 10 million number is going to grow very dramatically because it's based on the rollout of EBIF, which those of you who follow the industry know is now sort of the industry standard for interactive television.

So we are very pleased with the progress of Canoe and optimistic that finally after years of putting together the infrastructure and the partnership and everything else interactive advertising is going to deliver real results.

Thank you.

Thanks, Jessica.

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

Jason Bazinet, Citi.

I just have a question regarding Netflix and players like that.

I think if you went back a few years people would have thought that that was maybe a potential impact to your VOD business or maybe premium channels.

And I think the hope of the Netflix investors and maybe the fear of cable investors is that it becomes a real viable substitute several years from now.

Do you think that is a cogent concern as the market evolves?

And if not, why not?

Well, this is Brian.

I think even Netflix on their own call felt that they were more complementary than anything else to the existing marketplace.

I also think you are seeing an expansion of usage as you can use more devices.

So our on-demand usage continues to be quite large and growing and we are adding content.

We are a great and are a great user interface.

That is now something, as you can see in articles today in the paper, something a lot of people are working on as new devices come out.

We are very excited about, for instance, as I mentioned earlier, the iPad.

It gives us a chance to now start from scratch with a user interface that is using Web technology, not cable box technology.

We also have better and newer boxes coming out and we have new guides to replace old guides.

So there is an awful lot happening but I think with a new series of devices that allow people to consume more you are seeing actual usage go up and you are seeing more people in this space and that is just the reality.

Part of that is great for our broadband business, part of it increases our innovation speed, and part of it establishes relationships that are new for the consumer, like a Netflix.

All of that is in the market, but net-net I think there is -- we are in a wonderful position to grow and that is what I think we are focused on and hopefully will integrate well with others as they enter the marketplace because that is something our consumers want.

That is sort of what Neil is talking about with the end-to-end consumer experience.

Okay, thank you very much.

Thanks, Jason.

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

Jason Armstrong, Goldman Sachs.

A couple questions.

First on programming costs; it's the largest sequential decline we have seen in several years.

I am just wondering what is driving this.

And then margin's surprising upside on most of the ARPU metrics it looks like would seem to point to opportunities for margin expansion so how should we be thinking through this?

Thanks.

Hi, Jason.

It's Neil.

I think programming costs they will fluctuate quarter to quarter, year to year based on the terms of the deal and the deals that are renewing at that time.

So I don't think I would read too much into that.

They were up about 5% in the third quarter and year to date.

I think we are getting more value out of our programming relationships in terms of VOD and online availability of content, and I think from a margin perspective I think there were -- the programming costs were not able to increase our video rates at the rate that the programming costs are going up and I think that that is a trend that will probably continue.

On the margin side we are focusing on both effectiveness and efficiency, so you saw customer service improvement in costs year-over-year and I think that is due to efficiency.

We are managing our operations.

We are, from a call center perspective, a little bit more efficiently while improving service levels.

And I think we are going to try and manage the business so that we can try and hold margins, but I think that will fluctuate and time will tell.

Okay.

Thank you.

Thanks, Jason.

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

Stefan Anninger, Credit Suisse.

Thanks for taking my question.

My question is for Neil.

I am here with Spencer who has a question for Steve.

Neil, can you discuss your HSD pricing strategy over the longer term and more specifically do you believe that you can increase the price differential between bundled and unbundled HSD and perhaps helping to offset any future basic losses?

Well, I think the pricing strategy will fluctuate based on market conditions.

I mean I don't think there is any -- I am a believer that we have a fixed strategy and we respond to market conditions.

From a bundling perspective, as we have seen, the triple play continues to offer more value to customers and we have continued to increase the percentage of triple play customers.

We do sell an HSD-only package to customers who want that and if that continues to sell well we will continue to respond to market conditions in that regard.

Hi, it's Spencer.

I just have a quick question for perhaps Brian or Steve.

Just given the number of programmer and MSO disputes over the last 12 months could you just update us on your thought on the whole retrans regime and your thoughts?

