Filed by Comcast Corporation Pursuant to Rule 425
under the Securities Act of 1933 and deemed filed
pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934
Subject Company: AT&T Comcast Corporation
Commission File No. 333-82460
Date: June 6, 2002
The following transcript transcribes a meeting held by the Company at the
10th Annual Deutsche Bank Media Conference:
COMCAST CORPORATE 06/06/02
Karim Zia: Good afternoon. I am Karim Zia Deutsche Bank's cable and satellite
analyst and I have the honor of introducing our keynote lunch speaker today. As
I mentioned this morning while this has certainly been a challenging year for
the cable sector overall there have been several noteworthy developments. Not
the least of which I think has been the ascendance of our next speaker,
Comcast's President Brian Roberts, to the position I think now of industry
leader, visionary and spokesman. While well in the making beforehand this
position was solidified with Comcast's recently announced merger agreement with
AT&T Broadband in December of last year. The transaction will mark the
culmination of a dramatic ten-fold increase in the size of Comcast from when
Brian became President in 1990. To talk about that, the opportunities and
challenges therein ahead with the AT&T acquisition and the industry overall I
am pleased to introduce Brian Roberts and as well John Alchin, the Treasurer of
Comcast.
Brian Roberts: Thank you Karim. First of all we are delighted to see this
audience and to have a chance to give you an update on Comcast. I do not think
of myself as any of those three things that you were just nice enough to
introduce me by. But what I want to do is get you to feel as excited about
where our company is at, as excited about where the AT&T Comcast company will
be as we are feeling in this obviously terrible period for our sector and for
some of the companies. I am happy to talk about it in questions but the short
version here is we are firing on all cylinders and are anxious and ready to
take on the challenge that is in front of us. Safe Harbor Disclosure. Let us
just
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jump right into some numbers. In the first quarter the combined Comcast
set of assets had an 18.2% consolidated cash flow growth apples to apples. That
is on the heels of a 12% revenue growth. You can see sector by sector we had
everything in double-digits and I will talk a little bit about each but mostly
spend my time on Cable, which makes up. But each of our businesses have never
been in a position to perform better. Really the Cable results of 13.5% are the
best in five years any quarterly results and we think it bodes well for the
rest of the year. So let us drill right in to Cable. There is strong demand for
all the new products. We now have 95% completed our rebuild as many of you
know. We are delivering 3.6 million new products on a subscriber base of 8
million or 8.5 million new RGU's, which is powering a $10 to $40 a month
product into somebody's home, whether that is a digital box or a cable modem or
different levels of digital. Fifty-five percent of our cash flow growth or
EBITDA growth came from these new products and we continue to see them growing
at the same or better rates as past years. This has allowed us to take lower
rate increases for basic and to begin to stratify the Cable customers. Of
course best of all it gets us to the accelerating cash flow and the ultimate
free cash flow, which we have been talking about and now we are delivering
upon. We will have significant free cash flow, 800 million to a billion over
the course of this year. I believe Karim's estimate is 650 from Cable alone
this year. The other businesses are also positive, QVC in particular. This is
what has made our balance sheet in such strong position, which John Alchin will
touch on a little later. So let us look quickly at the first quarter; 200,000
net adds for Digital. We have been able at the same time to continue the
revenue of Digital and actually slightly increase it per box. This is way
better then what we had expected. It was up 29% over the first
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COMCAST CORPORATE 06/06/02
quarter of 01 and continues now to a steady march to 3 million plus boxes that
we will have in service. We think that the key to Digital is to constantly
enhance it. It is such a flexible technology where you can add channels and now
add VOD and interactive capabilities that we think we are going to have new
versions of Digital every year. If you look just since day one it has an
incredible incremental margin of over 80%. As I mentioned we were 1,046 in the
first quarter of 01 and 1,061 in the first quarter of 02, average of all the
boxes including the growth. So we are not discounting the product. It is real
growth and we have different offers all over the place but when summed up
together we have basically the first wave was Digital basic. Let me show you a
chart, which was a $9.95 product. The second product is a $14.95 Digital plus.
