Filed by AT&T Corp.
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 Corp.
Commission File No. 001-01105
The following is a transcript of an analyst presentation made by AT&T Corp. and
Comcast Corporation on December 20, 2001.
****
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") and Comcast
Corporation ("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 and 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 merger, 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 and 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.
In connection with the proposed transactions, AT&T and Comcast will file
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 TRANSACTIONS WHEN IT BECOMES AVAILABLE BECAUSE IT WILL
CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain a free
copy of the joint proxy statement / prospectus (when it is available) and other
documents containing information about AT&T and 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
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 merger.
Information concerning AT&T's participants in the solicitation is set forth in
AT&T's proxy statement for its special meeting of stockholders, filed with the
SEC on July 3, 2001.
****
AT&T Corp. & Comcast Corporation
Joint Analyst Meeting
December 20, 2001
8:30-10:00am ET
Connie Weaver- Good morning. I'm Connie Weaver, Vice President of Investor
AT&T Relations for AT&T. On behalf of AT&T and Comcast, we are
pleased to see you all here this morning, and we'd also like to
welcome those of you who are joining us by telephone and those
of you who are listening and participating in the live Webcast.
I trust you've all had an opportunity to review the press
release that we put out last night and you can certainly find
that if, if you've not, on either ourselves or Comcasts' Web
site. We're very excited to talk about this exciting
transaction, which creates the world's preeminent broadband
services company.
Joining me here to discuss the program is Mike Armstrong,
Chairman and CEO of AT&T; Ralph Roberts, Chairman of Comcast;
Brian Roberts, President of Comcast Corporation; Chuck Noski,
AT&T's CFO; Steve Burke, President of Comcast Cable
Communications; Bill Schleyer, President and CEO of AT&T
Broadband; John Alchin, Executive Vice President and Treasurer
of Comcast who's joining us right here; Larry Smith, Executive
Vice President of Comcast; and, of course, additionally from
Comcast, Marlene Dooner, Vice President of Investor Relations is
also with us. Additionally joining us is Julian Brodsky, our
Vice Chairman of Comcast and Ron Cooper, Chief Operating Officer
from AT&T Broadband. Additionally, Greg Braden who runs our
Voice, Data and Central Operations with AT&T Broadband, and Mike
Huseby, CFO.
Before we get started, we'll have a couple of short remark and
then we're going to turn things over to you for your questions
and also open things up to the phones to take questions for
those of you who are not able to be with us here this morning.
I'd like to point out that the slides accompanying the
presentation, for all of you here, were on your chair, so
hopefully you all have a copy. They also are available in a
downloadable form vis-a-vis both the Comcast and AT&T Web sites.
Let me quickly give you those addresses. For AT&T it's
att.com/ir and for Comcast it's cmcsk.com. The audio portion of
our call today is also being recorded.
Now, before I turn things over to Mike, I'd like to caution all
participants that today's presentation may contain forward-
looking statements, reflecting managements' beliefs and
assumptions concerning future events based on currently
available information. Listeners are therefore cautioned not to
put too much undue reliance in the forward-looking statements as
they are not a guarantee of future performance and may be
subject to a number of uncertainties and other factors that
could cause actual results to differ materially from forecasts.
As more detailed information on these uncertainties become
available, you can get them in the press releases from both AT&T
and Comcast or through our respective filings with the
Securities & Exchange Commission.
Now, without further ado, let me turn things over to Mike
Armstrong.
Mike Armstrong- Thank you, Connie and good morning, ladies and gentlemen. Thank
AT&T you on such short notice. I think it was sometime last night
that you might have received notice that we were having the very
first analysts meeting of AT&T/Comcast Corporation. I would
assure you that this process has been rigorous. I don't know
that I ever dreamed of
trying to concurrently dialogue or negotiate with multi-parties
concurrently over this period of time in order to realize the
most value for both sets of shareholders. I think Chuck Noski,
probably as we wound down had the best quote on it. He said,
"This process is beginning to lose its charm." We're delighted,
in fact, we're thrilled today with the combination that we've
put together.
I have a first chart here, if you'd bring it up, please, and
it's that vision thing. Let me start with that. Some call it the
"bundle" and some call it "convergence." Let's just put it down
into the simplest of terms. AT&T did not get into cable in order
to do the broadcast analog/video entertainment business per se,
but rather to invest in an infrastructure and a reach based upon
fiber optic technology that would enable, with the digitization
of networks, to carry three businesses over one infrastructure -
a video, a voice and a data business, and all the manifestations
of them and all the things with the IP protocol that permit them
to talk to each other, to converge and to all the eventual
devices that will end up receiving them. That's what we had in
mind when we started out on the journey and that's indeed what
we have in mind as we bring this marvelous combination together
of AT&T Broadband and Comcast.
In fact, I know there's been a lot written since the July
timeframe. This actually started back in January. Brian and I
were at a conference and we took some time out to just sit down
and talk about the industry, about technology and services and
markets, and the two companies, and we had some things that were
really in common. One, that this thing that used to be cable and
a pretty much local analog video business was transforming
itself into a fiber optic digital business, a broadband business
that could do all three services. We agreed that that would make
a difference, not only in what it could become in terms of a
national scale, but how one would cluster within that national
scale so we could leverage your infrastructure versus the homes
passed and the multiple services, and the marketing and the
support and the care to those consumers. We quickly shared the
vision of multiple services as well as that scale would count;
that the synergies of these coming together would count. Maybe
just to use the old manufacturing term, we really believe that
we could be the "low cost" producer.
The third thing is that I get either blamed or, occasionally,
attributed that putting three businesses and bringing the
convergence of the bundles to the consumers was a good idea, but
there was actually somebody who had that thought long before I
did. In fact, he had that thought and he named his company after
that vision, and, of course, that's Ralph Roberts. Because what
do you think Comcast stands for? It stands for communications
and broadcast, and that pretty much is the definition of what
we've put together today is a very, very powerful communications
company and broadcast company who we think has a great future.
So Ralph, I will enjoy sharing some of the blame as well as some
of the future with you. Congratulations.
Second slide. This is very consistent with what we set out to
do. Back in October of 2000, we looked at what we had built,
which were four businesses. As you've heard me say, some of us
who have been together before, the hand we were dealt in the
AT&T company was to transform this company from what was created
by Judge Green, the middle of the phone call, into new networks,
digital networks, broadband networks, that we could then bundle
the services and scale the businesses. As we set out to do that,
we recognized that both the capital structure and the equity
currency needed to be redefined in market terms both to deliver
the potential of the growth of those businesses as well as the
value to our shareholders. We set out to do a four AT&T business
distribution to our
shareholders. Along the way, we had the opportunity to make a
combination out of broadband. But we are still committed to
go to our shareholders for a tracking stock, for our consumer
business, which in the second half would be dividended to our
shareholders, which would enable them, the AT&T company, to be
the business services enterprise global data company.
What this does is accelerate that implementation of that
original strategy into a defined timeframe. And we believe by
the end of 2002, we already have wireless, which was distributed
to our shareholders as an asset-based stock in July, that in the
second half we would dividend the consumer company, a yield
company, to our shareholders and that within the 12 month
timeframe we should be through the regulatory process for
AT&T/Comcast. So I hope to, both you who assess us as well as
those who might invest in us, that we will be able to realize
that vision or that distribution and that value and that capital
structure and the ability for each of these businesses to have
the potential of its capital structure to realize the growth and
a currency in which it is judged in terms of the industry it
serves. Because the difference between the wireless and
broadband growth businesses, the consumer a yield business, and
the business enterprise business, which is more of a value
business, we now will be able to get the market metric that they
deserve.
