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On July 24, 2001, AT&T Corp. made a presentation via teleconference of the
following. In addition a copy of these slides was made available on the
Company's web site.
[AT&T logo] AT&T BROADBAND
July 2001
INVESTOR PRESENTATION
Safe Harbor
--------------------------------------------------------------------------------
The following are "forward-looking statements" which are based on management's
beliefs as well as on a number of assumptions concerning future events made by
and information currently available to management. The audiences are cautioned
not to put undue reliance on such forward-looking statements, which are not a
guarantee of performance and are subject to a number of uncertainties and other
factors, many of which are outside AT&T's control, that could cause actual
results to differ materially from such statements. For a more detailed
description of the factors that could cause such a difference, please see AT&T's
filings with the Securities and Exchange Commission. AT&T disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. This
information is presented solely to provide additional information to further
understand the results of AT&T.
In connection with these transactions, AT&T will be filing proxy statements,
tender offer statements and other materials with the Securities and Exchange
Commission. Security holders are urged to read these materials when they becomes
available because they will contain important information. Investors and
security holders may obtain a free copy of these materials when they become
available as well as other materials filed with the Securities and Exchange
Commission concerning AT&T at the Securities and Exchange Commission's website
at http://www.sec.gov. In addition, these materials and other documents may be
obtained for free from AT&T by directing a request to AT&T at 295 North Maple
Drive, Basking Ridge, NJ 07920; Attn: Investor Relations.
AT&T and its officers and directors may be deemed to be participants in the
solicitation of proxies from AT&T's shareholders with respect to these
transactions. Information regarding such officers and directors is included in
AT&T's proxy statement for its 2001 annual meeting of stockholders filed with
the Securities and Exchange Commission on March 30, 2001. This document is
available free of charge at the SEC's internet site or from AT&T as described
above.
1 --------------------------------------------------- [AT&T logo] AT&T Broadband
Management Representatives
--------------------------------------------------------------------------------
TITLE POSITION DISCUSSION TOPICS
----- -------- -----------------
Mike Armstrong Chairman and CEO AT&T Broadband Vision
AT&T Corp.
Dan Somers President and CEO Operations
AT&T Broadband
Greg Braden EVP Broadband Technology and
Services and CTO Telephony
AT&T Broadband
Mike Huseby EVP and CFO Financial
AT&T Broadband
2 --------------------------------------------------- [AT&T logo] AT&T Broadband
[cordless telephone graphic]
[computer graphic]
[television graphic]
THE AT&T BROADBAND VISION
MIKE ARMSTRONG
CHAIRMAN AND CEO, AT&T
AT&T Broadband Vision
--------------------------------------------------------------------------------
Be the leading U.S. provider of integrated residential broadband including:
video, voice, and data services
- MARKET OPPORTUNITY for all broadband services is large and expanding
- Superior FACILITIES-BASED broadband access to the home
- Large, well-clustered MAJOR MARKET FOCUS
- Enhance CUSTOMER RELATIONSHIPS through superior service
- Maximize the POWERFUL AT&T BRAND
------------------------------------------------------------------
Deliver superior returns for investors
------------------------------------------------------------------
4 --------------------------------------------------- [AT&T logo] AT&T Broadband
Best Industry Footprint
--------------------------------------------------------------------------------
[map graphic of the United States]
Atlanta 0.6
Bay Area 1.8
Boston/Hartford 2.0
Chicago 1.7
Dallas 0.6
Denver 0.6
Los Angeles 0.5
Miami 0.7
Pittsburgh 0.6
Portland 0.5
Sacramento 0.6
Seattle 1.0
Operations Snapshot (in mm) (1)
--------------------------------------------------------------------------------
Leadership Market Share % of Subs in
Homes in Top of Top 25 Clusters
Company Subs Passed 25 DMAs DMAs >500K
--------------------------------------------------------------------------------
AT&T Broadband (2) 13.8 24.2 12 37% 83%
Time Warner 12.6 21.1 4 16% 31%
Comcast 8.4 13.8 4 16% 66%
Charter 6.9 10.5 1 7% 14%
Cox 6.3 9.9 2 6% 26%
Adelphia 5.5 9.1 1 8% 47%
Cablevision 3.0 4.4 1 9% 100%
(1) Wall Street 2001 estimates.
(2) Pro forma for all announced transactions.
------------------------------------------------------------------
Leadership in top 25 DMAs
------------------------------------------------------------------
5 --------------------------------------------------- [AT&T logo] AT&T Broadband
Driving EBITDA Margins to Industry Benchmarks
--------------------------------------------------------------------------------
- Improved EBITDA margin(1) from 18.3% in 1Q01 to 23.4% in 2Q01
- Expect to deliver $500 million in annualized margin improvement by
year-end 2001
- Intensified focus on basic video penetration
- Break-even in High Speed Data today
- Break-even in Telephony in nine months
- Deliver positive unlevered free cash flow by year-end 2003
- On target to meet 2001 financial objectives
(1) Normalized EBITDA excluding other income and restructuring charges.