We think VOD, which I am going to touch on can be the third wave. Then you get
the high definition television using a digital box as a fourth wave and someday
PVR's and interactive television and it just keeps reinventing itself, which is
what is so fabulous about the platform. So what is next? Well we think what is
next is to take Digital into the basic only universe. This has been a terrific
pay product and it has been easy to add Digital basics in addition to the
multiplex pay. But the industry is very focused on using VOD for multiple
reasons. One is competitive advantage over satellite because it gives you true
inter-activity; you push the button the movie starts, pause it, rewind it and
you do not need a new box. Every single one of our 2.5 million Digital boxes
can be made to be VOD ready without every coming to your house. Two we are now
in a position to take the product and figure ways to change it from movies on
demand to impulse television. So in the movies part, which is part of impulse
television we have been very successful. A year ago people asked, "Will you
ever get VOD movie rights?"
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I am pleased to report that Artisan, Universal, DreamWorks, Warner Brothers,
Disney, Fox and Columbia have all signed deals with either In Demand or
Intertainer, another VOD provider. But since last year there has been a lot of
development in the relationship between the content companies and the
distribution companies to figure out what else could you do with this
technology? Two areas are very exciting. One is the idea of a subscription. So
if you are an HBO subscriber you can get every episode of Sex in the City or
The Sopranos any time you want. You can get Sunday Night Show on Saturday
night, however HBO chooses to market this function and feature to their best
customers. That then led us to okay what about other television? Might you be
able to watch Nightline at any other time then 11:30? Might you be able to
watch the Tonight Show tomorrow? Might you want to watch the 6 o'clock news at
8 o'clock and can we help the broadcast industry with their sort of decreasing
eyeballs, advertising only business and begin to say, "How would you like
additional plays of your content, keep the commercials in there and give the
consumer more opportunity to watch your shows." Could you do the same thing
with QVC and take one of the most popular selling products and have it
available on demand? Or at Discovery Channel Blue Planet, which is fantastic or
at MTV the Osbourne's, which raise your hand if you have ever watched the
Osbourne's. Raise your hand if you ever heard of the Osbourne's. So everybody
has heard of it and 5% have watched it. I would like to watch it but I am not
around at 10 or 11 o'clock to watch MTV, forget about it. If I could just pull
it up and sample a couple episodes and then know, "Hey that is what it is all
about, boy what a great show" I really have to tune in to see that. Or Blue
Planet from Discovery taking a little higher brow is the same thing. I have
heard about it, I have not seen it, I watched it
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COMCAST CORPORATE 06/06/02
once, it is fantastic and I will become a repeat viewer. This technology is
going to be great for the content companies and great for the cable companies
and it does not always have to be click and pay. Part of getting Digital for
$10 a month or $15 a month is here is 700 hours of free programming and here is
300 hours of pay programming and 700 hours of movie programming; I do not know
what. As the storage capabilities get better on these servers we are going to
be able to fine tune this and develop it. It is our plan to take one market and
do a massive test of this third category, which is the best of.
We think that this type of innovation will give people more and more reasons to
buy Digital. Another reason is high definition television. We are offering it
in Philadelphia but we have announced we are going to put it in all of our
other key clusters by 03. That would be Virginia, Washington, Maryland,
Detroit, Indianapolis and Motorola will have an integrated set top box so you
do not need two boxes. Just on one newspaper story alone a thousand people came
and took two boxes, which is a real inconvenience so they could get high
definition in Philadelphia in the first month and we ran out of boxes. We
really want to roll out an integrated box so that will happen in July. We have
said that our sports channels in Philadelphia and Washington, Comcast Sports
Net are now going to carry 200 professional sporting events; the Flyers and the
Washington Wizards and Michael Jordan and everybody else in high definition.
And offer it into cable customers in those two markets and satellite customers
and whomever in Washington. We think that for the high-end customers who begin
to make this transition, who by the way people are buying flat screen
televisions. They may not be
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ready for high definition but they want to watch CD-ROM's. Let me do another
sample. How many people have a high definition or a flat screen in any home
that they have? Look at that. Now this is not your normal audience but we need
to make sure you want to stay connected to cable because you are the best
customers and you are the opinion leaders. But what you have today everybody is
going to have in five years. Cable is the best way to get high definition.
