康卡斯特 (CMCSA) 2011 Q3 法說會逐字稿

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

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

As we have done in the past, Brian and Michael will make formal remarks, and Steve and Neil will also be available for Q&A.

With the completion of the Universal Orlando transaction on July 1, we are now consolidating its results and have updated our pro forma presentation to include 100% of Orlando as if that transaction was effective on January 1, 2010.

Please refer to our trending schedules which are available on our investor relations website to see the updated pro forma results for the past seven quarters.

We have also added D&A and operating income by segment to the trending schedules.

As always, let me refer you to slide number 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 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.

Today I am pleased to report another quarter of strong performance across key financial, operating, and product areas.

Our primary focus has been on great operational execution and on extending our industry leadership.

Let's begin with Cable, which really had an outstanding quarter, making this the fourth consecutive quarter of improving customer metrics.

Our combined video, voice, and data customer additions increased 13%.

In addition to customer growth in high-speed Internet and voice, we saw continuing improvement in video, where we reduced our customer losses by 110,000 over last year's third quarter.

High-speed Internet was once again the largest contributor to Cable's revenue growth.

Every quarter this year we have added more high-speed Internet customers than in the same quarter of 2010, and we continue to take share as we expand the differentiation between our high-speed service and DSL.

Business Services is also becoming a significant driver of our growth, with annualized revenue approaching $2 billion and 39% growth in the quarter.

I'm excited about the prospects for this business, which continues to post strong results on the small end of the market and has a big opportunity still ahead with the midsize businesses.

We are making significant progress in delivering a better service experience for our customers, with higher customer retention and service scores and increasing customer satisfaction.

We recognize that we still have work to do, but I am really encouraged by the focus that Neil and the whole Cable team have on delivering the best customer experience and by our consistent steps forward in this effort.

At the same time, we are driving product leadership and innovation.

A couple of years ago we decided to invest in DOCSIS 3.0 and to convert the majority of our analog bandwidth to digital.

I am happy to say that we have completed DOCSIS 3.0 and all-digital projects, and the results are fantastic.

In fact, I really believe that it is a significant contributor to our strong results.

We are now delivering more high-def and foreign-language programming and have assembled the best collection of on-demand content anywhere, including over 30,000 choices on TV, 200,000 choices online, and 7,000 hours available on our XFINITY app.

Today, more than 90% of all of the major broadcast networks' fall TV series are available on XFINITY on-demand or XFINITY TV.com.

We are also making it easier for our customers to search, discover, and access all this great content.

We're expanding availability of on-demand to the Xbox and we recently relaunched XFINITY TV.com with better personalization and recommendations; and we continue to enhance our guides across all our platforms.

We are seeing early success from our latest new product, XFINITY Signature Support.

Our expanding businesses like XFINITY Home Security.

We're also working on the next round of exciting new products like next-gen TV, dynamic ad insertion, and more.

It is really an exciting time.

I think Cable's results so far this year show that our scale, our XFINITY brand, and are intensified focus on service and innovation are coming together to make a real difference.

Our Cable business is in terrific shape today and in a very solid position for the future.

Let me now switch to NBCUniversal, where we continue to make progress toward a successful integration and our goal of long-term growth in the value of these assets.

NBCUniversal's results this quarter once again underscore the strength of the fourth Cable Networks business as well as terrific momentum at the Theme Parks.

As you know, Cable Networks drive the profitability of NBCUniversal, and they continue to perform well with consistently strong revenue growth.

We are investing in programming to make them even more valuable for our customers and distributors; and the good news is that we are already starting to see the benefits of our investments.

For example, this summer, USA had seven of the top 10 scripted series on basic cable.

And E!

had the highest rated September in its history.

At the Theme Parks, the Harry Potter and King Kong attractions have set new levels of performance, and we are excited to see that continued in the third quarter.

As you know, NBCUniversal now owns 100% of Universal Orlando, and we see a real opportunities to further build the Theme Park business.

At the same time, Telemundo just won the exclusive US Spanish-language rights to the FIFA World Cup Soccer from 2015 to 2022.

This agreement includes both the men's and women's World Cups; two World Cups each; hundreds of matches; and many other FIFA soccer events for eight years.