Next slide. I would like to spend just a few minutes, if I may,
on the AT&T, what we call Communication Services Company, made
up of Business Services and Consumer. I would submit - the
strongest, most powerful enterprise communications company
serving our global customers. It is a company that just in the
Business side has over 4 million business customers. That's more
customers than any other communications company that I know,
anyway. We reached a crossover point this quarter in Business
Services. For some 100 years, voice long distance had dominated
Business Services. As many of you know, we set out to transform
it by investing in local, by investing in IP, investing in a
network in which we had coast-to-coast reach with a state-of-
the-art OC192 network and deployed our functionality
intelligence at the edge of the network, invested in a hosting
system to sit atop of our fiber optics for an intelligent
network, invested in the Services Business. And we crossed over,
that for the first time this quarter the non-voice revenue of
Business Services will exceed the voice revenue of Business
Services. We came, from the 1998 the voice was 76% of our
Business Services operation and now it's 49% and that trajectory
will continue, because the growth businesses are growing.
They're growing in the double digits. We see our Data Business
growing at about 20%. If you measure the packets, it's even
growing faster than that, our Services Business is growing, our
Local Business is growing. In fact, we're probably one of the
largest CLEC's, in terms of the business market, in the country.
We're in 80 markets, we have some 17,000 route miles of local
connectivity. In terms of the enterprise, from an IP reach of
data we have some 850 POP's with 60,000 miles of optical cable.
In the Consumer Business, we continue to manage that for its
cash flow and margin. To be in that business and selling minutes
to consumers, to have a 33.4% margin, I would submit, is being
managed very well in some $4 billion of EBITDA. Going forward,
that business will transform itself from the middle of the call
to connect the customers using the resale at the local loop in
two fashions: a narrow band fashion with UNI P, where we have
both economically and operationally viable opportunity; and with
a DSL implementation where our model is a retail model, going to
our 60 million customers who we know how they call and where
they call from and what they do in order to offer them a multi-
services platform of local, multi-line, feature set, long
distance and data in
an AT&T package that we believe our customers, in fact, will
endorse and accept. And as a result, turn that business from the
declining long distance Consumer Business, into a multi-services
platform growth business.
Next slide. You can see that the combined AT&T/Comcast is indeed
a powerful company. That represents a trailing 12 months of our
combined AT&T Broadband and Comcast revenue and EBITDA. You can
see that the projected EBITDA growth is approaching 20% as we
look out into the future. I might speak about the Best Value
proposition to the consumer, because I think everybody's been
pretty much made aware that the homes passed that this
combination presents indeed has an enormous potential. I know
it's customary to talk about things in terms of analog video
revenue per subscriber, but if you think about where we're all
coming from on this combination, a more meaningful definition of
the future is how many homes are passed, because all those homes
take telephone service; a different configuration to data
services. Putting it together so that all those services appeal
to all of that market is the underpinning of what we're up to.
More services to more people, more quickly.
In terms of the value to the consumers in offering all three
services, the first thing is that the customer gets the
opportunity to pay less. As some of you know who may live in
our markets, when we put the bundles together, somebody pays
less for each service if they take more bundles. A pretty
fundamental concept.
The second thing we found is that our penetration levels
obviously go up greater based upon marketing to the homes passed
rather than offer the video base of just the subscribers for
that service. We also find we had a lower acquisition cost.
We found, for example, that in Boston we did a little study on
the 100,000 telephony customers we had and we found two very
interesting things. We cut by a huge percent our acquisition
costs for either the second service being telephone or data once
our consumer said, "I'd really like that telephone service." And
of course the telephone business on this infrastructure, we very
much are the low cost producer. When you look at both our costs
of adding incrementally that application, telephony, and the
price structure of what we offer, you're looking at 15-35-40%
less price to the consumer for just that service alone. Then
finally, we also found that when customers sign up for more
than one service, our churn is much less. Those of you familiar
with either of the telephony and cable business know that churn
is a fundamental determinate of margin.
Then finally, we present a company with the financial strength
and flexibility going forward to further participate in
strengthening this business, because we'll have an investment
grade AT&T/Comcast and a very strong balance sheet for our
business service company as well.
In summary, next slide, and I think this is pretty much known by
everybody, I would make only one point in order to clarify it,
because it caught my eye and I know you will all focus on it.
What does "Subject to Adjustment" mean? Of course, some think
that Comcast still has more to give and I want to dispel that.
Brian assured me last night he gave all that he could, so we
really don't mean subject to that. But rather, you know the
transaction's based on a ratio and the .34 of AT&T/Comcast Corp.
Class A shares for each share of AT&T, so it's a ratio, not
subject to any other adjustment, and that would be dependent
upon the shares outstanding of AT&T. Otherwise, that's pretty
straightforward.
Go to the next slide. Just in summary, again, let me comment,
if I may, on best of both teams. I think one of the real
determinants of the outcome of this vision and the economic
potential of this company is obviously rooted in its management
team. To bring together the Comcast and AT&T Broadband
management team, I would submit, is the "dream team" of the,
whether you call it the communications industry or cable
industry or any industry. This is one doggone great management
team.
How we're going to figure it all out going forward is to have
an executive transition team that would be headed up by four
executives: Chuck Noski and Bill Schleyer from our AT&T side
and Steve Burke and Larry Smith from the Comcast side. And with
their help, Brian and I will figure it out going forward.
In terms of regulatory approval, we believe that this presents a
very compelling case on two fronts for regulatory approval.
First, to consumers, we think obviously we're going to offer
more choice. We think we're going to offer very competitive, if
not lower prices, to our consumers. And, we think we're going to
be able to accelerate the broadband data deployment as a result
of the financial strength. So I think consumers are going to
benefit from this combination.
Second, I think competition is going to benefit. I know that
Chairman Powell at the FCC has often spoken that the true
competition going forward is facilities-based competition. As
some of you know who have listened to me over the years, one of
the fundamental underpinnings or principles of our investments
have been to be a facilities-based, broadband provider of
digital services, and by now bringing this national reach, we
bring national competition for those services based upon a
facilities approach.
Finally, the last chart, do we believe we're "creating value in
the marketplace for our shareholders?" Now, how did we get to
86? We're hopeful that your assessment of our company will make
that a very distant memory as the value increases going forward.
That's simply multiplying the transaction with the price of the
Comcast stock and you multiply that market price times 1.235
billion shares that's in this deal and you get $86 billion.
There's kind of another interesting phenomena, that if that
indeed is the value of this new company, which is simply
arithmetic, what's the arithmetic of AT&T Communication
Services' Business Services? That puts that value at about two
times cash flow at the current market prices. So what we hope
we're bringing to our shareholders is the unlocking or
unleashing of shareholder value going forward.
With that, I'd like to turn it over to my new partner, Brian
Roberts. Brian?
Brian Roberts- I think the best part of this transaction is we all get to have
Comcast a good holiday. We appreciate resolving it and having, at least
today and tomorrow, before people run off for their well-
deserved holidays, to talk about the new company and sort of go
into some more details about all the hopes and aspirations we
have.
There's many other people from Comcast and AT&T in the room
today, in addition to the ones Connie mentioned, and some of
the advisors and the teams that helped make this day possible
and I just want to thank them from the bottom of my heart. I do
believe, as you go to the next slide, that this new company
really is an engine for shareholder growth, for new products and
for sort of an unparalleled opportunity in the
cable and broadband business. You will have lots of time in
the months and years ahead to talk about and find the best ways
to exploit that opportunity, but if you just look at where we
begin, you will have one of the premier footprints in what is
clearly a growth business, not something that's yesterday's
business. And I think you couldn't dream of a better
opportunity. So whether that is the video space where Comcast
has, perhaps, more focus in the past, or AT&T's vision of
communications, or data where we've both been going
aggressively, it doesn't matter, because it will rise to the
top what the right opportunities are.