Let us shift to high speed Internet. This is an even better story. We are only
at the 10% line, in digital we are at 30%. We get $40, now $45 a month, digital
is 10 to 15. We had quite a year and we are off to quite a start in Comcast
high speed Internet. First of all we averaged in the first quarter about 8000 a
week after we got started with the transition, which slowed us down. The 92,000
net add numbers are basically the same as we did last year but the second half
of the quarter and so far the beginning of the second quarter we believe has
continued to show tremendous demand for Comcast high speed Internet. At the
same time just to make it clear we added 4900 in January per week and 8000 for
the rest of the quarter. So it was somewhat held back by that conversion. We
believe that this product is just continuing to get better and better all the
time. In fact our revenue per customer has gone from 35 to 40 in year over
year, a significant margin improvement where it went from 10 to 15% margins to
25%. We believe we are just on the way because again that first quarter was
this transition from Excite At Home and Excite At Home obviously going bankrupt
was unexpected and allowed for a flurry of activity. We had to move a million
people over and do it with a minimum of disruption. I am pleased to say we
believe we are now offering a better
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COMCAST CORPORATE 06/06/02
consumer product than we were pre-Excite At Home. At the same time we have got
the platform ready to do multiple ISP's to be able to manage the network
ourselves to give the consumer an experience. We think this sets up for
continual improvements in the cable modem platform, whether that is music,
photos, gaming, video, and video chat. We are using one channel of capacity to
do a million cable modems. Imagine if we use two channels. Imagine if we split
the node. There are so many things that I do not think we have scratched the
surface yet of what broadband can be. We have got to pace it right but I do not
think there is another network out there that can come close to what a rebuild
cable system can do.
Let us shift gears and talk about the powerhouse of electronic retail in QVC.
The next two charts are my two favorite charts at every presentation. They sort
of look just right. Revenue growth for 15 straight years average 15%. EBITDA is
an even better story, 38% compounded return for 15 straight years or 11 years
for the EBITDA. It took us a couple of years to get to zero. QVC is truly a
phenomenon and may well be the largest channel in television by the end of this
year. Last year it was ranked second by Broadcasting Magazine behind NBC in
total revenue. I do not know what NBC is doing this year but QVC as you can see
is off to a fantastic start. As we like to do we like to use anecdotes to tell
the story and give you a flavor of how different the channel is in your
perception. So on December 2nd in the middle of Christmas we sold $65 million
of computers in one day. We came back on the air on January 19th and sold $18
million more, 7800 units of which 2100 of the 7800 were the first time they
ever bought on QVC. So 2000 people in one day went and bought a computer having
never shopped
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with QVC before. That is incredible. It is not even the fact that it was 50
million or 60 million, it is just that many people are buying in. On another
day, April 30th, very recently the entire store became a food and cooking store
and for 24 hours did nothing but sell cookware and food, actual food; steaks
and crab cakes and you name it. We sold 15% higher then any other cooking day
we ever had in 2001. Emeril from the Food Channel came on and had a 10-inch
pan. In an hour and a half sold 21,000 pans and sold out. May 11th, Fashion
Day; so we go from a computer store to a cooking store to a fashion store. We
took $23.5 million worth of orders, 20% higher then a year ago, 634,000 items;
the largest Fashion Day in QVC's history. We are very psyched about what QVC
can do in a world of inter-activity, in a world of on demand and using the
capabilities that the broadband technology will bring to take one item at a
time on television and power it up even beyond what we are doing. It is now
worldwide, very successful in Germany, England and we just launched in Japan.
We are very pleased with the team we have at QVC. The content side of the
company is actually the fastest growing part of the company. Despite all the
woes in advertising our play in content is cable channels that are on the rise.
So we had 11.8% revenue and a 33% growth in operating cash flow while launching
two new networks. Let us break it down. In the last four years of owning E! we
have had a 50% increase in the number of subscribers to 71 million. We are the
place for entertainment news and lifestyle related programming. I think they
have designed and defined their niche well. At the Academy Awards we had 3.7
million viewers watching Joan Rivers do her thing on the pre-show. The biggest
one day in the network's history. The 18 to 34-year old demo in April ratings
in prime time were up 37% from a year ago as we changed the look of E! and we
have begun to ramp
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up more and more new shows. At the same time the management has launched Style
Network. We are now in 17 million homes and have contracts to get to 40 million
by the end of 04. The Golf Channel is up 25% in one year in the number of
households that can view it. For those that are golfers you know how great this
channel is. It is 25% growth, there is now 46 million subscribers. It has the
highest demographic of $75,000 and over income of any viewership of any cable
network. It is a have to have network for advertisers. We think the growth in
the Golf Channel is going to go on for years and years. G4 we just launched in
April 2002. We think video games and the whole genre of X-Box and Playstation;
domestic video game revenue of 9 billion in 2001 was more than the entire movie
revenues of 8 billion domestic box office. Core demographic that advertisers
love, 18 to 34 and teens and it is all original programming, there is no rights
based fees. We are able to go to the various game manufacturers and get them to
contribute some shows just the way MTV did with music in its early days. We
have just launched it in 3 million homes, it is a fantastic start and this is
the way we see playing in the content space; taking an entrepreneur's idea and
trying to bring it to reality. So now let us touch on AT&T. All that is where
Comcast is. Why do we want to do AT&T? We think that it is going to be the
growth engine for the next 10 years of this company and then even beyond that.