Includes all platforms, so we will cover and cross-promote games and events across our various channels on broadcast and cable as well as online, wireless, and on-demand.

This investment should be profitable for Telemundo, a real game-changer for that business, and an opportunity for our Company.

I feel we are making real progress on all fronts and that our disciplined investment approach is yielding positive results.

Overall, I am really pleased with this quarter's results, including over $900 million of capital returned to shareholders.

I believe the stability of our businesses and free cash flow generation will allow us to continue to build value and consistently return capital to shareholders.

Let me now pass to Mike Angelakis to cover the third-quarter results in greater detail.

Thank you, Brian.

Let me begin by reviewing our consolidated financial results starting on slide 4.

Overall we are very pleased with third-quarter results.

Third-quarter consolidated revenue increased 51.1% to $14.3 billion, and consolidated operating cash flow grew 27.8% to $4.6 billion, reflecting strong organic growth in our Cable business as well as consolidating the acquisitions of NBCUniversal on January 28 and the remaining 50% of Universal Orlando on July 1.

Free cash flow for the quarter, which excludes the impact of the economic stimulus, increased 36% to $1.4 billion, primarily reflecting growth in operating cash flow that was partially offset by an increase in working capital.

In addition, third-quarter free cash flow per share increased 39% to $0.50 per share.

Earnings per share in the third quarter grew 6.5% to $0.33 per share from $0.31 per share last year.

This quarter's EPS growth was negatively impacted by a $256 million or $0.05 per share decline in investment income that was primarily driven by non-cash mark-to-market adjustments in our investment portfolio.

Please refer to slide 5.

As I have mentioned previously, we view Comcast and NBCUniversal as two distinct pools of cash flow generation and funding capacity.

As you can see in the slide, year to date we generated $5.1 billion of total free cash flow.

Comcast, which includes Cable Communications and Corporate and Other accounted for just over $4 billion or 78% of total free cash flow, while NBCUniversal contributed $1.1 billion of free cash flow.

In terms of capital allocation our priority for both Comcast and NBCUniversal is to generate strong returns by investing in their core businesses.

Beyond this investment, NBCUniversal retains its free cash flow to fund future equity redemptions, while Comcast allocates the majority of its free cash flow to consistently return capital to shareholders.

As Brian mentioned, in the third quarter we returned $909 million including share repurchases totaling $600 million and dividend payments totaling $309 million.

Year to date we have returned $2.5 billion or 63% of Comcast Cable's free cash flow to shareholders.

We continue to execute on our financial plan for 2011 and expect to complete our existing share repurchase authorization by year-end.

Our return of capital plan for 2012 will be reviewed by management and our Board in the next few months, and we will provide an update for 2012 on our year-end earnings call in February.

Please refer to slide 6 in order to review our pro forma results.

This slide represents the pro forma results of our Cable Communications and NBCUniversal businesses, which is how we evaluate the performance of our organization and segments.

We believe the pro forma presentation provides a more meaningful comparison of the operating performance of the businesses.

In the third quarter, consolidated revenue increased 4.9% to $14.3 billion, and consolidated adjusted operating cash flow increased 5% to $4.7 billion.

Please note that the adjustment to operating cash flow excludes $82 million of non-cash acquisition-related accounting revisions and costs.

In the third quarter, Cable Communications revenue increased 5% and represented 65% of consolidated revenue, while Cable operating cash flow grew 6.7% and represented 80% of consolidated operating cash flow.

I will review our Cable results in more detail in the next few slides, but let me first briefly review NBCUniversal's results.

Third-quarter NBCUniversal revenue increased 4.6%, and adjusted operating cash flow decreased 1.4%, reflecting strong results at Cable Networks and Parks, offset by weaker performance at Broadcast and Film.

The Cable Networks generated revenue of $2.1 billion in the third quarter, an increase of 12% primarily driven by a 10% increase in distribution revenue and a 9.5% increase in advertising revenue, reflecting the continued strength of our Cable Network franchises.

Other revenue increased 37% or $54 million primarily due to increased volume of our Cable production studio for both NBCUniversal and third-party cable networks.

Third-quarter Cable Networks adjusted operating cash flow increased 8.5% reflecting the strong top-line growth, partially offset by our ongoing investment in original programming.