6 --------------------------------------------------- [AT&T logo] AT&T Broadband
[cordless telephone graphic]
[computer graphic]
[television graphic]
OPERATIONAL OVERVIEW
DAN SOMERS
PRESIDENT AND CEO
AT&T BROADBAND
What Have We Done to Achieve the Vision
--------------------------------------------------------------------------------
- Successful integration of MediaOne with TCI assets
- Re-configured subscriber base focused on major markets
- 4.1 million subscribers sold
- 1.4 million subscribers acquired / swapped
- 127,000 plant miles and infrastructure rebuilt to support "triple play"
- Scaling of new and advanced broadband services from 2.2 million customers
at the beginning of 2000 to 5.3 million customers today
- Rationalized cost structure
- Headends reduced from 200 to 40, serving 11 million customers
- Call centers reduced from 200 to 30
- Employees reduced from 53,000 to 43,000
- Reorganization of management structure
- Overhead reduced to $250 million annually, including AT&T allocations
8 --------------------------------------------------- [AT&T logo] AT&T Broadband
What Is the Impact
--------------------------------------------------------------------------------
- Approximately $150 million of margin improvement realized to date
- Total of $500 million of margin improvement expected to be realized on a
run-rate basis by year-end 2001
- Completed reorganization of corporate and field structure to rightsize
organization
Decision to
Action Implement Impact Beginning
------ ----------- ----------------
--------------------------------------------------------------------------------
End of Telephony promotion August 2000 Feb 2001
First round of headcount reductions December 2000 Feb 2001
Video price increase October 2000 Feb 2001
Second round of headcount reductions March 2001 May 2001
Core video growth initiatives April 2001 May 2001
High speed data price increase April 2001 June 2001
Video equipment rate increase April 2001 July 2001
--------------------------------------------------------------------------------
9 --------------------------------------------------- [AT&T logo] AT&T Broadband
Sustained Growth In Advanced Services
--------------------------------------------------------------------------------
2000-2001 ADVANCED SERVICE NET ADDITIONS
(in thousands)
----------------------------------------------------------------------
3,000- FULL YEAR
-
- 2,575 (1)(2)
2,500- ------
- ------
- 2,060 ------
2,000- ------ ------
- 1st HALF ------ ------
- ------ ------
1,500- 1,233 ------ ------
- ------ ------ ------
- ------ ------ ------
1,000- 760 ------ ------ ------
- ------ ------ ------ ------
- ------ ------ ------ ------
500- ------ ------ ------ ------
- ------ ------ ------ ------
- ------ ------ ------ ------
0--------------------------------------------------------------
2000 2001 2000 2001E
DIGITAL HSD TELEPHONY
1st HALF 2000 387 227 146
1st HALF 2001 598 334 301
FULL YEAR 2000 954 631 475
FULL YEAR 2001E (1)(2)
----------------------------------------------------------------------
(1) Guidance assumes 2000 base will be further adjusted for impact of any
transactions closed after 2Q01.
(2) Growth based on current guidance of 25% year-over-year growth.
10 -------------------------------------------------- [AT&T logo] AT&T Broadband
Leading Provider of Advanced Services
--------------------------------------------------------------------------------
Digital Data Telephony
Penetration(1) Penetration Penetration
----------- ----------- -----------
--------------------------------------------------------------------------------
[bar graph] [bar graph] [bar graph]
CVC.............. 0.0% ADLAC............ 3.3% AT&T BROADBAND
CMCSK (2)........ 15.5% CHTR............. 6.0% 1Q............. 12.8%
COX CMCSK............ 6.9% 2Q............. 14.0%
1Q............. 15.5% COX COX
2Q............. 17.4% 1Q............. 7.6% 1Q............. 11.1%
AT&T BROADBAND 2Q............. 8.0% 2Q............. 12.2%
1Q............. 19.7% AT&T BROADBAND
2Q............. 21.6% 1Q............. 8.3%
CHTR............. 21.2% 2Q............. 9.6%
ADLAC............ 21.8% CVC.............. 13.2%
--------------------------------------------------------------------------------
Note: All peer comparisons are as of 1Q01 unless otherwise noted.
Source: Wall Street research and company reports as of 1Q01 and 2Q01.
(1) Digital penetration of basic subscribers.