This was a deal that knowing everything that I know today I can unequivocally
say it is a business opportunity that is unlike any other. To go to 22 million
customers all in the core business at a sub for sub valuation. So if the world
has re-valued I still think we can make their subs look like our subs. That is
really the entire opportunity in a nutshell. We have to get the AT&T margins up
to the Comcast margins or nearly so. Their margins are 25% and ours are in the
low 40's. We have bought
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AT&T systems before. We bought 1.4 million subs in 2001 and in one year we got
a 600 basis point improvement in the margins. We think the way you go about
this is in small bite sized chunks, two to three million subs and not 15
million at once. We intend to break it down into small units and then smaller
units within that. The mix of AT&T's executives along with the entire Comcast
operation; first you are able to eliminate duplication but then you are able to
have not just one person at a time going into an operation, looking around
saying, "How can I fix it?" But literally tens and hundreds of people and the
entire organization doing that which we think we do best, which is running
cable systems. We expect the deal to close in the early fourth quarter or by
the end of the year I guess we have said. We believe things are on track and we
are as excited if we simply and this is not a prognostication go from 25%
margins to 35% margins in three years and our internal goals will be much
better than that. The combined company, just the cable part will have a 20%
EBITDA growth rate for three straight years. Now we believe that the real
opportunity is after you have accomplished job one, which is Herculean to then
think about the enviable position that this company will have in content, in
national advertising, 8 of the top 10 DMA's, 14 of the top 20 markets, the
presence in almost every major city. And as new technologies get developed to
be able to help this industry stay ahead of our competitors by incubating new
technologies and accelerating its deployment. So we think for years we are
going to have a platform for both communications and for entertainment that is
unrivaled. But the big opportunity to just pay for the deal and to take some
skeptics and turn them into believers, which is clearly what the market is
doing with the valuations that I see and put those kind of numbers on the
board. I think we will look back and say, "This was the
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deal of a lifetime." With that let me turn it over to John Alchin and show you
how we are going to finance it.
John Alchin: Thanks a lot Brian. Let us just take the last few minutes here to
review where we stand in relation to the financing for the merger and take a
look at the free cash flow profile of the company. Because we have crossed a
very important threshold on that front and it is worth updating that. First of
all what we have done very recently is to put in place a $12.8 billion line of
credit that along with the existing available lines of credit that we have at
Comcast Corporation amount to total bank facilities of $17 billion. Deutsche
Bank was a very strong supporter of ours in this transaction. What this ensures
for us is that all of the inter-company debt that need to be repaid at closing
will be taken care of. What we have here is an absolutely closed system. So to
the extent that AT&T Broadband does not invest capital between now and closing
that stays within the system. So all we are reimbursing them for at closing is
the amount of inter-company that is reflected in that transaction. We take into
account the entire free cash flow deficit but the company will generate, AT&T
Broadband, will generate up to and including closing and we take into account
that essentially all of the debt maturities and needs that can be foreseen
through the end of 2003. In that period then between now and the end of 2003 we
have a whole host of availability and I will take you through a slide that just
describes how we should be able to bring down the debt load. But first of all
just look at what does the debt load look like at closing? At the time we
closed the deal net of the exchange of mandatory exchangeables, which for
rating agency and debt calculation purposes are offset by an asset on the asset
side of the balance sheet.
