By Mavis Scanlon Comcast wouldn’t be where it is today without the financial acumen of its co-CFOs, John Alchin, who also serves as EVP and treasurer, and Lawrence Smith, who also serves as EVP. Long before the team crafted the financial package that sealed the AT&T deal, which catapulted Comcast to its current status as the largest cable operator in the country, Comcast was viewed as the cable industry’s ultimate consolidator. Invariably, its deals, both on the content and distribution side, have been advantageous to Comcast, thanks in no small part to Alchin and Smith. Earlier this year the pair was recognized by Institutional Investor Magazine, which named them among America’s best CFOs, and by the Broadcast and Cable Financial Magazine Association, which named them CFOs of the year. CableWORLD caught up with the dynamic duo in early August. CW: Comcast’s co-CFO arrangement is unusual—how do you manage it on a day-to-day basis? Alchin: We’ve been doing this together for almost 15 years now. He comes from an accounting background—he was a senior tax partner with Arthur Andersen—and I was a finance person, so the division of labor follows our backgrounds. He is the inside guy that does all of the deals, has the accountants reporting to him, I’m the outside guy who runs investor relations and who runs the treasury capital formation activity. Smith: We do have our discrete functions that we manage. There’s a lot of crossover, as you can imagine, but our whole environment is very collegial. Very little politics goes on so it really never becomes a problem. I will often do things with [VP, finance, assistant treasurer] Bill Dordelman, who works with John, if we’re doing something in the capital markets that’s tax-related. John will work with [SVP, chief accounting officer, controller] Larry Salva, on wording in a press release—they work very closely. We are on one floor—I’m in one corner, John’s in the other corner, and most of the people who work for us are in between. So it just kind of works. CW: In most relationships, when two people handle the money it’s usually cause for bickering. Smith: I don’t think John and I have ever bickered. CW: So who has the harder job? Smith: Wow. I don’t know if you can say. He always says that he raises the money and I spend it. So is it harder to spend it or raise it? CW: Comcast posted strong-second quarter results, but some of the subscriber metrics and the lowered forecasts for basic video growth for 2004 disappointed investors. What gives? Alchin: Boy, that’s a loaded question. Let’s be clear when you say we lowered expectations for the video business. I would push back and say, in fact, we increased expectations for the video business. In the first half of the year we generated north of 20% operating cash flow, compared to guidance of 15% to 17%. We increased guidance for cash flow to approximately $7.5 billion. So we added $100 to $200 million dollars to the cash flow line. It’s surprising to me that the market would put more emphasis on basic subscriber unit growth than they have on the significant increase to the outlook for operating cash flow. CW: Don’t investors still want to see basic video subscriber growth? Alchin: I don’t think investors know what they want at this point. CW: Can the mind-set by changed? Alchin: Absolutely. As we continue to post a strong operating performance, at some point in time the market is going to say, "Oh, I get it, they really are competing effectively in the marketplace." The real growth drivers of our business are the 6 million high-speed data customers and the 8 million digital customers that we have—effectively 14 million new revenue generating units that we didn’t have five or six years ago. We will be a fierce and effective competitor. We have no intention of seeing our subscriber base going backward. But at the end of the day, whether we are up or down, 50,000 subscribers contributes almost nothing to the top line or cash flow line. Our real results are driven by maintaining strong average revenue per subscriber in the video business, which we are. We saw almost 40% revenue growth in the high-speed data business. Annualized, we’re looking at in excess of $3 billion dollars of revenue from a business that didn’t exist six years ago. CW: Isn’t there also some concern cable won’t be able to sustain rate hikes at the same levels of previous years because of heightened competition? Alchin: The model isn’t any longer built on the back of perpetuating or driving the top-line growth from rate increases. The model is driven from new product deployment, and that’s where the overwhelming majority of our marketing efforts and operational efforts are directed. CW: What’s behind the improved forecast for 2004 programming cost increases? Alchin: That’s another metric where we just hit the ball out of the park. We had said at the beginning of the year that we expect programming expenses in 2004 to increase somewhere between 8% and 10%. Over the course of the year is we’ve been successful in a whole host of programming negotiations. Year to date, programming expenses are up 5%, year over year, and for the full year, we’re saying we expect to be up somewhere between 5% to 6%. It just goes to show that it really does pay huge benefits to have the size and scale that we have. CW: Comcast launched a 4-megabit high-speed data service just days before BellSouth announced it would add DirecTV to its bundle. Coincidence? Alchin: No—no connection. I think BellSouth’s announcement was much more closely tied to what Verizon announced in its satellite partnership and what SBC had already done. For us, this is a continuation of our constant upgrade of the broadband offering—we just keep adding more