(2) For comparability purposes, adjusts reported number of Digital boxes
deployed by 1.3 boxes per home, based on Wall Street estimates
11 -------------------------------------------------- [AT&T logo] AT&T Broadband
Bundling Reduces Video Churn
--------------------------------------------------------------------------------
VIDEO CHURN IS REDUCED BY 10% - 22% FOR
MULTI-PRODUCT CUSTOMERS
MULTI-PRODUCT VS. BASIC CUSTOMER CHURN
- Lower churn results in cost --------------------------------------
savings of approximately $145 [bar graph]
per saved video customer
Monthly Churn
- Lower churn results in: Churn % Impact %
---------- ----------
- Fewer customer DALLAS.......................(22)%
acquisitions to hit Basic 2.53
targets Multi-Product 1.97
BOSTON.......................(21)%
- Savings on marketing & Basic 2.30
sales costs and Multi-Product 1.80
installation SEATTLE......................(10)%
Basic 1.91
- Elimination of truck-rolls Multi-Product 1.72
to disconnect customer and BAY AREA.....................(13)%
cost to refurbish set-top Basic 1.65
box Multi-Product 1.43
-------------------------------------
12 -------------------------------------------------- [AT&T logo] AT&T Broadband
Leading Revenue Per Subscriber
--------------------------------------------------------------------------------
TOTAL REVENUE PER BASIC CABLE CUSTOMER
-------------------------------------------------------------------------
$60 [bar graph]
$55.34 $55.95
$55 ---- ----
$52.04 ---- ----
---- $51.56 ---- ----
$50 $48.38 $49.12 $49.21 ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ----
$45.87 ---- ---- ---- ---- ---- ---- ----
$45 $43.10 ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ----
$40 ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- -1Q- -2Q- -1Q- -2Q- ----
$35 ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ----
$30 ------------------------------------------------------------------------
Adelphia Charter Time Comcast Cox AT&T Cablevision
Warner Broadband
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Advanced services drive ARPU well above industry average
-------------------------------------------------------------------------
Note: All peer comparisons are as of 1Q01 unless otherwise noted.
13 -------------------------------------------------- [AT&T logo] AT&T Broadband
New Services in Progress
--------------------------------------------------------------------------------
----Video-on-Demand [video graphic]
(2002)
----Interactive TV [television graphic]
(2002)
[fiber optics
cable graphic] ----PVR Capabilities [video recorder
(2002) graphic]
----T-Commerce [television graphic]
(2003)
14 -------------------------------------------------- [AT&T logo] AT&T Broadband
Best Industry Footprint
--------------------------------------------------------------------------------
[map graphic of the United States]
Atlanta 0.6
Bay Area 1.8
Boston/Hartford 2.0
Chicago 1.7
Dallas 0.6
Denver 0.6
Los Angeles 0.5
Miami 0.7
Pittsburgh 0.6
Portland 0.5
Sacramento 0.6
Seattle 1.0
83% of Customers are in the Top 25 DMAs
15 -------------------------------------------------- [AT&T logo] AT&T Broadband
Market Review: Boston
------------------------------------------------------- [Boston skyline graphic]
2.9 million homes passed, 5th largest DMA
MARKET CHARACTERISTICS ACTIONS YTD RESULTS
-------------------------------------------------------------------------------
-Very arractive -Integrating Cablevision -13% revenue growth
demographics with acquisition
average income of $69,000 -69% basic penetration
-Reduced call centers
-Leader in bundling from 8 to 1 -16% digital penetration:
+5 p.p.
-Plant upgrades nearly -Launched Digital in
complete, able to offer 2000 -14% data penetration:
complete bundle +3 p.p.
-More powerful product
-Operating as one offering relative to -11% telephony penetration
integrated system with competition +4 p.p.
one virtual call center -- >100K customers
-Competitive market -Below average DBS
penetration
-------------------------------------------------------------------------------
---------------------------------------------------------------------
Boston is our strongest performing market and will continue to grow
as advanced services penetration increases
---------------------------------------------------------------------
16 -------------------------------------------------- [AT&T logo] AT&T Broadband
Market Review: Chicago
------------------------------------------------------ [Chicago skyline graphic]
3.5 million homes passed, 3rd largest DMA
MARKET CHARACTERISTICS ACTIONS YTD RESULTS
-------------------------------------------------------------------------------
-Attratctive demographics -Integrated operations -14% revenue growth
with average income of of 7 MSOs
$58,000 -50% basic penetration
-Headends reduced
-Footprint covering from 64 to 2 -22% digital penetration:
nearly the entire DMA +6 p.p.
-Call centers reduced
-Strong telephony roll-out from 16 to 3 -10% data penetration:
+3 p.p.
-Backbone and headend -Dispatch locations
segments of rebuilds reduced from 19 to 9 -18% telephony
nearly complete penetration: +8 p.p.
-20% workforce and --Some suburbs have
-Under-penetrated in contractor reduction 40% penetration
Basic: primarily
downtown areas
-------------------------------------------------------------------------------
-----------------------------------------------------------------
Chicago is in the final stages of its integration effort. We are now
beginning to realize the operational and financial benefits.
