US Cable, DBS and Telecom

Transcription

1 US Cable, DBS and Telecom 3Q Quarterly Preview We continue to favor the DBS firms over cable and now favor most of the IXCs over the RBOCs. We recommend avoiding the developing RBOC-MSO battle and finding stocks that should benefit from convergence in the consumer communications market. We believe this includes OW-rated Echostar, DirecTV, and Sprint. DBS should continue to capture the majority of video subscriber growth, aided by a boost from recently launched JVs with the RBOCs. We expect the DBS industry to post 769,000 net adds in the third quarter while cable should post only 111,000. The RBOCs should continue to increase their share of broadband net adds in 3Q04. We expect the four RBOCs and Sprint to post one million DSL net adds, reflecting a 51% share of 3Q04 broadband net adds. We expect cable s voice subscriber growth to accelerate, driven by VoIP deployments, to roughly 160,000 net adds, up from 31,000 a year ago. But the telecom companies access line losses should continue, albeit at a moderating pace. We expect the four RBOCs and Sprint to lose roughly two million access lines this quarter. We believe intensifying competition between MSOs and RBOCs raises the risk of a price war, which would likely be negative for both sectors. On the other hand, DBS providers and Sprint should benefit from intensifying cable-telecom competition in the near term. Table 1: Companies in JPMorgan Cable, DBS, and Telecom Coverage Cable TV 10/14/2004 JPM 10/14/2004 JPM Company Ticker Price Rating Company Ticker Price Rating Cable & DBS Telecom Cablevision CVC $20.46 N AT&T T $15.37 N Charter CHTR $2.35 UW BellSouth BLS $27.93 N Comcast CMCSA $28.75 OW Qwest Q $3.30 OW Cox COX $33.30 N SBC SBC $26.35 N DirecTV DTV $17.87 OW Sprint FON $20.30 OW Echostar DISH $33.03 OW Verizon VZ $40.77 N Insight ICCI $9.02 N Mediacom MCCC $6.62 OW Source: I/B/E/S, company reports, and JPMorgan estimates. Note: JPMorgan ratings: OW = Overweight, N = Neutral, and UW = Underweight. Jason Bazinet Jonathan Chaplin (1-212) jonathan.chaplin@jpmorgan.com Nirvaer S Sidhu (1-212) nirvaer.sidhu@jpmorgan.com See page 41 for analyst certification and important disclosures, including investment banking relationships. JPMorgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of JPMorgan in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at or can call toll free to request a copy of this research.

2 Investment Thesis We continue to favor DBS names over most cable and telecom stocks in our coverage. The two DBS operators EchoStar and DirecTV maintained their dominant share of multichannel subscriber growth while keeping acquisition costs relatively stable. In our opinion, the DBS providers should continue to benefit from intensifying cable-telecom competition in the near term as the RBOCs look to add video to their service bundles. On the other hand, the intensifying competition between MSOs and the RBOCs raises the risk of a price war, which would likely be negative for both sectors. As such, we rate both DBS companies in our coverage EchoStar and DirecTV as Overweight (EchoStar is on our Focus List with a $35 July 2005 target price). Within telecom, we prefer companies that we believe should generate strong free cash flow growth, such as Qwest and Sprint, or firms with healthy dividend yields, like MCI. Key Investments Points RBOC-Cable Competition Should Continue to Intensify We expect direct competition between the cable operators and the RBOCs to intensify over the course of the year. Most cable operators should begin to offer voice service in some markets by year-end, while the RBOCs should continue to expand availability of their DBS video bundles and, to a lesser extent, fiber builds. Please see our report on pricing in the consumer video, data, voice and wireless markets, Caveat Emptor, published 29 September Pricing Likely to Be Pressured With head-to-head competition intensifying, we expect to see continued pricing pressure, especially for bundled offers. Our recent survey of bundled pricing suggests the risks of deflation are very high. DBS Companies Should Benefit From JVs We expect DBS operators to benefit from the RBOC-cable competition in the near term. Although all the RBOCs are exploring options to eventually deliver video over their own facilities, they will likely be limited to wholesaling video from their DBS partners in the near term. As the phone companies continue to aggressively market bundles, this should provide a near-term boost for DBS operators. Valuation and Rating Analysis At current levels, the average cable company trades at an EV/EBITDA multiple of 9.0 times, the average RBOC trades at an EV/EBITDA multiple of 5.4 times, and the average DBS company trades at an EV/EBITDA multiple of 15.8 times. Although DBS operators trade at higher multiples, we believe this premium is warranted, given the meaningfully stronger growth outlook for DBS and the potential upside from the wholesale agreements with the RBOCs. Risks to Our Ratings We expect subscriber acquisition costs (SAC) for the DBS sector to remain relatively stable over the remainder of the year. However, continued upward SAC trends could be negative for DBS stocks. The largest risk in telecom remains pricing pressure in the long haul business, which could pressure shares of Overweight-rated Qwest, Sprint and MCI. 2

3 Third Quarter Outlook Video Basic Video We expect the multichannel industry to post roughly 2.9% year-over-year subscriber growth in the third quarter. As shown in Figure 1, though industry growth remains above household formation, cable sub growth is slowing. The two DBS operators are likely to continue capturing all of this growth, in our view, and should increase subscribers by more than 10.2%, in line with the second quarter growth rate. Figure 1: Video Industry Sub Growth %, year-over year Cable and Multi-channel Video Industry sub growth (Percent; year-over-year) 4.5% DBS sub growth (Percent; year-over-year) 30.0% 3.5% 2.5% Multi-channel industry 25.0% 20.0% 1.5% Natural rate of household formation DBS 15.0% 0.5% 10.0% -0.5% Cable 5.0% -1.5% 0.0% Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q102 Q202 Q302 Q402 Q103 Q203 Q303 Q403 Q104 Q204 Source: Company reports and JPMorgan calculations. However, the cable industry should report a higher level of subscribers when compared with year-ago levels, as well as a sequential increase in subscribers, owing to the seasonal impact of college students starting subscriptions for the fall. The eight largest MSOs should report a gain of roughly 111,000 basic subscribers in the third quarter. DISH and DirecTV should post a combined 769,000 net adds. 3

