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HomeMy WebLinkAboutJune 20, 2002CITY OF COLUMBIA HEIGHTS 590 40th Avenue N,E., Columbia licights, MN 55421-3878 (763) 706-3600 TDD (763) 706-3692 Visit Our WeUsite nt tvlvluci.columbia-laeights.nm.u.r MEETING OF THE TELECOMMUNICATIONS COMMISSION 7:00 PM, THURSDAY, JUNE 20, 2002 CITY HALL CONFERENCE ROOM Please contact Jean at 706-3613 if you are unable to attend. AGENDA• 1. Call to Order 2. Roll Call 3. Approval of the Minutes of the Meeting of April 18, 2002 4. Old Business a. Channel Check b. Correspondence Log and Company Follow Up on Complaints- c. Status of Cease and Desist Order to AT & T d. Othet• Old Business 5. New Business a. Receipt of Franchise Fee Payment for 15` Quarter b. Resolution Denying without Prejudice, the Application of AT & T Corp for Approval of the Transfer of Control of the Cable Franchise of AT & T Broadband c. New AT & T Broadband Internet Service d. MACTA Summer Seminar e. Changes to Basic Cable Rates and New Packages Being Offet•ed f AT & T `s Current Reporting of Telephone Statistics g. Other New Business 7. Reports a. Report of Commissioners Assigned to Access Channels: Educational Access--Dennis Stroik; Library Access-Bob Buboltz; Government Access--Ken I-Ienke; Public Access-- Reuben Ruen b. Report of AT & T Broadband- Aptil & May 2002 Reports --Programs Produced --Installation and Set•vice Activity Report --Current Channel Line Up and Service Charges a Report of the Cable Attorney d. Report of the Assistant to the City Manager 8. Adjournment Attachments The City of Columbia Heights dots not dtsm~imh~atc on the baste of disability h~ the admission or access to, or treatment or employment in, its services, programs, or activities. Upon request, accommodation will be provided to allmv individuals with disabilities to pmYicipate in all Clty of Columbia Heights' services, programs, and act(vities. Anxillm•y aids fm• handicapped persons arc available upon request when the request is made at least 96 Imurs in advance. Plcasc call [he Deputy City Clm•k flt 706-3611, to make arrangements. (TDD 706-3692 fm' deaf m' hem~ing impaired only) THE CITY OF COLUMBIA HEIGHTS DOES NOT DISCRIMINATE ON THE BASIS OF DISABILITY IN EMPLOYMENT OR THE PROVISION OF SERVICES EQUAL OPPORTUNITY EMPLOYER THE MINUTES OF THE TELECOMMUNICATIONS COMMISSION FROM THURSDAY, APRIL 18, 2002 The meeting was called to order at 7:00 p.m. by Dennis Stroik, Chairperson. ROLL CALL: Commission Members: Council Representative: City Representative: Legal Counsel: AT & T Broadband Rep: APPROVAL OF MINUTES Dennis Stroik, Dave Mahoney, Bob Buboltz, Dan Swee, and Reuben Ruen Ken Henke and Brad Peterson were excused Bruce Nawrocki Jean Kuehn Stephen Guzzetta Kathi Donnelly-Cohen Motion by Buboltz, second by Ruen, to approve the minutes from the meeting of February 21, 2002. All ayes. OLD BUSINESS A. Channel Check All were fine, except the Educational Access #18 was "jumpy", which may have been the tape that was playing. Later, re-checked Channel 18 and it was fine when that particular tape was not playing. B. Correspondence Log and Complaint Follow Up. Jim Johnson-4135 Arthur St-Complained that Starz free preview that was advertised was not available as promised. However, Kathi stated that it was available to Columbia Heights subscribers and said it had been a problem with his converter box. He will schedule a service call when it's convenient for him.. Resolved Olga Wood-4160 3`d St NE-She was experiencing regular interference daily at 7 a.m. and 5 p.m. and no one else in her building was having this problem. Service techs witnessed interference and showed her it was her TV set. Resolved William Keniv-4355 McLeod St- Requested that the line that had been installed earlier in the winter be buried to allow him to rake and mow. There was still snow of the ground in April and crews scheduled him for cable burying at the end of April. Resolved. Other Old Business Rueben question if the digital channels were checked. Kathy explained that the digital package was not provided to City Hall and would not be available without paying for this premium service. General discussion of how could the Commission check the channels if the Digital were not available for review. No conclusion reached „,J NEW BUSINESS A. Receipt of 2001 Annual Report To comply with franchise requirements, the 2001 Annual Report was received and included in the agenda packet. Motion to acknowledge receipt of Complete 2001 Report (minus the page numbers) by Buboltz second, by Swee. All Ayes B. Mandatory Arbitration Provision in AT & T's Customer Service Agreement Enclosed in the agenda packets was a copy of Resolution 2002-30 Being an Order to Cease and Desist regarding a violation of the terms of the Franchise. AT & T Broadband sent a new Customer Service Agreement to subscribers in the City. Attorney Guzzetta explained the "Cease and Desist" order being proposed to the commission for recommendation to the City Council. The new CSA unilaterally attempts to impose a mandatory arbitration provision governed by the Federal Arbitration Act (The "Arbitration Clause"). This clause purports to eliminate certain rights otherwise enjoyed by subscribers, most importantly, the right to damages other than actual damages and the right to bring a class action lawsuit. The new CSA states that acceptance of its terms, including the Arbitration Clause, will be presumed where there is continued use of service and that if a subscriber finds the terms of the new CSA unacceptable, the only recourse is to cancel service. The terms of the CSA were not negotiable and were offered on a "take it or leave it" basis. AT & T is required to comply with all laws affecting the cable system, and they may be assessed a penalty of $50 per day for failing to comply with any Franchise provision. The method of notification as a bill stuffer was also questioned. It seems to insure that no one would be likely to read and therefore, would be unaware of their rights being revoked. It was noted that many other businesses also engage in this questionable practice. Motion by Buboltz, second by Mahoney to recommend the City Council adopt Resolution 2002- 30, being art order to AT & T to cease and desist. All Ayes C. Franchise Fee Ruling for High Speed Intemet Service Notice was received that on Mazch 15, 2002, the FCC issued a regulatory ruling that franchise fees need not be paid on high-speed Internet over cable, as cable modem service is an interstate information service within the scope of its jurisdiction over interstate and foreign communications. The FCC explained, "revenue from cable modem service would not be included in the calculation of gross revenues from which the franchise fee ceiling is determined." Guzzetta stated that this is not the final ruling and since it would be appealed, AT&T should continue to pay the total franchise fees to avoid the problematic issues related to rebilling and collecting fees at a later time. Ruen asked if the reduced fee would effectively reduce the cost to the consumer. Guzzetta indicated that it would. Donnelly-Cohen indicated it would be problematic for the Company to bill their customers and then have to rebate the monies when the courts upheld the ruling. To comply with this order, AT & T Broadband will no longer bill customers for franchise fees on cable modem service as of April 1, 2002. Customers will be notified and credits will be issued on fees for service after March 15, 2002. D. Status of Merger between AT & T and Comcast Guzzetta reported that they are analyzing the information received and on March 4, 2002 sent a data request for additional information, to which AT & T responded stating it was irrelevant. Additional information has been received but the 120 days allowed for review does not begin until all necessary and requested information is received. E. MALTA Legislative Issues Luncheon Council Liaison Bruce Nawrocki will be attending the MALTA Legislative Luncheon being held May 3, 2002 at the Kelly Inn in St. Paut. F. Other New Business REPORTS A. Report of Commissioners Educational- Nothing to report Government- Nothing to report Library-Nothing to report Public-Nothing to report B. Report of AT & T Broadband- The reports for February, March and April were enclosed in the agenda packets. Also included were the Community Television Programming Reports • Programs produced ^ Installation and Service activity report ^ Current channel line up and charges Kathi reviewed the reports and answered questions. Dan Swee asked about the "Class for area teachers" that was listed and Jean reported that Steve Antus at the cable access studio had given video production instructions to Columbia Heights middle school teachers. C. Report of the Cable Attorney Guzzetta noted that a recent FCC study indicates that cable TV pricing has increased at 7.5%, outpacing inflation. D. Report of the Special Projects Coordinator The City Hall open house will be Wednesday, May 22"d from 4 pm to 7 pm and it would be appreciated if commissioners could spend a short time at a table explaining to other residents what commissions do. It was suggested that nametags be provided for all members of the Commission so that they would be identifiable to others even as they enjoyed the open house. An invitation to the Mayor's prayer breakfast to be held on May 15 was given to the members. Motion by Buboltz„ second by Mahoney, to adjoatrn the meeting at 7: 50 pm . All ayes. Respectfully submitted, Jean Kuehn Secretary Pro-tem Davitl G. Seykora Vlce Presltlent -Law & Public Policy ®_ AT&T ~~ Telephone: 651-493-5260 Facsimile: 651-493-5288 Mr. Thomas D. Creighton Creighton Bradley & Guzzetta 5402 Parkdale Drive Suite 102 Minneapolis, MN 55416 10 River Park Plaza Si, Paul, MN 55107 5 "7 .. June 5, 2002 ~~~~'~~~~~~ ` ~ ~'',~~ ~L~ ggyygg~~~}}~~. ~.~ ~QU7. .. ariRB~° ~~ .~ Re: Ramsey/Washington Counties Suburban Cable Commission, North Suburban Communities Commission, Burnsville/Eagan Telecommunications commission, North Metro Telecommunications Commission, Coon Rapids, and Columbia Heights Dear Mr. Creighton: I am writing to follow up on our lengthy discussions on May 17, 2002 and on May 28, 2002 regarding the arbitration provisions in our customer service agreement policies ("CSA"). We believe that our mutual agreement to engage in those confidential and privileged discussions facilitated a very candid and creative exchange of ideas and was useful in coming to a better understanding of the concerns of your clients with respect to those provisions. We believe the discussions were also very constructive in developing a process and framework for addressing those concerns in a manner that satisfies the needs of both the Company and your clients. During our meetings, we again provided assurances to your clients that the terms of our franchises remain unaffected by the arbitration provisions, and in addition the Company's existing mechanisms for resolving customer complaints directly with the customer as well as complaint resolution procedures followed by various local franchise authorities remain unchanged by the arbitration provisions. In our discussions, we also provided you with an assurance that we have not invoked the arbitration provisions in any matter involving subscribers in the franchise areas of your clients. Moreover, we have not invoked the arbitration clause in any dispute in our Minnesota/Wisconsin service area since those provisions were added to our CSA. In this respect, our differences over the appropriateness of the arbitration provisions are still theoretical in nature, Thus ~~ Recycled Paper (though as we articulated in our May 3, 2002 letter we believe the arbitration provisions are lawful) any enforcement activity under the franchises at this time would be premature. As you know, we are required to provide to our customers a copy of our policies and procedures on an annual basis. We are planning for another distribution of our CSA to our customers this Fall. At our May 28 meeting, we reached an understanding on a framework for resolving this subject. We gave you and your clients our commitment that we will be making substantial revisions to our arbitration provisions in this year's CSA. Prior to implementing these revised provisions, we will share a copy with you. We are confident that you will conclude that the revisions we have under consideration will address the concerns you described in our meetings. Based on our discussions, you indicated that you will recommend that all your clients hold all enforcement activities in abeyance pending review of our revised arbitration provisions. I believe this summarizes the substance of our discussion. If you have any questions or concerns regarding this matter, please contact me immediately. Sincerely, ~~(~ ~~~ David G. Seykora cc: Tim Finnerty Cor Wilson Heidi Arnson J,~ff Karlson vtinda Magee Terry O'Connell c~.d AT&T Facsimile: (651)493-5288 May 3, 2002 NIs. Linda Magee Assistant to City Manager Columbia Heights Cable Commission City of Columbia Heights 590 40"' Avenue NE Columbia Heights, MN 55421 Re: Franchise Fee Payment Dear Ms. Magee: Enclosed please find the franchise fee payment in the amount of $34,082.58 for the quarter ending March 31, 2002. If you have any questions regarding this payment, please contact me at 651-493-5284. Very truly yours, Trisha Peudzirnas Franchise and Compliance Specialist Enclosures `a~(~ Recycled Paper . 8 .. AT&T Broadband, LLC Accounts Payable - P.O. Box 773805 Denver. CO 80217-3805 - (877) 493-6526 cHENo 4519095 INVOICE NO. INV. DATE DESCRIPTION DISC. PAYMENT AMT 410511-IQ02FF 01•APR-02 IQ02 CITY OF COLUMBIA HEIGHTS FF PMT 0.0 34, 082.58 VENDOR # 183813 CHECK DATE 30•APR-02 CHECK AMOUNT '"""34,082.68 HIS DOCUMENT IS VOID IF aACKOROUND DESIGN IS NOT COLORED CHECK 4519095 Accounts Payable NUMBER AT&TBroadband P.O. Box 173805 Denver, CO 80217-3805 VENDOR NO. DATE (877) 493, s52s " 193813 30-APR-02 PAY EXACTLY AMOUNT Thirty Four Thousand and Eighty Two Dollars and 58 tents. ,~ *****34,0$2.5$ To THE COLUMBIA HEIGHTS CITY OF MM ATBT BROADBAND, LLC. ORDER ~ ~ ~ ~ ~VIO/IID~AFTER 180 DAYS of 590 40TH AVE NE /~~M1*ry"v'~~s ~ n~ COLUMBIA HEIGHTS, MN 55421-3878 ,V~?' ,/~`J(~_+~^(/' United States MELLON BANK, N.A. PIITSOURGH, PENNSYLVANIA 60160 Autryonz¢tl Slgner 433 1+`451909511' I:D433016D il: D 17~r1978411' I f RESOLUTION NO. 2002-42 A RESOLUTION DENYING, WITHOUT PREJUDICE, THE APPLICATION OF AT&T CORP. FOR APPROVAL OF THE TRANSFER OF CONTROL OF THE CABLE FRANCHISE OF AT&T BROADBAND WHEREAS, the City of Columbia Heights, Minnesota ("Franchising Authority") has granted a nonexclusive cable television franchise ("Franchise") to AT&T Broadband (the "Franchisee"), a subsidiary of AT&T Corp. ("AT&T"), to provide cable television service; and WHEREAS, AT&T, AT&T Broadband Corp., Comcast Corporation, AT&T Broadband Acquisition Corp., Comcast Acquisition Corp. and AT&T Comcast Corporation have entered into an Agreement and Plan of Merger (the "Merger Agreement") dated as of December 19, 2001; and WHEREAS, under the Merger Agreement, AT&T Broadband Corp.'s and Comcast Corporation's respective cable television systems will be combined into a new company incorporated in Pennsylvania as AT&T Comcast Corporation (the "Proposed Transaction"); and WHEREAS, under the Proposed Transaction, the Franchisee will continue to hold the Franchise, but Franchisee's ultimate parent company will be different and, consequently, the ultimate ownership and control of the Franchise will change as well; and WHEREAS, the Franchising Authority has concluded the Proposed Transaction will result in a change of control of the Franchisee and the Franchise; and WHEREAS, the Proposed Transaction requires the prior written approval of the Franchising Authority; and WHEREAS, AT&T and AT&T Comcast Corporation filed a copy of Federal Communications Commission Form 394, together with certain attached materials, with the Franchising Authority on March 5, 2002, which materials more fully describe the Proposed Transaction and which form, with its attachments, contains certain promises, representations and warranties by AT&T, AT&T Broadband Corp., Comcast Corporation and AT&T Comcast Corporation (the "Transfer Application"); and WHEREAS, Franchisee and Comcast Corporation, through its subsidiaries, provided written responses to some of the data requests issued by the Franchising Authority, including directing the representatives of the Franchising Authority to publicly filed and available information, and information posted to Comcast Corporation and AT&T websites (the "Data Request Response"); and WHEREAS, the Franchising Authority has reviewed the Transfer Application, the Data Request Response, and the May 30, 2002, Report of Creighton, Bradley & Guzzetta, LLC Relating to Che FCC Forms 394 and Related Materials Filed by AT&T Corp. and Comcast Corporation, iuchiding the appendices thereto (the "Transfer ReporC"), and has considered all relevant factors, including (but not limited to) AT&T Comcast Corporation's financial, technical, legal, managerial and character qualifications, and the Proposed Transaction's impact on services and rates; and WHEREAS, the Franchising Authority has concluded that, for the reasons specified in the Transfer Report, which is incorporated herein by reference: (i) AT&T Comcast Corporation is not financially qualified to control the Franchisee; and (ii) the Proposed Transaction will adversely affect services and rates and Franchisee's ability to comply with its Franchise commitments; and WHEREAS, under the circumstances, the Franchising Authority has determined that it would not be in the best interests of the Franchising Authority and subscribers to approve the Proposed Transaction. NOW, THEREFORE, BE IT RESOLVED BY THE CITY OF COLUMBIA HEIGHTS, MINNESOTA: For the reasons set forth above, the Transfer Application is denied, without prejudice to any party to refile for approval of this Proposed Transaction or a similar transaction. 2. This Resolution is a final decision on the Transfer Application within the meaning of 47 U.S.C. § 537. This Resolution shall be effective immediately upon its adoption by the Franchising Authority. Passed this day of , 2002. Offered by: Seconded by: Roll Call: Gary L. Peterson, Mayor Patricia Muscovitz, Deputy City Clerk/Council Secretary ~n Report of Creighton, Bradley &Guzzetta, LLC Relating to the FCC Forms 394 and Related Materials Filed by AT&T Corp. and Comcast Corporation ~ • Creighton Bradley V Guzzetta, LLC Thomas D. Creighton Michael R. Bradley Stephen J. Guzzetta 5402 Parkdale Drive, Suite 102 Minneapolis, MN 55416 (952) 543-1400 (Voice) (952) 543-8866 (Fax) May 30, 2002 I. INTRODUCTION This Report is prepared on behalf of the following local franchising authorities: Mitmesota: the Burnsville/Eagan Telecommunications Commission (Cities of Burnsville and Eagan); the North Metro Telecommunications Commission (Cities of Blaine, Centerville, Ham Lake, Spring Lake Park, Lino Lakes, Ham Lake, and Lexington); the Central St. Croix Valley Joint Cable Communications Commission (Cities of Stillwater, Bayport, Baytown Township, Oak Park Heights and Stillwater Township); the City of Columbia Heights; the City of Coon Rapids; the City of Gem Lake, the North Suburban Cable Communications Commission (Cities of Roseville, New Brighton, St. Anthony, Lauderdale, North Oaks, Mounds View, Arden Hills, Shoreview, Little Canada, and Falcon Heights); the Quad Cities Cable Communications Commission (Cities ofAnoka, Champlin, Andover, and Ramsey); the Ramsey Washington Counties Suburban Cable Commission (Cities of Maplewood, Oakdale, White Bear Lake, White Bear Township, Dellwood, Birchwood, Grant, Lake Elmo, Mahtomedi, North St. Paul, Vadnais Heights and Willernie); and the South Washington County Telecommunications Commission (Cities of Woodbury, Cottage Grove, Newport, St. Paul Park and Denmark Township). Tennessee: the Metropolitan Government of Nashville and Davidson County ("Metropolitan Nashville"); the City of Murfreesboro; and the Town of Smyrna. Wisconsin: the City of River Falls; and the City of Prescott. The local government entities listed above are collectively referred to herein as the "CFAs" or singularly as an "CFA." The CFAs' local cable television franchises are collectively referred to herein as "Franchises" or singularly referred to as a "Franchise"). This transaction involves a merger of the ownership interests of the parent companies of the companies holding the Franchises of the CFAs. On December 19, 2001, Comcast Corporation agreed to acquire AT&T Corp.'s AT&T Broadband subsidiary in a transaction initially valued at $72 billion. AT&T Corp. ("AT&T"), AT&T Broadband Corp. ("ATTB"), AT&T Broadband Acquisition Corp., Comcast Acquisition Corp. and Comcast Corporation ("Comcast")have entered into an agreement to merge ATTB and Comcast, as separate entities, under a new parent corporation called AT&T Comcast Corporation ("AT&T Comcast") (the transaction herein referred to as the "Transaction"). The proposed merger and resulting transfer of control will result from the spin-off of ATTB, a AT&T Comcast Transfer Application Report Page 1 ~ Creighton Bradley & Guzzetta, LLC May 30, 2002 holding company for AT&T's broadband division, to AT&T's shareholders, and the subsequent merger ofATTB and Comcast into wholly-owned subsidiaries of AT&T Comcast. After the merger is consummated, existing AT&T shareholders will hold 55 percent of the economic interest and between 57 and 61 percent of the voting interest of AT&T Comcast; existing Comcast shareholders will hold 39 percent of the economic interest and between 1 and 5 percent of the voting interest of AT&T Comcast; and Brian L. Roberts will directly or indirectly hold approximately 1.5 percent of the economic interest and approximately 33 percent of the voting interest of AT&T Comcast. AT&T and Comcast represent that the Transaction will also have the following characteristics: • The existing, indirect wholly-owned subsidiaries of AT&T and Comcast holding the Franchises before the Transaction will continue to hold the Franchises after the Transaction. • The Transaction will not affect any current obligations under the Franchises. After the Transaction, the franchise holder in each LFA will be bound by its Franchise obligations in the same manner and to the same extent as before the Transaction. • AT&T Comcast anticipates retaining most of each franchise holder's local personnel, including management and technical personnel. Thus, the level of local expertise and experience currently available should not be diminished by the Transaction. • No changes to each franchise holder's current service policies and practices are required, planned