-----------------------------------------------------------------
17 -------------------------------------------------- [AT&T logo] AT&T Broadband
Market Review: Bay Area
----------------------------------------------------- [Bay Area skyline graphic]
2.7 million homes passed, 6th largest DMA
MARKET CHARACTERISTICS ACTIONS YTD RESULTS
-------------------------------------------------------------------------------
-Very attractive demo- -Plant continues to -Almost 16% revenue
graphics with average require significant growth
income of $78,000 investment
--Regional economic -63% basic penetration
issues -Focus on basic video
growth -23% digital penetration:
-Footprint covers most of +2 p.p.
the metro area -Streamlined fulfillment
areas from 9 to 5 -15% data penetration:
-Above average +3 p.p.
penetration in all of -Reduced number of
the advanced services customer care centers -19% telephony
from 12 to 1 penetration: +5 p.p.
-Competitive market --Many communities in
-One care center with a high 20s
-Backbone and headend single toll free number
segments of rebuild
nearly complete -17% headcount
reduction
--------------------------------------------------------------------------------
------------------------------------------------------------------
The Bay Area is showing strong product growth, penetration and financial
trends. Significant momentum is in place.
------------------------------------------------------------------
18 -------------------------------------------------- [AT&T logo] AT&T Broadband
Significant Upside in Video Penetration
--------------------------------------------------------------------------------
Video penetration of 56% vs. 63% for the industry
ACTIONS CURRENTLY UNDER WAY:
---------------------------
- National Marketing Campaign
- Sales Force Financial Incentives
- Enhanced Programming
- Signal Theft Audit
- Retention Initiatives
- Increasing Network Quality
--------------------------------------------------------------------
Every 1.3 p.p. increase in video penetration is expected to
increase our EBITDA margin by 1 percentage point.
--------------------------------------------------------------------
19 -------------------------------------------------- [AT&T logo] AT&T Broadband
Simplified Management Structure
--------------------------------------------------------------------------------
MARKETS CORPORATE
------- ---------
------------------------ ---------------------------------------------
East Operations - Technology & Advanced Service Operations
| - Upgrades & rebuilds
| - Technology & labs
V - Centralized operations
6 Market Leaders - Corporate Marketing
| - National promotions & template
| - Support field effort
V - Brand management
~10 VPs each managing - Finance
functional areas - Target setting & measurement
------------------------ - Capital allocation
------------------------ - IT/Systems
West Operations - Ad Sales
| - Programming
| - Other functions (M&A, HR, PR, Legal,
V Regulatory)
9 Market Leaders ---------------------------------------------
|
|
V
~10 VPs each managing
functional areas
------------------------
20 -------------------------------------------------- [AT&T logo] AT&T Broadband
Experienced Local Management Team in Place
--------------------------------------------------------------------------------
DATE LEADER
MARKET IN PLACE EXPERIENCE RELATED EXPERIENCE
--------------------------------------------------------------------------------
Denver 6/96 TCI 16
Pittsburgh 4/97 TCI 18
Salt Lake City 1/99 TCI 22
Atlanta 4/00 TCI 5
Boston 5/00 Financial Services 1
Dallas 6/00 TCI 8
Miami 6/00 TCI 17
Portland 6/00 MediaOne 13
San Francisco 7/00 MediaOne 20
Los Angeles 7/00 MediaOne 14
Seattle 7/00 Wireless 21
Sacramento 8/00 MediaOne 12
Chicago 9/00 Wireless 20
--------------------------------------------------------------------------------
21 -------------------------------------------------- [AT&T logo] AT&T Broadband
Steps to Attain Industry Margins
--------------------------------------------------------------------------------
------------------ -------------------------- ------------------
RECENT MARGINS(1) MARGIN INITIATIVES MARGIN GOALS
------------------ -------------------------- ------------------
Actions Already Taken
---------------------
- Market integration
- Facility consolidation
1Q01 2Q01 - Headcount reduction ---------
---- --> ---- --> - Outsourcing opportunities ----> 38 - 40%
18.3% 23.4% - Pricing actions ---------
- Advanced services unit cost
reduction
Actions Underway
----------------
- Basic video initiatives
- Back-office and IT systems
integration
- Data and telephony: Scaling
and profitability
(1) Excludes other income and restructuring charges in both quarters
22 -------------------------------------------------- [AT&T logo] AT&T Broadband
Positioned For Continued Growth
--------------------------------------------------------------------------------
- Foundation is established
- Demand for advanced services remains strong
- Operational execution is driving financial results
-------------------------------------------------------------------------
Actions already underway result in tangible second quarter
progress and position us for future financial returns
-------------------------------------------------------------------------
23 -------------------------------------------------- [AT&T logo] AT&T Broadband
[cordless telephone graphic]
[computer graphic]
[television graphic]
TECHNOLOGY AND TELEPHONY
GREG BRADEN
EVP BROADBAND SERVICES
AND CTO
Full Service Broadband Network Architecture
--------------------------------------------------------------------------------
[graphic depicting network architecture]
25 -------------------------------------------------- [AT&T logo] AT&T Broadband
Capacity: Full Service Capable Homes
--------------------------------------------------------------------------------
----------------------------------------------------------------------------
[bar graphs]
PLANT STATUS
100%- ----------- ------------
- | Digital | [pie graph]
- | Video | <550 MHz 29%
- | 100% | 550-750 MHz 15%
80%- | | 750+ MHz 56%
- | |
- | |
- | |
60%- | |
- | | ------------
- | | | Digital |
- | | |Video/Data|
40%- | | | 57% |
- | | | |
- | | | | -------------
- | | | | | Digital |
- | | | | |Video/Data/|
20%- | | | | | Voice |
- | | | | | 29% |
- | | | | | |
- | | | | | |
0%------------------------------------------------
----------------------------------------------------------------------------
Note: All data as of 2Q01.