We think the content opportunity alone, something that I have
had a lot of practice and experience watching the value
creation from the cable systems, to have a company with 22
million footprint, it's hard to dream of all the opportunities
that we're going to be able to think of, I think. We have an
entrepreneurial-based model, so there are many business people
out there who will say, "Well I can take my idea, come to this
company first and see if we can't strike a partnership and make
it happen." Not every idea has to come from within the company.
Of course, there's a terrific cost synergy opportunity in
addition to revenue enhancement.
Let's go to the next slide. This talks a little bit, we figure
we'd bump the price about, depending upon how you analyze it,
call it 15%, 10-16%, I'd say. We basically offered 4,000-4,100
per customer and this deal, you'll run your own math, but we
think it's around 4,500 or so.
Why did we do that? Well, first of all, it was competitive, and
Mike and Chuck and their team, they're to be congratulated. They
ran a marvelous process, but they gave us a complete and level
opportunity to come in and study the company in diligence and
spend some time. And what we found was a company that's on a
trajectory clearly on its own to radically improve the margins,
to realize the telephony investment. I think the changes and the
enhancements to the management team that they've made, with Bill
Schleyer who I've known for a long time, and we both were there
at the very beginning of the first idea of a cable modem,
sitting around a table with a bunch of people in Cable Labs,
that we got more comfortable, not less, that this idea made
sense. That gave us the conviction to go for it.
At the same time, as Mike said, we've committed, when you're
tripling your company, its size in one moment, to step back and
say, "We know realistically that we need help in how to make
that happen." And we've committed to both AT&T and to ourselves
to find a way to integrate the best of both organizations, and
that's going to be a pleasure and a high class opportunity.
Let's go to the next slide. Let's take a look at the company,
because I'm still stunned. How about 80%, 79% of all our systems
will have over 250,000 customers per system. When I first got
into the business, I was working in Trenton, New Jersey and I
got sent to Flint, Michigan, was not happy about that, thought I
had done something wrong, and Flint had 50,000 customers and was
the one of the largest cable systems in the country at the time.
Have 80% of your company and 250,000, that's a totally
transforming opportunity.
And if you look on the next slide, as we've said before, this
company together has eight of the top ten DMA's where they're
a major presence and 70% of the top twenty DMA's. So things
that have been sort of unthinkable before, as Mike said, on
the national scale, to go to an advertiser and say, "We can
deliver you eight of the top ten cities for 100 cable
channels for advertising," there's no one place to go shop
and be able
to do that right now. And whether that is through services and
then quickly rolling them out, as I believe time will reveal
this opportunity and you have to just step back and say these
are high grade, technology upgraded plant facilities with three
different businesses that we're trying to go at. We're not going
to get ahead of ourselves, but with the integration process that
we're going to do with this footprint, it's a remarkable
opportunity.
Turn the next slide, please. Just quickly, you can see that if
you have a new channel or a new technology or new idea, where
would you go first? So I think we get a first look.
Next slide, please. What is that first look going to be all
about? Well, clearly, it's each of the new products. So are we
done? No. I think cable modems use one channel. People tend to
forget that. All the great success, we drove $40, $45 in our
case, right now per customer, we'll have a million or so very
shortly paying $45 a month for a product that started at zero
24-30 months ago. What if we do five channels, ten channels, to
devote more of our bandwidth, we can split the nodes. So whether
that's VOD or SVOD or home networking, some of us are going to
go to the Consumer Electronics Show next month. Last year the
rage was people who, just as when television got started there
was one TV in the house, there was one PC in the house. Now,
everybody wants their own PC. All my kids want for Christmas is
their own computer. It's unthinkable how fast that is changing
the way the next generation want to function.
That is what's so exciting about this company, to have the
connection that people want. And whether that's video games and
the X-box and Nintendo Systems all integrated into your house,
that's what we mean by home networking.
And, of course, on the content side, Steve's going to talk a
little bit, and I will as well, but the ability to incubate
channels. I just want to brag on QVC for one moment. About three
Sundays ago, post September 11th, post the bad economy, and it's
in one of the newspapers this morning, Dell Computers sold on
QVC 32,000 PC's in one day. We sold $72 million worth of
merchandise on one channel, $80 million worldwide in one day, on
one television. So electronic commerce is a huge part of this
company's future and we're positioned with the world's leader in
electronic commerce. We will do more packages shipped this year
than Lands End, LL Bean and Amazon combined.
Slide, please. And, of course, if you believe in digital data,
telephony, whichever is your favorite, this company it sitting
with nearly 5 million digital boxes, 2 million plus data
customers and right about 1 million telephony customers. If
growth of new products is where the engine of the future comes
from, we think AT&T/Comcast offers that.
Next slide, please. Let me talk about telephony for a moment.
That's probably the most interesting and new opportunity that
came from the due diligence process. Kind of in the middle of
it, Mike and Chuck and some of us sat down and they looked at
us and said, "You know, we have a vision, we've done a lot of
the hard work and we've taken some of the arrows in the back
for being pioneers of a business that could be bigger than your
data business, and you have not fully endorsed that." And I
said, "Well that's not really right. It is true that we haven't
started in earnest, but there is no greater revenue opportunity
than the hundred billion dollar a year local phone business" and
this company, when we sat down and rethought it, has a bigger
footprint than any single RBOC. And to not even try seemed
insane.
Now, AT&T is going to continue on their phone strategy
between now and closing, and I think they're at an inflection
point. So we then said, "Well if we could leverage off of that,
kind of turn this around, we don't have to go through some of
that pain and suffering to get going. We don't have to build a
new billing system and provisioning system and the switches and
the NOC's and all those things." And as the world evolves to a
digital world, IP world, this company has the ability to get
going faster. So this accelerates an opportunity that we have
stood up and said that we endorse, and so it takes it from the
world of academia to the world of here's the real world. You've
got an opportunity, the company's invested, the capital's been
spent, why not let it take off? And that's when I think we sort
of said we can share a vision that it is a three-service company
in the future, not just a two-service company in the future.
Next slide, please. Let me try to go back to the video side,
since we spent some time here on the communications side.
These are 100% numbers. I just wanted to qualify for those who
are keeping score. We don't own 100% of most of these assets,
but the value creation from the video side of this business and
the relatively low amount of risk capital. So I think we have a
total of $200-250 million invested in QVC. We own 57%. We have
several hundred million dollars in E-Entertainment. The Style
Network is just a pure start up. Golf Channel, people thought
nobody would ever want to watch a golf channel. Golf Channel is
probably one of the best brands in television if you happen to
like golf, and that's what matters with cable, just finding the
passion of the consumer. Comcast Sports Net and our strategy in
sports I think has paid off. So this new company, we did that
with 4 million customers, we got to 8 million in the last couple
of years, you just have to step back, take a deep breath and
think, what might you do with this new footprint.
Next slide, please. Let me just conclude about what drives me,
what drives my father, what drives Julian Brodsky, who from the
moment the two of them and Dan Aaron launched Comcast and
dreamed up Comcast at its very founding. And Mike, you're very
gracious in remembering that it's communications and broadcast
and it really has been a very focused company for one
overarching goal - shareholder return. It's an overused phrase,
but we are into long-term shareholder returns. Since the
inception of the company, of the IPO now close to 30 years ago,
we've had a 24% compounded return on the stock. My father said
to me last night as we were heading back after a long day,
"There's no better opportunity that we've seen in all those
years than putting these two companies together." So we look
forward to continuing this dialogue and building this great
company. Thank you very much.