or anticipated as a result of the Transaction. The purpose of this report is to provide the LFAs with an understanding of the Transaction, the standard for review, and our analysis and conclusions. II. THE EVALUATION PROCESS The LFAs received an FCC Form 394 from either AT&T or Comcast, through their subsidiaries (AT&T Broadband and Comcast Cable Communications, Inc. ("Comcast Cable")), on or about March 5, 2002. The Forms 3941ay out the Transaction, as described above and in greater detail below. Since the Transaction would result in a total change of control over the Franchises, the prior approval of the LFAs must be obtained, in accordance with the terms of the Franchises and/or applicable law. In the process of evaluating the FCC Forms 394, CBG, on behalf of the LFAs, has done the following: AT&T Comcast Transfer Application Report Page 2 ~ Creighton Bradley & Guzzetta, LLC May 30, 2002 - Retained Ashpaugh & Sculco, CPAs, PLC ("A&S") to examine AT&T Comcast's financial qualifications, and the proposed merger's impact on services and rates; - Issued an initial data request to AT&T Broadband on March 4, 2002, on behalf of all the Minnesota LFAs, except Gem Lake, which request solicited certain financial information regarding the Transaction (Data Request #1); - Issued an initial data request to AT&T Broadband and Comcast Cable on March 15, 2002, on behalf of Gem Lake, the Wisconsin LFAs and the Tennessee LFAs, which request solicited certain financial information regarding the Transaction ("Data Request #2"); - Drafted and transmitted a letter to AT&T Broadband, on behalf of the Minnesota and Wisconsin LFAs, informing it that the transfer process set forth in Section 617 of the Cable Communications Policy Act of 1984, as amended, 47 U.S.C. § 537, preempts the transferprocess specified in state law; - Reviewed the FCC Forms 394 for completeness and transmitted a notice of incompleteness to both AT&T Broadband and Comcast Cable on March 29, 2002, which notice, among other things, informed AT&T Broadband and Comcast Cable that the federal 120-day review period had not begun due to the incompleteness of the information received thus far; - Informed AT&T Broadband and Comcast Cable by letters transmitted in March and early April, 2002 (depending on the LFA involved), that the LFAs must be reimbursed for all costs incurred in reviewing the FCC Forms 394, and associated documents, and in preparing a report, recommendation and resolutions or ordinances; - Negotiated complete reimbursement of the LFAs' transfer-re]ated expenses with a representative of AT&T Broadband and Comcast Cable; - Reviewed AT&T Broadband's and Comcast Cable's responses to Data Request #1 and Data Request #2, and prepared a third data request, dated April 2, 2002, soliciting information on AT&T Comcast's financial, technical, legal, character and managerial qualifications ("Data Request #3"); - Analyzed AT&T Broadband's and Comcast Cable's response to Data Request #3; - Independently researched information about the proposed transaction and arguments raised by AT&T Broadband and Comcast Cable in the course of reviewing the FCC Forms 394; AT&T Comcast Transfer Application Report Page 3 ~ Creighton Bradley & Guzzetta, LLC May 30, 2002 - Drafted a letter, dated May 6, 2002, notifying AT&T Broadband and Comcast Cable that the terms of the proposed merger had materially changed and that the company's transfer applications remained incomplete; - For the Minnesota and Wisconsin LFAs and Metropolitan Nashville and Davidson County, prepared a written response to AT&T Broadband's/Comcast Cable's correspondence concerning the incompleteness of the companies' applications; - Evaluated the impact of the Transaction on competition in the delivery of cable service and services and rates, based on information provided by AT&T Broadband, Comcast Cable and A&S, and information obtained through independent research; and - Assessed AT&T Comcast's financial, technical, legal, managerial and character qualifications, using data furnished by AT&T Broadband, Comcast Cable and A&S, and information obtained through independent research. All of the documents referenced above are incorporated herein as if a part hereof. Copies of each document are available for review from CBG, except those documents which are protected from disclosure under applicable law. CBG's conclusions concerning AT&T Comcast's financial, technical, legal, managerial and technical qualifications, and the impact of the proposed merger on competition, subscriber rates and services, are set forth in detail below. III. APPLICABLE FEDERAL STATE AND LOCAL LEGAL REQUIREMENTS The applicable legal requirements for examining a request for approval of the Transaction maybe found at the federal, state and local level. A. Federal Law. The Cable Communications Policy Act of 1984, as amended, 47 U.S.C. § 521, et seq. (the "Federal Cable Act"), and the Federal Communications Commission's regulations do not establish substantive standards for approving or rejecting a transfer application. Section 617 of the Federal Cable Act, 47 U.S.C. § 537, and 47 C.F.R. § 76.502, however, contain certain mandatory procedures that the LFAs must follow. In this regard, § 537 requires a local franchising authority to act within 120 days of receipt of a completed FCC Form 394 that includes all information required by the franchising authority's franchise and state and local law. A local franchising authority and a transfer applicant may agree to extend the 120-day deadline provided for in federal law and Federal Communications Commission regulations. Absent an extension of time, if a local franchising authority does not act AT&T Comcast Transfer Application Report Page 4 ~ Creighton Bradley & Guzzetta, LLC May 30, 2002 within 120 days, an applicant's transfer request will be deemed approved. Although federal law is primarily procedural with regard to transfers of ownership and control, the Federal Cable Act does delineate two grounds on which a franchising authority may deny a transfer request. See 47 U.S.C. § 533(d). First, a transfer application may be denied if the proposed transferee owns or controls another cable system in the franchise area. Second, a local franchising authority may reject a transfer if the proposed transaction would eliminate or reduce competition in the delivery of cable service. B. State and Local Law. State and local law typically establish the substantive legal bases for granting or denying a transfer request, and often set forth the applicable standard of review. In many cases, the LFAs' Franchises or an LFA's municipal cable ordinance may delineate specific grounds that may be used, and specific factors that must be considered. In addition, state statutes and court decisions may list criteria that must be considered or may establish standards that must be followed. In some cases, state law may also prescribe additional procedures that must be followed by LFAs. Tennessee Law -Murfreesboro and Smyrna Tennessee state statutes do not contain any substantive standards or requirements governing a LFA's analysis of this Transaction. Thus, unless restricted by the terms ofa Franchise, LFAs in Tennessee should have broad discretion when it comes to reviewing and acting on a transfer application, provided the LFAs do not act arbitrarily or capriciously. Neither Murfreesboro's nor Smyma's local ordinances contain any substantive limitation on the LFAs' authority to evaluate, approve or deny a transfer request, although the ordinances do define the types of transactions for which prior approval is required. More specifically, neither Franchise limits the subjects that may be reviewed in connection with a defined transfer or restrict the permissible bases for approval or denial of a transfer application. Tennessee Law -Metropolitan Government of Nashville and Davidson County The Metropolitan Nashville analysis incorporates the comments above regarding Tennessee state law requirements. As for local law, § 6.08.140 of the Metro Code does not contain any substantive limitation on Metropolitan Nashville's authority to evaluate, approve or deny a transfer request. More specifically, § 6.08.140 does not the limit subjects that may be reviewed in connection with a transfer. Indeed, § 6.08.140(B)(3) specifies that "[fJor the purposes of determining whether it shall consent to a transfer, metropolitan Nashville or its agents may inquire into all financial, technical and 1 Chapter 6.08 of the Metro Code does, however, define the types of transactions for which local approval must be sought. See § 6.08.020 of the Metro Code, defming the concept ofa "transfer." AT&T Comcast Transfer Application Report Page 5 ~ Creighton Bradley & Guzzetta, LLC May 30, 2002 legal qualifications of the prospective transferee and such other relevant matters as metropolitan Nashville may reasonably deem necessary to determine whether the transfer is in the public interest and should be approved, denied, or conditioned." Moreover, the Metro Code does not restrict the permissible bases for approval or denial of a transfer application, although it does list specific factors that must be considered. Those factors, however, are not exclusive. They are: (i) the legal, financial, and technical qualifications of the transferee to operate the system; (ii) any potential impact of the transfer on subscriber rates or services; (iii) whether the incumbent franchisee is in compliance with its franchise agreement and Chapter 6,08 of the Metro Code and, if not, the proposed transferee's commitment to cure such noncompliance; (iv) whether the transferee owns or controls any other cable system in Metropolitan Nashville, and whether operation by the transferee may eliminate or reduce competition in the delivery of cable service in Metropolitan Nashville; and (v) whether operation by the transferee or approval ofthe transfer would adversely affect subscribers, Metropolitan Nashville's interest under Chapter 6.08, the franchise agreement, other applicable law, or the public interest, or make it less likely that the future cable-related needs and interests of the community would be satisfied at a reasonable cost.z Minnesota Statutes and Specific Local Franchise Ordinances Pursuant to Minn. Stat. § 238.083, Subd. 4, local franchising authorities must not unreasonably withhold their consent to a proposed sale or transfer of a Franchise, including a sale or tratsfer by means of a fundamental corporation change.3 Stated differently, state law establishes a substantive standard, which requires that LFAs must have a reasonable basis to withhold approval of a proposed sale or transfer of a Franchise. It should be noted that § 238.083 does not limit the issues or qualifications that may be investigated in the context of such an analysis, or otherwise delineate the grounds on which a denial can be based. Thus, unless restricted by the terms of a Franchise, Minnesota LFAs have broad discretion in reviewing this Transaction. None of the Minnesota LFAs' Franchises contain any limitation on the subjects that may be reviewed in connection with an analysis of this Transaction, nor do any of the Franchises contain ]imitations on permissible bases for the approval or denial of this Transaction. That said, the Franchises for Columbia Heights, the South Washington County Telecommunications Commission and the member cities of the North Metro Telecommunications Commission reiterate that approval of the application at issue in this review cannot be unreasonably withheld. 2 See § 6.08.140(C)(1) of the Metro Code. 3 Minn. Stat. § 238.083, Subd. 1 defines a "fundamental corporate change" as "the sale or transfer of a majority of a corporation's assets; merger, including a parent and its subsidiary corporation; consolidation; or creation of a subsidiary corporation." • AT&T Comcast Transfer Application Report Page 6 Creighton Bradley & Guzzetta, LLC May 3Q 2002 Aside from the substantive standard discussed above, Minn. Stet. § 238.083 contains certain procedural requirements pertaining to the sale or transfer of cable television franchises. More specifically, § 238.083 states: Subd. 2. Written approval of franchising authority. A sale or transfer of a franchise, including a sale or transfer bymeans ofa fundamental corporate change, requires the written approval of the franchising authority. The parties to the sale or transfer of a franchise shall make a written request to the franchising authority for its approval of the sale or transfer. The franchising authority shall reply in writing within 30 days of the request and shall indicate its approval of the request or its determination that a public hearing is necessary if it determines that a sale or transfer of a franchise may adversely affect the company's subscribers. The franchising authority shall conduct a public hearing on the request within 30 days of that determination. Subd. 3. Notice of hearing. Unless otherwise already provided for by local law, notice of the hearing must be given 14 days before the hearing by publishing notice of it once in a newspaper of general circulation in the area being served by the franchise. The notice must contain the date, time, and place of the hearing and must briefly state tUe substance of the action to be considered by the franchising authority. Subd. 4. Approval or denial of transfer request. Within 30 days after the public hearing, the franchising authority shall approve or deny in writing the sale or transfer request. The approval must not be unreasonably withheld. The franchise ordinances adopted by the City of Columbia Heights, the South Washington County Telecommunications Commission and the member cities of the North Metro Telecommunications Commission reiterate the same procedural requirements. In contrast to state law and the Franchises identified above, the transfer provisions of the Federal Cable Act, as amended, provide that: A franchising authority shall, ifthe franchise requires franchising authority approval ofa sale or transfer, have 120 days to act upon any request for approval of such sale or transfer. If the franchising authority fails to render a final decision on the request within 120 days, such request shall be deemed granted unless the requesting party and the franchising authority agree to an extension of time. 47 U.S.C. § 537. According to the Federal Cable Act, any provision of state or local law, which is "inconsistent" with Title VI (Cable Communications} is deemed to be preempted and superseded. 47 U.S.C. § 55G(c). • AT&T Comcast Transfer Application Report Page 7 i Creighton Bradley & Guzzetta, LLC May 30, 2002 Accordingly, CBG has determined that federal law preempts any provision of state or local law that would require LFAs to meet certain procedural deadlines prior to rendering a final decision regarding a transfer request. In short, the federal right to a 120-day review period cannot be eviscerated by a failure to meet inconsistent state or local procedural requirements. AT&T Broadband does not concur that federal law preempts the applicability of the procedural deadlines and steps set for in § 238.083. That said, AT&T Broadband has agreed not to assert any violation of state procedural steps or timing deadlines, as long as final action is taken on its applications within the 120-day deadline specified in federal law. Wisconsin Statutes and Specific Local Franchise Ordinances Pursuant to Wis. Stat. § 66.082(5)(a), Wisconsin LFAs may not withhold approval of this Transaction without "good cause." It should be noted, however, that § 66.082(5)(a) does not limit the issues or qualifications that may be investigated in the context of this Transaction, or otherwise delineate the grounds on which a denial can be based. Thus, unless restricted by the terms of a Franchise, Wisconsin LFAs have broad discretion when it comes to reviewing, approving or denying this Transaction. None of the Wisconsin LFAs' Franchises contain any (imitation on the subjects that may be reviewed in connection with this Transaction, nor is there any limitation on the permissible bases for approval or denial of this Transaction. Aside from the substantive standard discussed above, Wis. Stat. § 66.082(5)(a) contains certain procedural requirements pertaining to this Transaction. More specifically, Wis. Stat. § 66.082(5)(a) states: A cable operator shall give the municipality that authorized its franchise at least 90 days' advance written notice of the cable operator`s intention to transfer ownership or control of a cable television system. During the term of a franchise agreement, a cable operator may not transfer ownership or control of a cable television system without the approval of the municipality that authorized the franchise. A municipality may not withhold approval of an ownership transfer or a transfer of control without good cause. If a hearing is necessary to determine if a transfer may have an adverse effect, a municipality may schedule a hearing to take place within 45 days after the date on which the municipality receives the notice. If a municipality withholds approval of an ownership transfer or a transfer of control, the municipality shall state its objections to the transfer in writing within 60 days after the date on which the municipality receives the notice. Wis. Stat. § 66.082(5)(a). The state's default review period and procedures, however, "may be varied under a written franchise AT&T Comcast Transfer Application Report Page 8 ~ Creighton Bradley & Guzzetta, LLC May 30, 2002 agreement that is entered into, renewed, extended or modified after May 14, 1992." Wisc. Stat. § 66.082(5)(c). In this regard, the Wisconsin LFAs' Franchises, which have been renewed since 1992, state: "[tJhe City shall have such time as is permitted by federal law in which to review a transfer request." Federal law specifies that: A franchising authority shall, if the franchise requires franchising authority approval ofa sale or transfer, have 120 days to act upon any request for approval of such sale or transfer. If the franchising authority fails to render a final decision on the request within 120 days, such request shall be deemed granted unless the requesting party and the franchising authority agree to an extension of time. 47 U.S.C. § 537. Thus, pursuant to state and local law, the Wisconsin LFAs have 120 days in which to analyze AT&T's FCC Forms 394 and any materials requested pursuant to or required by the LFAs. C. Procedural Issues. The LFAs received AT&T's and Comcast's transfer applications on or about March 5, 2002. If the applications were complete, the 120-day review period provided for in federal law would end on July 3, 2002. As indicated in Section II of this Report, CBG has notified both AT&T Broadband and Comcast Cable, on multiple occasions, that AT&T's and Comcast's Forms 394 are incomplete. Accordingly, the 120-day review period never started. Both AT&T Broadband and Comcast Cable have disputed this fact. What cannot be disputed is the fact that on or about May 6, 2002, CBG received information from a public source indicating that AT&T and Comcast had, among other things, significantly changed AT&T Comcast's corporate governance structure. CBG immediately informed AT&T Broadband and Comcast Cable that, at a minimum, the reorganization of the Transaction required notification of the LFAs and extension of the federal review period. In the interest of time, both A&S and CBG began analyzing the new transaction once they were able to obtain AT&T Comcast's amended Form S-4, which was filed with the Securities and Exchange Commission at the end of Apri12002. We should note, however, that it could be argued that the ongoing transfer review proceedings were terminated by the filing of the amended Form S-4 and that new Forms 394 must be filed with the LFAs (thus triggering a new 120-day review period). The LFAs could also argue that the I20-day deadline has not begun on the March 5 transfer applications, since AT&T and Comcast never completed those applications, in accordance with applicable laws, ordinances and agreements. Maintaining either position, though, would expose the LFAs to legal uncertainty and could prejudice their legal rights if a court were to rule that a new Form 394 was not required and/or that the AT&T Comcast Transfer Application Report Page 9 ~ Creighton Bradley & Guzzetta, LLC May 30, 2002 applicable 120-day deadline expired on July 3, 2002, since absent final LFA action within the federal review period, the Transaction will be deemed approved by operation of federal law. CBG therefore believes it would be prudent for the LFAs to act prior to July 3, notwithstanding the fact that: (i) AT&T and Comcast have asked the LFAs to review a transaction that is entirely different than the one described in the FCC Forms 394 and related materials; and (ii) neither company has completed its transfer applications. IV. STANDARD OF REVIEW At the time of awarding the original Franchises and in subsequent transfers of the Franchises, the LFAs considered and approved the technical ability, financial capacity, legal qualifications and character of the original and subsequent owners of the cable systems, as well as other appropriate factors. The same considerations apply to the current review. The sources of information used in evaluating these factors included the FCC Form 394, its exhibits, the current Franchises, various FCC rules and regulations regarding cable communications systems, state and federal law, the Internet and various subsequent written and oral responses to requests for documents from AT&T Broadband and Comcast Cable. The LFAs' task in this process is to review the information provided regarding the Transaction and to approve or deny the Transaction. The LFAs have the express right to approve or disapprove this Transaction. The standard of review is that the LFAs' consent shall not be unreasonably withheld. For the purpose of determining whether they will consent to the Transaction, the LFAs must make inquiry into the legal, technical and financial qualifications and other appropriate factors regarding the party acquiring control of the Franchises, in this case AT&T Comcast. In analyzing the Transaction, the LFAs must consider whether AT&T Comcast meets all of the criteria originally considered in the granting of the Franchises. Note, however, that this analysis is not a comparison between AT&T or Comcast and the new AT&T Comcast. Rather, this analysis is an application of factors to determine whether AT&T Comcast satisfies the applicable standards to the reasonable satisfaction of the LFAs. The LFAs should focus on the following factors in determining whether to approve or deny the Transaction: 1. Legal and character qualifications of AT&T Comcast; 2. Technical ability of AT&T Comcast and its operational staff; 3. Financial stability and qualiTcations of AT&T Comcast, and the impact of the Transaction on services and rates; AT&T Comcast Transfer Application Report Page 10 ~ Creighton Bradley & Guzzetta, LLC May 30, 2002 4. Managerial qualifications of AT&T Comcast and its subsidiaries; Impact on cable service competition; and 6. Other appropriate factors, including those required by local law. CBG has conducted an extensive review of all relevant materials on behalfofthe LFAs. This Report is a "shorthand" synthesis of that review in an attempt to fully inform the LFAs without overwhelming the decision making body with detail and minutia. Obviously, this review extended far beyond the summary of this report, and CBG is available to further expand on this summary should the LFAs have any questions. V. DESCRIPTION OF TRANSACTION It is necessary to understand the corporate structuring ofthe Transaction to detennine whether such a structure is lawful, but also to understand the financing {at what level is the money adequate to meet existing and anticipated franchise obligations), and to establish which entity's technical qualifications should be reviewed. AT&T Comcast Corporation ("AT&T Comcast"), Comcast Corporation ("Comcast") and AT&T Corp. ("AT&T")have entered into an Agreement and Plan ofMerger, dated December 19, 2001, and amended April 29, 2002 (the "Agreement"),4 under which Comcast and AT&T have agreed to combine Comcast's and AT&T's broadband businesses. Under the Agreement, AT&T Broadband Corp., a holding company for AT&T's broadband division ("ATTB"},will be spun-off to AT&T's shareholders. Upon completion ofthe spin-off, both Comcast and ATTB will merge with temporary holding companies (AT&T Broadband Acquisition Company and Comcast Acquisition Company) and become separate, wholly-owned subsidiaries of AT&T Comcast. Upon completion of these mergers, Comcast shareholders will receive one share ofthe corresponding class ofAT&T Comcast stock for each of their shares of Comcast stock, and AT&T shareholders will receive in the aggregate for their shares of ATTB common stock 1.235 billion shares of AT&T Comcast Class A stock, or approximately 0.34 shares of AT&T Comcast for each share of AT&T stock. The AT&T Comcast transaction will occur in several steps and will be subject to the receipt ofthe necessary governmental approvals and the satisfaction or (to the extent permissible) waiver of other conditions specified in the Agreement, such as required shareholder approvals. 