4 Table 2: Multichannel Video Subscriber and Share Trends Subscribers in 000s 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E Subscribers Adelphia 5,350 5,322 5,303 5,116 5,078 5,038 4,990 4,957 4,930 Cablevision 2,969 2,963 2,952 2,967 2,957 2,942 2,944 2,951 2,947 Charter 6,648 6,315 6,266 6,228 6,239 6,201 6,192 6,133 6,120 Comcast 21,337 21,327 21,384 21,397 21,398 21,468 21,518 21,498 21,543 Cox 6,207 6,225 6,260 6,223 6,254 6,285 6,316 6,263 6,297 Insight 1,289 1,289 1,309 1,296 1,293 1,294 1,298 1,282 1,280 Mediacom 1,588 1,592 1,584 1,560 1,552 1,543 1,533 1,491 1,481 Time Warner 10,862 10,914 10,934 10,938 10,928 10,953 11,053 11,164 11,275 Total cable 56,249 55,947 55,991 55,725 55,700 55,724 55,844 55,740 55,874 y/y change 0.0% -1.2% -1.4% -1.0% -0.4% 0.0% -0.3% DirecTV 9,912 10,334 10,542 10,744 10,922 11,178 11,423 11,423 11,559 Echostar 7,780 8,180 8,530 8,800 9,085 9,425 9,785 10,125 10,485 Total DBS 17,692 18,514 19,072 19,544 20,007 20,603 21,208 21,548 22,044 y/y change 12.7% 14.4% 13.1% 11.3% 11.2% 10.3% 10.2% Total 73,941 74,461 75,063 75,269 75,707 76,327 77,052 77,288 77,918 y/y change 2.6% 2.3% 2.4% 2.5% 2.6% 2.7% 2.9% Net Adds Adelphia (75) (28) (19) (187) (38) (40) (49) (33) (27) Cablevision (22) (5) (12) 15 (9) (15) 2 7 (5) Charter (93) (67) (49) (38) 11 (39) (9) (59) (13) Comcast (134) (9) (4) (95) 21 Cox (37) (54) 35 Insight (2) (0) 8 (13) (2) 0 4 (16) (3) Mediacom 3 4 (5) (24) (8) (9) (14) (39) (10) Time Warner (10) (9) 11 (21) 112 Total cable (269) (36) 37 (266) (29) (6) 12 (308) 111 % Share 0.0% 0.0% 5.7% 0.0% 0.0% 0.0% 1.6% 0.0% 12.6% DirecTV Echostar Total DBS % Share 100.0% 100.0% 94.3% 100.0% 100.0% 100.0% 98.4% 100.0% 87.4% Source: Company reports and JPMorgan estimates. Note: 2002 quarterly figures for Comcast and Charter are JPMorgan estimates; RBOC-DBS JV subscribers reflected in DBS figures. Digital Video We believe digital net adds will be higher than in the second quarter. Though lower than 3Q of last year, this would be a reversal of a two-year trend of sequential quarterly declines. We expect the eight largest MSOs to add roughly 644,000 new digital subscribers in the third quarter, up from 556,000 in the second quarter. We expect digital penetration of basic subscribers to reach 40% at the end of the third quarter. 4

5 Table 3: Digital Cable Subscriber Trends subscribers in 000s 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E Subscribers Adelphia 1,692 1,783 1,838 1,776 1,823 1,802 1,807 1,865 1,875 Cablevision ,056 1,166 1,289 Charter 2,433 2,588 2,557 2,512 2,570 2,589 2,657 2,650 2,705 Comcast 6,237 6,624 6,799 6,962 7,281 7,665 7,857 8,064 8,281 Cox 1,706 1,790 1,867 1,937 2,058 2,141 2,218 2,279 2,381 Insight Mediacom Time Warner 3,456 3,747 3,946 4,082 4,213 4,349 4,486 4,614 4,800 Total 16,270 17,456 18,138 18,611 19,478 20,237 20,872 21,428 22,150 y/y change 9.3% 8.7% -1.2% -1.4% -1.0% -0.4% -0.3% 0.0% 0.3% Net Adds Adelphia (62) 47 (21) Cablevision Charter (32) (45) (7) 55 Comcast Cox Insight (0) 20 Mediacom (10) (11) 1 8 Time Warner Total 994 1, Penetration Adelphia 32% 34% 35% 35% 36% 36% 36% 38% 38% Cablevision 3% 7% 14% 20% 26% 31% 36% 39% 44% Charter* 37% 41% 41% 40% 41% 42% 43% 43% 44% Comcast 29% 31% 32% 33% 34% 36% 37% 38% 38% Cox 27% 29% 30% 31% 33% 34% 35% 36% 38% Insight 25% 26% 27% 28% 30% 31% 32% 33% 34% Mediacom 22% 23% 24% 25% 25% 25% 24% 25% 26% Time Warner 32% 34% 36% 37% 39% 40% 41% 41% 43% Total 29% 31% 32% 33% 35% 36% 37% 38% 40% Source: Company reports and JPMorgan estimates. Note: Penetration is of basic subs; 2002 quarterly figures for Comcast and Charter are JPMorgan estimates; Adelphia data for 2Q04 are actuals as of August 31, Data We expect the broadband share shift from cable to DSL to continue in the third quarter. Both the telecom and MSOs should post strong net adds, but the cable companies will likely continue to see a slow down in cable modem growth while telecom companies should see a pickup in the rates at which DSL subs are growing. 5

6 Figure 2: Share of Broadband Net Adds %; subscribers in 000s 100% 90% 80% 70% 60% 28% 30% 44% 24% 28% 33% 38% 36% 37% 35% 39% 36% 34% 34% 37% 37% DSL 45% 42% 48% 55% 52% Average = 62% 50% 40% 30% 20% 76% 72% 70% 72% 67% 62% 64% 63% 65% 64% 66% 66% 61% 63% 63% 56% 55% 58% 52% 45% 48% Cable 10% 0% Q299 Q399 Q499 Q100 Q200 Q300 Q400 Q101 Q201 Q301 Q401 Q102 Q202 Q302 Q402 Q103 Q203 Q303 Q403 Q104 Q204 Source: Company reports and JPMorgan calculations. We expect the RBOCs and Sprint to add a total of one million DSL subscribers, nearly 25% greater than the net adds of last year's third quarter. The top eight MSOs should add roughly 981 million new data subscribers this quarter, down 20% compared to year-ago levels. This should reflect a roughly 49% share of broadband net adds for the MSOs, relatively flat with 2Q levels and down significantly from 62% in the third quarter of