Let me now turn it over to Bill Schleyer.
Bill Schleyer- I don't think I've ever told Brian this story, but when I first
AT&T tried to get into the industry, back in the late 70s, I think it
was 1979, I actually interviewed with Comcast and was in the
process of being offered a job in, where else, but Trenton, New
Jersey. So I was pretty excited about getting into the industry
and just before I was getting ready to accept the offer, I got a
call that said, "Well, the owners son is graduating from college
this year and that's the job he would like." So, that's a true
story. I obviously went on to other things.
I first met Brian in the mid-80s and that was back when the
active leaders in the industry were guys like Amos Hostetter,
Ted Turner, of course Ralph, John Malone, Chuck
Dolan. I remember meeting Brian and saying, "This guy has the
potential to lead this industry some day." And I think today
we're basically turning the torch over to you, Brian. So
congratulations. We'll look forward to your leadership. It's
going to be a fun ride here.
Anyway, I'm here to talk about our platform. The AT&T/Comcast
national network is an incredibly powerful platform. I know
Brian and Mike talked about it, but we've got about 80% of
our plant is state-of-the-art. It's 550 or greater. And we've
got about 20% to work on and that is being worked on as we
speak and will be state-of-the-art within the next couple of
years.
At the same time, our focus is on upgrading the 20%, but at
the same time we're focused on building the Comcast, working
with the AT&T/Comcast network to get it telephony ready. You
can see that we've got 38 million homes that are digital video
ready. That's over 95% of our homes. At the end of 2002, we'll
have over 30 million data ready homes and we're well positioned
to grow that to 38 or so million in the next few years.
Then on telephony, we currently have one million subscribers
and that's over about 6.7 million telephony ready homes. By the
end of 2002, the joint company will have 11.2 million homes. We
should be able to add after that about, we haven't finalized a
number yet, but about 5-6 million telephony homes a year, and
that really will be the growth engine of the company. By
offering all three services - telephony, data and video - that
will allow us to press our competitive advantage. So we're
obviously really excited about this combination. It's a very
powerful footprint.
Let me talk about data for a second. As many of you know, we've
built, as did Comcast, a contingency network in the event that
@Home were to shut us off, which they wound up doing. Comcast
did the same thing and ultimately we will integrate those two
networks. But this is a very powerful network. In addition, the
new network definitely gives us control of our customers. Never
again will we be put in the position where someone can shut off
our customers. It just won't happen. And the cost of the
network, the operating costs will be lower with this new network
than it was with @Home, so that's a real benefit. At the same
time, our overall reliability of the network is superior with
state-of-the-art technology we're using.
It's designed to support multiple ISP's and the benefit of that
to us is we can create a very robust marketplace for the
wholesaler market for ISP's and that will be a spectacular
development over the next few years, we believe.
In addition, we can offer tiered packages and the benefit to
us, again, is we can design packages for the light user, the
average user and the heavy user as opposed to just charging
one price and everybody gets everything for one price. This
will help us drive penetration deeper in the market and at
the same time generate more revenues from our heavy users, so
the net result of that is a very good thing for us. At the
same time, with our new network, we can generate some new
features that I think the consumer's going to find pretty
exciting, like remote e-mail.
The long-term results are, we can provide better service to
our subscribers with more options, and in the long-run we
have a very exciting financial prospects with the integrated
network.
I'd like to talk a little bit about telephony. As you can see,
this footprint, we finally now have a national scale facilities-
based competitor to the ILEC. That is a very, very powerful
position. Thirty-eight million passing, we only have one million
subscribers. That number will be very, very different in three
or four years, very different. You can see the AT&T/Comcast
footprint relative to the four ILEC's. They have 100%
penetration. We'll be taking a fair amount of share from them
over the next few years.
On average, we've got about 15% of our passings who take
telephony right now. It's about 15% penetration and that is
growing rapidly. We have 40 communities already that are well
over 20% and a number of communities that are over 30%
penetration. So we will ultimately have millions of customers
because we will be providing a better value than the ILEC and
at least as good of service.
The economies, the economics of telephony are very powerful for
us. We have in place the infrastructure to support telephony
here at AT&T. The merger really leverages incredibly well what
we've done already. We have a whole infrastructure, both
provisioning capability, network operating center capability,
customer care capability - all that is installed at AT&T and has
a relatively fixed cost to it and that's a very stable fixed
cost. So we can lever the Comcast footprint into the new company
with very low incremental cost to it.
We've got the roll out knowledge of process. We've spent a fair
amount of time over the last few years and we've absorbed a lot
of operating losses doing it, but we're right now, in the first
quarter of 2002, breaking even on telephony. We believe the
margins will explode from there.
We have the AT&T infrastructure to help, and this is AT&T's
core business that supports us, 80% of Comcast's subs are in
markets where there are AT&T switches. So this makes for a
very easy transition for telephony.
The returns on telephony are pretty spectacular in our view.
Just to give you a sense by the incremental economics, we'll
generate in 2003 roughly $300 per incremental subscriber.
That's with an average revenue per subscriber that's growing
because of new feature sets and the introduction of long
distance. At the same time, our fixed costs are stable and our
variable costs, our unit costs, are declining as we scale the
business. This business scales incredibly well. That 300 number
could move towards the high 3's by the end of 2005. At the same
time, our incremental capital cost is about $700 and declining.
Even without voiceover IP, we think that number heads towards a
number that begins with a five sometime by 2005. Surely with a
six into the 2003-2004 timeframe. With voiceover IP, depending
on the mix of voiceover IP and switch, that number clearly is in
the five's. So, think of an incremental capital cost of
something in the 500+ range versus an incremental EBITDA of
something towards the high 300 range, and that's a pretty
attractive set of economics when you've got your network costs
all absorbed.
Again, we expect to break-even on telephony in AT&T in the first
quarter of 2002. We can leverage what we've done quite easily
over the Comcast footprint and we think that will help make the
growth engine pretty spectacular for the joint company over the
next three or four years.
So with that, I'll turn it over to Steve.
Steve Burke - Thank you, Bill. We've talked a lot already about the platform
Comcast and really what these two companies look like in terms of the
footprint and the clusters and the existing asset base and what
I'd like to do is talk about how we're going to try to create
value and increase the value creation by putting these two
companies together.
What I'd like to do is start with a slide that really talks
about the first type of synergies. There's really three major
types of value creation or synergy effects by putting these
two companies together and the first are just the run of the
mill synergies that you get by being larger, by putting two
companies together and hopefully getting 1+1=3.
The first area here is programming cost savings. Both of our
companies, the single largest expenditure in our business is
programming costs. Our programming costs are going up in a
double digit fashion out over the next five years and we believe
not only can we take the Comcast programming prices to the AT&T
rates, which are better than ours because AT&T has larger scale,
but as a combined entity we can get further enhancements. And
when you look at the range here of $250-450 million, if you go
out a few years, the combined company's annual programming costs
will be about $5 billion and the annual increase in programming
costs will be about $750 million. So this kind of programming
savings is less than the annual increase in just one year and we
think it's a very achievable range.
If you then move on to operating efficiencies, the kind of
efficiencies you get when you put two organizations together,
we feel that there should be, within a one to three year time
period, $200-300 million of synergies. That would be elimination
of corporate overhead costs related to Basking Ridge, that would
be elimination of duplication, best practices and systems that
we could leverage between the two companies, etc.