4 Counsel for AT&T and Comcast has represented in writing that "in no respect has the structure of the transaction been altered nor have any parties to the transaction changed as a result of the changes" contained in the Apri129, 2002, registration statement and the modifications made to the Agreement and Plan ofMerger. CBG, however, believes the changes made by AT&T and Comcast alter the structure of the transaction, since, among other things, AT&T Comcast's corporate governance stmcture was modified. AT&T Comcast Transfer Application Report Page 11 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 AT&T will {i) assign and transfer to ATTB all of the assets of AT&T's broadband cable and cable telephony business and (ii) cause ATTB to assume all of the liabilities of AT&T's broadband business (as reflected in the AT&T Broadband Group balance sheet dated as ofDecember 31, 2000 or as otherwise specified in the Separation and Distribution Agreement between AT&T and ATTB) that are not at such time assets or liabilities of AT&T Broadband or an AT&T Broadband subsidiary. AT&T will then spin-off ATTB to the shareholders ofAT&T. Immediately following this spin-off, Comcast and ATTB will each merge with different, wholly-owned subsidiaries ofthenewly-created AT&T Comcast Corporation. Specifically, Comcast will merge into Comcast Acquisition Corp., a newly formed, wholly-owned subsidiary of AT&T Comcast, with Comcast surviving. ATTB will merge into AT&T Broadband Acquisition Corp., also anewly-formed, wholly-owned subsidiary of AT&T Comcast, with ATTB. In addition, at the option of AT&T Comcast, AT&T Broadband Holdings, LLC, which will be a wholly-owned subsidiary of AT&T Comcast, will become an intermediate holding company between AT&T Comcast and ATTB. Appendix A contains two charts that depict the proposed ownership structure of AT&T Comcast. Following these steps, AT&T Comcast will be the new public company parent of ATT$ and Comcast, both ofwhich will be separate, wholly-owned subsidiaries ofAT&T Comcast. As a result, AT&T Comcast will consist of both companies' cable systems, both companies' interests in programming services, as well as other assets owned by the two companies. The company holding the cable franchise with the LFAs will not change as a result of this Transaction. However, the ultimate controlling parent company of each franchise holder will become AT&T Comcast. VI. LEGAL ~iIALIFICATIONS The legal qualifications standard relates primarily to the analysis of whether AT&T Comcast and its affiliates are duly organized and authorized to own the cable systems and the Franchises via the Transaction. As stated above, the ownership ofthe Franchises will indirectlyrest in AT&T Comcast as the ultimate parent of the actual franchise holder in the LFA's respective franchise areas, We have reviewed this corporate structuring and the necessary transactions related thereto. All necessary corporate entities are or will be duly organized. In this regard, AT&T Comcast itself has already been established and duly incorporated in Pennsylvania. We have also concluded that all of the entities necessary to be qualified to transact business in Minnesota, Tennessee, and Wisconsin are or will be so qualified. As discussed above, those entities are not changing as a result of the Transaction. The legal analysis of the proposed merger also involves an analysis of whether the overall Transaction itself complies with federal, state and local law. We have reviewed the relevant AT&T Comcast Transfer Application Report Page 12 ~ Creighton Bradley Ba Guzzetta, LLC May 29, 2002 agreements between AT&T Comcast, AT&T and Comcast, and comments that were filed with the FCC concerning the Transaction. Based upon our review, it is our opinion that the Transaction does not violate Federal, State or local law at this time, although issues concerning horizontal and vertical ownership restrictions may arise in the future. Therefore, the LFAs would not have a reasonable basis to withhold approval of the Transaction based on the above. VII. TECHNICAL ABILITY While the technical ability analysis of the Transaction should focus on the technical expertise and experience ofAT&T Comcast, ourreview must focus on a best analysis ofATTB and Comcast (and their subsidiaries), in this case, as those preexisting companies will manifest themselves operationally in the merged entity, since they will remain after the Transaction is consummated and will likely be primarily responsible for day-to-day operations. Our focus on ATTB and Comcast (and their subsidiaries) is also necessitated by the fact that we have been able to obtain little information on AT&T Comcast's technical qualifications, since both AT&T Broadband and Comcast Cable have refused to answer virtually any question related to the eventual operation of AT&T Comcast (proffering the argument that they are prohibited bylaw from doing so). Further, since the answers of both AT&T Broadband and Comcast Cable concerning further inquiry into AT&T Comcast's qualifications seem to imply that, at least for the time being, the local or regional technical staffs with which the LFAs are familiar will stay relatively unchanged, conclusions regarding the technical performance of the systems affected by the Transaction can be drawn from experience with the current technical support systems. As opposed to the usual transfer of ownership in which a different corporate culture will emerge with one company selling its systems to a different company, this Transaction will retain significant elements ofthe previous owners, AT&T Broadband and Comcast. Some of the systems involved in this analysis were AT&T Broadband systems and some were Comcast systems. Although AT&T Comcast had reported in responses to inquiries that it plans to ultimately consolidate corporate functions, AT&T Comcast was vague (to say the ]east) as to what such a consolidation would entail, and what effect it would have on the LFAs. Therefore, it is impossible at this time to determine which parts ofthe original corporate cultures ofATTB and Comcast will prevail in the new merged company, although it is clear that Mr. Brian L. Roberts (from Comcast) and Mr. C. Michael Armstrong (from AT&T) will have powerful and prominent roles in the merged company. Both AT&T Broadband and Comcast were able to operate cable systems prior to the Transaction. Each of the LFAs served by both of the original companies has had issues with the performances of both ATTB and Comcast at the local level. Such things as telephone answering response times and commitments for institutional networks are of concern, Additionally, significant concerns relative to the ongoing maintenance and technological development of the local networks remain, especially in light of A&S's financial analysis, which follows in this Report. J AT&T Comcast Transfer Application Report Creighton Bradley & Guzzetta, LLC Page 13 May 29, 2002 Although grave concerns exist as to AT&T Comcast's ability to financially support adequate technical performance in the local Franchise territories should the Transaction take place, for the purpose solely of the technical analytical piece of this Report, and assuming adequate resources were available to AT&T Comcast and the local systems (which we do not), the overall technical ability of the predecessor companies (which were already approved in the context of prior transfers of ownership and control), and the presumed technical ability of the successor merged entity (assuming keeping most of the existing technical support in place) requires an analytical conclusion That there would be no reasonable basis for the LFAs to withhold approval of the merger based solely on the technical qualifications of AT&T Comcast, as speculative as that basis must be. VIII. FINANCIAL STABILITY AND OTHER FINANCIAL ISSUES A. Background, Issues, and Problems. The financial stability factor in this case relates to whether AT&T Comcast has the financial resources available or committed, now and in the future, to enable ATTB and Comcast to operate their systems in accordance with applicable laws, standards, franchise ordinances and agreements. Financial stability also pertains to whether the Transaction, as presented, is reasonable and economically viable. Other financial issues to be considered are the Transaction's impact on rates and services, including (but not limited to) the availability of programming services, the quality of customer service and maintenance and repair practices. In addition, the LFAs should consider whether AT&T Broadband and Comcast will have sufficient cash flow after the Transaction to meet Franchise obligations, including, by way of example and not limitation, franchise fee payments and PEG support payments. A&S has reviewed the financial data AT&T and Comcast submitted in their transfer applications and in response to written and oral data requests. In addition, A&S has analyzed publicly filed documents concerning the Transaction that were available from the websites of the Securities and Exchange Commission, the Federal Communications Commission, Comcast Corporation and AT&T Corporation as of May 13, 2002. A&S's findings concerning AT&T Comcast's financial fitness, and the problems and risks posed by the Transaction are contained in a report dated May 24, 2002 (the "A&S Report"). For your convenience, we have attached the A&S Report as Appendix B to this Report and incorporated it herein. According to A&S, AT&T Comcast will inherit approximately $32.7 billion of debt once the Transaction is consummated -- $12.2 billion of Comcast debt, $19.3 billion of AT&T Broadband debt, plus additional debt associated with the mergers Over $16 billion of the foregoing debt will mature by the year 2006, which means that it must be repaid or refinanced over the next few years. At the same time, A&S believes that AT&T Comcast will continue to make capita] expenditures in 5 See A&S Report at I. AT&T Comcast Transfer Application Report Page 14 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 excess of $4.0 billion per year, while suffering a cash flow deficit of over $3.5 billion a year through 2006. The need to fund maturing debt and capital expenditures, as well as cash flow for day-to-day operations, will increase AT&T Comcast's debt by at least $3.0 billion annually for three to five years following the Transaction. A&S believes this could result in a debt load of $40.0 billion. As a result, revenue deficits could continue into the future for an indeterminate period of time. The exact amount and duration of the revenue deficits that will occur are unknown, since AT&T Comcast has not performed any future operating projections (i. e., cash flows, revenues and expenses). This is significant because it shows that AT&T Comcast, Comcast and AT&T do not truly know or understand all the ramifications of the Transaction. In this regard, AT&T Comcast cannot prove that: (i) the short-term cash flow deficits discussed above are insignificant in light of anticipated cash flows and debt loads; (ii) long-term cash flow makes the Transaction economically viable; or (iii) the "synergies" and "efficiencies" cited in various documents are realistic. Given the level of debt and revenue shortfalls predicted by A&S, it is likely that AT&T Comcast will need to increase revenues (through rate increases), decrease expenses (e.g., by terminating customer service representatives and repair/maintenance technicians, eliminating programming services, further consolidating customer service or implementing other cost-cutting measures) and/or reduce capita] expenditures for facilities and equipment. Indeed, according to the A&S Report, AT&T Comcast's Amended Form S-4 suggests that AT&T Broadband, Comcast and/or AT&T Comcast may make take such steps to address cash flow concerns. A&S is also concerned that AT&T Broadband is guaranteeing the debt of its subsidiaries and unconsolidated joint ventures.s As of December 31, 2001, the amount of this debt is $1.463 billion. The risks associated with guaranteeing the debt of joint ventures and subsidiaries are highlighted by Adelphia's financial problems, which are attributable to loan guarantees made to Rigas family partnerships. An additional problem noted in the A&S Report is that certain agreements between AT&T Broadband and AT&T will survive the Transaction. A&S believes two of those agreements -the Master Facilities Agreement and the First Amended and Restated Local Network Connectivity Services Agreement -may inhibit AT&T Comcast's ability to generate additional cash flow by hindering the company's ability to effectively compete against AT&T in various telecommunications service markets. This is because, under the foregoing contracts, AT&T Comcast, through its AT&T Broadband subsidiary, will have to: (i) lease certain network elements and management and operational services from AT&T for a specified period of time; (ii) allow AT&T to use its existing fiber facilities; and (iii) construct and lease to AT&T new fiber facilities in the areas served by 6 See A&S Report at 2-3. 7 Irl. at 2. 8 Id. at 6. 9 See, e.g., Ventura County Star (May 22, 2002) (hup://www.insidevc.com/vcs/business/article/0,1375, V CS_128_1169695,OO.htm1). AT&T Comcast Transfer Application Report Page 15 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 ATBcT Broadband's cable systems. As a result, AT&T may be able to offer certain telecommunications services for less than AT&T Comcast, which means AT&T Comcast may lose existing customers (and revenues), and future revenue opportunities.10 Finally, the A&S Report concludes that the six synergies and efficiencies relied upon by AT&T Comcast to support the Transaction are not reasonable. The bases for A&S conclusion are: (i) there are no supporting analyses or documentation for the claimed synergies and efficiencies; (ii) the disclaimers made by AT&T Comcast's expert mean the synergies and efficiencies quantified are suspect; and (iii) the synergies and efficiencies identified are based on experiences from prior acquisitions, and not on the facts surrounding the Transaction. t t Thus, the fundamental rationales for the Transaction are in doubt. In light ofthe problems and concerns identified above, the A&S Report opines that: "[t]he franchises served by Comcast will go from a company currently touted as being the strongest financial position ofanyof the cable multiple system operators ... to a company, AT&T Comcast, with a large amount of debt and significant shortages in cash flow. Franchises currently served by AT&T Broadband will go from a company with significant debt and shortages in cash flow to a company with even more debt and greater shortages of cash flow.s1z Consequently, A&S does not believe that the Transaction will be beneficial to any of the LFAs, at least through 2006, and possibly beyond.13 B. Non-Beneficial vs. Detrimental Imaacts of the Transaction. It is the opinion of CBG that the LFAs have a reasonable basis to withhold approval of the Transaction based on the conclusion of A&S that the Transaction would not be beneficial to any of the LFAs, at least through 2006, and possibly beyond. However, after reviewing the A&S Report, CBG was concerned that its substance pointed to even more serious ramifications of the Transaction. In particular, the A&S Report implies that not only is the Transaction not beneficial to the LFAs and by extension to subscribers, but the Transaction may even cause harm or detriment to the LFAs and subscribers. So as not to read into the A&S Report a conclusion that was not there, and to allow A&S an opportunity to clearly and succinctly respond to specific areas of concern of CBG, we requested a further response from A&S as to whether the Transaction may also be detrimental to subscribers and the LFAs that represent them. 10 See the A&S Report at 6-7. 11 /d. at 7-8. 12 Id. at 3-4. 13 Id. at 12. AT&T Comcast Transfer Application Report Page 16 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 Is this just saying the same thing a different way? No. Simply stated, it is possible for something to be "not beneficial" to an entity, but still not be "detrimental." In other words, if the Transaction would simply not do the subscribers any good, but would not harm them either, a somewhat lower public policy threshold of concern is presented to the policy makers of the LFAs. Therefore, CBG presented A&S with a list of specific concerns often expressed by our clients, the LFAs. CBG limited its specific concerns to important components oftlte deliveryofcable services to constituents within the LFAs by the incumbent cable operator. These concerns are all valid LFA considerations in the analysis of any proposed Transaction, such as in this case. CBG posed specific questions to A&S regarding the Transaction's financial impact on such things as subscriber system maintenance, institutional network system maintenance, customer service, PEG support, franchise compliance, proposed or future system upgrades, and future technological improvement. In each case, CBG asked A&S to respond using one of five (5) succinct levels of response as to whether the Transaction would have a deU~imental impact on a specific area ofconcern. Immediately following is the exact text of the inquiry to A&S with the A&S response in bold type: We have received your report in the merger of AT&T and Comcast. I have reviewed the report and sincerely appreciate the quality of your work and the depth of your analysis. While we will include your entire report as a part of our analysis, I would appreciate your focusing your expertise and knowledge as a result of your analysis to advise my clients in response to specific questions which I know are of concern to them, Since the policy makers are not for the most part trained in the sophisticated financial analysis that you offer, if is helpful in their consideration to focus on specific questions answered by you based on your review, analysis and expertise. Please respond as specifically as possible ("Yes" or "No"are certainly acceptable responses-- we can use your full report to further understand your short responses to this inquiry). As a start, I would appreciate an attempt at limiting your responses to the following: Yes, and probably significantly Yes, and possibly significantly Yes, but just moderately Yes, but only slightly No Please feel free to include, however, any explanatory information you believe is necessary for you to explain any answers you believe need explanation beyond your report we already have. However, at this point in the review, brevity is a virtue. Please feel free to respond AT&T Comcast Transfer Application Report Page 17 r ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 within the text of this email, or simply list the number of the question and your response, and we can put it together upon receiving your response. I would appreciate your response as soon as possible so that we can meet the deadlines for our clients. Questions: Will the merger of AT&T Broadband Corp. and Comcast Corporation have a detrimental impact on: the availability of funds (capital and operating) for ongoing maintenance of the local subscriber networks; Response: Yes, and possibly significantly 2. the availability of funds (capital and operating) for ongoing maintenance of the local institutional networks; Response: Yes, and possibly significantly 3. the availability of funds (capital and operating) for upgrades and future technical improvements of the local subscriber networks; Response: Yes, and possibly significantly 4. the availability of capital funds for initial construction, upgrade, and future technical improvement of the local institutional networks; Response: Yes, and possibly significantly 5. the availability of funds for capital support of public, educational and government access as required by the local franchise agreements; Response: Yes, and possibly significantly 6. the availability of funds for the hiring and training of customer service staff; Response: Yes, and possibly significantly the availability of funds for the upgrade and improvement of call centers and company telephone response systems; AT&T Comcast Transfer Application Report Page 18 ~ CreigUton Bradley & Guzzetta, LLC May 29, 2002 Response: Yes, and possibly significantly 8. the availability of funds for implementation, maintenance and future technical improvement of Emergency Alert Systems; Response: Yes, and possibly significantly- to the extent supported by the cable operator 9. the availability of operating funds to support and provide adequate personnel to test the subscriber network and institutional networks for technical problems and compliance with applicable technical and performance standards; and Response: Yes, and possibly significantly 10. the availability for funds to support increased and improved service offerings on the local cable systems. Response: Yes, and possibly significantly 11. Would the proposed merger likely result in the further consolidation of customer service functions? Response: Yes, and probably significantly. In order to achieve the synergies claimed by Comcast as associated with this transaction, these types of consolidations would need to occur. 