26 -------------------------------------------------- [AT&T logo] AT&T Broadband
Transformation: Master Headends In Major Markets (Past)
--------------------------------------------------------------------------------
Our network originally had more than 200 highly fragmented delivery systems. . .
[graphic depicting geographical dispersion
of more than 200 master headends]
------------------------------------------------------------------------
. . .resulting in 55,000 subscribers per headend
------------------------------------------------------------------------
27 -------------------------------------------------- [AT&T logo] AT&T Broadband
Transformation: Master Headends In Major Markets (Present)
--------------------------------------------------------------------------------
Today, our network is designed to have approximately 40 headends serving over
11 million customers. . .
[graphic depicting geographical dispersion
of approximately 40 master headends]
------------------------------------------------------------------------
. . .resulting in 275,000 subscribers per headend
------------------------------------------------------------------------
28 -------------------------------------------------- [AT&T logo] AT&T Broadband
Transformation: Greater Chicago Network (Past)
--------------------------------------------------------------------------------
[graphic depicting absence of links between headends]
29 -------------------------------------------------- [AT&T logo] AT&T Broadband
Transformation: Greater Chicago Network (Present)
--------------------------------------------------------------------------------
[graphic depicting links between headends]
30 -------------------------------------------------- [AT&T logo] AT&T Broadband
Transformation: Systems and Operations
--------------------------------------------------------------------------------
Ordering, Billing and Provisioning
----------------------------------
- Reducing from 24 systems to single, integrated desktop
- From manual process to automation
Network Surveillance and Management
-----------------------------------
- Deploying network surveillance, capacity management, analysis and
trouble resolution tools
- Established tiered network management structure
Key Operations Consolidation
----------------------------
- Telephony provisioning work centers reducing from 16 to 2 --> 30%
headcount reduction
- Accelerating use of E-care for all services
--------------------------------------------------------------------------------
Improved systems, streamlined processes, optimal balance between
centralized operations and localized control
--------------------------------------------------------------------------------
31 -------------------------------------------------- [AT&T logo] AT&T Broadband
Operational Performance
--------------------------------------------------------------------------------
CUSTOMER GROWTH
---------------
SINCE 2000
----------
--------------------------------------------------------------------------------
Voice Customer [arrow pointing down]
Reported Troubles (CRT) 77% [arrow pointing up]
(2000-2001 YTD) 775,000
Telephony or
Voice Average Field [arrow pointing down] 1,077%
Install Time 42%
(2000-2001 YTD)
Data Defects per Million [arrow pointing down]
(DPM) 99% [arrow pointing up]
(2001 YTD) 964,000
Data or
Data Average Field [arrow pointing down] 230%
Install Time 16%
(2001 YTD)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AT&T Broadband exceeds RBOC performance in 11 technical
testing categories, equals it in the 12th
--------------------------------------------------------------------------------
32 -------------------------------------------------- [AT&T logo] AT&T Broadband
Voice Services: Questions an MSO Must Ask
--------------------------------------------------------------------------------
- Should an MSO offer voice services?
- If the MSO offers voice, what is the scope --
Full-service primary line or limited second-line only
service?
- How should the MSO offer voice services --
What is the timing? What is the technology?