Year to date, Cable Networks revenue has increased 12.6% to $6.3 billion, and adjusted operating cash flow has increased 7.6% to $2.5 billion.

We have terrific momentum at USA, which continues to be the highest-rated basic cable network, driven by the success of its original programming.

We are applying the same successful formula to some of our other entertainment channels like Style, which launched several new shows, driving a more than 90% increase in this key demographic during the third quarter.

We have a great portfolio of channels with a good mix of established and emerging networks.

With the appropriate investment and cross-promotion, we are confident we can continue to generate strong results.

Moving to our Broadcast group, third-quarter Broadcast Television revenue increased 2.9% to $1.5 billion, primarily reflecting flat advertising revenue and higher content licensing revenue from the international TV production, including Downton Abbey and domestic syndication of 30 Rock.

This quarter's flat advertising revenue growth reflects higher pricing that was partially offset by weaker primetime ratings at NBC as well as lower political advertising on our owned TV stations.

Similar to our local cable advertising business of Spotlight, political advertising comparisons will be a bit more difficult in the fourth quarter as the NBC local stations generated $50 million of political advertising in the fourth quarter of 2010.

Third-quarter Broadcast adjusted operating cash flow decreased to $17 million from $70 million in 2010, reflecting increased programming and marketing costs associated with the NBC primetime schedule, higher news coverage costs, and increased investment at our local TV stations during the quarter.

Year to date, Broadcast revenue has increased 8.7% to $4.6 billion, and adjusted operating cash flow has decreased 1.1% to $283 million, excluding the impact of the Olympics in 2010's results.

Moving on to film, Filmed Entertainment revenue declined 7.8% to $1.1 billion this quarter, principally due to lower theatrical revenue from this quarter's releases compared to the success of Despicable Me in the third quarter of 2010.

Home entertainment revenue increased 20% this quarter, driven by the success of Bridesmaids and the international DVD release of Fast Five.

Film adjusted operating cash flow decreased to $18 million compared to $66 million in the third quarter of 2010, mostly reflecting this quarter's weak box office results.

Year to date, Film revenue has increased 1.2% to $3.3 billion and adjusted operating cash flow has declined $139 million to a loss of $81 million.

With the consolidation of 100% of Universal Orlando, we reported $580 million of revenue at the Theme Park group, a 9% increase that was driven by double-digit increases in per capita spending and relatively stable attendance at both parks.

Third-quarter operating cash flow increased 12.6% to $285 million compared to $252 million in the same period last year.

Year to date Theme Parks revenue has increased 32.9% to $1.5 billion, and adjusted operating cash flow has increased 61.2% to $644 million.

Please refer to slide 7 to review Cable Communications results.

We had another strong quarter of financial and customer growth in our Cable segment as we continued to successfully balance unit and ARPU growth.

For the third quarter, Cable Communications revenue increased 5% to $9.3 billion, reflecting solid performance in our recurring residential business and continued strength in Business Services, partially offset by lower advertising revenue.

Year to date, our Cable segment's revenue has increased 5.5% to $27.8 billion.

The Cable business continues to perform well as we are managing the business for sustainable and profitable growth.

In the third quarter, total revenue per video customer increased 8% to $139 per month, reflecting an increasing number of residential customers taking multiple products and the higher contribution from Comcast Business Services, partially offset by lower advertising revenue.

We continue to focus on providing multiple services to our customers; and at the end of the third quarter, 70% of our video customers took at least two products, and 36% took all three services.

We had a strong back-to-school season during the third quarter, driving 229,000 total video, high-speed Internet, and voice customer additions, a 13% increase in net additions versus a year ago and marking the fourth consecutive quarter of improved year-over-year total customer growth.

We are competing better, with improved products; and our focus on retention and customer service has again resulted in lower churn year over year across all of our services.

As we look at the residential service categories, third-quarter video revenue increased 1.1%, reflecting rate adjustments and an increasing number of customers taking higher levels of digital and advanced services.

In the third quarter, we lost 165,000 video subscribers, a 40% improvement over the third quarter of 2010.

In addition, we added 126,000 high-def and/or DVR customers in the third quarter and now have 10.6 million HD or DVR customers, equal to 53% of our digital customer base.