and more functionality to it. We’re staying way ahead of the competition. CW: What kinds of speeds can consumers expect down the road? Alchin: We’re at 3 and 4 already, and if you want more from us then we have other packages available as well. I don’t think we’re anywhere near where that might end up—I don’t think 5 megabits represents anything like a number that might be tapped out yet. CW: If Cox goes private how will that affect the industry? Alchin: It’s very smart on the part of the Cox’s parent company to take advantage of a market that has beaten up its cable subsidiary way more than it should have. And it’s good for us as well, because it probably directs more investors to us than we might otherwise have. If they go private…we end up being the only large-cap pure-play cable company. Smith: I wouldn’t really think it changes the dynamics of the industry. From our point of view it’s probably good because all of the investors in Cox come out of Cox and presumably will come into Comcast and help our stock price. The one thing that’s crossed my mind is they might be somewhat financially concerned in the near-term until they pay back some of this debt that they are borrowing to do the deal. CW: With Cox private, will there be one less bidder for Adelphia? Smith: That’s what everybody says. But I don’t think Cox was ever viewed as a bidder for all of Adelphia. We don’t know how Adelphia is going to unfold but, assuming it is auctioned off in pieces, if there is a piece that they are particularly anxious to buy I’m sure that they will pay up to buy it. CW: Where does Comcast need to fill in its cable footprint? Smith: We’re fortunate—with our size, we don’t lust after anything. We don’t need to have any particular property to fill out our footprint. CW: Comcast owns systems in all the major cities up and down the East Coast except New York City. How important is that market? Smith: In New York there is only Cablevision or Time Warner. If [those systems] became available I’m sure we’d look at it, but we don’t expect that to happen, so we really don’t focus much on New York. We basically own Boston, Philadelphia, Washington, Baltimore, Richmond, Charleston, Atlanta, Chicago, Seattle, San Francisco, Denver, Dallas. We don’t feel that we need to have New York to round it out. CW: Do you think the Dolans will eventually sell Cablevision? Smith: They have always said they will sell, but at their price. And this point in time I don’t think cable properties are going to sell at a price that would move the Dolans, quite frankly. But stranger things have happened. CW: What is the company’s biggest challenge heading into 2005? Alchin: That’s a good question. I think our biggest challenge is going to be to continue to execute on all fronts. The rest of this year and next year is all about continuing to deliver really good numbers. Smith: Right now it’s getting Wall Street to understand that we’re doing very well. And we—and Time Warner and Cox—all believe that we may need some component of wireless. If we’re going to be selling wired telephone we should eventually have a wireless companion product. Also, the transmission of data, broadband, in a wireless context we all think is very important. We are studying exactly how to do that. We honestly don’t have an answer—do we start up another company, do we acquire somebody, do we partner with somebody? I personally think the right answer is going to be that we partner with somebody, or maybe a number of somebodies. It’s a little hard to go out and figure out who your partners should be if you haven’t figured out what the end products should look like. Part of what we’re doing is talking to these guys in terms how we’re going to develop things together. CW: Will Comcast’s stock ever see the highs it hit in late 2000? Alchin: I would like to think so. I certainly believe we should be a $40 stock or a $40-plus stock. Given the growth rates that we have both on cash flow and free cash flow I think we deserve multiples well above where we’re trading right now. I think the multiples at the peak were in the very high teens, but the market is saying today that’s not a price that they’re willing to pay. We don’t want to be in the business of having "me too" products. If you look at what we’re doing on the broadband front we are differentiating our product—we didn’t do what the RBOCs did and [offer] massive discounting. Instead, we increased the speed, we added The Fan, we put more video into the portal. We’re got over 70% of our customers using the portal as a home page, over 70% of our customers use our e-mail service. We’re doing The Fan ourselves, we’re not subcontracting out to Yahoo or MSN as the DSL providers are doing. So I think the market is certainly undervaluing us at this point. Whether we’ll ever get to full value, I can’t predict that, but I know we certainly should be trading at much higher levels than we are now. 30 Seconds With John Alchin and Larry Smith Proudest Accomplishment: Alchin: The financing package for the AT&T deal. Smith: Comcast’s growth. Currently Reading: Alchin: Paris 1919: Six Months That Changed the World. Smith: I’m not a big reader. Programs on the DVR: Alchin: I recently got one after my TiVo broke down a year ago—there is nothing programmed. Smith: I don’t have one. Favorite TV Program: Alchin: I don’t have one. Smith: I don’t watch much TV. Most Admired Executive: Alchin: Brian Roberts. Smith: John Malone. Hobbies: Alchin: I’m building a house at the shore- that’s not a hobby, it’s a life-draining experience. Smith: I have a farm here in the suburbs of Philadelphia, and I raise standard-bred horses, which are harness-racing horses.

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