7 Table 4: Broadband Subscriber and Share Trends subscribers in 000s 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E Subscribers Adelphia ,072 1,164 1,184 Cablevision ,057 1,129 1,179 1,229 Charter 970 1,099 1,229 1,304 1,442 1,528 1,653 1,711 1,821 Comcast 3,253 3,620 4,037 4,388 4,861 5,284 5,679 6,005 6,430 Cox 1,271 1,407 1,561 1,674 1,843 1,987 2,149 2,246 2,400 Insight Mediacom Time Warner 2,313 2,613 2,776 2,960 3,161 3,351 3,501 3,656 3,831 Total cable 9,332 10,472 11,551 12,442 13,638 14,668 15,742 16,563 17,544 y/y change 49.2% 46.8% 43.0% 39.3% 34.1% 28.6% BellSouth 924 1,021 1,122 1,225 1,336 1,462 1,618 1,738 1,883 Qwest SBC 1,954 2,199 2,470 2,773 3,138 3,515 3,962 4,277 4,702 Sprint Verizon 1,640 1,670 1,830 1,931 2,116 2,319 2,664 2,944 3,244 Total DSL 5,156 5,576 6,158 6,712 7,446 8,237 9,337 10,195 11,195 y/y change 45.6% 44.4% 47.7% 51.6% 51.9% 50.3% Net Adds Adelphia Cablevision Charter Comcast Cox Insight Mediacom Time Warner Total cable 1,069 1,140 1, ,196 1,031 1, % Share 66.2% 73.1% 64.9% 61.7% 62.0% 56.6% 49.4% 48.9% 49.5% BellSouth Qwest SBC Sprint Verizon Total DSL , ,000 % Share 33.8% 26.9% 35.1% 38.3% 38.0% 43.4% 50.6% 51.1% 50.5% Total Net Adds 1,615 1,560 1,660 1,445 1,930 1,822 2,174 1,679 1,981 Source: Company reports and JPMorgan estimates. Note: 2002 quarterly figures for Comcast and Charter are JPMorgan estimates; Adelphia data for 1Q04 are actuals as of August 31, Voice Cable Should See Continued Growth We expect the cable industry to add roughly 160,000 new voice subscribers in the third quarter, representing cable s best quarter in two and a half years. New VoIP subs from Cablevision and Time Warner, coupled with continued gains at Cox and a reversal of sub losses at Comcast, should contribute to the strength. Telco Access Line Declines Should Continue We expect telecom providers to see continued, albeit moderating, access line losses in the third quarter. The four RBOCs and Sprint should lose a total of roughly 2.1 million lines this quarter, slightly lower than the 2.5 million losses posted in last year s 3Q. 7

8 Table 5: Retail Voice Subscriber and Access Line Trends subscribers and access lines in 000s 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E Lines BellSouth 21,265 20,873 20,602 20,152 19,839 19,497 19,079 18,605 18,228 SBC 48,960 47,787 46,781 45,819 44,961 44,312 43,785 43,026 42,505 Sprint 8,074 8,069 7,844 7,760 7,727 7,686 7,649 7,562 7,471 Qwest 16,062 15,848 15,667 15,131 14,815 14,518 14,264 13,938 13,621 Verizon 54,030 53,217 52,414 51,275 50,304 49,317 48,349 47,310 46,454 Total ILEC 148, , , , , , , , ,280 y/y change -7% -7% -7% -7% -7% -7% Adelphia Cablevision Charter Comcast 1,362 1,438 1,419 1,367 1,312 1,267 1,247 1,225 1,209 Cox ,067 1,134 1,211 Insight Mediacom Time Warner Total cable 2,059 2,210 2,262 2,271 2,302 2,364 2,524 2,663 2,823 y/y change 22% 12% 7% 12% 17% 25% Total Lines 150, , , , , , , , ,103 y/y change -7% -7% -7% -7% -7% -6% Net adds SBC (1,116) (1,173) (1,006) (962) (858) (649) (527) (759) (521) BellSouth (399) (392) (271) (450) (313) (342) (418) (474) (377) Sprint (68) (5) (225) (84) (33) (41) (37) (87) (91) Qwest (172) (214) (181) (536) (316) (297) (254) (326) (317) Verizon (687) (813) (803) (1,139) (971) (987) (968) (1,039) (856) Total ILEC (2,442) (2,597) (2,486) (3,171) (2,491) (2,316) (2,204) (2,685) (2,161) % Share 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Adelphia Cablevision Charter Comcast (20) (52) (55) (45) (20) (22) (15) Cox Insight Mediacom Time Warner Total cable % Share 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Total Adds (2,241) (2,445) (2,434) (3,162) (2,460) (2,254) (2,044) (2,546) (2,001) Source: Company reports and JPMorgan estimates. UNE-P Losses Should Continue UNE-P net adds should continue to decelerate for the second straight quarter to 727,000, down nearly 50% versus year-ago levels. Total lines lost to UNE-Ps should approach 24 million. 8

9 Table 6: Quarterly UNE-P Access Line Trends access lines in 000s 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E Lines BellSouth 1,359 1,545 1,774 2,009 2,194 2,389 2,677 2,889 3,041 Qwest ,043 1,168 1,274 SBC 4,204 5,014 5,784 6,159 6,560 6,737 6,900 7,065 7,215 Verizon 2,716 3,186 3,572 4,090 4,569 5,019 5,527 5,952 6,271 Total 11,493 13,421 15,235 17,023 18,705 20,112 21,674 23,026 24,072 y/y change 65.8% 80.2% 82.9% 72.9% 61.1% 47.5% 38.4% 32.0% 25.9% Net Adds BellSouth Qwest (14) (8) SBC Verizon Total 1,296 1,458 1,428 1,270 1, , Source: Company reports and JPMorgan estimates. LD Net Adds Should Slow as Product Matures We expect long-distance net adds for BellSouth, SBC, and Verizon to continue to slow compared with year-ago levels. Qwest should report higher levels that last year s 3Q net adds but should also be down from second quarter results. We expect the four RBOCs to add roughly 2.7 million new LD subscribers, down from 3.3 million net adds in the second quarter and 3.9 million net adds in the third quarter of As seen in Figure 3, although long-distance penetration is rising, we believe it may soon hit an inflection point. Table 7: Quarterly LD Voice Subscriber Trends subscribers in 000s 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E Subs BellSouth 416 1,002 1,930 2,786 3,440 3,960 4,596 5,131 5,639 Qwest ,128 1,700 2,173 3,369 4,094 4,710 SBC 4,995 6,071 7,554 9,842 11,507 14,416 16,984 18,432 19,373 Verizon 11,449 12,025 12,582 13,824 14,850 15,318 16,156 16,788 17,388 Total 28,309 31,123 35,178 41,404 46,347 51,185 57,261 61,233 64,500 y/y change 38.8% 45.9% 57.1% 76.6% 86.8% 87.8% 81.9% 61.1% 49.6% Net adds BellSouth Qwest , SBC 181 1,076 1,483 2,288 1,665 2,909 2,568 1, Verizon ,242 1, Total 1,244 2,238 3,498 4,984 3,917 4,370 5,238 3,340 2,666 Penetration BellSouth 0.3% 0.6% 1.2% 1.8% 2.3% 2.6% 3.1% 3.5% 3.9% Qwest 0.0% 0.0% 0.3% 0.7% 1.1% 1.5% 2.3% 2.8% 3.2% SBC 3.2% 3.9% 4.9% 6.4% 7.6% 9.6% 11.4% 12.6% 13.3% Verizon 7.3% 7.7% 8.1% 9.1% 9.8% 10.2% 10.9% 11.4% 12.0% Total 18.0% 20.0% 22.7% 27.1% 30.6% 34.2% 38.6% 41.7% 44.4% Source: Company reports and JPMorgan estimates. Note: LD penetration is of retail access lines. 9