High-speed Internet revenue increased 9.8% during the quarter, reflecting rate adjustments, continued growth in our customer base, and an increasing number of customers taking higher-speed services.

Today, over 24% of our residential HSD customers take a higher-speed tier above our primary service.

Our HSD service is capturing more market share as we continue to differentiate our product through service and speed enhancements.

In the third quarter we added 261,000 new high-speed data customers compared to 249,000 last year.

Our penetration is now 34% of homes passed.

Voice revenue increased 6.3% for the quarter, reflecting continued growth in our customer base.

In the third quarter we added 133,000 voice customers, and our penetration is now 18% of homes passed.

Business Services also continues to be a significant contributor to our performance, with revenue increasing 39.4% in the quarter to $464 million.

Our momentum continues to be strong on the small end of the market, and we now have Metro E and PRI trunked voice available in all our markets and are just beginning to execute on the midsize market opportunity.

In the third quarter, Cable advertising revenue decreased 4%.

However, this decrease was impacted by a decline in political revenue.

Excluding this political revenue, Cable advertising increased 3.1%.

As a reminder, we generated $100 million of political ad revenue in the fourth quarter of 2010 which, as I said before, will make comparisons a bit more challenging next quarter.

In the third quarter, total Cable revenue excluding advertising increased 5.6%, which is consistent with the first half of the year.

Please refer to slide 8.

Third-quarter Cable Communications operating cash flow increased 6.7% to $3.7 billion, resulting in a margin of 39.8%, a 60 basis point improvement compared to last year's third quarter.

Year to date, our Cable segment's operating cash flow has increased 7.1% to $11.3 billion, resulting in a margin of 40.9%, also a 60 basis point improvement compared to the same period in 2010.

In the third quarter, total expenses in Cable increased 3.9%, reflecting a 6.4% increase in video program expense as well as increased marketing spend.

Sales and marketing expenses increased 10.7% this quarter as a result of higher overall media spend and a continued investment in direct sales, to more effectively target customers and enhance our competitive positioning.

Our marketing investment is clearly yielding positive results.

Our XFINITY brand is now launched in 100% of our footprint, and we have seen consideration levels among non-customers -- that is, potential customers willing to evaluate and consider our brand for purchase -- grow by over 47% since the launch of XFINITY.

In addition, we continue to invest to expand the capabilities of Business Services, including the hiring of over 600 people in the last 12 months to support our growth in small business and our entry into the midsize market.

We remain very focused on expense management, driving greater efficiencies and effectiveness throughout the organization.

Similar to prior quarters, bad debt expense improved as we continue to improve our retention, collection, and screening processes.

In addition, meaningful improvements in our operating metrics are not only assisting to improve our customers' experience but are also driving operating efficiencies throughout the business.

In the third quarter, even as we incurred incremental costs and activity levels from Hurricane Irene and a strong back-to-school season, customer service expense was flat compared to last year, and technical labor expenses declined by 1%.

Please refer to slide 9 to review our Cable Communications capital expenditures.

Through improved efficiencies we continued to reduce the capital intensity of our Cable business.

In the third quarter, Cable capital expenditures decreased 4.9% to $1.3 billion, representing 13.4% of revenue.

This quarter's decline reflects lower spending on CPE, primarily driven by more favorable pricing.

In the third quarter we deployed 479,000 advanced HD and/or DVR set-top boxes.

As I mentioned earlier, 53% of our digital video customers now take an advanced service.

Also during the quarter we deployed 1.3 million digital adapters, for a total of 21.9 million digital adapters deployed since the inception of the all-digital project which, as Brian mentioned, is now complete.

This has been a terrific initiative that has provided significant product enhancements and operational benefits as well as generating strong financial returns.

Over the past year we have begun to recapture the remaining B1 analog bandwidth in a number of our markets.

We plan to continue this effort as we anticipate additional operating efficiencies and strategic benefits from fully digitizing our systems.

Third-quarter CapEx also reflects meaningful investments to support the continued growth in Business Services and to expand our efforts in the midsize business area.

Our investment in Business Services increased 15% to $147 million in the third quarter, and year-to-date has increased 35% to $453 million.

Year to date, total Cable capital expenditures has increased 4.1% to $3.5 billion, equal to 12.6% of revenue.