National advertising, Brian mentioned that we'll be in eight of
the top ten DMA's. We will be the major cable provider in 14 of
the top 20. Our footprint will actually be bigger than the own
station footprints of the major networks. In effect, we'll be
able to go to an advertiser and speak for roughly a third of the
United States. And as the targeting and the technology and the
growing market share that the cable business has been getting
and will continue to get, we feel that this is in many ways
underestimated upside to the cable business in general and we
intend to pursue it very, very aggressively.
In terms of new products, one of the advantages of the kind of
scale we're going to have is we can take a real leadership
position in terms of developing new products. I think both of
our companies have one thing in common - we are very much new
product development, new product focused companies. We've been
more focused on video and data, AT&T has been more focused on
phone than we have, but key to our strategies is taking the
infrastructure that Mike talked about and layering in new
products. And when you have the kind of position in the industry
that we're going to have, you can really push your vision of
interactive television, your vision of video on demand, your
vision of new high speed data applications, and our feeling is
having that scale and that leadership position is going to lead
to real synergies.
Then finally, telephony was always part of our future and part
of our vision, but has never been part of our five-year plan.
We spent a lot of time with our colleagues now at AT&T and
believe that if we overlay their expertise, their investment
financially but also people and systems and their learning on
our existing footprint, and roll out telephony to
our footprint, it could represent a very significant opportunity
over the next five years. So we've included that in the synergy
calculations as well.
If you take the midpoint of that range of 1.25 to 1.95 billion,
then do a net present value, you come up with $13.5 billion
worth of synergy. If you then divide that by the roughly 13.5
million AT&T subscribers, you come up with approximately $1,000
per subscriber of synergy, if you attribute it all to the AT&T
subscriber base. So when you're thinking through how this
transaction works and how the two companies come together and
how we create value, we think there's a significant amount from
the classic way of looking at synergies. But that's not the end
of the story.
In addition to creating synergies by putting the two companies
together the way I just described, during the due diligence
process and getting to know the AT&T Broadband group better, we
became increasingly convinced that this business is going to
achieve industry standard margins; that with Bill Schleyer, Ron
Cooper, Mike Huseby, Greg Braden and the group, they were well
on their way to do that and that this was a very, very large
opportunity that was going to be fully realized, frankly,
whether we showed up or not. We'd like to think that together
we'll have more management depth, we'd like to think that
together it might happen more quickly, but we became convinced
during the due diligence process that this business was going to
get to industry standard margins.
When you do the math, if you take our margin of 42%, the AT&T
Broadband margin most recently of 25%, and then the differential
of 17%, then you apply that differential to '01 revenue of close
to $10 billion, you get an opportunity in the year we're in of
$1.6 billion if you can bring that margin all the way up to our
level. What's particularly exciting about that is that
opportunity is going to grow very dramatically because the AT&T
revenue side of the equation is going to grow in the 12-15%
range. When you start to compound that, that $1.6 billion worth
of opportunity compounds very dramatically.
First area, the $13.5 billion worth of net present value; second
area, taking the AT&T Broadband levels up to the levels that are
currently enjoyed by Comcast. This slide shows our experience in
terms of integrating new systems. We, as a company, have brought
about 3.6 million new customers into our company, and you can
see in the blue lines shows our EBITDA and then the graph
across shows our margin. Our feeling as a company, and I know
Bill shares this, we've talked about this in some detail, is
that you can do multiple things at the same time. We have
launched close to a million high-speed data customers, over 2
million digital customers and integrated 3.6 million new
customers and done it all at the same time. And so our focus as
a combined company will be to continue the financial performance
while continuing to roll out the new products, while continuing
to integrate with the kind of discipline that we've always shown
before.
Then the third bucket, the third segment of synergies is really
in some ways the hardest to quantify, but in some ways the most
exciting, and that is, "what can you do in terms of bringing new
products and services to customers when you have the kind of
footprint that we're going to have?" Brian spoke to this, but
one point I'd like to make is with 22 million customers, with 38
million homes passed, we have not only the ability to create new
cable channels, our history and the history of others in the
cable industry on that score is clear, but we also have the
ability to create new data applications, we have the
ability to do new things in terms of video on demand, really
create entirely new businesses as a result of this scale. I
think it's very difficult to quantify this third segment of
synergies, but if you look out at this company five or ten years
from now and you look back today and say, "Well what upside did
we underestimate?" I think it's very likely it would be on this
slide.
I think one of the exciting things about this deal is when you
run the numbers, if you look at these three buckets of
synergies, the synergy value of each of these three buckets can
be enormous, but the economics of the deal don't depend on
realizing the synergies from each of the three buckets. In fact,
if you get any one of the three buckets, you can pretty well
justify the economics of this deal and we're going to try our
best, of course, to try to get as much of all three as we
possibly can.
So we couldn't be more excited, we couldn't be more happy to be
sitting with the gentlemen up here and putting these two
companies together and trying to go and make something better
than we could have done, either of us, alone.
With that, I'd like to turn it over to Chuck Noski who did one
of the most amazing jobs with this process of anybody
imaginable. Chuck?
Chuck Noski- Thanks, Steve, and good morning. Probably nobody is as happy to
AT&T be here as me.
It occurs to me as well, Brian, that this will be the first
time that Mike and I will be able to leave a public building
at the same time that you and Ralph do. So we're pleased to
be here.
Let me start my remarks by emphasizing that today's announcement
creates an entity with a strong credit profile and an ability to
improve on its financial position in the future. The combined
AT&T Broadband and Comcast have generated an estimated $4.6
billion in EBITDA over the last 12 months, and given the
strategic and operational initiatives that Bill and Steve
outlined for you earlier, we believe AT&T/Comcast will have
accelerating free cash flow in the future as a result of merger
synergies, ongoing scaling of margins in the telephony and data
businesses, and reduce upgrade and infrastructure expenses going
forward. From a deleveraging perspective, it's also important to
point out that we believe that AT&T/Comcast will have multiple
sources for further deleveraging such as our 25.5% investment in
Time Warner Entertainment, which will continue to enhance the
credit profile of AT&T/Comcast. Between the benefits of the
improving cash flows and monetizations, we anticipate that
AT&T/Comcast will attain investment grade ratings.
This slide presents an approximate view of the pro forma
AT&T/Comcast Corporation's 2001 results. With this view, the
combined entity would have approximately $18 billion in revenues
and 25.6% EBITDA margin. This should emphasize to you the
substantial scale this business will have in the marketplace.
With a pro forma net debt balance of approximately $27 billion,
we feel comfortable targeting a solid investment grade rating.
Let me talk for a moment about AT&T Communication Services,
the remainder of the AT&T company following the restructuring
actions that we've been undertaking over the last year or so
and giving effect to the AT&T/Comcast combination. From an AT&T
Comm. Services perspective, today's announcement reinforces the
deleveraging commitment that the AT&T management team has made
to the investment community
all year. As a result of the many actions we've described to
you, throughout 2001, AT&T has eliminated over $20 billion of
debt since the beginning of the year. In addition, the recent
completion of our $10 billion global bond offering refinanced
essentially all of our short-term obligations and significantly
increased our financial flexibility.
With this announcement, AT&T/Comcast agrees to incorporate
$17.3 billion of short- and long-term debt as well as an
additional $2.6 billion of AT&T Broadband related liabilities.
In addition, Microsoft has agreed to convert its $5 billion
investment in AT&T quarterly income preferred securities, what
we call QUIPS, into 115 million newly created shares of
AT&T/Comcast stock.