12. Would the proposed transaction cause an upward pressure on rates? Response: Yes, but just moderately. AT&T Comcast will be limited in the amount rates can increase due to competitive pressures and the subscriber's ability to pay. As discussed in the report, rates may be increased by revenue may not increase. The Franchise of the Metropolitan Government of Nashville and Davidson County, Tennessee includes a requirement that a determination be made as to: 13. Whether operation by the transferee or approval of the transfer would adversely affect subscribers, metropolitan Nashville's interest under this AT&T Comcast Transfer Application Report Page 19 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 chapter [6.08), the franchise agreement, other applicable law, or the public interest, or make it less likely that the future cable-related needs and interests of the community would be satisfied at a reasonable cost. Response: As discussed in the report, Comcast will be in a less favorable financial position from the merger. So the response to #I3 would be Yes. Thank you again for your consideration of our concerns and questions. Tom Creighton C. Conclusion as to Financial Considerations. Never in the over 35 years of combined experience of representing municipalities in cable communications issues have the principals of CBG been presented with such a negative financial report related to a proposed transfer of ownership or control. At virtually every turn, the LFAs are confronted with legitimate, significant concems regarding the financial viability or reasonableness of the Transaction as it relates to local cable systems. It is the conclusion of CBG, based upon the financial analysis ofA&S, that the Transaction is neither viable nor reasonable. In addition, as indicated above, AT&T Comcast is not financially qualified to own or operate the cable systems in the LFAs' communities, or to control ATTB and Comcast (and their subsidiaries) and the Franchises. It is also evident that the Transaction will detrimentally affect services, system maintenance and repair, customer service, the integration of technical improvements, and the ability of Comcast Cable and AT$cT Broadband to meet Franchise commitments. Moreover, the Transaction would likely cause a moderate increase in rates. CBG is under no delusions regarding the significance ofits findings. The Transaction, as described in the Fonns 394 and other documents, would encompass over forty percent (40%) of the cable subscribers in the country. The sheer magnitude of the numbers involved in the Transaction could lead a lay person to the conclusion that there must surely be adequate resources available to meet any particular obligation. However, the financial analysis conducted by A&S illustrates that as to virtually every issue that is a legitimate concern of the LFAs, the results ofthe Transaction would not only be detrimental to the LFAs and subscribers, but "possibly significantly" detrimental. It is therefore CBG's conclusion that individual LFAs have numerous and significant bases on which to withhold approval ofthis Transaction. Accordingly, CBG recommends that the LFAs adopt a resolution or ordinance, as appropriate, withholding their consent to the Transaction AT&T Comcast Transfer Application Report Page 20 ~ Creighton Bradley & Gazzetta, LLC May 29, 2002 IX. IMPACT OF THE PROPOSED TRANSACTION ON COMPETITION As indicated in Section III of this Report, Section 613(d) of the Federal Cable Act, 47 U.S.C. § 533(d), permits the LFAs to consider whether the Transaction "may eliminate or reduce competition in the delivery of cable service" in their respective franchise area(s). If a local franchising authority determines that the Transaction will, in fact, eliminate or reduce competition, it may withhold approval of AT&T's and Comcast's transfer applications. CBG reviewed AT&T's and Comcast's FCC Forms 394 (including the exhibits thereto), AT&T Comcast's Fonns S-4, AT&T's and Comcast's Applications and Public Interest Statement, and certain materials provided in response to our data requests, as well as publicly available information, to determine whether the Transaction would have a negative impact on cable service competition in any of the LFAs' franchise areas. In the course of our review, we found that: - With minor exceptions, unrelated to our analysis, Comcast Cable and AT&T Broadband do not presently own cable systems or otherwise provide cable service in the same franchise areas." Stated differently, AT&T Broadband and Comcast Cable are not currently competing head-to-head to provide cable service in the LFAs' franchise areas; - AT&T Broadband and Comcast Cable did not have any pre-merger plans to provide cable service in the same market;~s and - there are no non-compete or other agreements between Comcast Cable and AT&T Broadband "that will adversely affect subscribers or services in the LFAs' communities."16 We interpret this to mean that AT&T Broadband and Comcast Cable have not entered into any agreement that expressly prohibits them from directly competing against each other in the same market.~~ Based on the foregoing, CBG does not believe that the Transaction, as described in AT&T's and Comcast's FCC Forms 394, will immediately reduce or eliminate competition in the delivery of cable service in the LFAs' franchise areas. In addition, we have not uncovered any credible, concrete or compelling evidence that suggests the Transaction (in and of itself] would have the effect of reducing or eliminating cable service competition in the future. Cable operators have historically not 14 See Applications and Public Interest Statement, Description of Transactions, Public Interest Showing and Related Demonstrations, at pp. 5 (Febmary 28, 2002). 15 See Applications and Public Interest Statement, Description of Transactions, Public Interest Showing and Related Demonstrations, at pp. 66 (Febmary 28, 2002). 16 See AT&T Broadband's April 12, 2002, Response to Question #7 in CBG's Apri12, 2002, Request for Information, and Comcast's April 12, 2002, Response to Question #5 in CBG's Apri12, 2002 Request for Information. 17 Under the terms of the proposed merger, AT&T Broadband and Comcast will remain separate entities. Thus, they could, in theory, each decide to provide cable service in the same franchise area. Such a scenario, however, is extremely unlikely. AT&T Comcast Transfer Application Report Page 21 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 overbuilt each other's cable systems, and we have no reason to believe that this practice will ever change (regardless of whether the Transaction is approved or denied), since there is no major economic impetus to do so. In general, cable operators have been most interested in making investments that preserve and enhance the value of their existing systems (e.g., performing network upgrades), as opposed to incurring massive costs to compete against an entrenched cable service provider in a new market (where a solid return on investment is not guaranteed, and highly speculative). Competitive overbuilders, such as WideOpenWest, currently face a number ofhurdles when entering a market already occupied by an incumbent cable operator. Many of those hurdles are financial in nature and are attributable to the fixed start-up costs associated with the construction of ~ state-of- the-art cable system.is Other hurdles include obtaining access to desirable programming (which is often owned by the competitor or its subsidiaries or affiliates), the ability to sell advertising on incomplete systems that may cover only a small geographic area and reach very few subscribers, and successfully convincing a competitor's subscribers to change service providers. While it is true that the aforementioned barriers to market entry would not be reduced or eliminafed by the Transaction, we have not discovered, in the time available for this review, any unbiased data which definitively shows that the ATTB/Comcast merger would, in and of itself, significantly or materially worsen the present competitive environment. In this regard, the Transaction will not directly affect the large capital expenditures required to build a cable system from scratch or the need for competitors to effectively market and price their services. Further, AT&T Comcast would only have an attributable interest in twenty-four national and regional video programming networks, out of 374 programming services currently offered by a variety of sources.t~ This means the Transaction should not appreciably contribute to content discrimination against competitive overbuilders and other cable service providers. Moreover, A&S has concluded that the Transaction would not increase the merged company's advertising leverage. As A&S points out in its report: we do not believe that AT&T Comcast would be able to command more revenue from advertisers simply because it has a higher number of subscribers. The rates for advertising are driven by the number of viewers of a particular program, The combined company's total number of viewers will not change because of the merger. It is conceivable that AT&T Comcast may be achieve some operating efficiencies in 18 See, e.g., Duopolistic Competition in Cable Television, 7 Yale J. on Reg. at 68 ("[i]n almost all cases, cable operators are unanimous in their assessment that overbuilds do not work as a result of the large capital requirements needed up front and the necessity of cornering at least 40 percent of the market once the system is built in order to obtain a return on that investment,") 19 See Applications and Public Interest Statement, Description of Transactions, Public Interest Showing and Related Demonstrations, at pp. 70 (February 28, 2002). AT&T Comcast Transfer Application Report Page 22 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 managing this side of its business, but it is not appropriate to attribute additional revenue to this specifically from the merger. A&S Report at 11-12. As importantly, the Transaction would not alter the fact that selling advertising on new or incomplete systems with few subscribers will always be more difficult than selling advertising on a mature cable system with a large embedded customer base. Likewise, the Transaction would not change the fact that AT&T Broadband and Comcast already participate in an advertising sales effort that is national in scope. More specifically, Comcast and AT&T Broadband are part of the consortium of cable operators that own National Cable Communications, Inc. ("NCC"), a company that sells national advertising on as many as 37 cable television networks.20 Both AT&T Broadband and Comcast have pre-existing exclusive agreements with NCC for all national advertising. Given this arrangement, it is evident that the companies established a coordinated, national advertising network long before the Transaction. It is also evident that the Transaction will not strengthen the existing network, since subscriber viewership, which drives advertising, will not change as a result of the proposed merger.2 ~ Based on the foregoing, we do not believe that 47 U.S.C. § 533(d) provides a rational basis for withholding approval of the Transaction. X. AT&T COMCAST CORPORATION'S MANAGERIAL QUALIFICATIONS Pursuant to the terms of the Transaction, AT&T Comcast will have an atypical governance arrangement. According to an amended Form S-4 filed with the Securities and Exchange Commission on Apri129, 2002: [t]he term of the AT&T Comcast Board upon completion of the AT&T Comcast transaction will not expire until the 2004 annual meeting of AT&T Comcast shareholders. Since AT&T Comcast shareholders will not have the right to call special meetings of shareholders or act by written consent and AT&T Comcast directors will be able to be removed only for cause, AT&T Comcast shareholders will not be able to replace the initial AT&T Comcast Board members prior to that meeting. After the 2004 annual meeting of AT&T Comcast shareholders, AT&T Comcast directors will be elected annually. Even then, however, it will be difficult for an AT&T Comcast shareholder, other than Sural LLC or a successor entity controlled by Brian L. Roberts, to elect a slate of directors of its own choosing to the AT&T Comcast Board. Brian L. Roberts, through his control of Sural LLC or a successor entity, will hold a 33 1/3%nondilutable voting interest in AT&T Comcast __ 20 See A&S Report at 11. 21 Irl. AT&T Comcast Transfer Application Report Page 23 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 stock. In addition, AT&T Comcast will adopt a shareholder rights plan upon completion of the AT&T Comcast transaction that will prevent any holder of AT&T Comcast stock, other than any holder of AT&T Comcast Class B common stock or any of such holder's affiliates, from acquiring AT&T Comcast stock representing more than 10% of AT&T Comcast's voting power without the approval of the AT&T Comcast Board. In addition to the governance arrangements relating to the AT&T Comcast Board, Comcast and AT&T have agreed to a number of governance arrangements which will make it difficult to replace the senior management of AT&T Comcast. Upon completion of the AT&T Comcast Transaction, C. Michael Armstrong, Chairman of the Board and CEO of AT&T, will be the Chairman of the Board of AT&T Comcast and Brian L. Roberts, President of Comcast, will be the CEO and President of ATRcT Comcast. After the 2005 annual meeting of AT&T Comcast shareholders, Brian L. Roberts will also be the Chairman of the Board of AT&T Comcast. Prior to the sixth anniversary of the 2004 annual meeting of AT&T Comcast shareholders, unless Brian L. Roberts ceases to be Chairman ofthe Board or CEO of AT&T Comcast prior to such time, the Chairman of the Board and CEO of AT&T Comcast will be able to be removed only with the approval of at least 75% of the entire AT&T Comcast Board, This supetrnajority removal requirement will make it unlikely that C. Michael Armstrong or Brian L. Roberts will be removed from their management positions. Amendment No. 2 to Form S-4, Chapt. I at pp. 3 ] -32. After the Transaction is consummated, AT&T Comcast will have an Office of the Chairman comprised of the Chairman of the Board (C. Michael Armstrong) and the CEO (Brian L. Roberts) from the completion of the merger until the earlier to occur of (i) the 2005 annual meeting ofAT&T Comcast shareholders (at which Mr. Armstrong will step down) and (ii} the date on which C. Michael Armstrong ceases to be the Chairman of the Board. The Office of the Chairman will be AT&T Comcast's principal executive deliberative body with responsibility for corporate strategy, policy and direction, governmental affairs and other significant matters,zz Under AT&T Comcast's initial management structure, as described above, the Board of Directors, Chairman of the Board and Chief Executive Officer will have little or no accountability for the decisions they make. This is significant because, as indicated above, the Board and the Office ofthe Chairman would be making important decisions concerning local cable systems. In light of the economics of the Transaction, which are discussed in the A&S Report, and given the fact that the Board and Office of the Chairman may act with impunity, it is likely that those decisions may include reductions in capital expenditures, decreases in expenses and/or revenue increasing measures 23 Such reductions, decreases and revenue increasing measures may, among other things, 22 See Amendment No. 2 to Form S-4 at Ch, VIII, pp. 1-2 (Apri129, 2002). 23 See ABcS Report at 2. AT&T Comcast Transfer Application Report Page 24 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 result in higher service rates and detrimentally impact service quality, customer service and AT&T Broadband's and Comcast Cable's ability to ensure that local franchise commitments are satisfied. At this point, however, it is not possible to ascertain with certainty what types of decisions will be tnade at the ultimate parent company, since AT&T Broadband and Comcast have refused to provide such information.24 In addition, many AT&T Comcast Board members and officers have not yet been selected, so it is not possible to research their record, and to determine whether it is likely that they will take actions which are inconsistent with franchise obligations, subscriber interests and/or the public interest. AT&T Broadband and Comcast Cable have indicated that the Transaction will not immediately result in any operational or managerial changes at the local franchise level. At the same time, however, AT&T Broadband and Comcast Cable have admitted that they do not know ifthere will be any changes to existing management structures as a result of the Transaction. Assuming changes in management are made, the impact of such changes is unknown at this time, since the companies have not stated what types of decisions, if any, would be made at the local level after the Transaction is completed. We should also note that AT&T Broadband and Comcast Cable never fitrnished any information describing what decisions will be made at the regional or direct parent level (e.g., ATTB and Comcast, as opposed to AT&T Comcast), even though such information was requested by CBG. Thus, it is unclear how AT&T Comcast will function, from adecision-making standpoint, after the Transaction, except for the fact that the Office of the Chairman will be primarily responsible for corporate strategy, policy and direction, governmental affairs and other significant matters. Within the Office of the Chairman, Brian Roberts will have day-to-day authority over the operations of AT&T Comcast.zs Given the uncertainties surrounding who will be making decisions about the LPAs' systems, and precisely what decisions will be made at local, regional, direct parent and indirect parent levels after the Transaction is completed, it would be appropriate to require AT&T Comcast and Comcast or AT&T Comcast and ATTB to affirmatively guarantee that they: (i) will not interfere, directly or indirectly, with a franchise holder's ability to comply with its franchise obligations, and applicable laws and regulations; or (ii) will cause the franchise holder to comply with its franchise commitments and applicable laws and regulations at all times. It would also be advisable to have the local franchise holder re-affirm its understanding of and obligation to comply with franchise requirements. If such a guarantee and reaffirmation are obtained, we do not believe AT&T 24 According to A&S, budgets and major expenditures will be controlled by upper management, and revenues "collected locally [will be] ... `swept' into a central banking facility and managed for the whole company ..." See A&S Report at 1. We are not certain, however, what specific decisions will be made by upper management at AT&T Comcast, as opposed to upper management at ATTB and Comcast. It is also possible that certain decisions could be made at a regional ]eve], since "the resources or working capital for day-to-day expenses and payroll" are maintained at that level, See A&S Report at 1. 25 See AT&T Broadband's April 12, 2002, Response to Question #35 in CBG's April 2, 2002, Request for Information, and Comcast's April 12, 2002, Response to Question #27 in CBG's Apri12, 2002 Request for Information. AT&T Comcast Transfer Application Report Page 25 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 Comcast's management and governance scheme provides a reasonable basis for withholding approval of the Transaction. XI. AT&T COMCAST CORPORATION'S CHARACTER DUALIFICATIONS As part of our review, we evaluated whether AT&T Cotncast, and its management, have the requisite character to control the cable systems in the LFAs' franchise areas. The primary purposes of evaluating a transfer applicant's character are to ascertain whether it is likely that the applicant, through its officers and directors, will defraud a local franchising authority or subscribers, or renege on its franchise obligations. To the best of our knowledge, neither AT&T Comcast nor its officers or directors have engaged in any activities that would call their character into question. This conclusion is based on the fact that: - AT&T Comcast is a new entity, without any operational record; - For the last ten years, none of the directors of AT&T or Comcast who may become directors or officers of AT&T Comcast have been convicted in a criminal proceeding of fraud, embezzlement, tax evasion, bribery, extortion, obstruction of justice, false/misleading advertising, perjury, antitrust violations, violations of FCC regulations or the Communications Act of 1934, or conspiracy to commit any of the foregoing offenses; and - No current AT&T Comcast officer or director has ever been fined or otherwise sanctioned by a local franchising authority, the FCC or a state agency or commission for failure to comply with the requirements of a cable television franchise.26 Based on our findings and the representations contained in AT&T's and Comcast's application materials, CBG does not believe there are any character issues that provide a reasonable basis for withholding consent to the Transaction. XII. OTHER RELEVANT FACTORS Other relevant factors which have been reviewed and considered for the purpose of determining whether to approve or deny the proposed merger are: - The Transaction would not cause any changes to the Franchises or any memoranda of understanding between specific LFAs and the local franchise holder; - Local franchise holders would continue to be bound by the Franchises and any applicable memoranda of understanding after the Transaction is consummated; - The Transaction would not affect any licenses or authorizations necessary for local franchise holders to operate and maintain the cable systems in the LFAs' franchise areas; 26 See AT&T Broadband's April 12, 2002, Response to Question #11 and #12 in CBG's April 2, 2002, Request for Information, and Comcast's April 12, 2002, Response to Question #9 and #10 in CBG's Apri12, 2002 Request for Information. AT&T Comcast Transfer Application Report Page 26 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 - The Transaction would not violate any restrictions on cable system ownership; - After the Transaction, individual franchise holders would remain obligated to comply with all federal, state and local laws pertaining to discrimination, equal opportunity employment and affirmative action; and - All use of the public rights-of--way in the LFAs' communities will continue to be subject to all lawful and applicable licensing and franchising requirements that may apply.Z~ It is CBG's opinion that none of the foregoing factors provide a reasonable basis for withholding consent to the Transaction. XIII. CONCLUSION As a result of the above analysis, we have concluded that the LFAs should not approve the Transaction, even as modified in Apri12002. AT&T Comcast is not financially qualified to control the Franchises or ATTB and Comcast (and their subsidiaries). In addition, it is clear that the Transaction, if approved, would detrimentally impact (and possibly significantly) network repair and maintenance, future technical improvements, customer service, the availability of funds to support increased and improved service offerings, and the ability of Comcast Cable and AT&T Broadband to meet their franchise obligations. At the same time, the Transaction would likely cause AT&T Broadband and Comcast Cable to raise rates. Accordingly, the Transaction would adversely affect subscribers, and the LFAs' interests under their Franchises. 