10 Figure 3: Long Distance Subscribers- Penetration of Retail Lines Long Distance Penetration % of retail lines 45% 40% 35% 30% 25% SBC Verizon Qwest BellSouth 20% 15% 10% 5% 0% 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 Source: Company reports. Wireless Net Adds Should be Strong We expect wireless net adds to be strong in the third quarter. We expect the four RBOCs and Sprint to add more than 2.3 million new subscribers, similar to or slightly higher than year-ago levels. Qwest should gain wireless subscribers in the third quarter, finally reversing the trend from previous quarters as the resale agreement with Sprint begins to ramp up. Table 8: Quarterly Wireless Subscriber Trends subscribers in 000s 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E Subs BellSouth 8,830 8,770 8,846 9,056 9,354 9,611 9,847 10,018 10,198 Qwest 1,084 1, SBC 13,246 13,155 13,268 13,584 14,031 14,416 14,771 15,026 15,296 Sprint 14,510 14,760 14,959 15,290 15,474 15,867 16,281 16,877 17,244 Verizon 31,521 32,491 33,324 34,619 36,026 37,522 38,909 40,444 41,994 Sub Total 69,191 70,210 71,385 73,503 75,797 78,287 80,624 83,179 85,566 +T-Mobile 8,899 9,916 10,837 11,443 12,113 13,128 14,302 15,248 15,864 +Nextel 10,116 10,612 11,092 11,683 12,329 12,882 13,356 13,902 14,377 Total 88,206 90,738 93,314 96, , , , , ,807 y/y change 12.5% 13.6% 14.9% 16.0% 16.2% 15.5% Net adds BellSouth (43) (60) Qwest (33) (50) (46) (34) (42) (41) (55) (2) 20 SBC (64) (91) Sprint (78) Verizon 1, ,295 1,407 1,496 1,387 1,535 1,550 Sub Total 996 1,019 1,175 2,118 2,294 2,490 2,337 2,555 2,387 T-Mobile 872 1, ,015 1, Nextel Total 2,348 2,532 2,576 3,315 3,610 4,058 3,985 4,047 3,478 Source: Company reports and JPMorgan estimates. 10

11 Cablevision Neutral Conference Call Details Report Date: Nov AM EST Dial in: Replay: Replay Passcode: Investment Thesis We expect Cablevision to perform well operationally, and we believe that the company s current valuation does not reflect the value of its underlying assets. However, concerns about incremental investment in DBS will likely limit outperformance until the spin-off of Rainbow Media Enterprises (which owns CVC s national cable networks and the VOOM DBS business) is completed. Key Investment Points DBS Financing Is Positive, But Overhang May Remain Cablevision recently completed a $1.75 billion financing, which we believe is positive for CVC because it eliminates an important hurdle necessary for the spin-off to occur. However, we believe the DBS overhang is unlikely to be completely removed until the spin-off is completed. Triple Play Promotion Could Be Sign That Near-Term Results May Be Weak On June 21, Cablevision launched a $99 video, voice, and data service as part of a promotion that was supposed to last through July 31, 2004, but has been extended. We view the promotion negatively for two reasons. First, Cablevision s price point is well below current market pricing for similar packages, suggesting the company is potentially leaving money on the table. Second, our analysis of marginal costs suggests that the promotion may be dilutive to CVC s EBITDA margins. Valuation and Rating Analysis Cablevision is currently trading at an EV/subscriber multiple of roughly $3,377, slightly above the industry average. While we believe CVC should trade at a larger premium longer term, we do not expect multiple expansion in the near term until the DBS overhang is removed. Risks to Our Rating Return of M&A Premium Could Drive Outperformance Time Warner has publicly stated its intent to be acquisitive in If there is speculation about Cablevision becoming a potential acquisition candidate, it could cause CVC to trade at a larger premium to the group and outperform its peers. Further Investment in DBS Could Cause Underperformance We think any incremental investment prior to the planned spin-off would be negative for CVC s shares. Third Quarter Preview We expect CVC to report consolidated revenue of $1.15 billion and total EBITDA of roughly $398 million. We expect the cable unit to post 14% revenue growth and 13.6% EBITDA growth for the quarter. We forecast 5,000 basic net losses, 123,000 digital net adds, 50,000 data net adds, and 45,000 net adds 11