33 -------------------------------------------------- [AT&T logo] AT&T Broadband
Voice Services: Smart Play for Cable Operators
--------------------------------------------------------------------------------
- Significant revenue and margin opportunity
- Market size in excess of $100 billion annually
- Market almost entirely served by the RBOCs
- Significant contribution to financial growth
- Optimizes core broadband network
- Improves performance of all broadband products
- Voice customers pull through other broadband products
- 56% own 2 products
- 24% own 3 products
- Product bundles including voice reduce video churn between 10%
and 22%
- Positions us strategically to compete against the RBOCs
34 -------------------------------------------------- [AT&T logo] AT&T Broadband
Voice Services: Primary Line vs. Second Line Telephony
--------------------------------------------------------------------------------
- Primary Line play creates maximum market opportunity
- 5 - 10x greater voice revenue per customer
- 7 - 8x greater cash flow per customer
- Less than 10% additional upgrade and rebuild capital required
- Provides foundation for long-term competitive position
- Counters RBOC data and full service voice DSL play
- Operationally no more difficult than second line service
35 -------------------------------------------------- [AT&T logo] AT&T Broadband
Voice Services: Circuit Switched Today is Better Than Waiting
--------------------------------------------------------------------------------
- Ability to obtain market share is greater today, before RBOCs bundle
their voice and DSL products
- Voice over IP requires the same operational expertise as
circuit switched
- Both require significant learning curve - starting early is critical
- Voice over IP synergy with Data operations expected to yield 5+%
savings in operating expense
- Flexible migration to Voice over IP minimizes stranded capital risk
--------------------------------------------------------------------------------
Voice over IP expected to be available in 2003, and AT&T Broadband
has easy migration path to adopt when readily scaleable
--------------------------------------------------------------------------------
36 -------------------------------------------------- [AT&T logo] AT&T Broadband
Voice Services: Circuit Switched Today is Better Than Waiting
--------------------------------------------------------------------------------
Primary line Voice over IP capital costs estimated to be 10-20% less than
circuit switched
CUSTOMER
CAPITAL COST EQUIPMENT HEADEND OTHER TOTAL
------------ --------- ------- ----- -----
--------------------------------------------------------------------------------
Circuit - Switch
Switched(1)(2) Cost/Sub $300 $125 - Transport $675
$250
--------------------------------------------------------------------------------
Primary Line - Call Agent
VoIP Cost/Sub $300-$350 $40-$60 - Media GW $530-$620
Forecast - Transport
$190-$210
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sharing customer equipment between voice
and data services yields higher savings
--------------------------------------------------------------------------------
(1) Excludes approximately $125 of capitalized labor for installations
(2) Circuit switched capital costs are based on current pricing.
37 -------------------------------------------------- [AT&T logo] AT&T Broadband
Telephony Ahead of Plan
--------------------------------------------------------------------------------
|-----------------|
Original | Today | Future Cox
Services (5 yr Plan)(1) |(2 yrs into Plan)| (3 yrs from today) Today
-------- -------------- |-----------------| ------------------ -----
-----------------------------| |--------------------------------
Break Even/ 4Q02 | In 9 Months | 35% + Mid-20%
Margin | |
| |
Penetration 30% | 14% at 2Q01 | 30% + 12%
| |
ARPU ~$50 | $50 at 2Q01 | $65 $50
| |
Capex per $750 | $675 | $530-$620 $700
Customer | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
With 850,000 telephony subscribers and achieving break-even ahead of
plan, we are positioned to realize the significant financial returns
--------------------------------------------------------------------------------
(1) Announced as of June 1998, at the time of the TCI merger announcement.
The starting point for the original plan projections were the first
telephony trials, which started in late 1999.
38 -------------------------------------------------- [AT&T logo] AT&T Broadband
[cordless telephone graphic]
[computer graphic]
[television graphic]
FINANCIAL REVIEW
MIKE HUSEBY
EVP & CFO
Financial Trends are Improving
--------------------------------------------------------------------------------
- Strong advanced services growth continues to drive year-over-year revenue
Revenue Growth
--------------
Q101 - 10.9% (11.7% excluding advertising sales)
Q201 - 13.7% (15.0% excluding advertising sales)
- Strong cost management and scaling of new products drove margin
improvement
EBITDA Margin (1)
-------------
Q101 - 18.3%
Q201 - 23.4%
- EBITDA was up 33% sequentially over Q101 (26.7% including restructuring)
restructuring and other income
- Year-to-date capital spending of $1.7 billion
- Divestitures of non-strategic cable systems on track and essentially
completed
--------------------------------------------------------------------------------
Strong momentum is in place for the second half
--------------------------------------------------------------------------------
(1) Normalized EBITDA excluding restructuring charges and other income.
Including restructuring and other income, EBITDA margin was 16.0% and
19.5% for Q101 and Q201, respectively.
40 -------------------------------------------------- [AT&T logo] AT&T Broadband
Revenue Growth Trend
--------------------------------------------------------------------------------
- Quarter-over-quarter same store revenue growth remains strong
- Q101 impacted by seasonality of advertising
- Current trends and forecast on track to hit street guidance by
year-end
NORMALIZED ANNUAL REVENUE GROWTH (1)
--------------------------------------------------------------------------------
14%- 13.7%
- -----
12%- 11.8% -----
- ----- 10.9% -----
10%- 10.8% ----- ----- -----
- 10.5% ----- ----- ----- -----
8% - ----- ----- ----- ----- -----
- 8.2% ----- ----- ----- ----- -----
6% - ---- ----- ----- ----- ----- -----
- ---- ----- ----- ----- ----- -----
4% - ---- ----- ----- ----- ----- -----
- ---- ----- ----- ----- ----- -----
2% - ---- ----- ----- ----- ----- -----
- ---- ----- ----- ----- ----- -----
0% - ---- ----- ----- ----- ----- -----
--------------------------------------------------------------------------------
Q100 Q200 Q300 Q400 Q101 Q201
--------------------------------------------------------------------------------
(1) Normalized year-over-year for 2001 basis.