27 See generally ATBcT Broadband's April 12, 2002, Response to CBG's Apri12, 2002, Request for Information, and Comcast's April 12, 2002, Response to CBG's April 2, 2002 Request for Information. AT&T Comcast Transfer Application Report Page 27 ~ Creighton Bradley & Guzzetta, LLC May 29, 2002 APPENDIX A AT&T Comcast Corporation: Ultimate Corporate Structure With the completion of the merger transaction, AT&T Comcast Corporation will be the new public canpwayparent of both Comcast Corporatiar and AT&TBroadband, which will be wholly owned "brother/sister" subsidiaries ofAT&T Comcast Corporation. Final Structure Former AT&T Shareholders AT&T Broadband Holdings, LLC AT&T Broadband Corp. Curtem Cable Franchise Holder, (D'vec[ or Ind'vect) Former Comcast hareholde AT&T Comcast Corp Brian Roberts Sural LLC Comcast Corp Curtem Cable ranchise Holder (Direct or Indirect) FINAL STRUCTURE Public Shareholders AT&T Comcast Corporation AT&T Broadband Holdings, L.L.C. AT&T Broadband Corp. Comcast Corporation AT&T Broadband of Soi Cal, Inc. ATBT Broadband LLC Media One Group, Inc. AT&T CSC, Inc. District Cablevision. Inc. Novato Cable Company South Chicaoo Cable, Inc. Existing Cable Franchise Existing Cable Franchise Existing Cable Franchise Holders (direct and indirect) Holders (direct and indirect) Holders (direct and indirect) APPENDIX B REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION Prepared by Ashpaugh & Sculco, CPAs, PLC 1133 Louisiana Avenue, Suite 106 Winter Park, FL 32789 (407) 645-2020 ascpas@ascpas.com May 24, 2002 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION Ashpaugh & Sculco, CPAs, PLC ("A&S") were engaged to perform a financial review of the proposed merger of Comcast Corporation ("Comcast") and AT&T Broadband ("ATT-B"), a wholly owned subsidiary of AT&T Corporation, to form AT&T Comcast. For this project, A&S has reviewed the publicly filed documents associated with this transaction available from the websites of the Securities and Exchange Commission's ("SEC"), the Federal Communications Commission ("FCC"), Comcast Corporation and AT&T Corporation as of May 13, 2002. In addition, we have reviewed responses to information requests submitted to Comcast and ATT-B. The requests for information submitted to Comcast and ATT-B for each of the local franchise authorities ("CFAs") requested information concerning the local impacts of the proposed merger. After discussion with representatives of Comcast, the focus of the review was changed to the effects of the transaction on the parent companies, and Comcast provided responses to the requests on that basis. The CFA's agreed to this approach because the companies explained that the financial management of Comcast, ATT-B and AT&T Comcast occurs or will occur at the upper levels of the companies. Cash collected locally is "swept" into a central banking facility and managed for the whole company, budgets and major expenditures are controlled by upper management. The local franchises have no financial resources to draw upon. For example, the resources or working capital for day-to-day expenses and payroll is maintained at the regional level. Similarly, there is no debt at the local or regional level, because all debt and financing is done at the parent level. The financial decisions and resources of the companies are concentrated at upper management and, as such, the analysis of the financial aspects of the proposed merger should be at the parent level. This makes the financial position of and decisions made by the parent key to the financial ability of the local system to operate. While our analysis has thus been conducted at the parent level, the focus of the CFA's review continues to be on the financial implications of the proposed merger on the local systems, including capital expenditures, franchise commitments and moneys due the CFAs. As will be explained below, the anticipated shortages of cash and working capital may increase certain risks for CFA's. For example, these shortages could impact the local franchisee's ability to implement or complete construction and to initiate and offer new and additional services in some or all CFAs. SUMMARY The merged company will start operation with approximately $32.7 billion of debt: $12.2 billion of Comcast and $19.3 billion of ATT-B, plus additional debt associated with the transaction. In excess of $16 billion of this debt will mature by 2006?'3 For 2001, ATT-B and Comcast had a combined cash flow deficit of over $4.0 billion. The capital expenditures of ATT-B and Comcast are budgeted in total to be $5.6 billion for 2002 a Based on our review of ' Amended S-4, p. III-4, filed April 29, 2002 with the Securities and Exchange Commission. Z Amended S-4, p. XII-101 for AT&T Broadband. ' SEC Form 10-K of Comcast Cable Communications, Inc. for the fiscal year ended December 31, 2001, p.40. Amended S-4, p. I-37. ASHPAUGH & SCULCO, CPAs, PLC May 24, 2002 Page2of12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION historical information publicly available and on statements of Comcast and ATT-B regarding future operations, we believe that capital expenditures of AT&T Comcast will continue to exceed $4.0 billion per years We also believe the merged entity will have a cash flow deficit in excess of $3.5 billion annually for at least the first few years. The combination of the need to fund maturing debt, fiznd capital expenditures and fund cash flow will require the level of debt of AT&T Comcast to increase in excess of $3.0 billion annually for the first 3 to 5 years. This could result in a significant debt load in excess of $40.0 billion. These deficits may well continue into the future. We do not know, and Comcast and ATT-B have repeatedly told us in this process that they have not done projections of future operations (cash flows, revenues and expenses). Assuming an annual interest rate of 6.0%, an additional $3.0 billion in debt would increase interest expense $180 million per year and decrease cash flow and net income in the same manner. Since Comcast and ATT-B claim that they are unable to provide projections, they are also unable to show that (a) the short-term deficits are insignificant in light of reasonably expected cash flows; (b) that the long term cash flows are likely to justify this transaction, or (c) that, as will be addressed below, the "synergies" and "efficiencies" associated with this transaction are reasonable. Operationally, AT&T Comcast may need to make decisions to reduce these impacts, such as to increase revenues, decrease expenses, or to reduce capital expenditures, or some combination. This creates a risk that the parent would be forced to reduce capital support to the local franchisee resulting in a reduction in the quality of existing services and customer service, and slowing or reducing the roll-out of new services. There are statements in the Amended S-4 that it may make such reductions in order to address its cash flow concerns and lack of funding for capital expenditures, and the company has not provided me with any data that contradicts these disclosures. Each of these cost-cutting decisions has other impacts. Competitively, AT&T Comcast may not be able to raise the price of its products and services without eroding revenues further, i.e., the revenues gained by an increase in price may be more than offset by the loss in sales and subscribers. Decreasing expenses may also impact the new company's operations, resulting in loss of revenues and subscribers, and reductions in certain expenses may be prevented by contract or may themselves create additional expenses. One example of this would be the payment of termination costs arising from reductions in workforce. Reducing capital expenditures may impact future growth in revenue by preventing the offering of new services, such as digital and video-on-demand, or may impact fixture expenses by not allowing reductions achieved through increased efficiencies. Reducing capital expenditures would likely lengthen the amount of time needed to complete the rebuild of the ATT-B systems and limit the build-out of existing cable systems, thus impacting AT&T Comcast's ability to turn this around within 5 years or longer. Technologically, AT&T Comcast will continue to need available funds to be able to add and upgrade equipment to provide new and enhanced services and to continue to expand its other lines of business, such as programming content. As stated in the s We have requested projected information for the first 5 years of operation of the merged entity, but neither ATT-B nor Comcast would provide any such information. The declaration of Robert S. Pick, Senior Vice President, Corporate Development, Comcast Corporation, filed with the Federal Communications Commission and dated February 27, 2002 estimates savings of 5% to 7% on capital expenditures quantified as $200 to $300 million annually, which calculates to $4.0 billion of anticipated capital expenditures before the projected savings. ASHPAUGH & SCULCO, CPAs, PLC May 24, 2002 Page 3 of 12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION - following excerpt from pages 25 and 26 of Comcast Corporation's 10-K filed March 29, 2002 for the period ended December 31, 2001, only $225 million of the budgeted $1.5 billion of capital expenditures for 2002 relate to upgrading and rebuilding systems. Comcast has need for continuing capital expenditures within its current operations even affer its own upgrade and rebuild is complete. Cable We expect our 2002 cable capital expenditures will include approximately $225 million for the upgrading and rebuilding of certain of our cable communications systems, approximately $625 million for the deployment of cable modems, digital converters and new service offerings, and approximately $450 million for recurring•capital projects. The amount of our capital expenditures for years subsequent to 2002 will depend on numerous factors, some of which are beyond our control including: o competition, o cable system capacity of newly acquired systems, and o the timing and rate of deployment of new services. Commerce During 2002, we expect to incur approximately $175 million of capital expenditures for QVC, primarily for the upgrading of QVC's warehousing facilities, distribution facilities and information systems. Capital expenditures in QVC's international operations represent nearly 50% of QVC's total capital expenditures. Affiliation Agreements Certain of our content subsidiaries and QVC enter into multi-year affiliation agreements with various cable and satellite system operators for carriage of their respective programming. In connection with these affiliation agreements, we generally pay a fee to the cable or satellite operator based upon the number of subscribers. During 2002, we expect to incur $200 million to $300 million related to these affiliation agreements. Based on the limited information available, it is not possible to slate that this merger will be beneficial to any of the existing franchises. For the period through 2006, AT&T Comcast will continue to have a shortage of cash and be annually increasing its level of debt. This will leave the merged company with a significant debt load that will impact its financial decisions for the following years. Since we have not been provided any projected data, the length of impact of this debt is unknown. Our firm also had the opportunity to review certain information pursuant to confidentiality agreements that prevent us from revealing the data. We can say, however, that the data was relevant to our analysis, and is consistent with our conclusion as to the financial problems presented by this transaction. The franchises currently served by Comcast will go from a company currently touted as being in the strongest financial position of any of the cable multiple system operators ("MSOs") to a company, AT&T Comcast, with a large ASHPAUGH & SCULCO, CPAs, PLC May 24, 2002 Page 4 of 12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. ANb COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION _ amount of debt and significant shortages in cash flow. Franchises currently served by AT&T Broadband will go from a company with significant debt and shortages in cash flow to a company with even more debt and greater shortages in cash flow. DISCUSSION We have relied on information provided by AT&T Broadband and Comcast, Our analysis has focused on the actual results of operations for the years ended December 31, 1999, 2000 and 2001 as shown on the publicly available balance sheets, income and cash flow statements of ATT-B and Comcast and the pro forma balance sheet and income statement of AT&T Comcast. This financial information is attached to this report. An integral component of these financial statements are the notes that disclose the detail of debt, property and equipment and other matters. This infornation has been utilized to project the maturing of debt and estimate other financial components discussed above. Additionally, the details of this transaction as explained in the filings with the SEC and FCC have been reviewed. The financial information of Comcast for the years ended December 31, 2001 shows increases in revenues with increases in expenses at a faster rate. This has resulted in increased income, although operating income before depreciation and amortization as a percentage of revenues has declined from 45.73% in 1999 to 40.04% in 2001. Comcast's cash flow statements show decreases in cash for 2000 and 2001, principally due to capital expenditures. During this period, Comcast has increased its debt by approximately $2.0 billion. Statements in the Amended S-4 and other filings indicate Comcast will have significant capital expenditures in 2002 and a shortfall in cash. Similarly, ATT-B has had a significant shortage of cash in 1999, 2000 and 2001. This has been funded by its parent company, AT&T. Statements in the S-4 show that it will continue in 2002. On a combined basis (Comcast and ATT-B), the S-4 identifies a cash shortfall of $4.452 billion for 2001. As stated in the S-4: Historically, AT&T Broadband Group's capital expenditures have significantly exceeded its net cash provided by operations. For the year ended December 31, 2001, AT&T Broadband Group's capital expenditures exceeded its net cash provided by operations by $3.5 billion. In addition, for the year ended December 31, 2001, Comcast's capital expenditures exceeded its net cash provided by operating activities by $952 million. After completion of the AT&T Comcast transaction, AT&T and Comcast expect that for some period of time AT&T Comcast's capita] expenditures will exceed, perhaps significantly, its net cash provided by operating activities. This may require AT&T Comcast to obtain additional financing. AT&T Comcast may not be able to obtain or to obtain on favorable terms the capital necessary to fund the substantial capital expenditures described above that are required by its strategy and business plan. A failure to obtain necessary capital or to obtain necessary capital on favorable terms could have a material adverse effect on AT&T ASHPAUGH & SCULCO, CPAs, PLC May 24, 2002 Page5ofl2 REVIEW OF THE PROPOSED MERGER OF ATRLT BROADBAND, INC. AND COMGAST CORPORATION TO FORM AT&T COMCAST CORPORATION -- Comcast and result in the delay, change or abandonment of AT&T Comcast's development or expansion plans.b Comcast's 10-K shows significant growth in high-speed Internet revenues. However, even with this growth, this only represents 5.74% of year 2001 total revenues. The major portion of Comcast revenues is from video services, 83.38%. While Comcast's financial information shows growth in video revenues over the prior year, this needs to be tempered with the fact that Comcast acquired large numbers of new subscribers in 2001 through the following transactions: acquisition of the Baltimore system in June with 112,000 subscribers, 585,000 subscribers from systems acquired from ATT-B in April, and a system swap with Adelphia in January that gained approximately 4,000 subscribers. In December 2000, Comcast exchanged systems with ATT-B gaining approximately 70,000 subscribers. Normally, we try to evaluate the growth in the number of subscribers and the growth in revenue per subscriber. However, this information was not available from public sources and not provided by Comcast. Since the growth figures of Comcast do not show clear year-to-year trends because of the changes from acquisitions, it is not possible to determine the growth rates for subscribers and revenue per subscriber. While it seems reasonable to assume that Comcast will continue to experience growth in high-speed Internet within the existing Comcast franchises, there is no data to support what the rate of growth will be. Concerning the ATT-B franchises, Comcast's management clearly anticipates the requirement to spend additional capital to provide these types of services over the ATT-B systems. Likewise, we do not have this information for ATT-B. ATT-B, formerly TCI, was purchased by AT&T Corporation and consolidated into AT&T's financial information in March 1999 as a separately identified business segment. In June 2000, AT&T acquired MediaOne, which was rolled into the ATT-B operating results. As a result of these acquisitions plus additional transactions involving individual systems over the 2 years, year-to-year comparisons at this high level do not yield information that can be used to project future growth. Announced operating results of Comcast and ATT-B for the first quarter of 2002 reportedly shows mixed results. Comcast has told the investment community that its first quarter results from video are its best ever, with increases in high-speed Internet revenues. However, ATT-B has reported a reduction of approximately 179,000 subscribers from the prior year and a margin of operating income before income taxes, depreciation and amortizations and interest expense of only 19% of revenues.s This is significantly below the margin of the Comcast of 35% to 40%. Assuming average revenue per subscriber of $40 per month, this reduction in subscribers means an annual reduction in revenues of approximately $86 million. The first quarter results seem to indicate that the combined results of Comcast and ATT-B may mirror the 2001 results of a significant shortfall in cash flow, since both Comcast and ATT-B seem committed to their announced levels of capital expenditures, and negative reported income. e Amended S-4, p. I-38. ~ Transcript of May 1, 2002 "First Quarter Earnings Release Conference Call" of Comcast Corporation filed with the SEC under Rule 425 on May 2, 2002. $ April 24, 2002 News Release of AT&T. ASHPAUGH BL SCULCO, CPAs, PLC May 24, 2002 Page6of12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION ADDITIONAL CONCERNS This discussion addresses additional concerns noted during our review of the proposed merger. ATT-B Subsidiary Guarantees. First, as disclosed in its financials, ATT-B has guarantees of debt of subsidiaries and unconsolidated joint ventures in the amount of $1.463 billion at December 31, 2001.9 AT&T Comcast assumes responsibility for these guarantees with the merger. While ATT-B discounts its liability, the cable television market has had failures and financial troubles, such as the current problems with Adelphia. Such an occurrence with these subsidiaries and unconsolidated joint ventures would add additional financial pressures to AT&T Comcast. Agreements between AT&T-B and AT&T. The following identifies agreements between ATT- B and affiliated companies of AT&T Corporation that survive the proposed merger. Master Carrier Agreement.10 This agreement reflects the rates, terms and conditions on which AT&T's business services group will provide voice, data and Internet services to AT&T Broadband, including both wholesale services (those used as a component in AT&T Broadband's services to its customers) and "administrative" services (for internal AT&T Broadband usage). Pricing is market based, with provisions defining an ongoing process to ensure that the prices remain competitive. First Amended and Restated Local Network Connectivity Services Agreement." This agreement reflects the rates, terms and conditions on which AT&T's business services group will provide certain local network connectivity services to AT&T Broadband for use in providing local telephone services to AT&T Broadband's subscribers. This agreement consists of two parts: - a capital lease from AT&T's business services group to AT&T Broadband of certain network switching and transport assets to be used exclusively by AT&T Broadband for a term of up to ten years, commencing January 1, 2001 for initial assets leased under the agreement; and - an operating agreement for the provision of local network connectivity, management and operational services in support of AT&T Broadband's local cable telephone services, with a minimum term of five years commencing January 1, 2001. Master Facilities Agreement.'Z This agreement permits AT&T or any of its subsidiaries to use existing fiber facilities owned or leased by AT&T Broadband or its controlled affiliates, together with related services. In addition, AT&T Broadband will construct and lease to AT&T new fiber facilities in the areas served by AT&T Broadband's cable systems for use in providing telecommunications services. The term of the build-out period will expire on January 8, 2012. Subject to certain termination rights specified in this agreement, the term of AT&T's right to use facilities leased under 9 Amended S-4, p. XII-111. 