12 Table 9: Cablevision Income Statement and Key Operating Metrics $ in millions, except per share data, subscribers in 000s 1Q03 2Q03 3Q03 4Q03 1Q03 2Q03 3Q03E 4Q03E E 2005E Consumer services ,549 2,950 3,263 Business services Eliminations (4) (4) (2) (2) (4) (5) (5) (5) (12) (20) (22) Telecom revenue ,715 3,125 3,455 Rainbow ,104 1,219 MSG Other (18) (13) (16) (27) (22) (23) (21) (30) (75) (96) (94) Total revenue 1,045 1,024 1,027 1,262 1,187 1,202 1,151 1,398 4,358 4,937 5,409 Consumer EBITDA ,176 1,173 Business EBITDA Telecom EBITDA ,069 1,246 1,251 Rainbow EBITDA MSG (20) Other (3) (13) (6) (12) (19) (5) (13) (16) (35) (52) (51) Total EBITDA (ex DBS) ,304 1,531 1,593 Rainbow DBS (2) (3) (29) (48) (45) (72) (60) (60) (82) (237) 0 Total EBITDA ,222 1,294 1,593 y/y change (ex DBS) 27.5% 0.1% 14.4% 18.6% 12.7% 30.1% 13.6% 14.1% 14.3% 17.4% 4.0% Depreciation and amortization ,040 1,148 1,155 Stock plan income, other (3) (21) (9) (20) (14) 0 (12) (14) (54) (39) (46) Total operating income (46) (10) Interest expense, net (124) (130) (168) (182) (176) (180) (182) (183) (603) (721) (746) Other (78) 425 (19) (30) 16 (218) (9) (11) 299 (223) 0 Pre-tax income (202) 296 (187) (212) (161) (398) (191) (194) (304) (944) (746) Income taxes 21 (165) (33) Discontinued ops (20) (2) 8 (1) (1) (5) 0 0 (15) (6) 0 Net income (141) 162 (105) (197) (120) (187) (100) (116) (281) (524) (230) Preferred dividends (44) (44) (44) (131) 0 0 Net income to common (184) 118 (148) (197) (120) (187) (100) (116) (411) (524) (230) Shares out EPS $(0.50) $ 0.57 $(0.36) $(0.69) $(0.39) $(0.63) $(0.35) $(0.40) $(1.40) $(1.70) $(0.80) Key operating metrics Homes passed 4,368 4,384 4,393 4,401 4,408 4,417 4,453 4,464 4,401 4,464 4,495 Basic video subs 2,952 2,967 2,957 2,942 2,944 2,951 2,947 2,954 2,942 2,954 2,974 Penetration 67.6% 67.7% 67.3% 66.9% 66.8% 66.8% 66.2% 66.2% 66.9% 66.2% 66.2% Net adds (12) 15 (9) (15) 2 7 (5) 7 (21) Digital video subs ,056 1,166 1,289 1, ,417 1,663 Penetration of basic subs 13.6% 20.1% 25.5% 30.8% 35.9% 39.5% 43.7% 48.0% 30.8% 48.0% 55.9% Net adds Data subs ,057 1,129 1,179 1,229 1,295 1,057 1,295 1,506 Penetration 22.3% 22.8% 23.1% 24.0% 25.6% 26.7% 27.6% 29.0% 24.0% 29.0% 33.5% Net adds Voice subs Penetration 0.0% 0.0% 0.1% 0.7% 1.6% 2.6% 3.6% 4.6% 0.7% 4.6% 8.5% Net adds Free Cash Flow EBITDA 1,222 1,388 1,593 - Capex (888) (787) (599) - Cash interest (500) (730) (755) - Cash taxes (8) Change in WC (60) (56) 11 = Free cash flow (235) (185) 250 Source: Company reports and JPMorgan estimates. 12

13 Charter Underweight Conference Call Details Report Date: Nov AM EST Dial in: Replay: Replay Passcode: Investment Thesis We view Charter s shares as overvalued at current levels. Despite the company s success in eliminating some of its liquidity and refinancing problems, Charter s operational performance remains weak, in our view. Moreover, poor fundamental results are compounded by a highly leveraged balance sheet. Key Investment Points Operational Performance Remains Weak Charter continues to lose subscribers to DBS; we expect third quarter losses to be slightly higher than the previous quarter. We believe this is a function of CHTR s demographics and the propensity of its subs to switch to lower priced DBS offers. The low retention rate of recent promotional campaigns underscores this point. Changes in Senior Management Over the last two years, Charter has seen considerable turnover among senior management, including the CFO, the COO, heads of sales and marketing, and the CTO. We think this could foreshadow further operational weakness. Leverage Remains High Charter s leverage is the highest in the industry at 9.5 times annualized EBITDA. This causes the equity to have little or no value at an EBITDA multiple below eight times 2004E EBITDA, according to our calculations, and it would also make a potential asset sale difficult to execute, in our view. Pending Maturities Raise Financing Risk Roughly $590 million of Charter s convertible debt matures in October In our opinion, the company is unlikely to generate sufficient cash from operations to pay down this debt. While a potential refinancing is possible, this could result in a meaningfully higher cost of debt and/or significant dilution for current shareholders. Valuation and Rating Analysis Charter currently trades at an EV/2005E EBITDA multiple of 9.7 times, above the industry average of 9.0 times. We view this valuation as rich, given Charter s weak operating results and leveraged balance sheet. As such, we expect Charter s shares to underperform the sector, and we rate the stock Underweight. Risks to Our Rating Deleveraging Event Could Boost Equity Value A potential deleveraging event (such as an asset sale or debt for equity swap) could be positive for Charter s equity. However, Charter would have to extract a high price in a sale in order to lower leverage, making such an event difficult to execute, in our view. Third Quarter Preview We expect Charter to post $1.2 billion in revenue and $492 million in EBITDA for growth of 7% and 6%, respectively. We forecast a loss of 13,000 basic subs, but we expect the company to add 55,000 digital subs, and 109,000 data subs in the third quarter. 13