41 -------------------------------------------------- [AT&T logo] AT&T Broadband
EBITDA Margin Trend
--------------------------------------------------------------------------------
EBITDA margin improvement driven by:
- Integration of major markets = operational efficiencies
- Scaling of advanced services
- Cost management controls including headcount reductions
- Pricing management
NORMALIZED EBITDA MARGIN (1)
--------------------------------------------------------------------------------
DECISION/EXECUTION EXECUTION/REALIZATION
------------------ ---------------------
| |
| |
30%- V V
-
25%- [down arrow
- 23.5% on diagonal] [up arrow
20%- ----- on diagonal] 23.4%
- ----- 21.4% -----
- ----- ----- 19.0% -----
15%- ----- ----- ----- 18.3% -----
- ----- ----- ----- 17.1% ----- -----
10%- ----- ----- ----- ----- ----- -----
- ----- ----- ----- ----- ----- -----
5% - ----- ----- ----- ----- ----- -----
- ----- ----- ----- ----- ----- -----
0% - ----- ----- ----- ----- ----- -----
--------------------------------------------------------------------------------
Q100 Q200 Q300 Q400 Q101 Q201
--------------------------------------------------------------------------------
(1) Excludes restructuring charges and other income.
42 -------------------------------------------------- [AT&T logo] AT&T Broadband
Tangible Margin Improvement - 2nd Quarter 2001
--------------------------------------------------------------------------------
% Prior to
Restructuring(1)
-------------
-----------------------------------------------------
1Q01 EBITDA Margin 18.3%
Headcount Reductions 1.0%
Advanced Services Growth 2.2%
Video Price Increases 1.3%
Ad Sales 1.2%
Property Divestitures/Other (0.6)%
-----------------------------------------------------
2Q01 EBITDA Margin 23.4%
-----------------------------------------------------
--------------------------------------------------------------------------------
Margins increased 5.1 percentage points. Actions already
taken will continue to have future impact.
--------------------------------------------------------------------------------
(1) Excludes other income and restructuring charges from both quarters. Q1 and
Q2 margins were 16% and 19.5% respectively including restructuring.
43 -------------------------------------------------- [AT&T logo] AT&T Broadband
Path to Industry Margins
--------------------------------------------------------------------------------
Cost
40%- Management &
- Efficiencies 38-40%
- Basic ------------ -------
- Data Growth & ------------ -------
- Growth/ Pricing ------------ -------
- Telephony ------- -------- EBITDA
- Growth/ ------- Margin
- Scaling ------- Goals
- 23.4% -------- -------
20%- -------- -------- -------
- Q201 -------
- EBITDA -------
- Margin(1) -------
- --------- -------
- --------- -------
- --------- -------
- --------- -------
- --------- -------
0%------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Achievement of margin goals is due to actions that are
both completed and underway.
--------------------------------------------------------------------------------
(1) Excludes other income and restructuring charges.