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COMCAST CORPORATE 06/06/02
The QUIPS, which will be offset by the issuance of up to 115 million shares of
the new AT&T Comcast we will open with a balance sheet with approximately 31 to
be precise 30.8 as currently calculated billion dollars. To put this in
perspective the denominator if you are looking at the leverage of this company
will be a combination of approximately $5 billion of cable cash flow from the
AT&T Broadband business and our own business. Plus almost $1 billion of
additional cash flow generated by our QVC operation and our content divisions
this year. So we are looking at an opening leverage ratio on a consolidated
basis of just north of five times debt to cash flow. That is before we sell any
of the assets available in the form of additional AT&T shares, Sprint PCS
shares that are available for sale, Cablevision shares that are still at AT&T
Broadband that will come over with the transaction. In total there is about
$1.1 billion of additional assets to be sold. At a recent conference we
referenced a higher number than this because what has happened in the interim
is that we have sold approximately $540 million of AT&T shares that will be
applied against outstanding bank debt at Comcast. You can see in the bottom
light blue band the Comcast debt post-closing going down from 9.9 billion down
to 9.4 billion reflecting the payment downwards of the proceeds from the sale
of AT&T stock. If you project forward to a very conservative estimate on growth
in cash flow and a very...in the next slide I will reference something that
Brian referenced in his comments. A conservative estimate we believe for
synergy's to be generated out of the combination of these two companies. You
quickly look if there is no change in the debt levels, which we do not expect
to be all that material because we will be offsetting the deficit in free cash
flow by sales of assets that are available for sale. You are looking at a ratio
that comes down to less than four and a half times debt to cash flow. At
previous
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meetings we have indicated that the TWE asset is not strategic. At some point
in time we will have an announcement about monetizing that asset. At that point
we go from less than four and a half times debt to cash flow down to less than
three and a half times debt to cash flow. So we remain unequivocally committed
to our investment grade rating and we will go through this monetization
exercise and I think very comfortably meet the outlined leverage parameters
that I just described. This just highlights what Brian described a little bit
earlier on. In that if all we do is see a 10-percentage point increase in the
operating margins at AT&T Broadband and I emphasize here this is not guidance.
This is just for our own illustrative purposes of saying, "How can we put up a
set of numbers that we will by no measure be embarrassed by later on because we
are unable to meet them?" If all we do is fall way short of margin parody and
only reach 36% operating margin and only in the first year of ownership
generate somewhere in the neighborhood of $300 million of operating synergy's
increasing by in 2005 increasing up to $500 million. In the first year this
represents only a 5% increase in the projected cash flow number being the $300
million. If on top of that we look at cable cash flow growth in our own
business of only 11% per annum that relates to the 12 to 14% guidance that we
referenced on an earlier slide. Therein lies the example that Brian referred to
where you will see operating cash flow for 03, 04 and 05 of 20% per annum. At
the same time in Comcast we are looking at a threshold event that was
highlighted in the first quarter results that we released back a month ago.
Last year as a company Comcast Corporation generated just shy of $100 million
in free cash flow. Free cash flow after we met all capital expenditure
investments, all interest payments and recurring tax payments excluding the
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extraordinary tax payments. That is very significant of which is related to the
break up fee on Media One and more recently on the sale of some assets very
much out of the ordinary. We reported in the first quarter generation of $213
million of free cash flow. By Karim's own estimate a number this year that will
be in excess of $600 million in total. By other street estimates ranging from
750 million to a billion dollars. We will continue to report next year the free
cash flow generated by these assets. This will be a highlight in contrast to
the AT&T Broadband assets, which will have at least one year of negative free
cash flow as we continue the rebuild to move that network from 60% rebuild to
70% in 2002. Going from 70% to 80% in 2003. Thereafter you should see exactly
this type of profile repeating itself in the consolidated entity. So in summary
you are looking at an entity that has a very strong free cash flow generation
profile. You are looking at a company that has a strong commitment to our
investment grade rating. Also a company that if you had bought stock in this
company when we first went public 30 years ago you would see a return almost
double that that you would have received from the S&P. With that let us open up
to Q&A.
Brian Roberts: Does anybody have a question?
Unknown: You have illustrated the debt pay down and the de-leveraging effect.
To the extent that properties come on the market. For example you will be
inheriting Century and TCI and an interest there. To the extent that properties
come on the market how should we think about your interest in those properties
or is that something we should not think about?
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Brian Roberts: I think our plate is full in terms of any further cable
acquisitions. I think there is an opportunity always to trade systems and to
cluster better and figure out how to get partnerships and turn them into cable
systems we can manage. So I do not envision the events going on around us as
meaningful right now to the job ahead. We have job one, two and three and that
is to turn 26% margins into 36% margins.
Unknown: What percentage of QVC do you own now and who owns the balance?
Brian Roberts: We own 57%. Liberty Media owns the balance. It has been that way
since 95.
Unknown: Looking past the next three years what do you see as the steady state
CapX outlook on a per subscriber basis or a total basis or however?
John Alchin: What I would like to do with that question is break it down into
two buckets. What you have seen in Comcast Cable and just look at cable for a
minute. Last year we invested approximately $1.85 billion. That is a number
that will come down this year, 2002 to about $1.3 billion. The $550 million
reduction is entirely attributable to our completion of the rebuild. We
finished last year with about 83% of the plant at 750 megahertz of capacity.