In the aggregate, the net reduction of AT&T's debt and
obligations as a result of the creation of AT&T/Comcast will
be approximately $25 billion. This will insure AT&T
Communication Services remains in a strong financial position
as a result of this announcement.
With the trailing 12 month revenue profile of over $44 billion
and nearly $15 billion of EBITDA, AT&T Communication Services
remains a clear industry leader. Mike mentioned earlier, AT&T
Business Services holds the leading position in the enterprise
customer space, leveraging our unrivaled sales and distribution
channels and our comprehensive platform of products and services
to further expand our relationships within the global
marketplace.
Our AT&T Consumer Services segment continues to be the leader
in the consumer telecommunications industry with approximately
60 million customers and an industry-leading margin. We're
currently in the preliminary launch phase of our new product
combining local and long distance voice services, vertical
features and high speed data services, and we're looking forward
to this product reaching meaningful scale and scope over the
next several years.
Now in terms of where we are in our restructuring and where
are we going. To begin with, we plan to continue our
deleveraging commitment and that will be part of the ongoing
process at AT&T throughout 2001 and throughout 2002. In
addition, we currently expect to file a proxy in the first
quarter of 2002 and following an expected shareholder meeting
in mid-summer, and at approval of our proposals we expect to
fully distribute the AT&T Consumer tracking stock in the second
half of 2002. We currently expect that the AT&T/Comcast
transaction can close within a year from today.
With this timeline, we should complete our restructuring
initiatives by the end of 2002, which I'd like to remind
everyone is consistent with the announcement we made in October
2000 regarding the restructuring of the AT&T Corporation.
In conclusion, and it's tough after all of these guys have
gotten up here and told you everything about this company, to
say much else, but we believe that today's announcement creates
one of the leading communications, media and entertainment
companies. With 38 million homes passed and 22 million
subscribers, this business is starting out with significant
scale and reach. Given the experience of our combined management
teams, we believe AT&T/Comcast can successfully scale new and
innovative products and services to our customers while growing
overall profitability.
We believe this transaction creates the best value proposition
to consumers and to AT&T shareholders, and represents a
realization of the AT&T Broadband vision.
With that, I'd like to turn the meeting back over to Connie
Weaver who will go over the process for the Q&A. Thanks.
Connie Weaver- Thanks, Chuck. We're going to go to Q&A and I'd like to remind
AT&T everybody that since we have people listening vis-a-vis the
phone and by Webcast, please wait for the microphone so the
folks listening in can hear your questions. We're going to take
questions both from the floor and we're going to take questions
also from the phone. I'm also going to ask you to limit your
questions to one per person, so we can try to accommodate as
many of you as possible.
With that, let's start on the floor. Rick?
Rick Could you talk about the relationship between the two companies
[Inaudible] post deal. Brian, you said you don't want to be tied to another
carrier when you were referring to @Home. Would cable telephony
be tied to AT&T for providing the backbone service for your
cable telephony product? Or, are there other relationships
between the two companies we should know about?
Brian Roberts- Great question. We openly discussed how to find a perfect
Comcast balance, and I hope we have tried to accomplish that, which is
it would be ridiculous not to start out right using AT&T
Communication Services to keep these opportunities going at the
rate they're going and at the same time not to have a future
windfall or loss to either of the two companies that are
providing it for below market or providing it for above market.
I think Mike and I discussed that, we worked out agreements that
allow for a smooth transition and then flexibility that we're
both happy with.
Mike Armstrong- Rick, we have an intercompany agreement for the backbone
AT&T services. It is at-market. It has terms and conditions to
continue to be competitive in at-market, so there was no
transfer of any subsidization, if that's what you kind of mean,
and it's an at-market relationship.
Rick No exclusivity?
[Inaudible]
Mike Armstrong- There's a period of time I think in the intercompany agreement
AT&T in which we do have a commercial arrangement with each other,
but we have to be competitive within that timeframe and the
ability of AT&T/Comcast to negotiate as well as to outsource to
other providers is there.
Connie Weaver- Let's take one from the phone.
AT&T
Moderator We have a question from Jessica Reif-Cohen with Merrill Lynch.
Connie Weaver- Good morning, Jessica. Congratulations on the arrival of your
AT&T new son. You're back quickly here.
Jessica Reif Thank you. Maybe just an add-on to that question, on the
Cohen- telephony side. Brian, is the Comcast cap ex any different from
Merrill Lynch AT&T in terms of upgrading for telephony? And
separately, could you discuss the tax liability issue that the
WALL STREET JOURNAL addressed a few days ago?
Brian Roberts- Let me begin by dealing with the cap ex question on our model.
Comcast As you know, Comcast is going to be 95% complete with our
rebuild by the end of this year, so we have always been looking
for ways to invest in the business and get better than 4% return
on cash that you get by putting it in the bank. Hopefully, the
opportunity that lays before us is to find ways to, I think
that's what made the fit so compelling for us, because as AT&T
accelerates its rebuild or completes its rebuild, which is job
one, and that Bill talked about, we're able with the combined
balance sheet to help make that happen.
As to any liabilities, let me turn it over to Larry, but I
think we have our arms around it all, Jessica, and have
incorporated it into our comfort zone. I will just say that
Microsoft converting the $5 billion of QUIPS was a huge
financial benefit that enabled our balance sheet to have the
heft, the combined balance sheet, to achieve what Chuck and
Mike talked about for AT&T deleveraging, creating AT&T/Comcast
without any burden. Because obviously, this new company has the
ability to talk about TWE and monetizing that and at some point
has the ability to other kinds of financial deleveraging
transactions as the cash flow does ramp up. But, there was no
single opportunity as quick and as dramatic as converting a
preexisting, no new money from Microsoft so it's a total
win/win; to take a preexisting $5 billion liability and turn
it into equity from the get-go. So we're very appreciative of
that.
Larry, any other points on the....
Larry Smith- Well, we studied the tax situation very closely and I think it's
Comcast inappropriate to get into any real details here. I think we're
all very comfortable we've dealt with them in the agreements and
we're comfortable that the magnitude of them is not particularly
great.
Niraj Gupta- Brian, you just spoke to TWE. Have you guys been in active
Salomon Smith discussions? I know it's a little bit early, with AOL with
Barney respect to some sort of resolution there, because it is a
passive asset. And secondly, a lot of talk on telephony today
and also ongoing relationships going forward. What's the status
in terms of using the AT&T brand as it relates specifically to
local telephony? What's the arrangement in terms of paying the
parent company?
Mike Armstrong- On the AT&T brand question, obviously this is AT&T/Comcast.
AT&T Services that we offer, whether in telephony, if we wish to use
a platform of AT&T to offer telephony, then we'll have some
negotiating with AT&T for the use of that brand and give a
license and a commercial arrangement. Or, we may choose to use
another platform to take that service to the marketplace, and so
that's yet before us.
Brian Roberts- I would also take it back to you, Mike or Chuck, on TWE, because
Comcast having signed a confidentiality agreement, we could not talk to
Time Warner. So the answer is, we have no discussions that have
occurred, but I've read a lot of newspapers and I think you had
some conversations with them.
Chuck Noski- On occasion. Well as many of you know, we initiated earlier this
AT&T year a registration rights process that's provided for under the
TWE Partnership Agreement. For reasons that are probably obvious
to this group, that process was delayed. And now, with the
completion of this transaction, we will reinitiate the activity
that in our expectation will result in the complete monetization
of the AT&T/Comcast investment in TWE.
Mike Armstrong- Let me just add that we've always had a wonderful relationship
AT&T with Jerry, Dick, all the Time Warner folks. We said from the
beginning that that was not one of the assets that we would have
focused on retaining. With that said, I have not had the
opportunity to have a conversation other than to congratulate
Dick on his appointment.