10 Amended S-4, p. V-28. ~~ Ibid. 12 Ibid. ASHPAUGH & SGULGO, CPAS, PLC May 24, 2002 Page7of12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMGA$T CORPORATION - this agreement will expire on January 8, 2028, renewable at AT&T's option for successive 20-year terms in perpetuity. The merged company will be a competitor of AT&T Corporation and carrying these agreements forward into the new company may disadvantage AT&T Comcast in competitive situations. For example, the Local Network Connectivity Services Agreement ("LNS") allows ATT-B to use AT&T facilities in providing local telephone service, while AT&T maintains ownership and control of the facilities and equipment. However, AT&T will also be offering local telephone service. While we do not have .the specific cost information of the LNS because it was deemed confidential, AT&T's rights under the LNS may put AT&T Comcast in a non-competitive situation where AT&T can offer services at less cost than AT&T Comcast. Since we have concluded that AT&T Comcast will have need of additional cash flow, any limitation on the new company's ability to enter new markets and offer new services raises concerns. We have similar concerns with the Master Facilities Agreement ("MFA"). The MFA allows AT&T unfettered access to the rights-of--way under contract to and used by ATT-B "in perpetuity" or as long as AT&T so desires. Again, ATT-B and AT&T will be competitors. Use of and access to rights-of--way is a major competitive advantage and a very valuable commodity. As with the LNS, we are concerned that the rights granted to AT&T under the MFA could reduce AT&T Comcast's ability to enter new markets and its ability to compete with AT&T. Ixi addition, in most cases, local franchising authorities ("CFAs") do not have franchise agreements with AT&T for use of the public right-of--way ("PROW"). It is conceivable that AT&T Comcast would be in a position of compensating the CFAs for use of the PROW, while AT&T may be offering the same or similar service in the same location and not compensating the CFAs. Of course, this would be less of a concern from a strict financial standpoint if the cost of using the PROW was passed on to AT&T on some reasonable basis. It is nonetheless of concern to local franchising authorities, to the extent that the MFA is being used to avoid franchisee fees, avoid franchising requirements, or to the extent it violates local franchise agreements. It has been highly publicized that a benefit of this merger will be the ability of AT&T Comcast to offer a competitive alternative to the local telephone provider and generate additional revenues from telephone service. However, fourteen MediaOne switches were transferred out of AT&T Broadband Group in 2001 and are not part of the AT&T Broadband Group today.13 As such, AT&T Comcast will only have access to this equipment if it falls under the LNS and, if so, at the rates and charges of the LNS. Once more, we are concerned about the competitive impact this will have on AT&T Comcast. CONCERNING THE DECLARATION OF ROBERT S. PICK Mr. Pick is Senior Vice President, Corporate Development, at Comcast Corporation. Mr. Pick filed a declaration dated February 27, 2002 with the FCC setting forth: "the major categories of synergies and efficiencies that my staff and I identified in the course of evaluating and negotiating the Merger. These benefits will stem ~' Amended S-4, Schedule 6.27. ASHPAUGH R. SCULCO, CPAs, PLC May 24, 2002 Page 8 of 12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM ATRcT COMCAST CORPORATION - from a number of sources and include the following: (i) accelerated telephony roll-out; (ii) new product development and launch; (iii) programming cost savings; (iv) capital expenditure efficiencies; (v) operating efficiencies; and (vi) national advertising sales."14 The following addresses each of the six so-called synergies and efficiencies identified and quantified by Mr. Pick in the order presented in his declaration. Before doing so, however, we note that Mr. Pick did not provide any supporting analyses or documentation for his declaration, repeatedly limited his analysis as "based on my experience in evaluating prior acquisitions" and provided the following disclaimers at the end of each section: - As noted above, this projection depends upon the accuracy of the due diligence data Comcast has received, as well as the actual financial and operational performance of cable telephony in the marketplace.~s - This estimate depends, of course, upon the actual performance of various new products in ongoing trials and, if launched, in the marketplace, as well as broader economic trends.~b - Achieving these savings will depend upon a number of factors, including the actual terms of specific programming contracts, broader trends in programming prices, and the dynamics of individual negotiations between AT&T Comcast and the sellers of video programming. ~~ - Achieving these savings will depend upon a number of factors, including broader trends in prices for capital items and the dynamics of individual negotiations between AT&T Comcast and the sellers of these products. a - Achieving these savings will depend upon a number of factors, including the cost and operational structures at the cable division level and the continued competitive impact of DBS and other competitors.~~ - This estimate depends upon numerous factors, including trends in the broader economy and advertising sales.20 For these reasons, Mr. Pick's Declaration cannot be taken at face value, particularly given the failure of Comcast and ATT-B to provide supporting data and Comcast's insistence that it has no data from which it can make projections of operations. Accelerated Telephony Roll-out As noted above in the discussion of Additional Concerns, AT&T Comcast may not be in a competitive position regarding local telephone service. Mr. Pick explains that "AT&T Broadband has devoted significant resources to developing, deploying and marketing cable telephony over the last several years", but it appears from the documents and information 16 Declaration of Robert Pick, filed with the Federal Communications Commission dated February 2, 2002, p.2. is Ibid, p. 6. 16 Ibid, p. 7. " Ibid, p. 9. ~$ Ibid, p. 10. iv Ibid, p. 11. zo Ibid, p. 13. ASHPAUGH & SCULCO, CPAs, PLC May 24, 2002 Page 9 of 12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION - provided the majority of telephone assets will continue to reside within AT&T and not be transferred to AT&T Comcast. A&S does not have and was not provided information on personnel, so we do not know if "AT&T Broadband's extensive experience and expertise to accelerate the roll-out of cable telephony" will continue to reside within AT&T or be transferred to AT&T Comcast. As such, the "churn-reduction" benefits and quantification of "an additional $600 to $800 million in EBITDA21 annually" are suspect. New Product Development and Launch Mr. Pick estimates "the value to AT&T Comcast of developing these new products should be between $100 and $200 million in EBITDA a year within three years." 22 Comcast is an owner and a major participant in Cable Labs. in recent discussions over the last several months, Brian L. Roberts, President, Comcast Corporation, has repeatedly referred to developments of Cable Labs in developing new services, such as digital, video-on-demand ("VOD") and voice over Internet protocol ("VoIl'"). While the merger will provide a larger subscriber base to support this type of research and development, it is difficult to specifically associate additional revenue generation with this merger. Obviously, Comcast is developing these sources of additional revenue now and would pursue them absent the merger. Accordingly, the basis for Mr. Pick's claim of additional EBITDA from these sources is unclear. Programming Cost Savings Mr. Pick estimates annual savings to AT&T Comcast of $250 to $450 million from reductions in programming costs for the combined entity. This quantification does not seem reasonable based on our experience. A&S has been reviewing cable television rate filings of cable operators since 1993.23 The cost of programming for the Basic Services Tier and the second tier of service, labeled as the Cable Programming Service Tier by the FCC, has been provided as components of these rate filings. In some cases, the costs of the individual channels have been identified. From these reviews, there has been little fluctuation in the per subscriber rates between cable providers and some of the difference has related to different timing of contracts. We agree that there exist volume discounts in some programming contracts, but it has been our experience that the increases in these discounts with increasing volume become very small as the number of subscribers approaches 10 million. In addition, A&S has specifically examined the programming costs of Comcast and of AT&T Broadband; we do not agree that savings of the magnitude represented by Mr. Pick are possible under the existing agreements. Nor do we believe that AT&T Comcast will be in a position to negotiate better rates for programming as a result of the merger. Such an argument ignores two things. First, many of these contracts are for multiple years and will survive the merger. AT&T Comcast's ability to negotiate better rates will not be known until the contracts are renewed. And second, our experience is that size has not mattered in the price of programming. We have reviewed rates of small cable systems that are consistent with rates of large systems. In some cases, the major Z~ EBITDA is earnings (operating income) before interest, income taxes, depreciation and amortizations. '2 Declaration of Robert Pick, p. 7. Z' More specifically, Mr. Ashpaugh has reviewed these filings while he was with prior employers since A&S was only formed December I, 1999. Mr. Ashpaugh has been working in cable rate matters since 1993. ASHPAUGH & SCULCO, CPAs, PLC May 24, 2002 Page 10 of 12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION ~ - difference related to a volume discount, which decreased markedly or disappeared as the number of subscribers approached 10 million.24 It should also be noted that Comcast owns programming content that it places on its own systems, such as E!, Outdoor Channel, Golf Channel, and QVC, and has stated that it anticipates adding this programming on the ATT-B systems. ATT-B has ownership of programming content through its 25% interest in Time Warner Entertairunent, commonly referred to as TWE. Obviously, any decrease in the cost of its own content to affiliates will reflect negatively on the earnings of the content provider and ultimately the parent company or the owners. Capital Expenditure Efficiencies Mr. Pick quantifies this savings as $200 fo $300 million annually to AT&T Comcast. First, it appears that Mr. Pick has quantified this component incorrectly. He states that there will be a 5% to 7% savings, resulting in the $200 to $300 million annually. A major component of the capital expenditures of Comcast and ATT-B relate to construction within their respective systems. A large component of the cost of construction, however, is labor, which is usually specific to the region and its local economy and not the size of the company. Thus, the single largest component of the new company's capital expenditures will be unaffected by the merger. In addition, as discussed above, A&S has reviewed cost information associated with cable rate filings since 1993. A cost component of these equipment rate filings is the cost of converters, analog and digital, referred to by Mr. Pick as set-top boxes. We have reviewed the costs of such equipment, and concluded that Comcast and ATT-B have little, if any difference, in the costs of like equipment. Based on that, I do not agree that any savings in capital expenditures could be of this scale. In addition, the companies are already so large that any reductions in cost through volume purchases are unlikely to be substantial. Operating Efficiencies Mr. Pick estimates the impact of this to be $200 to $300 million annually on AT&T Comcast's EBITDA after one to three years.25 Mr. Pick states "AT&T Comcast should be able to decrease the aggregate amount of overhead currently spent by AT&T Broadband and Comcast for corporate services, such as corporate management, corporate development, strategic development, treasury, accounting, tax, and in-house legal services. Currently all of these functions are performed separately by or for both companies."26 ATT-B is part of a larger company. As disclosed in the footnotes to the financial statements in the Amended S-4, AT&T allocates general corporate overhead expenses, including finance, legal, marketing, use of the AT&T brand, planning and strategy and human resources to AT&T Broadband Group, as well as costs for AT&T employees who directly support the activities of the AT&T Broadband Group. Charges for such services amounted to $146, $159 and $120 for the years ended December 31, 2001 and '" It should be noted that specific cost information for programming has been requested to be confidential by several cable providers including Comcast and ATT-B. As such, we can only generally discuss this issue. zs Declaration of Robert Pick, p. 11. ze Ibid, p. 11. ASHPAUGH & SCULCO, CPAs, PLC May 24, 2002 Page 11 of 12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION .. _ 2000 and for the ten months ended December 31, 1999, respectively. These amounts are included in selling, general and administrative expenses in the accompanying combined statements of operations and were determined based on methodology described in note 1.27 (Amounts shown are in millions.) As such, we acknowledge that there would be a reduction of $146 million in ATT-B's expenses for 2001. On the other hand, while Comcast's costs for these functions could be spread over a larger base, they will not be decreased. In fact, arguments have been made by experts in the industry evaluating this merger that Comcast will have to add significant numbers of additional staff including attorneys and other professionals.28 Additionally, as part of this merger, C. Michael Armstrong, Chairman and Chief Executive Officer, AT&T Corporation leaves AT&T to become Chairman of the Board of AT&T Comcast. Mr. Armstrong's compensation was in excess of $10.6 million in 2001.29 This amount plus the costs of any other executive personnel transferring from AT&T or hired would need to be offset against the reductions. For these reasons, we do not believe Mr. Pick's quantification of the impact of the operating efficiencies gained from the merger is reasonable. National Advertising Sales Mr. Pick estimates AT&T Comcast "will be able to achieve $100 to $200 million in increase EBITDA annually from the sale of national advertising within one to three years after the Merger." 30 I disagree with Mr. Pick. Comcast and ATT-B participate in national advertising and generate significant revenues from such advertising. Comcast and ATT-B are part of the consortium of cable owners of National Cable Communications, Inc., commonly referred to in the industry as NCC.31 When Comcast records advertising on its books, it labels it "National Advertising NCC". ATT-B, formerly as TCI, has owned a portion of NCC for many years and was the first MSO (multiple system operator) owner, through its affiliate, AT&T Media Services. While AT&T Media Services sells regional advertising for all of the ATT-B systems, NCC has an exclusive contract for all national advertising. It is our understanding that NCC also has such an exclusive contract with Comcast. NCC's purpose is to sell national advertising on cable networks. For example, according to it's website, NCC has the capability to insert ads directly onto a number of cable networks and lists links to 37 cable networks on its website. The cable industry has taken advantage of opportunities in national advertising for many years. Associating increases in national advertising revenues as a benefit of this merger does not seem appropriate. The November 19, 2001 article "NCC's New-Business Push Pays Off' in the Multichannel News touts NCC's ability to capture national advertising and its plans to expand its push in 2002. In addition, we do not believe that AT&T Comcast would be able to command more revenue from advertisers simply because it has a higher number of subscribers. The rates for advertising are driven by the number of viewers of a particular program. The combined 27 Amended S-4, p. XII-123. 28 May 6, 2002 Broadcasting & Cable "More than i[ can swallow? Turning AT&T Broadband around may be harder than Comcast expects" by John M. Higgins. '9 Amended S-4, p. XIV-24. so Declaration of Robert Pick, p. 12. 37 See "About NCC" at its website wwwspotcab]e.com/asp/abo/default.asp. ASHPAUGH & Scul.co, CPAs, PLC May 24, 2002 Page 12 of 12 REVIEW OF THE PROPOSED MERGER OF AT&T BROADBAND, INC. AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION - company's total number of viewers will not change because of the merger. It is conceivable that AT&T Comcast may be achieve some operating efficiencies in managing this side of its business, but it is not appropriate to attribute additional revenue to this specifically from the merger. CONCLUSION The proposed merger will increase the pressures on local systems to control cash. Comcast and ATT-B centrally manage cash within their respective companies, "sweeping" local deposits to individual locations that manage the cash within each company. The need to fund maturing debt, provide operating funds (working capital) and fund capital expenditures will require AT&T Comcast to increase the amount of debt annually through at least 2006. This could result in a significant debt load in excess of $40.0 billion. Without substantial increases in revenues, this level of debt will jeopardize the ability of the combined company to meet on- going franchise obligations. Even if AT&T Comcast is able to complete the required upgrade and rebuilding of systems in the short term, its ability to properly maintain systems and conduct future upgrades is in question. Therefore, in evaluating this merger from a financial perspective, we do not see this merger as beneficial to any of the existing franchises, at least for the period through 2006, and possibly beyond. The franchises currently served by Comcast will go from a company currently touted as being in the strongest financial position of any of the cable multiple system operators ("MSOs") to a company, AT&T Comcast, with a large amount of debt and significant shortages in cash flow. Franchises currently served by AT&T Broadband will go from a company with significant debt and shortages in cash flow to company with even more debt and greater shortages in cash flow. Comcast has stated that, once the AT&T-B systems have been rebuilt or upgraded to the same level as its own systems, AT&T Comcast's capital needs will decrease, revenues will increase, and cash flow will increase leading to a reduction in debt. We simply cannot evaluate that claim based on the information provided by the companies. If they have done any quantitative analysis of this issue, they have not made it available, and thus any conclusions we could draw on that point would be purely speculative. Indeed, we can only conclude that any such claims are mere speculation. Therefore, although we have no basis for saying that the debt load of AT&T Comcast will increase after 2006, neither can we say when it will decrease. ASHPAUGH & SCULCq CPAS, PLC May 24, 2002 ATTACHMENTS 1. Balance Sheets of AT&T Broadband, Inc., Comcast Corporation & Pro Forma AT&T Comcast Corporation at December 31, 2001. 2. Income Statements of AT&T Broadband, Inc., Comcast Corporation & Pro Fonna AT&T Comcast Corporation for the Year Ended December 31, 2001. 3. Income Statements of AT&T Broadband, Inc. 4. Statements of Cash Flow of AT&T Broadband, Inc. 5. Comparative Income Statements of Comcast Corporation for the Years Ended December 31, 1999, 2000 and 2001. 6. Statement of,Cash Flow of Comcast Corporation for the Year Ended December 31, 2001. 