Do you think that the retrans must carry regime needs to be modified or what would you advocate for?

I think we have consistently said that we -- with this new transaction we can hopefully play a constructive role in any new thinking that has to take place around this space.

And so this doesn't really change anything because I think the anticipation that there would be disputes so we are seeing one in the marketplace today.

But at this point, by being a cable operator and a broadcaster, perhaps we can foster ideas that will not have the consumer be caught in the middle there.

So we will just have to take it one step at a time but we are very -- think there is an opportunity to play a constructive role.

Great, thank you.

Thanks, Spencer.

Thanks, Stefan.

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

Ben Swinburne, Morgan Stanley.

Thank you, good morning.

Just a follow-up on the cost side for Neil and then I have a question for Brian.

Two of the expense buckets -- you guys break out technical labor and administrative and other, which were both down in the first half of the year -- were up quite a bit in Q3, which surprised me a little bit just because you guys are moving through I think towards the end of the all-digital rollout where I think you are going to see some pretty nice savings in terms of truck rolls and sort of overall activity levels.

So I don't know, Neil, if there is any comment you want to make there to help us think about going forward or what the drivers were?

And then for Brian, everyone is very focused on Xfinity TV or TV Everywhere, however you want to describe it.

It's probably one of the most focused on initiatives in the industry in many years.

Now that it has launched can you sort of talk about your vision for the product, particularly given that you have done a deal now with CBS, a 10-year deal, which I think contemplates a lot of what you are trying to do here?

How do we think about the number of screens you can push this product to, devices, mobile, broadband, Internet-connected TVs?

How are you thinking about windowing?

Are you going to get -- are you looking to have in-season access to all these shows on multiple windows or prior seasons?

No one is really in the position that Comcast is in to sort of drive this product and I am curious what your vision is for the service.

Neil or Mike, do you want to talk about the first part?

Yes, I will talk about expenses.

Those two categories -- technical labor was higher due to a couple of factors.

One is our capitalization and there was less capitalization and more expense or OpEx as it adjusted for that.

The second reason in tech labor was that we have launched a program that really focuses on the quality of our CPE.

So we are doing much more testing of the CPE across various facets and it provides a temporary OpEx hit, but we think it's the right thing to do for the customer in the long term.

Long term it will take the boxes out of the system that are prone to problems and we think it's the right thing to do for the customer.

On the admin side, I don't think I would read much into that.

There is just fluctuation quarter to quarter and overall that expense we feel good about on the year.

I think for Xfinity TV and TV Everywhere we are at the beginning of that in my opinion, not anywhere near the end.

Ultimately, when we laid out our initial vision, which we called Project Infinity, a couple of years ago at CES, as a technical matter where you would like to get to is have an architecture and a capability that any piece of content could be accessed by the consumer on any device at any time.

And then it's up to the content rights holder to determine whether they want to sell it at all, at that moment, in different windows, all the things you said.

Make it advertising supported, have an additional charge for it, or any other model.

And that the technology that our industry can bring and what Comcast can perhaps lead with -- things like the CCDN and with the architecture of our VOD infrastructure coupled with the WiFi in the home, initially focused very much in the home, and now new devices like the tablets, which I think we are just seeing the very beginning of.

The number of people who are going to make tablets and the rapid nature by which the price is going to decline, in my opinion, will accelerate this architecture to be taken well and used by the consumer.

We are just starting.

Ultimately, it would be wonderful if there was an expectation by the consumer that they would know where the shows are in what windows.

Today you know when a movie comes out you go to the theater and so many months later you can buy a DVD and then you see it on pay television and, etc., and on-demand.

It's all over the place right now and people are experimenting with different windows and different models and old episodes, new episodes, future episodes.

I think until there is enough content that there is an understanding by the consumer, it will be adopted by some but not by all.

Our job is try to make it simple, ubiquitous, and have the technical platform and handle the volumes that we hope will ultimately come.