We are executing well on our 2011 capital plan and believe our capital intensity can continue to moderate even as we invest capital in areas that provide attractive returns, expand our service and product offerings, and drive future organic growth.

So as we view the performance for the third quarter and year to date, we feel very good about our operating momentum and focus on execution.

Our Cable Communications business continues to perform well and deliver strong operational and financial results.

Also, after nine months we are pleased with the progress at NBCUniversal and look forward to executing on the opportunities ahead of us.

Now, let me turn the call to Marlene for Q&A.

Thanks, Michael.

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

(Operator Instructions) Jason Bazinet, Citi.

I just had a question for Mr.

Smit.

Over the past few quarters we have seen your data net adds accelerate on a year-over-year basis and the phone numbers adds decelerate.

I was just wondering, is that a function of overt changes on your part in terms of marketing spend and product positioning?

Or would you describe that as something organic that is just happening in the marketplace?

Thank you.

Well, I think it's a little bit of both, Jason.

HSI continues to grow and we are overindexing versus last year.

And I think that is primarily organic in that we have a superior product.

With regards to the phone product, CDV, that is -- we did a really strong back-to-school campaign and -- where we focused more on single and double products.

We were less focused on triple play.

I think it showed in the video and the HSD results.

As we were still indexing -- if you look at year to date, 80% versus last year.

So the indexing is still in line.

As we go into the fourth quarter we will return more to our normal marketing program, which is primarily focused on triple play.

Jessica Reif Cohen, Bank of America Merrill Lynch.

Okay, here is my really long one question.

In SME, the growth was excellent, but it's a little bit slower.

I am wondering if you can just talk about what is actually going on there.

Because CapEx was slower as well; over the last few quarters it slowed down.

And can you give us the margin in that business?

And then, Mike, on the buyback, I know you said you are going to address the buyback in the next few months.

But with only $490 million left it looks like you're going to run through the buyback before year-end.

I am just wondering if you can say anything about the timing.

And then finally, can you give us any color on advertising in Cable and Broadcasting for the fourth quarter?

Okay.

We had three questions there, Jessica.

Just so you know we noticed.

On the SME side, actually I wouldn't read anything into that at all.

It is growing at 39% for the quarter.

Obviously a bit higher for the year, but that included some of the comps from last year where we had the acquisition of Cimco and NGT.

So that business has great momentum and we are excited about it and investing in it.

And that is particularly on the small part.

On the medium side, we continue to invest pretty heavily as well.

With regards to margin, it is an accretive margin.

I have said publicly that the small side of that business right now has accretive margins for us, and we are very pleased with how the business is being managed.

You're right on the buyback.

We will exhaust the authorization by the end of the year.

We have just under $500 million left, so we will go through that by year-end.

Then as I have mentioned before, we will sit down with our Board and go through what we think the appropriate buyback and dividend will be for 2012.

And we feel good about that as well.

You want to -- who wants to hit the advertising side?

Steve?

Advertising business continues to be strong, stronger on the national side than the local side; but continues to be strong.

We're 90% sold out for the Super Bowl.

We are seeing lots of demand for all sorts of Cable and Broadcast advertising, so that still continues to be a bright spot.

Jason Armstrong, Goldman Sachs.

Hey, thanks.

Good morning.

Maybe just one question on the NBC side.

You called out earlier this year a couple hundred million in additional investments.

There was some news last week around major investments in NBC owned stations.

I am wondering; should we be thinking here about another round of additional investing?

And anything you would call out around that?

Thanks.

The short answer on the owned station side is it is not a lot of money, and some of that money will come back.

We have actually got some nice ratings momentum in some of the markets including New York City.

But the numbers are not big.

I think the total investment we are talking about in terms of incremental add is in the $20 million, $30 million a year range.

Craig Moffett, Bernstein.

Hi, question for Neil.

Neil, can you just update us a bit on where we are with Excalibur, and what we will see in the next quarter from Excalibur rollouts, particularly with the new interface.

And how you are positioning it -- is it a -- because it requires a new set-top box as I understand, will it be positioned as a premium service and pricing and what have you?

Hi, Craig.

So as you know, Excalibur is our next-gen IP service and it provides a better UI and access to a lot of different interactive services.