This year that number will increase to about 87. We probably have about another
three or four percentage points of our plan that is already two-way in the
550-megahertz configuration. This year AT&T will invest
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somewhere between 4.2 and $4.5 billion in capital. We really have no idea what
that number will be next year. But given that they will only finish this year
at approximately 70% of their network at 750 or 860 megahertz of capacity it is
highly likely that next years number will look very much like this year's
number. But that number will be subject to our own budgeting exercise that we
will go through later this year. What we would fully expect though is that by
the end of 2003 they will be at the same level of rebuild approximately that we
are at today. You would then see that same profile in terms of the CapX number
that I showed in the bar graph on the left-hand side of that slide coming down
in similar proportion to what we have this year.
Unknown: (Inaudible).
Brian Roberts: The question is how is the QVC cash flow accounting work? As 57%
and the managing partner it is fully consolidated in. So the debt, which has
now come down quite a bit has also been 100% consolidated but at the moment you
are right to point out that 43% of the QVC cash flow belongs to somebody else.
While we are getting the microphone let me just add one other point to John's
question. The business strategy is to rebuild all the AT&T systems to get the
same new product story that the first part of the presentation was. If there is
a one to two year lag and that has been baked in to all of our planning. We
think that when you then put it all together the two companies will look the
same. We do not see any difference in San Francisco, Chicago, Denver, Atlanta
or Boston that you do in Philadelphia, Washington and Detroit.
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Unknown: How long can you keep raising the basic cable prices before satellite
becomes a bigger problem?
Brian Roberts: Cable rates went up on average 5% the last couple of years. We
have grown basic subscribers every single year as an industry and as Comcast.
We added customers in the first quarter. We had a .9% growth rate. Satellite,
Direct TV raised its rates each of the last two years and Echo Star raised its
rates as well. The difference as you analyze this business from telecom. I use
this as an opportunity to say why we are not telecom. Somebody came along
selling minutes for whatever minutes, local long distance for some amount of
money and let us call it 10 cents. Technology took a leap forward, capacity
took a leap forward, business profitability took a leap downward whatever it
is. Somebody can make that minute for five-tenths of a cent, half a cent, a
penny, two pennies or whatever. There was a quantum step function leap as phone
went digital. Our competitor satellite versus cable has the same business cost
profile. The cost to manage a consumer and to service that customer and the
biggest cost twice all the people, all 25,000 cable employees is programming
costs. Programming costs to AT&T Comcast by definition because we will be the
largest purchaser will be as good as or better than anybody else in the
industry. So therefore there should not be a cost differential between
ourselves and our competitors. But the story does not stop there. The satellite
business spends 5 to 600 and $700 per customer in SAC, Subscriber Acquisition
Cost. They have 20% churn and every time somebody disconnects they have got to
buy another dish and they subsidize the dish and they give it to you for free.
The loyalty to the customers are churning higher, the
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new people, the first tier that wanted to get away from cable have been very
loyal to satellite. But the newer people are churning. Cable does not spend 6
to $700 to sign up a new customer. It does not cost us anything to come out to
your house. It costs about $40. So the business model is very different and I
do not see long term if the street demands profitability out of both vehicles,
which I think in the fullness of time they do and will. I think that there is
no way that our cost increases change the dynamic so long as we are doing it
because of programming increases. Heretofore as we keep expanding the choices
to consumers the consumers keep buying more. So I do not see any side both on
the elasticity or from a competitive standpoint and at the same time it is
obviously a regulatory issue as to why 5% when your programming costs are going
up double-digit? Well the new products have allowed us to do that. But that is
what this merger is all about in terms of allowing us to compete in the years
ahead and to ultimately offer a value to the consumer that I think will be
second to none.
Unknown: Brian if Charlie starts putting PVR's into more and more peoples'
homes, which VOD is going to sort of force him to do are you going to have to
then start making sure that PVR's are available? You talked about HD earlier,
Jim Robbins talked about HD this morning, it is a big issue with chairman
Powell but what do the consumers really want? Is there not more capital? The
two industries do not compete on price so they may compete on giving features
to the customers.
Brian Roberts: There is some element of competition that causes you to do
things that are good for consumers and not great for the company. But in the
big picture I do
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not think that is the case. I think the business model has to be sustainable.