44 -------------------------------------------------- [AT&T logo] AT&T Broadband
Actions to Achieve Margin Goals
--------------------------------------------------------------------------------------------------------------
Actions Taken Future Actions
------------- --------------
Telephony/ - RGU growth - Bundling
Growth/Scaling - Reduced promotions - Cross-product synergies
- IT system conversions - Long distance in former MediaOne
properties
Data - RGU growth - Tiered pricing
Growth/Scaling - $6 price increase effective June 2001 - Multiple ISP (open access)
- Customer care efficiencies - Bundling
- Cross-product expense synergies
Video - Price increase: Feb. 15 - Pricing to market
Growth & Pricing - Equipment rate increase: July 1 - Digital (pricing/packaging)
- Nationwide campaign launched July 7 - Video on Demand trials
- Best practices formalized - Ad sales - major markets
- Incentive sales compensation
- Signal theft program
Cost Management/ - Headcount reductions - Field tech/dispatch
Efficiencies - Market integration benefits - Cross-product synergies
- Call center consolidation & - IT systems enhancements
rate reductions
--------------------------------------------------------------------------------------------------------------
45 -------------------------------------------------- [AT&T logo] AT&T Broadband
Data Financial Performance
--------------------------------------------------------------------------------
- Subscriber net additions of 738,000 over the last 12 months
- EBITDA positive in Q3
- Monthly revenue per subscriber has increased 12% since Q400
- Recent $6 price increase will begin to impact results in Q301
- Monthly expense per subscriber has decreased 33% since Q100
2001 MONTHLY REVENUE/SUBSCRIBER ($)
--------------------------------------------------------------------------------
45-
-
-
-
- *41
40- *40 ---
- --- --- *39 *39
- --- --- --- ---
- --- --- --- *37 ---
- --- --- --- --- ---
35- --- --- --- *35 --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
30- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
25------------------------------------------------------------------------------
Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01
--------------------------------------------------------------------------------
2001 MONTHLY EXPENSE/SUBSCRIBER ($)
--------------------------------------------------------------------------------
65-
-
- *63
60- --- *60 *59
- --- --- ---
- --- --- ---
55- --- --- ---
- --- --- ---
- --- --- --- *52
50- --- --- --- ---
- --- --- --- ---
- --- --- --- ---
45- --- --- --- --- *45
- --- --- --- --- ---
- --- --- --- --- --- *42
40- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
35- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
30------------------------------------------------------------------------------
Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01
--------------------------------------------------------------------------------
46 -------------------------------------------------- [AT&T logo] AT&T Broadband
Voice Financial Performance
--------------------------------------------------------------------------------
- Subscriber net additions of 630,000 over the last 12 months
- Monthly revenue per subscriber has increased 21% since Q400
- Pricing promotions roll-off resulting in higher revenue
per subscriber
- Monthly expense per subscriber has decreased 71% since Q100
- Projected to turn EBITDA positive in 9 months
2001 MONTHLY REVENUE/SUBSCRIBER ($)
--------------------------------------------------------------------------------
80-
-
-
-
-
60- *60
- *58(1) ---
- --- ---
- --- --- *48 *50
- --- --- --- *42 *45 ---
40- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
20- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
- --- --- --- --- --- ---
0------------------------------------------------------------------------------
Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01
--------------------------------------------------------------------------------
2001 MONTHLY EXPENSE/SUBSCRIBER ($)
--------------------------------------------------------------------------------
350-
-
- *329
300- ----
- ----
- ----
250- ----
- ---- *247
- ---- ----
200- ---- ----
- ---- ---- *188
- ---- ---- ---- *156
150- ---- ---- ---- ----
- ---- ---- ---- ----
- ---- ---- ---- ---- *123
100- ---- ---- ---- ---- ----
- ---- ---- ---- ---- ---- *94
- ---- ---- ---- ---- ---- ---
50------------------------------------------------------------------------------
Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01
--------------------------------------------------------------------------------
(1) Adjusted for one-time access revenue allocation.
47 -------------------------------------------------- [AT&T logo] AT&T Broadband
Capital Spending
--------------------------------------------------------------------------------
- 1H01 capital spending of $1.7 billion
- Full year 2001 capital spending estimate of $3.6 billion
- Approximately 2/3 of spend is demand-based
- Variable capital cost per net add is declining
- Expect unlevered free cash flow positive by year-end 2003
--------------------------------------------------------------------------------
| |
| Capital management to optimize returns |
--------------------------------------------------------------------------------
48 -------------------------------------------------- [AT&T logo] AT&T Broadband
A Sustainable Growth Story
--------------------------------------------------------------------------------
- Results support strategy and transformation actions
- Revenue growth
- Cash flow growth
- Advanced services growth
- Margin improvement expected to continue
- Telephony strategy benefits
- Significant capital investment already made
- Cash flow break-even in 9 months
- Revenue and EBITDA per subscriber and per home passed
expected to lead industry in 2003
49 -------------------------------------------------- [AT&T logo] AT&T Broadband
What We Plan to Deliver
--------------------------------------------------------------------------------
- Aggressively serving the most attractive markets with the
most comprehensive and valuable service offerings
- Leading in fulfillment of accelerating customer demand for
advanced services
- Driving EBITDA margins to industry benchmarks
--------------------------------------------------------------------------------
| AT&T Broadband is best positioned to deliver |
| the highest value for its shareholders |
--------------------------------------------------------------------------------
50 -------------------------------------------------- [AT&T logo] AT&T Broadband
[AT&T logo] AT&T BROADBAND
July 2001
INVESTOR PRESENTATION
APPENDIX
Network Architecture (with Circuit Switched Telephone)
--------------------------------------------------------------------------------
[graphic depicting connections and network
architecture between headends, hubs and end-users
with circuit switched telephone]
53 -------------------------------------------------- [AT&T logo] AT&T Broadband
Network Architecture (with Voice Over IP)
--------------------------------------------------------------------------------
[graphic depicting connections and network
architecture between headends, hubs and end-users
with voice over IP]
54 -------------------------------------------------- [AT&T logo] AT&T Broadband
[AT&T logo] AT&T BROADBAND
July 2001
INVESTOR PRESENTATION