Thank you.

We feel very confident that we can secure a lot of content because we had this experience when we did free video-on-demand six or seven years ago.

The concept didn't really even exist.

We had to sit down with the content companies and talk about why we thought it was a good idea.

It started a little slow in the beginning, but at a certain point it really took shape and then took off.

And we think the same thing will happen with TV Everywhere, and one of the nice things about the NBC Universal deal is it will allow us to sort of speed that process up a little bit.

But ultimately, this will be good for our customers because they are paying for these products on one device and we would like to give these products to them on more devices at more different times.

Thanks a lot.

Thanks, Ben.

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

Vijay Jayant, Citadel Securities.

Thanks, a question for Neil.

On the detail on the high-speed data ARPU growth which is nearly 5% a year earlier, can you sort of break down how much was higher-speed plans being taken price increase as well as the commercial mix?

I really have sort of an observation and want to get your reaction to it is there has been a lot of talk about over-the-top impact to multichannel video, but if you sort of look at the pricing that most operators have for the faster speed tiers of broadband, if there is over-the-top cord-cutting, aren't cable operators actually on the margin a little better or even neutral given the margin of the two businesses?

Thanks.

Yes, a few thoughts.

One is our HSD ARPU we are pleased with; most of that was due to customers taking higher speeds.

So as Brian mentioned, we have rolled out 50 Mb service to about 40 million homes, 105 Mb to about 25 million homes so we are continuing to offer higher speeds to customers.

And that is really what is driving the ARPU.

Over 20% of our customers subscribe to the higher-speed tiers that are blast level, which is 8 Mb and above.

So that is what is driving the speeds.

Rate adjustments were a factor but I would say that we will continue to monitor as rate and volume and manage that as the economy evolves.

I think you are right in terms of the potential opportunity.

If over-the-top and there -- comes into being and there is more consumption of online video, we feel very good about our capacity.

That is one of the reasons we have invested so heavily in DOCSIS 3.

We feel that that big pipe into the house is important and we will continue to invest in speed increases like that, like DOCSIS 3.

We think it's an important component and the consumers continue to consume more bandwidth.

Thank you.

Thanks, Vijay.

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

Marci Ryvicker, Wells Fargo.

Thanks.

I have two questions; one is a little bit longer term.

At what point do you no longer need the set-top box, so in essence it becomes extinct, and what impact do you think this would have on your business?

And then secondly, more immediately, the double-digit ARPU growth that we saw in the quarter is this a trend or is this just a one-quarter event?

I will take the ARPU growth.

We are very focused on ARPU.

I can't tell you whether the double digit is going to be a short, medium, or a long-term trend, but certainly we are focused on selling bundled services, which is triple play, selling advanced services in terms of more HD DVR, selling more pay on the VOD.

So we are very focused on ARPU management as one of the really critical metrics in terms of how we manage the business.

So I really don't want to forecast where that is going, but if you look at trends over the last several years we have been able to grow that number consistently.

The set-top box thing -- Neil, you might want to comment too -- but basically I think there will be set-top boxes for a long time.

But the world is beginning to see technologies that can, in some cases, do away with a set-top box for some of your services.

We have digital adapters for many televisions.

Neil said over 15 million.

The world is changing and evolving very rapidly and we want to serve all spaces.

That said, the most exciting products we are working on that allow you to have tremendous functionality right on the TV do have set-top boxes involved with them.

Some customers will not want all that and will want a different model and so we are working on all across the landscape.

Also as more and more moves into the Cloud and into different architecture we have to handle that as well.

So it's an interesting time technically and cable apps is looking at a lot of these different things.

Neil?

Yes, I think that -- I agree with Brian that set-top boxes will be around for a while simply because we feel very focused on -- we feel it's very important to manage the rights of that content and the set-top box is something that enables that.

That being said, as you deploy technologies such as EBIF it enables different things, such as the remote iPad that Brian showed at the NCTA national show.