So if Americans do not want high definition television and we all do not want
to switch what can anybody do about that? I think what is important is the
consumers have that opportunity to make that decision for themselves. If people
want to buy a high definition set there is no better place to attach it then to
your local cable. Because just as the broadcasters are trying to offer local
broadcasts just as soon as the satellite guys are trying to offer local
broadcasting along comes high definition local. So if Monday Night Football or
the local news is a big deal in high definition you are going to have a lot
easier time getting that from your cable company. So that is a perfectly good
thing for us to say, "Let us experiment, roll out and see if consumers want to
buy it." By the way when you go to the Consumer Electronics Show and the reason
so many people here raised their hands flat-screened t.v.'s are a hell of a lot
prettier than big t.v.'s, forget high definition. Flat screen t.v.'s allow you
to watch a movie in a movie format. When you play video games it is really
cool. So cable and satellite are the third and fourth reason people are buying
these things. We are all cablecentric so you get egocentric. You say, "Well if
I do not offer it nobody is going to get it." That is not what is going on,
they are selling these sets. The second part of your question is...so therefore
somebody to that last point. If somebody wants to buy a high definition they
buy our box they have got to buy digital. They have got to buy digital HBO. So
I really think it is a good thing. It is a success-based capital, which is the
answer to your question. To be success based capital means we will be a
revenue. So we do not have to give everybody a new box to give them those
functions but we can build a PVR into a cable box. So if that is really a
feature somebody wants then it is 5% of the market we are going to have that
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feature available. But competition fosters innovation. The question is, is your
network capable of handling all these extra features and things like data and
someday having an even more robust data offering than DSL? We already have
probably a 70% market share. So I just think there is no network that has the
power of a rebuild cable system. Of course our friends at AT&T Broadband would
say, "Hey Brian you are forgetting about telephony." Let us talk about another
$60 a month revenue product with no programming costs. So for every bad part
satellite will have some good things. There is an awful lot over here to talk
about that we are working on.
Unknown: Hi. Let us say you get the EBIDA growth you were talking about. All
that matters I guess is that relative to the price you are paying for the
asset. I am just wondering how you justify to shareholders who look at is an
equally good investment, not the EBIDA growth but just the price you pay close
to 4000 a sub. Is not a lot of that in those numbers already?
Brian Roberts: Clearly there is some but we paid for it in the valuing of the
two companies by valuing ourselves at 4000 a sub as well. Today's marketplace
for all cable subs and not just ourselves is quite different. Here is a sad but
true statistic. Since the day we announced the deal we are the second best
performing cable stock. Now that is not really good news but happens to be
true. So I step back and say, "Here is the back of a napkin exercise. We are
down 12 points give or take 40 to 28, 2.1 billion outstanding shares give or
take. That is $25 billion of valuation decline." And the business had the best
first quarter in the last five years. So somebody has to go out
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and figure out whether that is good or bad or buy or sell or whatever that is
what you do. I think what management has to do is say, "Okay we now have this
opportunity if we accomplish the EBIDA that we are talking about, improvement."
We will have a faster growing company with an unrivaled footprint that will
allow us to think of what is the next digital, what is the next modem, what is
the next VOD and the next Gold Channel? By the way which will do more than 50
million of EBIDA next year with 35 million homes. We are going to have 22
million homes. So I think if you are a long-term investor, which is what our
management team is and we have been doing this for 30 years and have a 24%
compounded return on the equity because we looked ahead and it is built on
acquisitions. We never saw an opportunity quite like this. Of course you could
say, "Well today you could buy it cheaper" but we would have a cheaper stock to
pay for it with. So I do not know where the whole thing would come out if you
believe you can get that parody yes it was a good deal for AT&T but I think it
is going to be a great deal for Comcast.
Unknown: Brian could you please talk about to whatever extent you can at this
time of Comcast's ongoing discussions if there are any with AOL? There are a
couple of things that were mentioned earlier. One is your view to monetize the
TWE piece. It is no secret that AOL looks with great desire at 22 million subs
for their business. What comments can you make at this time if any?
Brian Roberts: It is really tough to take a nice intimate group like this with
the Internet out there and financial disclosure rules. So I will tell you how
we looked at it.