14 Table 10: Charter Income Statement and Key Operating Metrics $ in millions, except per share data, subscribers in 000s 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E 4Q04E E 2005E Video ,324 3,358 3,493 Cable modem Advertising Commercial Telephony and other Total Revenues 1,130 1,168 1,159 1,173 1,185 1,239 1,240 1,263 4,630 4,927 5,300 y/y change NA NA NA NA 4.9% 6.1% 7.0% 7.7% NA 6.4% 7.6% S, G & A ,407 1,469 1,605 Programming ,198 1,315 1,362 Advertising sales Marketing Total operating exp ,795 3,010 3,212 EBITDA ,835 1,917 2,088 Margin 38.5% 40.5% 40.0% 39.5% 38.0% 38.7% 39.7% 39.2% 39.6% 38.9% 39.4% y/y growth NA NA NA NA 3.4% 1.5% 6.0% 6.9% NA 4.5% 8.9% Deprec. and amort. NA 363 NA NA NA 1,480 1,195 Options expense NA 0 NA NA 14 (17) 2 3 NA 2 27 Special charges/other NA 24 NA NA NA EBIT NA 86 NA NA NA Interest exp., net NA (379) NA NA (389) (410) (412) (414) NA (1,624) (1,703) Taxes NA 98 NA NA NA Minority expense NA 155 NA NA (4) (6) (0) (0) NA (11) 298 Net Income NA (40) NA NA (390) (415) (336) (332) NA (1,473) (706) Pref stock accretion NA (1) NA NA (1) (1) (1) (1) NA (4) (4) Net inc. to common NA (41) NA NA (391) (416) (337) (333) NA (1,477) (710) / Shares outstanding NA 295 NA NA NA EPS NA ($0.14) NA NA ($1.29) ($1.09) ($1.11) ($1.10) NA ($4.55) ($2.34) Key Operating Metrics Homes passed 11,579 11,672 11,725 11,818 11,895 11,979 11,994 12,054 11,818 12,054 12,295 Basic video subs 6,266 6,228 6,239 6,201 6,192 6,133 6,120 6,102 6,201 6,102 6,114 Penetration 54.1% 53.4% 53.2% 52.5% 52.1% 51.2% 51.0% 50.6% 52.5% 50.6% 49.7% Net adds (49) (38) 11 (39) (9) (59) (13) (18) (114) (98) 11 Digital video subs 2,557 2,512 2,570 2,589 2,657 2,650 2,705 2,754 2,589 2,754 2,895 Penetration of basic 40.8% 40.3% 41.2% 41.7% 42.9% 43.2% 44.2% 45.1% 41.7% 45.1% 47.4% Net adds (32) (45) (7) Data subs 1,229 1,304 1,442 1,528 1,653 1,711 1,821 1,910 1,528 1,910 2,287 Penetration 12.9% 13.2% 14.3% 14.8% 15.9% 16.3% 17.3% 17.8% 14.8% 17.8% 18.6% Net adds Voice subs Penetration NA NA NA NA 26.4% 9.5% 5.4% 4.4% NA 4.4% 4.4% Net adds Free Cash Flow EBITDA NA 1,917 2,088 Capex NA (815) (931) Cash interest NA (1,388) (1,494) Cash taxes NA 0 0 Working capital NA 1 0 FCF NA (284) (320) Source: Company reports and JPMorgan estimates. 14

15 Comcast Overweight Conference Call Details Report Date: Oct 27 8:30 AM EST Dial in: Replay: Replay Passcode: Investment Thesis We believe strong EBITDA growth and a potential for revenue reacceleration make Comcast s shares attractive at current levels. Having delivered on its turnaround goals in 2003, and with the unsuccessful Disney bid behind it, we expect management to focus on extracting meaningful synergies in 2004 and 2005, which should result in industry-leading growth. Key Investment Points 2004 Should Be Year of Synergies We expect synergies to be the major driver of growth in 2004, with the biggest contributions coming from growth in national advertising revenue (roughly $100 million in 2004E) and larger than expected programming cost savings (which should exceed management s guidance of $350 million). Modest Revenue Reacceleration Should Be Positive for Equity We believe Comcast s relatively slow revenue growth in 2003 (especially compared with Cox) negatively impacted the company s valuation. However, we expect a modest reacceleration in revenue growth (from 9% in 2003 to more than 10% in 2004), which will likely be driven by continued basic subscriber growth, strong advertising revenue growth, and a re-emphasis on the voice business in the second half of This should be positive for Comcast's valuation relative to its peers. Valuation and Rating Analysis Comcast s shares currently trade at an EV/2005E EBITDA multiple of 8.6 times, a discount to the industry average of 9.0 times. On an EV/Sub basis, the company s shares trade in line with the group, at $3,260 per subscriber. We believe Comcast s shares warrant a premium to other MSOs, especially non-urban operators. We expect Comcast s shares to outperform, given the company s strong EBITDA growth and re-accelerating top-line growth. Risks to Our Rating National Advertising Effort Could Prove Unsuccessful We expect Comcast to generate meaningful revenue by leveraging its scale to increase its share of the national advertising market. However, the company's EBITDA growth and its equity value could be negatively affected if it is unable to grow national advertising revenue at a meaningful pace. Third Quarter Preview We expect total revenue of $5.0 billion in the third quarter, implying 10.4% growth over last year and total EBITDA of almost $2.0 billion. We expect Comcast to gain 21,000 basic subscribers, 217,000 digital net adds and 425,000 data net adds in the third quarter. Voice subs should shrink by 16,000, versus a loss of 55,000 voice subscribers in last year s third quarter. 15