7. Comcast Corporation Summary of Results of Operations for the Years Ended December 31, 1999, 2000 and 2001. ASHPAUGH & SGULGG, CPAS, PLC May 24, 2002 Review of Proposed Merger of Comcast & AT&T Broadband Balance Sheet of AT&T Broadband, Comcast Corporation & Pro Forma AT&T Comcast at December 3 ], 200 ] (T)nllars in Millionsl HISTORICAL PRO PORMA HISTORICAL AT&T ADJUSTMENTS PRO FORMA COMCAST (A) BROADBAND (A) PER S-4 AT&T COMCAST ASSETS CURRENT ASSETS Cash and cash equivalents 350.00 350.00 Investments 2,623.20 668.00 3,291.20 Accounts receivable, net 967.40 584.00 1,551.40 Inventories, net 454.50 454.50 Other cuttent assets 153.70 398.00 57.50 609.20 Total current assets 4,548.80 1,650.00 57.50 6,256.30 INVESTMENTS 1,679.20 21,913.00 1,801.60 23,692.80 (1,701.00) PROPERTY AND EQUIPMENT, net 7,011.10 14,519.00 21,530.10 INTANGIBLE ASSETS Goodwill 7,50730 20,102.00 (1,500.50) 26,108.80 Cable franchise operating rights 20,]67.80 45,320.00 (2,501.00) 62,986.80 Other intangible assets 2,833.40 2,833.40 30,508.50 65,422.00 (4,001.50) 91,929.00 Accumulated amortization (5,999.20) (3,242.00) 3,242.00 5,999.20) 24,509.30 62,180.00 (759.50) 85,929.80 OTHER NON-CURRENT ASSETS, net 383.40 2,925.00 57.50 3,365.90 TOTAL ASSETS 38,131.80 ]03,187.00 543.90) 140,774.90 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 698.20 678.00 1,376.20 Accrued expenses and other current liabilities 1,695.50 2,169.00 1,024.60 4,889.10 Deferred income taxes 275.40 275.40 Short-term debt 3,959.00 57.50 3,091.70 (924.80) Current portion of long-term debt 460.20 2,824.00 (2,109.40) 1,174.80 Total curtent liabilities 3,129.30 9,630.00 (1,952.10) 10,807.20 LONG-TERM DEBT, less current portion 11,741.60 16,502.00 357.50 31,528.60 (106.70) 3,034.20 DEFERRED INCOME TAXES 6,375.70 25,810.00 291.50 32,298.20 (179.00) OTHER NON-CURRENT LIABILITIES 1,532.00 1,059.00 (274.10) 2,316.90 MINORITY INTEREST 880.20 3,302.00 (2,]00.00) 2,082.20 Company-Obligated Convertible Quarterly Income Preferred Securities of Subsidiary Trust Holding Solely Subordinated Debt Securities of AT&T 4,720.00 (4,720.00) 0.00 STOCKHOLDERS' EQUITY Common stock 945.10 1,346.00 2,243.80 (47.30) Additional capital 11,752.00 (1,653.70) 57,722.10 47,623.80 Retained earnings 1,631.50 1,631.50 Accumulated other comprehensive income 144.40 144.40 Combined attributed net assets 42,164.00 (42,164.00) 0.00 Total stockholders'equity 14,473.00 42,164.00 5,104.80 61,741.80 TOTAL LIABILITIES&EQUITY 38,131.80 103,]87.00 (543.90) 140,774.90 Ashpaugh Sculco, CPAs, PLC May 24, 2002 Review of Proposed Merger of Comcast & AT&T Broadband Income Statements of AT&T Broadband, Comcast Corporation & Pro Forma AT&T Comcast For The Year Ended December 31, 2001 (Dollars in Millions) Intercompany Pro Forma Line Historical Historical AT&T Adjustments Per Adjustments Per Pro Forma No Comcast Broadband S-4 S-4 AT&T Comcast REVENUES 1 Service Revenues 5,756.9 10,132.0 (108.9) 15,780.0 2 Net Sales From Electronic Retailing 3,917.3 3,917.3 3 9,674.2 10,132.0 (108.9) 0.0 19,697.3 COSTS AND EXPENSES 4 Operating (excluding Depreciation) 2,905.8 5,459.0 (62.8) 8,302.0 5 Cost of Goods Sold From Electronic Retailing (ex. Depreciation) 2,514.0 2,514.0 6 Selling, General and Administrative 1,552.6 2,582.0 (22.6) 4,] 12.0 7 Depreciation ],141.8 2,626.0 3,767.8 8 Amortization 2,306.2 2,154.0 (1,882.9) 2,577.3 9 Asset Imapirment, Restructuring and Other Charges 0.0 1,494.0 1,494.0 10 10,420.4 ]4,315.0 (85.4) (1,882.9) 22,767.1 I 1 OPERATING INCOME (LOSS) (746.2) (4,183.0) (23.5) 1,882.9 (3,069.8) OTHER INCOME (EXPENSE) 12 Interest Expense (731.8) (1,735.0) 95.2 (2,348.5) 23.1 13 Investment Income 1,061.7 (1,947.0) (18.7) (904.0) 14 Equity in Net Income (Loss) of Affiliates (28.5) (106.0) 13.5 148.0 15 Other Income (Expense) 1,301.0 (927.0) 374.0 16 1,602.4 (4,609.0) (18.7) 160.3 (2,865.0) INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, 17 EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF 856.2 (8,792.0) (42.2) 2,043.2 (5,934.8) ACCOUNTING CHANGE 18 INCOME TAX (EXPENSE) BENEFIT (470.2) 3,857.0 (750.3) (573.7) 2,099.8 37.0 INCOME (LOSS) BEFORE MINORITY INTEREST, EXTRAORDINARY 19 ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 386.0 (4,935.0) (792.5) 1,506.5 (3,835.0) 20 Net Loss From Equity Investments 0.0 (69.0) 69.0 0.0 21 MINORITY INTEREST INCOME (EXPENSE) (160.4) 833.0 (24.0) 160.0 808.6 INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND 22 CUMULATIVE EFFECT OF ACCOUNTING CHANGE 225.6 (4,171.0) (816.5) 1,735.5 (3,026.4) Ashpaugh Sculco, CPAs, PLC May 24, 2002 Review of Proposed Merger of Comcast & AT&T Bl•oadband Income Statement of AT&T Broadband (Dollars in Millions) Line 10:lYStinths No Descri lion Ended.l7Jdi/~9 ........... . .... 2tl40 ..:..............::... ;2Q01 ..................::. I Revenues $5,080 $8,445 $10,132 2 Operating Expenses: 3 Cost of Service $2,686 $4,600 $5,459. 4 Selling, General & Administrative ]253 2180 2582 5 Depreciation 663 1291 1881 6 Amortization of Goodwill, Franchise Costs & Other Intangibles 869 2377 2154 7 Other Amortization 142 383 745 8 Asset Impairment, Restructuring & Other Charges 644 6270 1494 9 Total Operating Expenses $6,257 $17,101 $14,315 ]0 Operating Income (Loss) ($1,177) ($8,656) ($4,183) I 1 Investment Income (Expense) 47 -84 -1947 12 Other Income (Expense) 3 45 -927 13 Interest Expense -705 -1323 -1735 14 Net Income (Loss) Before Income Taxes, Net Losses From Equity Investments ($1,832) ($10,018) ($8,792) 15 Benefit forlncome Taxes 465 1183 3857 16 Net Income (Loss) From Equity Investments -707 -597 -69 17 Minority Interest Income (Expense) -126 4062 833 18 Net Income (Loss) Before Cumulative Effect of Accounting Change ($2,200) ($5,370) ($4,171) 19 Effect of Accounting Change 0 0 371 20 Income Taxes From Accounting Change 0 0 (142) 21 Net Income (Loss) ($2,200) ($5,370) ($3,942) 22 Net Revaluation of Financial Instruments 105 (2,180) (974) 23 Income Taxes From Revaluation of Financial Instruments (36) 778 375 24 Recognition of Previously Unrealized Losses 0 175 2,305 25 Income Taxes From Previously Unrealized Losses 0 (29) (891) 26 Minimum Pension Liability Adjustment 0 0 (38) 27 Income Tax From Pension Liability Adjustment 0 0 16 28 Other Comprehensive Income 0 7 36 29 Income Tax From Other Comprehensive Income 0 0 (7) 30 Total Com rehensive Income (Loss) (2,131) (6,619) (3,120) Per Amended S-4 Ashpaugh Sculco, CPAs, PLC May 24, 2002 Review of Proposed Merger of Comcast & AT&T Broadband Statements of Cash Flow AT&T Broadband (Dollars in Millions) Line i1Q Mon4Us;;'. No. Description ~zttGd 12731/9..9: 2000 2pU] ] Ne[ Income (Loss) (2,200.0) (5,370.0) (3,942.0) Adjustments to Reconcile Net Loss to Net Cash (Used In) Provided by Operating 2 Cumulative Effect of Accounting Change, Net of Income Taxes 0.0 0.0 (229.0) 3 Net Losses (Gains) on Sales of Businesses & Investments (39.0) (616.0) 710.0- 4 Asset Impairment, Restructuring & Other Charges, Ne[ of Cash Payments 594.0 6,216.0 1,370.0 5 Depreciation 663.0 1,291.0 1,881.0 6 Amortization of Goodwill, Franchise Costs & Other Intangibles 869.0 2,377.0 2,154.0 7 Other Amortization 142.0 383.0 745.0 8 Provision for Uncollec[ible Receivables 75.0 154.0 246.0 9 Net Losses From Equity Investments 1,145.0 967.0 106.0 ]0 Deferred Income Taxes (422.0) (880.0) (3,579.0) 11 Impairment of Investments 0.0 240.0 539.0 12 Put Option Settlement and Mark-[o Market Charge 0.0 537.0 838.0 13 Minority Interest (Income) Expense 180.0 (4,039.0) (872.0) 14 Ne[ Revaluation of Certain Financial Instruments 0.0 0.0 959.0 15 Decrease (Inerease)in Receivables (116.0) (263.0) 57.0 16 (Decrease) Increase in Payables 447.0 (90.0) (515.0) 17 Ne[ Change in Other Operating Assets & Liabilities 143.0 (298.0) (635.0) 18 Other Adjustments, net (101.0) 193.0 64.0 19 Net Cash (Used In) Provided By Operating Activities 1,380.0 802.0 (103.0 Investing Activities: 20 Capital Expended For Property & Equipment, Net of Proceeds From Disposal (3,161.0) (4,426.0) (3,413.0) 21 Sales of Marketable Securities 0.0 96.0 102.0 22 Purchase of Marketable Securities 0.0 (14.0) (18.0) 23 Investment Distributions and Sales 817.0 578.0 1,429.0 24 Investment Contributions and Purchases (1,308.0) (593.0) (276.0) 25 Net Cash Received (Paid) for Acquisition & Dispositions of Businesses 740.0 (71.0) 4,898.0 26 Other Investing Activities, net (3.0) (81.0) (179.0) 27 Ne[ Cash Provided By (Used In) Investing Activities (2,915.0) (4,511.0) 2,543.0 Financing Activities: 28 Proceeds From Long-term Debt Issuances 0.0 3,862.0 1,025.0 29 Issuance of Convertible Securities 4,638.0 0.0 0.0 30 Retirement of Long-term Debt (2,031.0) (1,429.0) (938.0) 31 Retirement of Redeemable Securities 0.0 (152.0) 0.0 32 Dividends Paid on Preferred Securities (135.0) (294.0) (336.0) 33 Change is Short-term Debt Due to AT&T 4,297.0 1,533.0 (2,252.0) 34 Transfers From (To) AT&T, net (5,234.0) 765.0 0.0 35 Other Financing Activities, net 0.0 (515.0) 0.0 36 Net Cash (Used In) Provided By Financing Activities 1,535.0 3,770.0 (2,501.0) 37 Net Change in Cash 0.0 61.0 (61.0) 38 Cash & Cash Equivalents at Beginning of Period 0.0 0.0 61.0 39 Cash & Cash E uivalents at End of Period 0.0 61.0 0.0 Ashpaugh Sculco, CPAs, PLC May 24, ?002 COMCAST CORD Comparative Income Statements For The Years Ended December 31, 1999, 2000 and 2001 (Millions) Year Ended Year Ended Year Ended Line December 31, December 31, December 31, No. 2001 2000 1999 REVENUES I Service revenues 5,756.9 4,682.7 3,361.8 2 Net sales from electronic retailing 3,917.3 3,535.9 3,167.4 3 9,674.2 8,218.6 6,529.2 COSTS AND EXPENSES 4 Operating (excluding depreciation) 2,905.8 2,212.5 ],663.1 5 Cost of goods sold from electronic retailing=(excluding depreciation) 2,514.0 2,284.9 2,060.0 6 Selling, general and administrative 1,552.6 1,250.9 926.1 7 Depreciation 1,141.8 837.3 572.0 8 Amortization 2,306.2 1,794.0 644.0 9 10,420.4 8,379.6 5,865.2 ]0 OPERATING INCOME (LOSS) (746.2) (161.0) 664.0 OTHER INCOME (EXPENSE) 11 Interest expense (731.8) (691.4) (538.3) 12 Investment income 1,061.7 983.9 629.5 13 Income (expense) related to indexed debt 666.0 (666.0) 14 Equity in net income (losses) of affiliates (28.5) (21.3) 1.4 15 Other income 1,301.0 2,825.5 1,409.4 16 1,602.4 3,762.7 836.0 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME 17 TAXES, MINORITY INTEREST, EXTRAORDINARY ITEMS AND 856.2 3,601.7 1,500.0 CUMULATIVE EFFECT OF ACCOUNTING CHANGE 18 INCOME TAX EXPENSE (470.2) (],441.3) (723.7) INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY 19 INTEREST, EXTRAORDINARY ITEMS AND CUMULATIVE 386.0 2,160.4 776.3 EFFECT OF ACCOUNTING CHANGE 20 MINORITY INTEREST (160.4) (1153) 4.6 INCOME FROM CONTINUING OPERATIONS BEFORE 21 EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF 225.6 2,045.1 780.9 ACCOUNTING CHANGE GAIN FROM DISCONTINUED OPERATIONS, net of income 22 tax expense of $166.1 335.8 INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE 23 225.6 2,045.1 1,116.7 EFFECT OF ACCOUNTING CHANGE 24 EXTRAORDINARY ITEMS (1.5) (23.6) (51.0) 25 CUMULATIVE EFFECT OF ACCOUNTING CHANGE 384.5 26 NET INCOME 608.6 2,021.5 1,065.7 27 PREFERRED DIVIDENDS (23.5) (29.7) 28 NET INCOME FOR COMMON STOCKHOLDERS 608.6 1,998.0 1,036.0 Information per Comcast Corporation's SEC ] 0-K filed March 29, 2002. Ashpaugh Sculco, CPAs, PLC May 24, 2002 COMCAST CORP Cash Flow Statement For the Year Ended December 31, 2001 (Millions) Year Ended Year Ended Year Ended Line December 3l, December 3l, December 3l, No. Descri tion 2001 2000 1999 OPERATING ACTIVITIES I Net income 608.6 2,021.5 1,065.7 Adjustments to reconcile net income [o net cazh provided by operating activities from continuing operations: 2 Depreciation 1,141.8 837.3 572.0 3 Amortiution 2,306.2 1,794.0 644.0 4 Non-cash interest (income)expense, net 40.2 (22.6) (27.8) Non-rash (inwme) expense related to indexed deb[ (666.0) 666.0 5 Equity in net (inwme)losses ofafilia[es 28.5 2L3 (14) 6 Gains on investments and other income, net (2,303.3) (3,679.3) (1,917 O) 7 Minority interest 160.4 115.3 (4.6) 8 Diswn[inued operations (335.8) 9 Exvaordinary items 1.5 23.6 51.0 10 Cumulative effect of accounting change (384.5) I 1 Deferted income taxes (240.7) 1,074.6 (73.4) 12 Other 23.6 51.2 41.5 13 1,382.3 1,570.9 680.2 Changes in working capital, net of effects of acquisitions and divestitures 14 Increase in accounts receivable, net (15.8) (195.8) (89.5) IS Increase in inventories, net (16.0) (35.7) (91 9) 16 (Increase) decreaze in other current assets (27.1) 13 7 30.7 17 (Decrease) increaze in accounts payable, accrued expenses and other current liabilities (93.9) (133.8) 719.9 IS (152.8) (351.6) 569.2 I9 Ne[ cash provided by operating activities From continuing operations 1,229.5 1,219.3 1,249 4 FINANCING ACTIVITIES 20 Proceeds from borrowings 5,686.4 5,435.3 2,786.6 21 Retirements and repayments of debt (4,187.7) (5,356.5) (1,368.2) 22 Issuances of common stock and sales of put options on common stock 27.2 30.5 17.1 23 Repurchases ofcommon stock (27.1) (324.9) (30.7) 24 Dividends (9.4) 25 Deferted financing costs (22.5) (55.8) (51.0) 26 Other (3.0) 27 Net cash provided by (used in) financing activities From continuing operations 1,476.3 (271.4) 1,341.4 INVESTING ACTIVITIES 28 Acquisitions, net of cash acquired (1,329.0) (187.3) (755.2) 29 Proceeds from liquidated damages, net 1,460.0 30 Proceeds from sales of (purchases of) short-term investments, net (6.2) 1,028.1 (1,035.5) 31 Capital conVibu[ions to and purchases of investments (317.0) (1,010.7) (2,012.2) 32 Proceeds from sales of investments 1,172.8 997.3 599.8 33 Capital expenditures (2,1817) (1,636.8) (893.8) 34 Sale ofsubsidiary, net of rash sold 361.1 35 Additions to intangible and other noncurrent assets (346.2) (409.2) (263.5) 36 Net cazh used in investing activities from continuing operations (3 007.3) (1,218.6) (2,539.3) 37 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS -CONTINUING OPERATIONS (301.5) (270.7) 51.5 38 CASH AND CASH EQUIVALENTS, beginning of year 651.5 922.2 870.7 39 CASH AND CASH EQUIVALENTS, end of ear 350.0 651.5 922.2 Information per Table 11 of Comrast Corporation's SEC I O-K filed March 29, 2002. Ashpaugh Sculco, CPAs, PLC May 24, 2002 COMCAST CORP Summary of Results of Operations for Years Ended December 31, 1999, 2000 and 2001 Year Ended Year Ended Year Ended Line December 31, December 3I, December 31, No. Descri lion 2001 Increase Over Prior Year 2000 Increase Over Prior Year 1999 1 Video $4,278.2 $626.9 17.17% $3,651.3 $1,062.4 41.04% $2,588.9 2 High-speed Internet $294.3 $179.9 157.26% $114.4 $69.9 157.08% $44.5 3 Advertising sales $325.3 $35.1 12.10% $290.2 $99.9 52.50% $190.3 4 Other $232.9 $80.3 52.62% $152.6 $6.4 4.38% $146.2 5 Revenues $5,130.7 $922.2 21.91% $4,208.5 $1,238.6 41.71% $2,969.9 6 Operating, selling, general and administrative expenses $3,076.6 $771.5 33.47% $2,305.1 $693.2 43.01% $1,6] 1.9 7 O eratin income before de reciation and amortization $2 054.1 $150.7 7.92% $1,903.4 $545.4 40.16% $1,358.0 of Total 8 Video 83.38% 86.76% 87.17% 9 High-speed Interne[ 5.74% 2.72% 1.50% ]0 Advertising sales 6.34% 6.90% 6.41% lI Other 4.54% 3.63% 4.92% 12 Revenues 100.00% 100.00% 100.00% 13 Operating, selling, general acrd administrative expenses 59.96% 54.77% 54.27% I4 0 eratin income before de reciation and amortization 40.04% 45.23% 45.73% Infomration per Comcast Corporation's SEC 10-K filed March 29, 2002. Ashpauglr Sculco, CPAs, PLC May 24, 2002 Kathl Donnelly-Cohen Director -Government Relations Law & Public Policy Department AT&T Telephone: Facsimile: (651) 493-5281 (651) 493-5288 10 River Park Plaza St. Paul, MN 55107 May 1, 2002 Ms. Linda Magee Assistant to City Manager Columbia Heights Cabie Commission 590 40th Avenue NE Columbia Heights, MN 55421 RE: New AT&T Broadband Internet Service Dear Ms. Magee: r*~ .~ t' .l (' ti ' ~ ~ r" ~ . ,<V~;'= . :,.., ~~K ~++>.,,,, y..sT'y Y~ SiJyfS N'N ,~a 'V''~~yy As a courtesy, we wish to advise you of a new option for our high-speed Internet service which we will begin offering new and existing customers later in May. Our current service offers speeds up to 1500 kbps downstream and 300 kbps upstream. To meet the needs of customers who desire a faster speed service, we will begin offering a service with speeds up to 3000 kbps downstream and 384 kbps upstream. The price of the new service is $89.95/month with a leased modem and $79.95/month for customers who awn their modem. A current customer who wishes to upgrade the service may do so with just a phone call - no need to send out a truck. For the customer who already owns their modem, this service will be compatible with the existing modem. If you have any questions, please feel free to contact me. Sincerely, Kathi onnelly-Cohen Director -Government Relations cc: David Seykora David Nyberg `a~~ Recycletl Paper ~v~ Kathl Donnelly-Cohen Director -Government Relations Law & Public Policy Department --~ 14T&T Telephone: Facsimile: May 29, 2002 (651) 493-5281 (651) 493-5288 Ms. Linda Magee Assistant to City Manager Columbia Heights Cable Commission 590 40th Avenue NE Columbia Heights, MN 55421 Dear Ms. Magee: 10 River Park Plaza St. Paul, MN 55107 ~~~ y~ ~ .,c;t, ~>:: ~~ F,,m''~ I am writing to inform you that on or after July 1, 2002, AT&T Broadband will implement a change in the monthly service rate for certain video offerings. We previously notified you of our intention to make adjustments to the Basic rate in our March filing of the FCC Form 1240 and equipment rates in the FCC Form 1205. Please note that while the Basic rate has increased, the rate for Standard Cable will not change. These changes are explained on the attached sheet. Additionally, AT&T Broadband will be launching two new Digital Value Packages for its customers, adding more channels and revising the previous three tiers (Music/Movies, Sports/ Information, and Family/Variety) into two -Variety Pack and Premier Pack: Digital Starter Package $44.50* (Includes Standard Cable, Digital Guide, Digital Music, Encore +plexes and 1 DCT/Remote) Digital Standard Package $51.50* (Includes Standard Cable, Digital Guide, Encore +plexes, Digital Basic, Digital Music, Digital Variety and 1 DCT/Remote) *These prices are exclusive of any applicable franchise fees and taxes. We believe that these changes will enable us to deliver the very best in competitive product offerings for our customers. Customer notifications will be provided in newspaper legal notices, biii inserts and in rnaiiings. A copy of the digital customer notification is attached for your review. If you have any questions, please do not hesitate to contact me at 651-493-5281. Sincerely, Kathi Donnelly Director -Gov cc: David Seykora ~~~ Recycled Paper Notice of Price Change AT&T Broadband Effective July 1, 2002, AT&T Broadband will make the following price changes in the conununities listed below. 'the basic service price adjustment reflects increased progranuning costs, inflation and applicable franchise related costs. TYPE OE SERVICE CURXENTPRICE NEYYPRICE Brooklyn Center, Brooklyn Park, Crystal, Golden Valley, Maple Grove, New Hopc, Osseo, Plymouth, Robbinsdale Basic I Service $8.56 $8.71 Basic 2 Service $25.08 $24.52 Standard Cable (Includes Basic 1, 2 & 3) $36.45 $36.45 Corcm•an, Hanover, Medicine Lake, Rogers Basic 1 Service $8,90 $9.48 Basic 2 Service $24.78 $23.80 Standard Cable (Includes Basic 1, 2 & 3) $36.50 $36.50 Bayport, Baytown Township, Oak Park Heights, Stillwater, Stillwater Township Basic 1 Service $8.41 $8.96 Basic 2 Service $28.16 $27.21 Standard Cable (Iucludes Basic 1, 2 & 3) $39.49 $39.49 Afton, Lakeland, Lakeland Shores, St. Croix Beach, St. Mm'y's Point, West Lakeland Basic 1 Service $7.15 $7.61 Basic 2 Service $26.55 $25.75 Standard Cable (Includes Basic 1, 2 & 3) $36.68 $36.68 Hastings Basic 1 Service $7.IS $7.61 Basic 2 Service $26.19 $25.40 Standard Cable (Includes Basic 1, 2 & 3) $36.33 $3633 Denmark Township Basic 1 Service $7.15 $7.61 Basic 2 Service $26.23 $25.45 Standard Cable (Includes Basic 1, 2 & 3) $36.38 $36.38 Cottage Grove, Grey Cloud Island, Newport, St. Paul Park, Woodbury Basic 1 Service $7.36 $7.56 Basic 2 Service $26.43 $26.23 Standard Cable (Includes Basic 1, 2 & 3) $37.11 $37.11 Hudson, North Hudson, Troy Township Basic 1 Service $7.29 $7.76 Basic 2 Service $26.23 $25.42 Standard Cable (Includes Basic 1, 2, & 3) $36.50 $36.50 Prescott Basic 1 Service $7.30 $7.77 Basic 2 Service $26.23 $25.41 Standard Cable (Includes Basic 1, 2 & 3) $36.50 $36.50 River Palls Basic 1 Service $7.29 $7.59 Basic 2 Service $26.24 $25.59 Standard Cable (Includes Basic 1, 2 & 3) $36.50 $36.50 Andover, Anolw, Champlin, Ramsey Basic 1 Service $8.82 $9.39 Basic 2 Service $24.12 $23.13 Standard Cable (Includes Basic 1 & 2) $32.52 $32.52 PEG Fee $1,04 $1.95 Columbia Heights, Hilltop Basic 1 Service $833 $8.87 Basic 2 Service $27.40 $26.46 Standard Cable (Includes Basic 1 & 2) $3533 $35.33 Arden Hills, Falcon Heights, Lauderdale, Little Canada, Mounds View, New Brighton, North Oaks, 12oseville, St Anthony, Shoreview Basic 1 Service $8.76 $9.33 Basic 2 Service $26.99 $26.00 Staodard Cable (Includes Basic 1 & 2) $35.33 $35.33 PEG Fee $2.55 $3.75 Birchwood, Dellwood, Grant, Lake Elmo, Mahtomedi, Maplewood, Nm•th St. Paul, Oakdale, Vadnais Heights, White Bear Lake, Whitc Bear Township, Willernie Basic 1 Service $9.20 $9.80 Basic 2 Service $26,57 $25.53 Standard Cable (Includes Basic 1 & 2) $35.33 $35.33 PEG Fee $2.41 $2.87 Burnsville, Eagan Basic 1 Service $8.43 $8.98 Basic 2 Service $27.21 $26.26 Standard Cable (Includes Basic 1 & 2) $35.24 $35.24 Blaine, Centerville, Circle Pines, Ham Lake, Lexington, Lino Lakes, Spring Lake Park Basic 1 Service $8.22 $8.75 Basic 2 Service $25.40 $24.48 Standard Cable (hicludes Basic 1 & 2) $33.23 $33.23 Coon Rapids Basic I Service $8.25 $8.79 Basic 2 Service $27.64 $26.71 Standard Cable (Includes Basic 1 & 2) $35.50 $35.50 PEG Fee $1,50 $1.95 Oak Grove Basic 1 Service $10.75 $11.45 Basic 2 Service $24.70 $23.50 Standard Cable (Includes Basic 1 & 2) $34.95 $34.95 fine Springs, Hugo, Gem Lake, Landfall Basic 1 Service $10.75 $11.45 Basic 2 Service $26.20 $25.00 Standard Cable (Includes Basic 1 & 2) $36.45 $36.45 St. Paid Basic 1 Service $7.48 $7.97 Basic 2 Service $27.89 $27.20 Standard Cable (Includes Basic 1, 2 & 3) $40.95 Inver Crove Heights, Lilydale, Mendota, Mendota Heights, South St. Paul, Sunfish Lake, West St. Paul Basic I Service $8.13 Basic 2 Service $24.42 Standard Cable (Includes Basic 1, 2 & 3) $37.00 lligital Basic $12.00 (Includes the new channels Wisdom, G4* &ShopNBC*) *G4 and ShopNBC not available in all areas Variety Pack a la carte $s.99 Requires the purchase of the Digital Basic service level (Inchtdes: Great American Counh'y*, Lifetime Movie Network, MTV2, MTV Jam*, VH-1 Classic, VH-1 Soul*, VPI-1 Counh'y, TechTV, Bloomberg, Outdoor Chatmel, History Channel Intl, Biography Chatmel, Discovery Civilization, Discovery Wings, Discovery Home & Leisure, New Urban Entertainment*, Nick Games & Sports, The Health Network, Trinity Broadcast Network, `Phe Word Network*, Major Broadcasting Corporation*, Toon Disney, Nick Toons, Inspirational Life) *Not available in all areas Premier Pack a la carte (Not available in all areas) $s.99 Requires the purchase of the Digital Basic service level (Includes: Fox Digital Sports (Atlantic, Central, and Pacifiq Sundance Channel, Fox Movies Channel*, Much Music*, BET on Jazz, TRIO*, Speed Channel*, International Channel, Newsworld International, Ovation) *Available on the Variety Pack where Premier Pack is not available Spanish Pack a la carte (Not available in all areas) (Includes: CineLatino, CNN en Espanol, Discovery en Espanol, Fox Sports World en Espanol, I-ITVN, MTV Espanol, Telemuudo Iuternational, Toon Disney en Espanol, VH1 en Espanol Spanish Pack a la carte with a Digital Package n/a Spanish Pack without a Digital Package n/a Digital Starter Package n/a Includes Standard Cable, Encore and Encore Plexes, Electronic Programming Guide, Pay Per View Access, Digital Music, Digital Converter, Digital Remote Digital Bronze Package -$43.99 Includes dte Digital Starter Package plus Digital Basic Digital Standard Package (Not available in all areas) n/a Includes Standard Cable, Digital Basic, Variety Pack, Premier Pack, Encore and Encore Plexes, Electronic Prograttuning Guide, Pay Per View Access, Digital Music, Digital Converter, Digital Remote Digital Silver Package $s6.99 Includes Standard Cable, Digital Basic, Variety Pack, Encore And Encore Plexes, Starz! And Starz! Plexes, l Additional Premium Channel and Plexes, Electronic Programming Guide, Pay Per View Access, Digital Music, Digital