We are testing down in Augusta right now, and we've been very pleased with the test results.

I think in terms of rollout, we are currently working on a rollout.

We will go to a major market in the first half of the year, and then we will be rolling it out on a more widespread basis during the year.

We will be able to roll out Excalibur across a variety of platforms including the Parker box that we have in Augusta, additional high-end set-top boxes, and other COAM devices -- customer owned and maintained devices -- such as the Xbox and other devices.

So from a positioning perspective, we are not quite clear how we want to position it yet.

We're working on that, and to what customers it will go and the pricing and whatnot.

So that is work in progress.

This is Brian.

One of the most significant aspects that appeals to us -- and we are seeing that as we tweak it -- is having the guide be in the cloud and being able to move quickly to make changes and tweaks and modifications and create new apps.

So we have an app we are testing for instance I saw yesterday in the sports area where you get just instant access to all the various games on television.

And you know what is happening right now and you can change or just get updates or little video snippets, a variety of things.

That will also work on the iPad shortly.

So very, very exciting for the roadmap and have innovation when you move the brains out of the box into the cloud.

Doug Mitchelson, Deutsche Bank.

Thanks so much.

Brian highlighted this is the fourth quarter in a row of subscriber improvements.

I think this is the best year-over-year video improvement since 2003, which is remarkable.

So my one multipart question here is whether the momentum can continue for a fifth quarter and beyond.

So Neil, on your side, are the biggest improvements behind us because you leverage going all digital?

And specifically what are you seeing in the December quarter so far?

Then, Michael, sort of same concept.

You have had terrific margin expansion this year.

Is that something that can continue, or have we sort of rebased, going all-digital?

Thanks.

Hi, Doug.

From a video perspective we have been pleased with the results.

I think it is based on a number of different factors.

One is, I think we are competing with better products.

When the platforms were extended, with DOCSIS and all-digital and CCDN, we're able to have better content, more content, better guides, and XFINITY TV apps, which have now been downloaded 3.3 million times, as Brian mentioned.

I think we are improving our customer service from both a reliability and convenience perspective.

We are offering more customer service features online, for example.

I think we have improved our retention and our focus there.

We are doing better customer rolloffs, and I have been really proud of our field teams and how they are just servicing the customer better.

And I think our marketing investments have paid off.

We increased marketing this quarter.

It was very targeted.

And the XFINITY brand is now taking strong hold; noncustomer consideration is up over 45%.

So, I believe that a lot of those investments are sustainable as it pertains to the actual subs themselves.

We are pleased with initial results.

It's very early in the quarter to tell, but we will keep focusing on it and offering new products and services on our video business.

I will take the margin question, Doug.

The team has done a great job on margin improvement.

As you can see we are up 60 basis points for the quarter as well as 60 basis points for the year.

There's always some positives, some negatives.

The positives are we have improving product mix which, as I said, Business Services and high-speed data and phone are certainly accretive.

We also, as Neil has mentioned, are gaining real efficiencies in the business.

So improving customer service and other areas is really actually helping on the operating costs and that has been great results.

We do have some negatives.

Programming costs are a challenge.

We continue to focus on that.

But also we are making some real investment, whether it be marketing, as Neil just mentioned, or new services, like we are doing a lot more in the midsize where we are making some real investment.

We are launching security; we are doing some real investment.

Excalibur we just talked about as well.

So I feel pretty good about the margin.

I think the team has done a great job, and I would look -- hopefully we can keep pretty stable margins.

John Hodulik, UBS.

Okay, great.

Thanks.

Maybe a question for Michael on the -- you had some instructive comments on the CapEx.

But now at the end of the DOCSIS 3.0 and the all-digital rollouts, can you shift some CapEx into new priorities?

For instance can you spend more in commercial and juice the growth rates there?

And maybe just the benefits you have been seeing in CPE sort of start to flatten out or maybe go away with the rollout of the new boxes with Excalibur?

Well, one thing I want to make perfectly clear -- Neil can jump in -- is I don't think we are, quote, robbing from Peter to pay Paul at all.

I think we are investing a meaningful amount in new services, like Business Services on the medium side.

So I think we are being pretty aggressive with how we are funding those opportunities -- or security or Excalibur or other kinds of areas.