16 Table 11: Comcast Income Statement and Key Operating Metrics $ in millions, except for per share data, subscribers in 000s 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E 4Q04E E 2005E Video 2,982 3,037 3,020 3,058 3,181 3,249 3,204 3,240 12,098 12,874 13,549 Cable modem ,255 3,082 3,771 Phone ,011 Advertising ,111 1,290 1,497 Other Franchise fees Total cable revenues 4,231 4,379 4,374 4,507 4,647 4,839 4,810 4,940 17,491 19,236 21,179 Content, corporate and other ,117 Total Revenues 4,455 4,584 4,546 4,742 4,908 5,066 5,017 5,228 18,327 20,220 22,296 y/y change 21.3% 21.4% 21.2% 21.9% 10.2% 10.5% 10.4% 10.3% 21.4% 10.3% 10.3% Cable EBITDA 1,421 1,597 1,620 1,712 1,719 1,920 1,948 2,060 6,350 7,647 8,523 Content/Corp/Other EBITDA Total EBITDA 1,427 1,612 1,632 1,720 1,733 1,952 1,975 2,083 6,391 7,744 8,659 EBITDA margin 34% 36% 37% 38% 37% 40% 41% 42% 36% 40% 40% EBITDA growth (y/y) 24% 24% 26% 46% 21% 21% 21% 21% 30% 21.2% 12% Depreciation ,195 3,349 3,598 Amortization ,307 1,137 1,013 Operating income ,889 3,258 3,993 Interest expense, net (525) (492) (565) (439) (500) (484) (449) (430) (2,021) (1,814) (1,547) Investment inc/(exp) (230) 9 (182) 334 (9) (69) Other income/(exp) (2) (27) (10) Income/(Loss) before taxes (495) (68) (242) (195) 1,567 2,446 Income tax (exp)/benefit 68 (77) 103 (215) (76) (234) (148) (190) (121) (648) (992) Minority interest (81) (96) (14) (12) 1 (15) 1 1 (203) 4 3 Income/(loss) bef. Extraord. (508) (241) (153) (519) 923 1,457 Extraordinary items - - 3, , Net income/(loss) (508) (241) 3, , ,457 Shares outstanding 2,255 2,255 2,257 2,269 2,268 2,267 2,267 2,267 2,259 2,267 2,267 Diluted EPS ($0.23) ($0.11) ($0.07) $0.17 $0.03 $0.12 $0.10 $0.13 ($0.23) $0.41 $0.64 Key Operating Metrics Homes passed 39,400 39,700 39,747 39,800 40,000 40,300 40,542 40,596 39,800 40,596 41,245 Basic video subs 21,454 21,467 21,463 21,537 21,572 21,477 21,498 21,532 21,537 21,532 21,678 Penetration 54.5% 54.1% 54.0% 54.1% 53.9% 53.3% 53.0% 53.0% 54.1% 53.0% 52.6% Net adds (4) (95) (5) 146 Digital video subs 6,799 6,962 7,281 7,665 7,857 8,064 8,281 8,533 7,665 8,533 9,160 Penetration of basic 31.7% 32.4% 33.9% 35.6% 36.4% 37.5% 38.5% 39.6% 35.6% 39.6% 42.3% Net adds , Data subs 4,037 4,389 4,862 5,285 5,679 6,005 6,430 6,823 5,285 6,823 8,449 Penetration 10.2% 11.1% 12.2% 13.3% 14.2% 14.9% 15.9% 16.8% 13.3% 16.8% 20.5% Net adds ,664 1,539 1,625 Voice subs 1,419 1,367 1,312 1,267 1,247 1,225 1,209 1,224 1,267 1,224 2,267 Penetration 3.6% 3.4% 3.3% 3.2% 3.1% 3.0% 3.0% 3.0% 3.2% 3.0% 5.5% Net adds (20) (52) (55) (45) (20) (22) (16) 15 (172) (43) 1,043 Free Cash Flow EBITDA 6,391 7,744 8,604 + Capex (4,161) (3,507) (2,789) + Cash interest (2,053) (1,790) (1,523) + Cash taxes (945) (200) (992) + Working capital (196) (94) (132) = FCF (964) 2,152 3,169 Source: Company reports and JPMorgan estimates. 16

17 Cox Neutral Conference Call Details Report Date: Unavailable Dial in: Unavailable Investment Thesis We downgraded our recommendation on Cox s shares from Overweight to Neutral on August 1, 2004, following the announcement of a tender offer by CEI (Cox s parent company) for Cox s public float. With the stock trading above CEI's offer price of $32 per share, we see little room for upside from current levels. Key Investment Points Significantly Higher Offer Unlikely Cox's shares currently trade at a 4% premium to the offer price of $32 per share. We think there is a fair chance that CEI will not have to increase its current bid, although we acknowledge the possibility of a potential increase in CEI s offer. Nonetheless, we see little upside potential even if the bid is increased because we think CEI is unlikely to pay more than $4,000 per sub, which would reflect minimal upside from current levels. Valuation and Rating Analysis We see little room for upside (or downside) from current levels given that Cox s shares are trading close to CEI's offer price, and a meaningful increase in the offer price is unlikely, in our opinion. As such, we expect Cox s shares to perform in line with the group, and we rate the stock Neutral. Risks to Our Rating Change in CEI Offer Could Impact Shares We believe CEI is unlikely to increase its bid beyond $4,000 per subscriber. However, if CEI is forced (and willing) to pay a meaningfully higher price, Cox's shares could outperform. On the other hand, Cox's shares could underperform if CEI decides to drop its offer. We view the likelihood of either scenario occurring as low Third Quarter Preview We expect Cox to post $1.6 billion in revenue and $625 million in EBITDA for the third quarter, and annual growth of 12% and 15%, respectively. The company should gain 35,000 basic subs, 103,000 digital subscribers, 154,000 data subscribers, and roughly 77,000 voice subscribers in the quarter. 17

18 Table 12: Cox Income Statement and Key Operating Metrics $ in millions, except per share data, subscribers in 000s Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04E Q4/04E E 2005E Video revenues ,659 3,866 4,120 Residential data ,121 1,321 Residential voice Other Total residential revenue 1,222 1,258 1,289 1,324 1,369 1,402 1,435 1,478 5,093 5,683 6,272 Commercial Advertising Total Revenue 1,366 1,424 1,460 1,508 1,540 1,595 1,635 1,690 5,759 6,460 7,132 y/y change 16.0% 14.4% 14.5% 12.5% 12.7% 12.0% 12.0% 12.0% 14.3% 12.2% 10.4% Programming Costs ,159 1,288 1,423 SG&A ,483 2,719 2,966 Total Operating Costs ,010 1,045 3,642 4,007 4,389 EBITDA ,117 2,454 2,743 margin 35.1% 37.4% 37.2% 37.2% 36.8% 38.6% 38.2% 38.2% 36.8% 38.0% 38.5% y/y growth 19.3% 20.4% 19.9% 14.2% 18.3% 15.8% 15.1% 14.8% 18.3% 15.9% 11.8% Depreciation and amortization ,530 1,642 1,727 Operating income ,016 Interest expense (130) (130) (117) (97) (97) (96) (109) (107) (474) (408) (399) Gain on investments, derivatives (4) (1) Net loss of affiliates and other, net (3) (5) (447) (6) (1) (8) 0 0 (460) (9) (0) Pre-tax income (41) 133 (354) (205) Income taxes 14 (13) 140 (68) (46) (50) (34) (38) 73 (168) (216) Minority interest (2) (2) (1) (1) (1) (6) 0 0 Net income (29) 118 (215) (11) (138) Shares outstanding EPS ($0.05) $0.19 ($0.35) ($0.02) $0.09 $0.10 $0.10 $0.11 ($0.22) $0.41 $0.65 Key Operating Metrics Homes passed 10,163 10,206 10,258 10,321 10,376 10,442 10,463 10,527 10,321 10,527 10,581 Basic video subs 6,260 6,223 6,254 6,285 6,316 6,263 6,297 6,329 6,285 6,329 6,396 Penetration 61.6% 61.0% 61.0% 60.9% 60.9% 60.0% 60.2% 60.1% 60.9% 60.1% 60.4% Net adds 35 (37) (54) Digital video subs 1,867 1,937 2,058 2,141 2,218 2,279 2,381 2,474 2,141 2,474 2,825 Penetration 18.9% 19.4% 20.4% 21.1% 21.7% 21.9% 22.9% 23.5% 21.1% 23.5% 26.7% Net adds Data subs 1,561 1,674 1,843 1,987 2,149 2,246 2,400 2,541 1,987 2,541 3,016 Penetration 15.8% 16.8% 18.3% 19.5% 21.0% 21.7% 23.0% 24.1% 19.5% 24.1% 28.5% Net adds Voice subs ,067 1,134 1,211 1, ,290 1,609 Penetration 18.5% 18.4% 19.3% 19.6% 21.0% 22.2% 23.7% 25.1% 19.6% 25.1% 29.1% Net adds Free Cash Flow EBITDA 2,117 2,454 2,743 Capex (1,561) (1,344) (1,262) Cash interest (421) (446) (397) Cash taxes 26 (20) 0 Working capital 55 (7) 43 FCF ,126 Source: Company reports and JPMorgan estimates. 18