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Very consistent so there is no new news for all the eager press folks. We have
made no secret that we did not strive to change the credit characteristics of
Comcast in doing this transaction. It was clear that you had to make two basic
bets. One was that we will be able to improve the cash flow and achieve those
kinds of synergy's or better that John referred to in his chart. Two that the
non-strategic holdings of AT&T could be monitized. We made assumptions that
they were not going to be perfectly monitzed, they were going to be
contractually monitized if you will. In that you would just register, pay your
taxes and sell it. But job two, if job one is to improve the cash flow is to
take the balance sheet right back to where we started. We think we can do that
and we showed you that just now. In order to do that you have to monitize two
ways. Dick Parsons has publicly said that they are underway, discussions with
AT&T to try to find ways to accomplish that through the use of the public. I
have nothing to add to that except that we are encouraged and hopeful and
optimistic and it is in everybody's interest. More importantly both for the
credit characteristics, investors and regulators we have decided that it is a
non-strategic asset from the get go, valued it accordingly and really not much
has changed. We hope to have some news at some point. When we will we will be
able to tell everybody what we have done. But it will be very consistent I
suspect with those business goals. If in the course of that we do business with
AOL that is business that is going to go on between the two organizations
independent. Hopefully we have shown a willingness to do multiple ISP's. We
announced EarthLink, Juno, Net Zero between AT&T and Comcast, several multiple
ISP deals. We are testing it in two cities and not testing it but launching it
in two cities and hope to do so across the country. We hope at some point to
have AOL available to
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our consumers without having to subscribe as a separate service, which they can
all do now. Let us do one more question if we could or not.
Unknown: The AT&T inter-company loan, the chart I think John referred to
earlier, is that the roughly 12 billion of old AT&T Corp. debt and is that debt
that Comcast is willing to take on and eventually extinguish or how is that
debt going to be treated?
John Alchin: The inter-company loan I am talking about appears on the AT&T
Broadband balance sheet in what we fondly refer to as the Phone Book that you
have probably all received your copy of that. But in essence there are a number
of buckets included. There are the bonds that were issued either by
Continental, TCI or Media One. There is the inter-company component and when
you bundle all of that together that transfers over to us. It is the
inter-company that fluctuates up and down as payments go back and forth between
the parent company and AT&T Broadband, thank you.
Page 23 of 23
Note: The following notice is included to meet certain legal requirements:
FORWARD-LOOKING STATEMENTS
The enclosed information contains forward-looking statements within the
meaning of the "safe harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements with respect to revenues, earnings, performance,
strategies, prospects and other aspects of the businesses of AT&T Corp.
("AT&T"), Comcast Corporation ("Comcast") and, after the completion of the
proposed transaction between AT&T and Comcast, AT&T Comcast Corporation ("AT&T
Comcast") are based on current expectations that are subject to risks and
uncertainties. A number of factors could cause actual results or outcomes to
differ materially from those indicated by such forward-looking statements.
These factors include, but are not limited to, risks and uncertainties set
forth in AT&T's, Comcast's and AT&T Comcast's filings with the Securities and
Exchange Commission ("SEC"), including risks and uncertainties relating to:
failure to obtain and retain expected synergies from the proposed transaction,
delays in obtaining, or adverse conditions contained in, any required
regulatory approvals, changes in laws or regulations, availability and cost of
capital and other similar factors. Readers are referred to AT&T's and Comcast's
most recent reports filed with the SEC. AT&T, Comcast and AT&T Comcast are
under no obligation to (and expressly disclaim any such obligation to) update
or alter their forward-looking statements whether as a result of new
information, future events or otherwise.
ADDITIONAL INFORMATION
In connection with the proposed transaction, AT&T, Comcast and AT&T
Comcast have filed a joint proxy statement/prospectus with the SEC. INVESTORS
AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE JOINT PROXY
STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION BECAUSE IT CONTAINS
IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of
the joint proxy statement/prospectus and other documents containing information
about AT&T, Comcast and AT&T Comcast, without charge, at the SEC's web site at
http://www.sec.gov. Free copies of AT&T's filings may be obtained by directing
a request to AT&T Corp., 295 North Maple Avenue, Basking Ridge, N.J. 07920,
Attention: Investor Relations. Free copies of Comcast's and AT&T Comcast's
filings may be obtained by directing a request to Comcast Corporation, 1500
Market Street, Philadelphia, Pennsylvania 19102-2148, Attention: General
Counsel.
AT&T, Comcast and their respective directors, executive officers and other
members of their management and employees may be soliciting proxies from their
respective stockholders in connection with the proposed transaction.
Information concerning Comcast's participants in the solicitation is contained
in a filing made by Comcast with the Commission pursuant to Rule 14a-12 on July
9, 2001.