Connie Weaver- Jeff?
AT&T
Jeff Thank you. Nobody likes to think about divorce on the way to
[Inaudible] the altar, but can you elaborate a little bit on what the
breakup provisions may be of the agreement, where the regulatory
risk resides and if there are any potential adjustments if
there's any material change in one or the other party's income
statement on the way to closure of the deal?
Chuck Noski- There are reciprocal breakup fee arrangements of about a billion
AT&T and a half; a very typical, traditional arrangement. We have
the, again, traditional and typical MAC provisions and beyond
that give us a chance, we've just finished dating. Let's get
into bed together.
Mike Armstrong- On the regulatory thing, last night Brian and I called Chairman
AT&T Powell to let him know about both the transaction as well as our
commitment to a facilities-based competitive choice for
consumers and that we look forward to working with him. We
really do think this is good for competition, it's good for
consumers. It is our judgment that this will proceed with
regulatory approval. We're committed. I know some of you are
familiar with the old attribution rules, and as ingenuous as
those were, as they were invented during our Media One process,
and that they no longer apply. On the other hand, we are
committed to monetize TWE, so we do think that the regulatory
process, we will be able to get through.
Connie Weaver- Another question from the phones.
AT&T
Moderator We have a question from Jack Grubman's line with Salomon Smith
Barney.
Jack Grubman- Good morning. Congratulations to everyone for a great deal all
Salomon Smith around. Now Brian, you just have to get our hometown basketball
Barney team back on track.
Question for Chuck. In one fell swoop you have not only fixed
the AT&T balance sheet, but you could almost be accused of being
even under levered in the AT&T Communications business. That's
been a while. Given that Dave obviously faces this is the
challenge of growing the business, is it fair to guess that this
new financial flexibility could result in actions that could be
taken to maybe grow the trajectory of the business? Maybe you
could talk about some of the stuff that could be done outside of
just the tracker.
Given that you guys have been busy, you might not have noticed
that Bell South pulled their Georgia/Louisiana 271 applications.
If we are going to have a sixth straight year of yet again Bell
long distance approvals being far less than people think, it
would seem to me that on the Consumer side for Betsy's business,
maybe some of the doom and gloom projections may not happen. And
for Brian and Mike on the Broadband side, is it a safe
assumption to say that you guys will go for the kill in
telephony when you actually have a better voice bundle than most
of the RBOC's who can't do long distance, not to mention video
and obviously data? Thanks.
Chuck Noski- Let me take the first part of your question. I'm not sure I'm
AT&T familiar with the term "under levered" at AT&T, but I think we
are in a much stronger position with the core telecommunication
services businesses. You should not expect AT&T to become a
free spender following the close of this transaction. We will
still respond to the market. Obviously with the conclusion of
our Concert relationship, we have some investments to make
globally as we build out. But again, we don't expect those to
be significant, Jack. We are going to simply get through what
is a difficult period in telecommunications, rebuild the balance
sheet, maintain our leadership in each of our businesses and, of
course, anything that would delay the entry of the RBOC's into
long distance is, we think, fundamentally a good thing.
Mike Armstrong- Jack, in terms of the telephony opportunity at the end of your
AT&T question, I think you'll find that we will present a good
balance between go for it and being financially responsible as
we scale. But there is no question, in at least my mind, that
this bundle and this convergence works at the market and works
at the bottom line.
Connie Weaver- Let's go here.
AT&T
[Inaudible] [Inaudible]...capital. I commend the deal and I wanted to start
by saying that, but I'm hearing no conversation this morning
about the thing that I consider to be a very serious flaw. Over
the last two years, boards controlled by AT&T have cost
shareholders dearly at both AT&T and Excite@Home. Now we have a
board structure that is 2/3 AT&T and 1/3, according to the
numbers you presented, Comcast. It said 66% voting control AT&T
on your slides. So I would like to know, number one, why there
was no consideration, or maybe there was, to an independent
board where 10 members were from outside and two were from
within, and why you have an even number, 5 and 5, who's going to
pick those independent members and how are you going to keep
this board from evolving into the dysfunctional mess that has
occurred at those other two companies?
Mike Armstrong- What a nice question. The board is made up of five Comcast
AT&T directors, which we've already agreed to. It will be made up of
five AT&T directors that Brian and I will agree to. And we're
going to pick, between us, two new directors who will be
independent of both companies. And so I don't believe that that
represents, what you saw in the chart was 56% of the equity
interest of the value interest was to AT&T shareholders and that
represented it. So, we work very hard to have a balanced board
and an independent board.
Now, on the same token, there will be a high vote stock, which
will have a 33% combo of Roberts family voting interest. So it
will have a vote that is disproportionate to its economic
interest, but that was part of the transaction. I think we
present a company that is very balanced in its board
representation.
Brian, would you want to comment?
Brian Roberts- I think we each look at this from different perspectives, so
Comcast from the Comcast perspective, we wanted to maintain as much of
where we've come from and maintain the culture and the family
presence that the business has enjoyed that's resulted in the
shareholder return. But when we got into a dialogue with AT&T,
we agreed that it was appropriate for a company of this size and
scope to have outside help from it
through independent directors. So the majority of the board
will be independent. We are comfortable that with 33.3% of the
vote that we'll have a good voice. In the documents that will
come out to all the shareholders, it will lay out all the
details of other special provisions under this circumstance,
what happens and things of that nature. We feel very
comfortable with the kind of board that we'll have and
ultimately the division of labor is very clear, and I think this
is meant to hit the ground running. That's what I think took a
lot of time here. This was not something quickly pieced
together. This has been pretty much in the works since late
summer when we began talking again. We really had ironed out a
lot of this part of the process before we even signed the
confidentiality agreement. We're invited to come back in and
really take a look to see if we could improve our economic
perspective and to get to the real fine print of the detail.
I think from our side, we're quite comfortable and very
excited that this is going to be a very healthy balance and
it's going to work.
Connie Weaver- Let's go to Laura and then Tom.
AT&T
Laura Warner- Thanks. I wondered if potentially, Mike and Brian, you could
Lehman Brothers talk a little bit about some of the contracts that AT&T had
previously, and specifically, maybe Starz and CSG. I know Bill
Schleyer has been out talking about his views of those
contracts. I'm curious as to whether you believe we could
potentially see those contracts resolved prior to closing or,
Brian, is that something you're anticipating to move across the
combined company going forward? And how does that relate to the
synergies and margins we see going forward?
Brian Roberts- I don't think it's really comfortable or appropriate to do that.
Comcast I'm sorry. I think that at the 50,000 foot level we don't see
any reason, as Steve said, that in the fullness of time both
businesses can't function the same.
Connie Weaver- Let's come down here to Tom.
AT&T
Tom Wolzien- For Steve, last summer you pointed out that one of the reasons
Bernstein that Comcast had been so successful at assimilating other
Research Call systems and bringing up the margins was really the single
element at a time of addition of new products that allowed a
disparate workforce to be able to focus on one thing as opposed
to others that had blasted everything out at once. Today you're
talking about multiple things at once. Why the change?
Steve Burke- I think that's a good question, Tom. What Tom's referring to is
Comcast we have a stated goal of launching a new product every 12 to 18
months, and we do that for a few reasons. From a consumer point
of view, I think it's important that the cable industry take the
initiative. Satellite's a real competitive and if you ask
people right now who has the technological high ground, most
consumers will say that satellite is more technologically
advanced than cable. So I think over time, as we launch things
like high speed data and video on demand and phone, we can
change that.