19 The DirecTV Group Overweight Conference Call Details Report Date: Nov PM EST Dial in: Replay: Replay Passcode: Investment Thesis We view DTV's shares as attractive at current levels for two reasons. First, we believe recent non-core asset sales should help the company focus on the core U.S. DBS business and build on strong second half 2004 results. Second, we believe News Corp. and DTV can extract meaningful synergies by leveraging News existing DBS operations. Collectively, this should help DTV deliver industry-leading EBITDA growth over the next five years. Key Investment Points Accounting for Acquisitions and Divestures Roughly 357,000 NRTC subs and one million Pegasus subs were transitioned to the O&O base at the end of July and August, respectively. As a result of this, while DTV should see a lift in EBITDA, we expect the integration to depress ARPUs. In addition, the recent divesture of HNS's Set-Top Box and Software System divisions has lowered our EBITDA estimates. All of our second half and 2004 estimates have been adjusted to reflect these changes. News Adds Experienced Management; Potential for Meaningful Synergies We believe News Corp. could leverage its global DBS platform to cut costs at DTV; the company hopes to generate annual synergies of $ million. If realized, these synergies represent upside potential to our model and should be meaningfully positive for DTV. Acquisition of Sky s Latin American Properties Is Positive We believe DTV s acquisition of Sky s Latin American assets is positive. While we believe DTV paid fair value, the acquisition price was below the worst-case scenario many investors envisioned, and should remove an overhang from DTV s shares. The consolidation is also likely to be good for the Latin American Pay TV market in the long term, in our view. Valuation and Rating Analysis DirecTV currently trades at an EV/subscriber multiple of roughly $1,600 per sub, which reflects a discount to Echostar s $1,900 multiple and a $3,260 cable average. We believe this discount is unwarranted, and we expect the valuation gap to close as DirecTV delivers on its growth strategy. Risks to Our Rating Rising SAC Costs Could Drive Underperformance We expect SAC costs to remain steady at current levels. However, intensifying competition in the video market could cause SAC to be higher than expected, which would likely be negative for DTV s shares. Third Quarter Preview We expect DTV to report almost $2.8 billion in revenue and $226 million in EBITDA. DTV U.S. should generate $2.5 billion in revenue, driven by 429,000 O&O net adds. We expect SAC to slightly increase at roughly $652 per gross add. 19

20 Table 13: The DirecTV Group Income Statement and Key Operating Metrics $ in millions, except per share data, subscribers in 000s 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04E 4Q04E E 2005E Revenues DirecTV US 1,708 1,800 1,932 2,255 2,081 2,217 2,502 2,986 7,696 9,786 11,991 DirecTV Latin America Hughes Network Systems ,322 1, PanAmSat Eliminations and Other (68) (76) (80) (101) (66) (106) (79) (81) (324) (332) (281) Total Revenues 2,227 2,371 2,570 2,953 2,493 2,643 2,791 3,297 10,121 11,224 13,244 y/y change (DirecTV US) 16.5% 16.2% 19.6% 24.4% 21.8% 23.1% 29.5% 32.4% 19.4% 27.2% 22.5% EBITDA DirecTV US ,617 DirecTV Latin America (22) (29) (17) (17) (85) Other DTH Hughes Network Systems (22) (9) (21) (6) (4) 2 (28) 81 PanAmSat Eliminations and Other (33) (35) (23) (158) (75) (41) (41) (42) (249) (198) (190) Total EBITDA , ,647 y/y change (DirecTV US) 171.1% 118.9% 20.1% -13.4% -37.0% -46.1% 7.2% 53.5% 54% -14% 96% memo: DTV US margin 13% 18% 12% 7% 7% 8% 10% 9% 12% 8% 13% Consolidated margin 14% 17% 14% 5% 4% 5% 8% 7% 12% 6% 12% Depr. and amort , Operating income (113) (96) (28) (33) 855 Interest income Interest (expense) (81) (84) (76) (72) (23) (21) (44) (44) (313) (133) (177) Reorganization (193) 45 (2) 0 0 (193) 43 0 Other (35) (15) (8) (3) (3) (19) Income/(Loss) bef. taxes/min int (67) 57 3 (329) 323 (41) (336) Income tax (expense)/benefit 24 (21) (147) 20 (15) (19) 72 (161) (388) Minority interest (7) (7) (6) (7) (1) 3 (8) (7) (28) (13) 0 Income/(Loss) from cont. ops (51) (312) 175 (18) (12) (2) (293) Shares outstanding 1,382 1,382 1,383 1,383 1,384 1,385 1,385 1,385 1,383 1,384 1,384 Operating EPS ($0.04) $0.02 $0.03 ($0.23) $0.13 ($0.01) ($0.01) ($0.00) ($0.21) $0.10 $0.28 Key Operating Metrics DirecTV US O&O subs 9,768 9,949 10,275 10,680 11,140 11,595 13,439 13,865 10,680 13,865 15,005 DirecTV US O&O net adds ,187 1,770 1,140 NRTC subs 1,655 1,610 1,578 1,532 1,491 1, ,532 1,445 0 NRTC net adds (30) (45) (32) (46) (41) (46) 0 0 (153) (87) 0 DirecTV US SAC ($/gross add) Pre-marketing cash flow ,009 1,120 1,170 3,218 4,225 4,994 Margin 41% 43% 44% 39% 44% 46% 45% 39% 42% 43% 42% Free Cash Flow EBITDA 1, ,647 Capex (821) (729) (733) Cash interest (182) (177) (177) Cash taxes Working capital 468 (346) 182 FCF 691 (564) 919 Source: Company reports and JPMorgan estimates. 20