So we can work more on the user interface and access to that content and we can work more across platforms as Steve referred to.

Whether it's the television, the DVR, VOD, we can have a consistent user interface and I think that is real important development in the overall customer experience.

So net-net we are probably more excited about our roadmap of innovation because of the trend that is occurring.

Ultimately, one could say there will be less and less boxes perhaps needed over time but I don't think it's a binary event that is going to happen any time soon.

Thank you.

Thanks, Marcy.

Operator, let's have the next question please.

Richard Greenfield, BTIG.

Thanks for the question.

When you look at these broadcaster websites, whether it's ABC.com or whether it's the ABC iPad player, which are available free to the world with advertising, how do you think about the impact of what the broadcasters are trying to do vis-a-vis the retrans demands that we see continue to escalate across the board?

Where do you think that all shakes out over time?

Even before you get NBC just what is the impact from all of that and where do you think, whether it's Hulu or the ABC player, how does all this change over the next couple of years?

Well, one of the points we have tried to make there is going to be a market and the market is going to have many other people other than Comcast involved in that.

So whether it's Cablevision and Fox or other companies in their negotiations, those negotiations are going to have a free market and set a model.

Clearly, the broadcasters would like as many eyeballs as possible to their shows and since they are broadcasting into the air it makes a lot of sense to put a lot of shows on the Internet.

What exactly to show in exactly what window is up to each content company.

Again, I do believe we can try to help the balance that is going on.

As the technology enables consumers to do more and content and distribution companies are trying to enable all of that to happen in a way that is good for their stakeholders, I think we have an ability to be a constructive force and ultimately give consumers more access in more windows on more devices.

And that is the strategy we are trying to pursue.

Thanks, Rich.

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

Bryan Kraft, Evercore Partners.

Thanks.

Just had two short ones.

I guess first how do you see the myriad of rights issues that are today an impediment to a more comprehensive Xfinity TV online rollout being completed and how many years do you think that process reasonably takes to complete?

Then the second question was just if you could maybe give us an update on your wireless strategy and how you are thinking about approaching that market and how your thinking has changed maybe over the last year.

Thank you.

Well, I think on the myriad of rights I think Steve's answer was right on, which is it's consistent.

These platforms are getting enabled and we are just starting to look at each new device and new window in the home and potentially out of the home.

You are right; it's complicated but I think everybody is trying to pull in the same direction because of piracy.

You have got a looming issue that if you don't there are other ways consumers can get this content.

So it's in everyone's interest to come up with authenticated and authentic copies of the content into the consumer.

So I think we are very pleased with the announcement this week.

Xfinity TV has, I don't know, something like 150,000 different choices and you are now on devices that have wonderful navigation and search capabilities.

These are all very important steps as we now have more devices that allow you to display those contents, not just at a fixed PC.

On wireless, my sense is the steps we have taken are a couple of different areas.

The one that is most intriguing to me at the moment is sort of the last foot.

The last foot may want to have some display on a wireless device using Wi-Fi in the home.

As you get these tablets that is what makes them sing and our ability combined with the EBIF that Neil was just talking about really gives us some unique capabilities to interact from the wireless device right to your set-top.

For those of you that have a Crestron-type remote in your home, high-end consumers have wanted this.

Now we are going to be able to bring this to everyone who has a few hundred dollars and a tablet.

Otherwise we are continuing to monitor the wireless business, but I think we are very pleased with where the overall data business is and that is really how we have looked at wireless.

Are you still continuing to rollout markets with the laptop connect cards with the same kind of resources and bigger behind it or is that -- maybe is there less emphasis on that now?

Yes, Brian, we continue to rollout markets with the data cards.

We have worked with the different pricing models and we have found that combined 3G/4G works well and using it as that add-on service to the triple play seems to improve take rates.

So we will continue to do that as well as we are looking at Wi-Fi, as I mentioned, in Philadelphia and we will monitor how that proceeds.

Thanks very much.

Thanks, Bryan, and thank you all for joining us this morning.

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