Converter', Digital Remote $4o.9s $8.66 $23.50 $37.00 $12.00 $s.99 $s.99 $6.99 $10.00 $44.60 $46.so $s1.s0 $59.99 Digital Gold Package $66.99 Includes Standard Cable, Digital Basic, Variety Pack, Encore and Encore Plexes, Starz! And Starz! Plexes, 2 Additional Premium Channels and Plexes, Electronic Prograrruning Programming Guide, Pay Per View Access, Digital Music, 1 Digital Converter, 1 Digital Remote, Digital Programming Access Fee for additional outlets lligital Platinum Package $81.99 Standard Cable, Digital Basic, Variety Pack, Premier Pack, Encore and Encore Plexes, Starz! And Starz! Plexes, HBO, Showtime, The Movie Channel, Cinemax, all Plexes, Elechronic Programming Guide, Pay Per View Access, Digital Music, 1 Digital Converter, 1 Digital Remote, Digital Programming Access Fee for additional outlets. $69.99 $83.99 Change in Converters/12emotes included in lligital Gold and Digital Platinum Packages Effective July 1, the number of converters and remotes included in either the Digital Gold Or Platinum packages will be reduced from two to one. If you currently subscribe to a Gold Or Platimrm package you will receive your second digital converter for $1.00 per month until December 31, 2002. Effective January 1, 2003, regular monthly prices will apply for additional converters And remotes. Additional );ryuipment and Options Converter-Basic Only Customers $1.85 $2.00 Converter (Digital, Addressable and Standard) $3.80 $4.70 Remote Control (all types) $ .3S $ .30 Unreturned addressable converter $200.00 $150.00 Unreturned Remote $9.00 $7.00 Additional Digital Outlet(Includes digital access fee, Converter and remote per outlet) $7.95 n/a Additional Digital Outlets will now be charged The Digital Access Fee, Converter and Remote Digital Access Fee $4.95 $4.95 Door Collection Fee $15.00 $20.00 Hourly Scrvice Charge $27.99 $27.99 High Spced Cable Internet Service Non Video* and Non-Phone Customers Owned Modem- Monthly Service $39.95 $46.95 Owned Modem- Modem Lease $0,00 $0.00 Owned Modem Total Cost $39.95 $46.95 Leased Modem- Monthly Service $3995 $46.95 Leased Modem -Monthly Lease $10.00 $3.00 Leased Modem Total Cost $49.95 $49.95 Video* and/or Phone Customers Owned Modem - Montlily Service $35.95 $4295 Owned Modem -Modem Lease $0.00 $0.00 Owned Modem Total Cost $35.95 $42.95 Leased Modem -Monthly Service $35.95 $42.95 LeasedModem-ModemLease $10.00 $3.00 Leased Modem Total Cost $45.95 $45.95 *Video =either Standard Cable or Digital Video Package Plexes are [he mutiplexed programming services of a premium offering. For customers receiving service through commercial accounts, bulk rate arrangements with multiple dwelling owners, or similm' arrangements, some oC the product, pricing and other information contained herein may not apply. Please refer to the terms and conditions documents reflecting such separate amangements. Where such are inconsistent with the intbrmation in this pricing sVUCture, the terms :md conditions of such separate arrangements will apply. You must subscribe to Basic Service to receive other optional video services. Additional equipment may he necessmy to receive certain optional services. Installation, equipment, additional outlet, change of service, programming access and other charges may apply. Franchise fees, regulatory fees, taxes and other franchise related fees may apply with the actual amount depending on location and services ordered. Pricing, programming, channel location and packaging may change. "Chen will be no charge for dovmgrades requested within 70 clays of the date a customer's bill reflects the price or product change. Please call us for complete details about services and prices. If you have questions please contact us at AT&T Broadband IO Rivet'Park Plaza St Paul, MN 55107 651-222-3333 June 2002 Dear Valued AT&T Broadband Digllal Customer: In July, AT&T Broadband will change our Digital Value Packages to simplify the package structure and provide Digital Cable customers with more special interest and premium channels. The programming changes to the Digital packages will be as follows: • Digital Basic will add up to three new special interest networks: the Wisdom Channel featuring programming on mind, body, earth and spirit; G4, a new network dedicated to the world of video games and interactive entertainment; and ShopNBC,.an entertaining and informative shopping experience. The current Digital Bonus Categories, Movies & Music, Family & Variety, and Sports & Information will no longer be offered. Most services currently offered in these bonus categories, along with additional new services, will now be offered in the new Digital Variety and Digital Premier Packs. ' • We adding a Spanish package of 9 new Hispanic channels Including popular services like CNN en Espanol, Fox Sports World en Espanol, Discovery en Espanol, MN en Espanol, Telemundo, VH1 en Espanol, and Toon Disney en Espanol. The Spanish Pack is available at an a la carte rate of $6.99 with any Digital Package. • Digital Silver, Digital Gold and Digital Platinum customers will receive Nicktoons, the new 24-hour channel with the best Toons for kids! Nicktoons will become part of the new Variety Pack. Digital Platinum customers will receive the new Fox Sports Digital Networks, three distinctive super-regional networks -Pacific, Central and Atlantic -bursting with live, exclusive and event-driven programming from Fox Sports Nefs 22 regional networks. Out of market sports, 24 hours a day. No duplication. No blackouts. Fox Sports Digital Networks will become part of the new Premier Pack. If you subscribe to Encore, you will receive up to three additional Encore channels -Encore True Stories, Encore Action and WAM! If you subscribe to Starz!, you will receive two new channels - Starz! Family and Starz! Cinema. • If you subscribe to HBO, you will receive two new channels -HBO Comedy and HBO Zone and HBO Latino. If you subscribe toShowtime, you will receive four new channels -Showtime Family, Showtime Woman, Showtime Next and Flix. If you subscribe to Cinemax, you will now receive two new channels -Action MAX and Thriller MAX. To find out how these programming changes affect your level of service, please refer to the information on the back of this letter. Change in Converters/Remotes Included in Dlgital Gold/Platinum Packages Effective July 1, the number of converters and remotes included in either the Digital Gold or Platinum packages will be reduced from two to one. If you currently subscribe to a Gold or Platinum package you will receive your second digital converter for $1.00 per month until December 31, 2002. Effective January 1, 2003 regular monthly prices will apply for additional converters and remotes. In addition to the changes listed above, the price of your Digital package will change as follows: Di ital Platinum $ 81.99 rr $ 83.99 Di ital Gold $ 66.99 $ 69.99 Di ital Silver $ 56.99 $-59.99 Di ital Standard New Packa e $ 51.50 Di ital Bronze $ 43.99 $ 46.50 Di ital Starter New Packa e $44.50 We will launch Wisdom, G4, Nicktoons, Fox Sports Digital Networks, and all the new premium channels on June 30. You will see your new package content and pricing by the time of your next bill, within the month of July. ,nr .. .....:........... ....... .....~ ..,.,....,,....r n:..u..i v.,i, ~., o..,.i,..,...~ ...;u „rr.,. ,,..,, .......r,.. -.......~..,...;.,.. ~..i....r~,,.. -..,a „~i, ,.. Tt,,.~~ ~~ -...anx ~;~ a~.,~_.. ~~ ~.wr ._ ._ DIGITAL PACKAGES AS OF JULY 1, 2002 Digilal Platinum - E93.99 per month Digilal Plaitnum includes Digilal Bronze, multiple channels of Slarzl, muiliple channels of HBO, Cinemax, Shownime and The Movie Channel, plus both the Variety and Premier Pack channels. Dlaltal Gold - 569.99 ner month Digilal Gold Includes Dlgllal Bronze, multiple channels of Slarz!, two additional premium channels (choose from multiple channels al HBO, Cinemax, Showlime or Tha Movie Channep, plus Variety Pack channels. Digilal Salvor - E59.99 ner month Dlgllal Silver includes Digilal Bronze, multiple channels or Slarzl, one additional premium channel (choose from muiliple channels of HBO, Cinemax, Showllme or The Movie Channel), plus Variety Pack channels Digital Standard - E51 50 ner month Digital Standard Includes Digital Bronze, plus both the Variety and Premier Pack channels. Dlaltal Bronze - E46 50 oer month Digilal Bronze Includes Standard Cable, the Interactive Pmgram Guide, access to Digital Pay-Per•View, Dlgltal Music Channels, Digital Basic, mul5ple channels of Encore, one Dlgitel Conveder and one Dlgllal Remote. Dlaltal Starter- E44.50 A subscription l0 5landald Cable Is needed 1o subscribe to Dlgllal Slader. Dlgllal Starter Includes the Intefactive Program Guide, access to Digilal PayPer-View, Dlgllal Music Channels, multiple channels of Encore, one Digital Converter and one Digital Remote. DIGITAL BONUS CATEGORIES NO LONGER AVAILABLE AS OF JULY 1, 2002 8 Music MN2, TRIO, VH1 Country, MN Jams, VHt Classic, VHi Soul, Much Music, BET on Jazz, Lifetime Movie NeN+ork, Sundance Channel, Fox Movie Channel, Encore True Storlas+, Encore Action+ Newsworld Inlemalbnal, Bloomberg Television, Inlernatlonal Channel, Discovery C Discovery Wings, The Biography Channel, History Channel International, Tech N, Channel, Speed Channel 8 Variety GoodLife N, Ovation, Toon Disney, Discovery Home 8 Leisure, Nlck Games 8 Sports, The score Acgon and Encore True Stories will now be included with all Digital subscnplions to Enc. INTRODUCING NEW VARIETY AND PREMIER PACKS AVAILABLE AS OF JULY 1, 2002 The Word Network -NEWT FOX Digital Central -NEWT New Urban Enledainment-NEW! FOX Digital Pacific-NEW1 MBC Nehvork -NEWT PLUS Sundance Channel, FOX Nickloons-NEWT Movies Channel, Much Music, BET PLUS LiteUme Movie Network, VHi Soul, VHt Country, VHi Classic, MN2, on Jazz, TRIO, Speed Channel, MN Jams, Toon Disney, Nick Games 8 Spods, Trinity Broadcasting, The International Channel, Newsworld Health Network, Discovery Home $ Leisure, Outdoor Channel, The Biography International, Ovation Channel, History Channel International, Tech N, Discovery Clvllizallon, are and above. If you are receiving one or more of our current Digital Bonus Categories individually (a la cede), here's how you will be affected: • r, Any combination of Bonus Categories on an You will need to call 651-222-3333 it you wish to ortlar the new a la carte basis, without a acka a Varlet or Premier Packs a la carte. Digital Bronze Package plus Family 8 You will continue to racelve the Dlgllal Bronze Package plus the Varial or an 2 Bonus Cate Dries a la Cade new Varlet Pack. Digilal Bronze Package plus Movies 8 Music You will continue to receive the Digital Bronze Package, but will or Sports 8 Information a la cads need to ca11651.222-3333 if you wish to order the new Variety or Premier Packs a la carte. Digital Bronze Package plus all 3 Bonus You will continue to racelve Digital Bronze Package plus the new Cate odes a la carte Varlet and Premier Packs a la carte. Digilal Gold or Digital Silver Package plus a You will continue to racelve your Digilal Gold or Digilal Sliver Bonus Cate o a la cads Packa a lus the new Premier Pack a la cede. Cenaln services are available separately or as part of other levels or service antl not all services are available In all areas. You must subscribe to Basic SeMCe to receive Diner seMces or levels of service of video programming. You must purchase or rent a conveder and a remote wnlrol for a separalo charge io receive cedain services. You must subscribe to a Dlgllal premium service to receive the mulUplexetl version of the same channel. Customer mull subscribe to Dlgllal Basic to racelve Premier Packs a la Cade. InsUllaUOn, equipment, addilionaf outlet, chango of service, progmmmi0g access and ONer charges may apply. Franchise tees, regulatory fees, lazes and other Ilanchlse related fees may apply with the actual amount depending on Ioce50n and SerWCes ortlered. PriUng, Programming, channel location and packaging may change. There will be no charge for downgrades requaste0 within 30 days of the dale a customer's bill re9ecls the price or product change. For customers receiving service Through commercial accounts, bulk rate arrangamenls with muiliple dwelling owners, Or similar arrangamenls, some of the product, prirng and other Inlormatlon containetl herein may not apply. Please refer to the terms and conditions of the separate agreement. Where terms are inwnslslent with the InlortnallOn in Ihls pricing shuclure, the lama and wndiUons al lha separate arrangement will apply. Customers wile bulk rata arrangamenls will see the same programming changes antl same tlollaf amount of Increase as shown for Digilal bronze, Silver, Goid antl Platinum. Full Genre Minnesota ~~ A'i1aT (®nvia-voH~~i~' COLUMBIA HEIGHTS COMMUNITY TELEVISION APRIL 2002 PROGRAMS • Heights Calendar - 0:41:00 • Mayor's Report (4/9) - 0:24:19 • Mayor's Report (4/23) - 0:21:50 • Home Improvement Loans - 0:21:00 • First Time Homebuyers - 0:32:52 • Heights Theatre Illuminata - 0:13:20 • Called To Care (Crest View) - 0:09:30 • Town Meeting:A Community Response to Sexual Violence - 0:56:00 • Anoka County Today - 0:29:24 • Vet's Visit on TV (2 shows) @ 0:29:30 • Humanist Views (4 shows) @ 0:29:00 • Love Power (4 shows) @ 1:00:00 • Light On The Gospel 0:56:10 • The LaRouche Connection (4 shows) @ 0:58:30 • Jimmy Swaggart (4 shows) @ 0:58:30 • Army Newswatch (2 shows) @ 0:28:30 • The Prophetic Word (4 shows) @ 0:28:30 • That Which Is (4 shows) @ 0:59:00 • Atheists Talk (4 shows) @ 0:29:00 • On Main Street (4 shows) @ 0:28:15 • Cluistopher Close Up (4 shows) @ 0:28:00 • Somali TV of Minnesota (4 shows) @ 0:59:50 • USA Jr. Hockey Championships (6 shows) @ 2:30:00 • Environmental Journal (2 shows) @ 0:27:00 • Germany Today - 0:57:29 Programs Produced (internal) 5 Programs Produced (external) 58 CHANNEL PROGRAMMING • Cablecast Programs 106 • Cablecast Hours 75 FACILITY USE • Studio Hours 28 • Editing Hours 40 • Mac G - 4 Usage Hours 50 • Portable Equipment Checkouts 6 CLASSES • No classes were held in the month of April. No classes are scheduled until Cable Camp in July. Notes: • Home Improvement Sliow first in a series produced with cooperation of city's Community Development staff. More to follow. • May Heights Calendar show produced in April shot completely in the field and included a look at the Fire Department's new rescue vehicle. • Staff person Steve Antus travels to Poland and to Columbia Heights' Sister City Womianki. He plans to retw•n with lots of video footage and produce a program abort his trip. April 2002 AT&T Broadband Monthly Subscriber Numbers Agent 5050 City of COL HTS Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 Homes Marketable 8517 8454 5475 8485 8510 8511 8514 8574 Basic 1 4370 Basic 2 3831 Universal 4375 4407 4425 4408 4412 4429 4447 4424 4389 4344 4339 4328 3996 4008 4014 3996 4001 4015 4014 3999 3949 3887 3868 3857 42 40 39 37 36 36 37 38 38 39 41 41 40 Total Premium Households 1440 1225 1259 1302 1354 1367 1339 1396 1416 Total# PPV Purchases 699 459 379 819 613 582 558 Digital Platinum 192 Digital Gold 194 Digital Silver 214 Digital Bronze 201 Total Digital Households 914 178 186 198 196 751 179 191 193 178 195 793 201 124 145 162 184 348 374 407 437 547 767 832 868 891 Total Receivers 2605 2798 Home Service Plan 7480 -~ 1750 Broadband Monthly 339 490 Basicl Connects 90 Basic 1 Discos 108 Net Gam/Loss -18 Total Installs -79 88 Total Service Calls 148 123 Penetration 50.60% 51.75% 2933 2903 2787 2715 2670 2665 386 384 362 352 108 131 121 156 81 726 96 107 85 51.04% 50.96% 50.83% #DIV/0! TRADE SECRET INFORMATION NOT FOR PUBLIC DISCLOSURE :m ATM" °l~nwi~~~i+If~`R'i' COLUMBIA HEIGHTS COMMUNITY TELEVISION MAY 2002 PROGRAMS • Heights Calendar - 0:33:55 • Mayor's Report (5/14) - 0:27:17 • Mayor's Report (5/29) - 0:28:20 • Yashua Messiah - 1:00:00 • Legislative Update - 0:15:00 • Germany Today (2 shows) @ 0:30:00 • Destination Germany (2 shows) @ 0:30:00 • Anoka County Today - 0:29:30 • Vet's Visit on TV (2 shows) @ 0:29:30 • Humanist Views (4 shows) @ 0:29:00 • Love Power (4 shows) @ 1:00:00 • Light On The Gospel - 0:58:00 • The LaRouche Connection (4 shows) @ 0:58:30 • Jimmy Swaggart (4 shows) @ 0:58:30 • Army Newswatch (2 shows) @ 0:2830 The Prophetic Word (4 shows) @ 0:28:30 • That Which Is (4 shows) @ 0:59:00 • Atheists Talk (4 shows) @ 0:29:00 • On Main Street (4 shows) @ 0:28:15 • Cluistopher Close Up (4 shows) @ 0:28:00 • Somali TV of Minnesota (4 shows) @ 0:59:50 Programs Produced (internal) 4 Programs Produced (external) 51 CHANNEL PROGRAMMING • Cablecast Programs 103 • Cablecast Hours 78 FACILITY USE • Studio Hours 28 • Editing Hours 32 • Mac G - 4 Usage Hours 26 • Portable Equipment Checkouts 5 CLASSES No classes were held in the month of May. No classes are scheduled nntil Cable Camp in July. Notes: ~ Jamboree Parade coverage June 28 ~ Preparation for Cable Camp ~ Thunder coverage begins Jnue 15 Channel Line-up for Columbia Heights/Hilltop May 2002 Universal Service Basic 1 Basic 2 15 -PUBLIC ACCESS *2 - KTCA (PBS) 24 - QVC 54 -NICKELODEON 16-GOVERNMENT ACCESS 3-N GUIDE CHANNEL 25-ESPN 55-CARTOON NETWORK 18- EDUCATIONAL ACCESS *4-W000 26-ESPN2 56-ANIMAL PLANET 19 -LIBRARY ACCESS *5 - KSTP 27 -FOX Sports 57 -FOX FAMILY 6 -METRO 6 28 -Undetermined 58 - C-SPAN 7-KPXM 29-ESPN CLASSIC 60-COURTN 8-KMWB (W823) 30-Hallmark 62-TNN *9 - KMSP 31 -CNN 63- GREAT AMERICAN COUNTRY *10-WFTC 32-HEADLINE NEWS 64-VH-1 *11 - KARE 33 - CNBC 65 - MN *12-KVMB 34-FOX NEWS 66-BET "13 - M1N 35 -WEATHER CHANNEL 67 -ROMANCE CLASSICS OPTIONAL SERVICES: 17-KTCI 36-A&E 70-MSNBC 76 -PPV 20 - C-SPAN 11 37 -THE DISCOVERY CHANNEL 77-PPV 21-BRAVO 38-THE HISTORY CHANNEL 78 -PPV 22-TBS 39-THE LEARNING CHANNEL 23-WGN 40-AMC 96-HSN 41-TURNER CLASSIC MGJIES 98-EWTN/INSP 42-TRAVEL CHANNEL 99-UNIVISION 43-LIFETIME 44 -FOOD NETWORK 45-HGTV 46-USA 47-TNT 48 - fX 49 -SCI-FI-CHANNEL 50 -COMEDY CENTRAL 51 - E! 52 - N LAND 53-DISNEY CHANNEL AT&T Broadband Minnesota Call Center 30 25 20 15 10 5 0 ~ i Apr-02 May-02 Jun-02 Average Speed of Answer AT&T Broadband Minnesota Call Center 100% 95% 90% 85% 80% 75% ,. ,~ 9'f% ;~ -~ ~ ~~~ ~ s , r~ ~' T ° 4 i l ' n ~ i, 1 ~ i -, ~ 4 ;~ , . ,, ~~ ~~ -v ' ;~ ~ ^ : d. e ~ ~ ~, ~ ;: . , - i )a _ y A I N ~, Apr-02 May-02 Jun-02 Telephone Service Factor COLUMBIA HEIGHTS Apr-02 DETAILED OUTAGE REPORT Average Time # Subs Date City Cause Minutes Amps Affected 28-Aor Columbia Heights Utility Power Outage 32 10 389 May 2002 SERVICE PRICE UNIVERSAL SERVICE NC Basic 1 SERVICE 8.33 Basic 2 SERVICE 27.40 STANDARD CABLE 35.33 PEG Fee 2.00 Basic 1 only Converter 1.85 Non-Basic only Converter 3.80 Remote Control .35 Additional Digital Outlet 7.95 PREMIUM SERVICES: DIGITAL HBO/H602 12.99 SHOWTIME 12.99 CINEMAX 12.99 THE MOVIE CHANNEL 12.99 STARZ! 12.99 Encore 4.99 DIGITAL PACKAGES Bronze (includes Standard Cable) 43.99 Silver (includes Standard Cable) 56.99 Gold (includes Standard Cable) 66.99 Platinum (includes Standard Cable) 81.99 PAY-PER-VIEW MOVIES: CABLE PLUS MOVIE 3.99 Adult or Special Events Price varies MONTHLY GUIDE 2.85 SERVICE FEES: LABOR IS CHARGED ON A PER HOUR BASIS PL US MATERIALS Installation -unwired within 125 of existing plant 41.99 Prewired Install 24.99 Additional outlet at initial install 13.49 Additional outlet -separate trip 19.99 Relocate outlet 18.99 Upgrade/downgrade/addressible services 1.99 Upgrade -separate trip 15.99 Downgrade optional service -separate trip 9.99 VCR Connection at initial install 5.99 VCR Connection -separate trip 12.99 Return Check fee 20.00 Unreturned addressible converter 200.00 Unreturned digital converter 300.00 Home service Plan -whole house 1.20/month Hourly Service Charge 27.99 HSD - @Home Service If a cable subscriber 45.95 if not a cable subscriber 49.95 Premium Internet Installation 99.95 Basic Internet Installation 49.95 Data Outlet Installation 13.49 NIC/USB 49.95 PCMCIA (Laptop) 49.95 Home Networking 9.95/month Mobile Access 2.00/month Unreturned modem 650.00 +f~~ June 11, 2002 Mr. Dave Seykora AT&T Broadband 10 River Park Plaza St. Paul, Minnesota 55107 Dear Mr. Seykora: On behalf of the administrators of the AT&T systems, including my representation of the Burnsville/Eagan Telecommunications Commission and the South Washington County Telecommunications Commission, please be advised that AT&T's current reporting of telephone statistics for the purpose of our evaluating AT&T's compliance with customer service standards is unacceptable. Our objections are the following: 1. We only receive bar graphs with no supporting documentation as to the monthly reported response times. 2. The "scrubbed" data which we have received on occasion is unacceptable. a. AT&T averages all calls in 30-minute increments and then averages again those 30-minute intervals for the purpose of determining compliance. This process of "double averaging" is misleading and unacceptable. b. AT&T is not permitted by the local franchises and the local franchise authorities to "scrub" its data on a metro wide or greater basis. A tornado in Burnsville is not an acceptable excuse for failure to comply with the Anoka franchise required customer service standards related to phone answering time. 3. The customer service standards relating to a customer's ability to talk to a company representative commences immediately when the phone is answered, including answering by AT&T's current automated system. Your data is not collected from the time the person is placed in the queue, but after over two minutes of listening to automated responses. This is a standing violation of the customer service standards and must be immediately corrected. The administrators are of the opinion that AT&T has for some time demonstrated a pattern of noncompliance related to phone response compliance with the existing customer service standards. This is of course unacceptable to the local franchise authorities. Mr. Dave Seykora June 11, 2002 Page Two Therefore, you are hereby requested to propose a remedy to the above-referenced noncompliance circumstances and issues. While such a remedy to the above illustrated items may not be able to be implemented by the deadlines herein, AT&T is required to file with each of the franchise authorities represented by this office in Minnesota and Wisconsin, a written plan for remedying the above- referenced noncompliance circumstances and issues. Your written plan must be filed on or before Noon on Wednesday, June 26, 2002. Thank you for your cooperation with these issues. Sincerely, Creighton, Bradley & ~uzzetta, LLC -°---_ ,i' Thomas D. Creighton TDC/n• cc: Heidi Arnson Teri Bowar Fran Hemmesch Bert Meece Alan Bozeman Kathy Cinnamon Timothy Finnerty Jeffrey Karlson John Kennedy Bernard Van Osdale Linda Magee Teny O'Connell Coralie A. Wilson Richard Hoffman Kathi Donnelly-Cohen