But another reason why we focus on one new product every 12 to
18 months is because our organization, any cable company,
consists of lots of people doing lots of jobs at different
levels in the organization and it is very hard to get those big
groups of people doing multiple things well at the same time.
Our product plan, we concentrated first on digital, because we
thought it was important to protect our base analog
business; we concentrated second on high speed data, which right
now is the engine that is powering our growth rate and
increasing our growth rate; we're very optimistic about that.
We are now moving into a phase where video on demand is going to
be very important to us for the next 12 to 18 months. And as we
talked through this transaction and looked at all the experience
that AT&T had with telephony, we came to the conclusion that the
next big product after video on demand should be telephony. And
that by serendipity the way the deal works, this deal is going
to take probably around a year to close, so the timing would be
perfect. So at the time that our video on demand, which is
currently in about 3 million of our homes, next year we'll at
least double that, by the end of next year we'll be in a
position to turn our sites to the next big new product for us,
which will be telephony.
Connie Weaver- Okay, right here.
AT&T
[Inaudible] Mike, you've done an incredible job in creating this platform,
which is very valuable. Local connectivity is turning out to be
one of the probably most valuable assets in this whole process.
How are you thinking about the combination with the long
distance unit, the consumers side, more from a retail customer
perspective as you bundle or partner going forward? And equally
important, on AOL, sort of on the data side, is there any
carriage agreements with AOL for this process at this point for
them to resell your network? How were you thinking about working
with the consumer long distance business going forward?
Mike Armstrong- The consumer long distance strategy, which I just briefly
AT&T touched on in the summary, is to enter in the any distance
business, in every state that enables an economically viable
entry. Right now for next year, 2002, on a UNI P platform, which
would give us the local LD combination as well as with data, and
that would be a worldnet platform, that's how we'll brand that,
we will be in five states. I wish I could say we would be in 45
states, but as you know, we're getting an average of about a 10%
discount off list on the UNI P platform and you just can't make
money. You lose a lot of money if that's all you get, versus a
Michigan, which has a 40+% discount where you could see the
margins and the returns.
So we will go, in the consumer long distance business, we will
go as fast as we can to compete. And we've already proven in New
York that we can gain share, grow the business and we'll be
profitable this year, and we hope to get the law judge changed
that you know is in process that the PUC is considering.
Second, we will and we are rolling out behind the North Point
acquisition of assets that we did, which put us in about
1,400-1,500 local service office so that we can terminate on a
facilities based loop a DSL offering, and we will have a high
speed local long distance data offering that we will package and
we will target market that. And we intend, as long as the loop's
available, and something as silly as a [inaudible] bill doesn't
get approved and that loop's available, we will facilities-based
use that loop for a multiple systems platform offering. And sure
enough, as long distance is either overcome in the consumer
world due to technology or substitution or competition, we will
be targeting to our high value customers, who we know who they
are, we have 60 million of them, and turn that curve around and
begin to grow off of both that UNI P as well as that DSL
offering.
Now, that's going to be something we have to prove to the market
that we can do, because everybody that's tried that space, at
least in a wholesale equation with DSL, has not been exactly a
roaring success in the marketplace. But we have a different
equation. We're on a retail equation, we have the customers
today, we know who they are, we know where they are and we can
target our marketing with that brand. And so I do believe that
the consumer long distance business, as it transforms itself
from the long distance to any distance, will have millions of
customers and turn a declining revenue business into a growing
revenue business going forward.
Will there be a couple of overlaps where consumers might look
and say, "Gosh, I can get that from AT&T/Comcast and I can get
that from AT&T Consumer"? There will be, but let's not take our
eye off the ball. Ninety-eight percent of that market is really
owned by the RBOC's and for us to have a little, I think the
consumer will figure it out. I can get some AT&T phone service
over the telephone line or I can get it over the cable line and
we'd like them to pick between those two.
Connie Weaver- We're going to take two more questions. Let's go to the phone.
AT&T
Moderator We have a question from Frank Governelli with Goldman Sachs.
Frank This is a regulatory question, somewhat related to what Mike
Governelli- just addressed. The Bell Companies have been getting
Goldman Sachs increasingly vocal lately about what they perceive as the
imbalanced regulation that applies to cable versus telco's. And
today, not too surprisingly, SBC has taken your deal
announcement as an opportunity again to complain that your
broadband networks are not open to all competitors as the phone
companies must be for DSL, despite the fact you control about
70% of the market. Can you articulate your reaction to that and
whatever regulatory or legislative actions you need to take in
order to prevent regulation of the cable or complete
deregulation of the telco's?
Mike Armstrong- First, I haven't seen the statement of my good friends at SBC,
AT&T so I'll have to read what they said, but let me just react to
the openness of this network. AT&T has had, and I believe
Comcast has had, a statement of policy that we will be open for
multiple ISP carriages. You saw during the presentation of Bill
Schleyer, when we had to implement the backup network, we were
able to implement a network that could accommodate from the
get-go a multiple ISP environment. In fact, Bill mentioned that
this is a very good business for us in terms of its return as
well as a ramping of subscribers. So offering consumers choice
of multiple ISP's is in our economic self-interest and it is a
policy statement that we're making at this time, and we hope to
proceed with the engagement and negotiations of carrying
multiple providers on our network.
Connie Weaver- Last question, Doug.
AT&T
Doug Brian, you mentioned hitting the ground running. I was just
[Inaudible] wondering if you could talk about what the transition team can
do and what it can't do to make sure that the integration goes
as smoothly as possible and hits the ground running once the
deal closes.
Brian Roberts- Well, first, they get a good, long rest. But I think we'll,
Comcast within the appropriateness of making all the regulatory filings
and of course you can't get ahead of yourself, these deals do
take a while, but I do think there's such a common view you can
see there's very
little difference in how we're putting emphasis on where the
future is, what job has to get done. The working relationship
between Steve and Bill and myself and Chuck and Mike, everybody,
Larry, that's why we wanted to establish the people who really
had put this together, spent the hours making this happen, in
the room right off the bat. So I think better than most this is
not something that hasn't been thought about in a long time and
I really believe we're in good shape.
I'd like to maybe kick that over to Ralph and your overall
assessment of our prospects.
Ralph Roberts- Most frequently asked question I usually get, I'm surprised it
Comcast didn't come up here, is, "Did you believe when you were in
Tupelo, Mississippi that one day the company would be renamed
AT&T/Comcast?" And of course my answer is, "Of course I did."
I think you have to really be optimistic about the future. The
way we've been operating our company, I don't think we really
ever sold anything, and that is because I believe that the
industry was such that it's a long-range opportunity and that if
you're willing to stick with it through thick and thin, and
we've had some ups and downs, too, that you've got a remarkable
business. And this particular merger is really quite
unbelievable when you could think, as you've heard, all the
synergies and everything that's going to come from putting these
two large operations together. There's no question about it.
Size is a bonus. And if you have the size and you use it
intelligently and properly, you're going to end up with
something far better than you ever dreamed. I'd like to see our
stock keep going up. If you bought 1,000 shares in 1972 when we
went public for $7,000, it would be worth $3 million today. So
we have always been conscious of our folks who've invested in
the company and we'll continue to believe that, and there's the
opportunity for everybody and we're thrilled to be part of this
thing.
Connie Weaver- Thank you and what a great note to close on. On behalf
AT&T of everybody at Comcast and at AT&T, thank you for taking
your time to join us. For those of you on the phone, our Web
site, where you can find all the information, again, is
att.com\ir and cmcsk.com. Have a great holiday and thank you.