When you think about CapEx overall, I think right now we are just about 12.5% year-to-date with regards to our capital intensity.

I think as we enter the fourth quarter and go into 2012, we have a pretty good shot of bringing that intensity down a bit while still being pretty aggressive of investing in areas where we think are terrific growth opportunities that have high ROI.

So capital has been a focus of ours, and I think the team has done a great job of investing smartly in DOCSIS 3.0 and the all-digital project are just great examples of terrific investments for us.

Ben Swinburne, Morgan Stanley.

Thank you.

Good morning.

Just one clarification and an actual question.

Michael, on the acquisition accounting revisions, I know you mentioned those are non-cash.

Are those just true-ups of purchase price accounting that you have to run through the income statement and then we are done?

Or is that something that continues to flow through?

You are right, it is primarily all purchase price accounting adjustments, so it is non-cash; it does go through the P&L.

That is one of the reasons why we showed you the adjusted operating cash flow, because it is non-cash and really doesn't impact the year-over-year performance.

So we wanted to show you, and you can look at Table 6 in our press release that really articulates what those numbers look like to give you accurate comparisons.

But we are pretty much done with purchase price accounting, so we hopefully won't see any more meaningful numbers going through the P&L.

Stefan Anninger, Credit Suisse.

Hi, good morning.

Thanks for taking my question.

Could you expand a bit on your HSD net adds and what proportion are coming on as naked HSD subs versus bundled subs?

It would seem fair to assume that naked HSD subs as a proportion of total HSD gross adds is growing.

Given that, what are your longer-term plans with respect to pricing and packaging naked HSD as it gets incrementally tougher to grab share from DSL, as maybe the low-hanging fruit within the DSL base goes away?

Hi, Stefan.

This is Neil.

HSD has been a great product for us, and I think we are successfully targeting DSL homes and taking share there because it is a better product.

Our HSD-only subs as a percent of the HSD total are in the range of 10% to 15%.

They have grown year over year, call it a couple points.

We will continue to offer -- go after that segment, and we will use it also with an -- we have an HSD leading offer; it combines HSD with either video or in some cases phone.

And that also has been a successful product for us.

We are kind of -- whatever -- we don't have a predetermined marketing plan.

We go with what sells best and what the consumers want.

And we will continue to adjust our pricing and packaging in that way.

James Ratcliffe, Barclays Capital.

Morning.

Thanks for taking the question.

If you could address My Choice TV a little bit, first of all.

What sort of results have you seen in the rollout thus far?

Also what sort of ability do you have to roll it out wider, and what margin impact would that have?

Would it be a traditional scenario that if a customer doesn't take a bundle of channels he wouldn't be paying programming costs on those channels?

Or would that negatively impact margins?

Thanks.

Hi, James.

Well, as you know, we are always testing new packaging and pricing -- MyTV Choice being one of the alternatives.

We are testing it in about three different markets.

It is constructed so that you have a Get Started package with 40 to 50 channels; and then a Get Started Plus that has that plus sports.

And then people can add on $10 theme packs such as kids or sports or news and entertainment.

We have seen -- I think it is very early to tell in terms of the test results.

And all these things are done within the parameters of our existing programming deals.

I think the concept there was to offer consumers more choice, and I think they are responding well to that, but it's very early to tell.

Marci Ryvicker, Wells Fargo.

Hi, I just have a clarification.

I think a question was asked on the $300 million investment in the Cable and Broadcast Nets that you mentioned at the beginning of this year.

Are you still comfortable with this level?

Can you just talk about your progress with that so far?

Well, I think we are still sorting through investment opportunities and finding a lot of places where we think the business requires investment.

I think what we tried to signal to people is that we thought this would be a flattish year in terms of operating cash flow, and that we would be making those investments in 2011 and 2012.

The obvious question is -- are you going to make a lot more?

I think once you've got yourself at a level where you're making the right amount of investments in certain businesses, like primetime and the Cable channels, you don't need to exceed that level.

So I think we are where we thought we would be.

I don't think there is a huge amount of incremental investment in Cable and Broadcast.

But on the other hand we are still finding areas where we think there are very good ROI solid investments, and we don't want to box ourselves in.

It has only been nine months since we arrived and started making these investments.

So I don't think there is a material increase; but on the other hand when we find something that we think is worth investing in -- and I think the World Cup Soccer rights for Telemundo are a perfect example.

If you are going to be in the business of Hispanic television there are two major players.

We have 20% market share; Univision has 80%.

The premier property is World Cup Soccer, and we think we structured a very attractive, long-term deal to get those rights for Telemundo and certainly don't want to box ourselves into not being able to make those investments when they present themselves.

Vijay Jayant, ISI Group.

Hi, a question for Neil.

As you have done all these investments on all-digital and DOCSIS 3.0, can you talk about the evolution of the video plant from an MPEG to an IP network?

And really the benefits and the costs of doing that, and really how long could we see that evolution happen?

Thank you.

Hi, Vijay.

Well, as you referred to, we have extended both all-digital and DOCSIS 3.0 as well as our CCDN investments, and that has been really positive from both a capacity perspective as well as our -- the channel perspective.

Concerning IP, you know, we currently distribute all of our VOD and our national linear TV in IP over the backbone.

We then convert it to MPEG transport at our regional hubs, so that our services are compatible with the existing deployed set-top boxes.

I think the other thing that has happened is all of our backend systems we have converted to Web services architecture, so we can do things like the iPad app and deploy new apps very quickly and easily.

So we have made a lot of the currently -- the existing investments.

I think over time using IP there will be significant benefits as we gradually migrate customers over the IP platform.

It is more efficient, and we can innovate faster, as Brian referred to earlier.

So that is the way to think of it.

A lot of the investments have been made, and we will gradually migrate to IP over time.

So I think is a great platform.

It is efficient and it enables us to innovate faster.

Frank Louthan, Raymond James.

Great.

Thank you.

Can you give us a little more color on the SME part of the business?

Did -- you said you've increased some of the marketing spend.

Was that also on the SME side?

What is the outlook for sales reps that you are hiring for the next 12 months?

Are you pretty full there or are you going to be looking to expand the salesforce?

So, Frank, we did spend higher in marketing in the Business Services side.

As Michael referred to with CapEx, where we see growth we will.

So we were happy to invest more in marketing.

The small and medium business is doing very well, and we are just getting into the midsize business both with Metro E and PRI or hosted voice.

From a hiring perspective, we hired up pretty significantly already to service the midsize market.

We are seeing revenue which will become more material in '12 and '13.

We will continue to invest in that growth.

We think both markets, the small and medium as well as the midsize, are great opportunities.

We have got a great team near, who is growing the business in good strides, and I think we will continue to see the growth in that business.

Phil Cusick, JPMorgan.

Hey, guys.

Thanks for taking the question.

Can you talk a little bit about programming costs?

We continue to see these rising.

You have talked about it, sort of expecting that to continue from here.

But what do you see going forward?

Are we moving through these retrans agreements, and is there any change in the direction -- either up or down -- over the next year or so?

Thanks.

I think in the quarter, it's hard to measure quarter by quarter the percentage -- not to measure, but to draw a conclusion from that.

Because the contracts are term in one quarter and begin in another.

So I think we will continue to see programming costs rise, as Michael referred to.

We are looking at the high single digit increases; that would be including retrans.

And we will continue to manage them as best we can.

I think that overall our focus is continuing to leverage that programming in the most effective manner we can to offer great services and a great experience to our customers so they don't have a reason to go anywhere else.

Tom Eagan, Collins Stewart.

Super.

Thank you.

I have a question on voice.

Given the lackluster results we've seen from other cable operators, there has been considerable concern about the prospects for this business.

I was wondering if you could comment on how you guys determine what the best value is for this business.

Is it to keep the price where it is and to maybe grow high subscribers?

Or is it something else?

Thanks.

Well, I think we look at the whole experience for our customers and the best value for our customers.

It is always a balance of rate and volume, and that is part of what we do in any subscription business.

So we look at how it plays within the overall bundle, which has still been a very effective value proposition.

Triple Play churn comes down, so we feel strongly about continuing to offer voice and include that in a package.

I think we are going to continue to invest in that product.

We will have some great new features and functionality coming out in the next quarter or two.

So voice will be a mainstay of our offering, and we will continue to balance rate and volume.

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

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