Potential Grows as Cable Connects America

It's always a good time for reflection when the industry gathers for its annual National Show. In many ways, of course, 2002 is a more reflective time than ever for our industry and for the nation as a whole. The tentacles of Sept. 11 continue to touch us today, even as daily life has resumed an appearance of normalcy. And the ripples of a roiling and unusual economy are reaching cable's shores, challenging our companies of all stripes in new and unprecedented ways.

Our industry always has been subject to fairly traditional business cycles, but the events and developments of the past year have cast an extraordinary light on the cable landscape and brought significant new accomplishments and challenges.

The accomplishments? In the face of national tragedy, we've won kudos from customers and opinion leaders for our ability to keep people connected and informed in times of crisis. A larger share than ever of the television audience now endorses our quality programming by its viewing habits. Our claim at last year's National Show that "we're making broadband happen" has come to life with popular products and services now deployed to the homes of millions of Americans. And the consumers who subscribe to these new services tell us they're happier cable customers because of them.

The challenges? We face a very competitive market place in which consumers vote with their wallets. There are lots of choices for television viewing and consumers also can choose to spend time participating in other leisure activities. We're working diligently — and struggling mightily — to balance rising costs with the price consciousness of our customers. And we spend every day striving to convince shareholders and investors of the true value of our companies.

It's in this complex and rarified environment that we gather in New Orleans for Cable 2002. The incredible exhibit displays, compelling sessions and meetings and the crowded and fun social events are where we'll catch up with friends and colleagues.

The New Orleans Convention Center will seem like the center of our industry. But we know better, because the real heart of our industry today rests in the homes of our customers across the country — where cable is connecting America
with reliable, affordable and innovative services that consumers value, including quality television programming, interactive and high-definition television services, high-speed Internet access and competitive local telephone service.

We're connecting America with new services. Since 1996, cable companies have invested $60 billion to upgrade plant, and consumers have rushed to accept our new services. At the end of 2001, 21 percent of U.S. cable customers — 15.2 million — were subscribing to digital cable services featuring more channels of great programming and advanced services.

The number of broadband Internet customers has grown to 7.2 million, representing cable modem penetration of 17 percent across American homes with personal computers. And the number of our customers subscribing to competitive local telephone service over broadband cable had swelled to 1.5 million. We're seeing even greater growth in these services as each of our companies' releases its results for the first quarter of 2002.

We're connecting America with sophisticated new products that respond to consumer demand and fully utilize the capabilities of our broadband networks. In the video space, companies like Time Warner Cable, Comcast Corp. and Charter Communications Inc. are fulfilling plans to offer packages of high definition television channels — and programmers such as Home Box Office and Showtime Networks Inc. are creating high definition programming with real appeal to viewers.

In the Internet world, companies including AT&T Broadband, Time Warner Cable and Comcast are allowing their broadband customers to easily select from multiple Internet-service providers. In the area of voice services, companies such as Time Warner and Charter are testing voice over Internet protocol (VoIP) — competitive local telephone service over the Internet.

And in the area of interactive services, where Wink Communications Inc. is a leader, vendors and operators have joined forces to enable television viewers to "lean in" and have an interactive experience with television services. Interactivity is now epitomized by video-on-demand and subscription VOD services, interactive programming and e-commerce applications, digital video recorders and interactive program guides.

We're connecting America with high quality, original programming and programming choices. Projections call for cable networks to invest $7.6 billion in programming this year, while the number of national cable networks has now grown to 287 — an increase of nearly 100 percent in just five years. That investment has paid off in spades, with increasingly larger shares of American audiences tuning in to cable programming.

Over the past decade, for instance, the basic cable network viewing share in all television households increased by 105 percent, and basic cable received 49.3 percent of all viewing during the most recently completed television season. And in the current television season, more than half of primetime television viewers watched ad-supported cable networks — the first time cable networks have topped broadcasters during their regular schedule of first-run broadcast network programming.

Even the experts are endorsing the quality of cable's programming product. Cable networks received a record 159 Emmy nominations in 2001, with more cable networks than ever before — 20 — receiving nominations.

We're also helping connect Americans more closely to their communities. A broad array of local and regional programming channels — in large markets such as New York, Philadelphia and Boston, to mid-size markets as diverse as Phoenix; Buffalo, NY; Orlando, Fla., and Portland, Ore. — is bringing quality original news, sports, information and entertainment programming into the homes of our customers.

Our commitment is growing stronger to education in our communities, with teachers, students and parents served by a newly reinvigorated Cable in the Classroom, which is driving commercial-free educational programming and broadband Internet access to 44 million students in more than 81,000 schools. In addition, operators and programmers are finding more effective ways to demonstrate their commitment to the community through public affairs initiatives targeted to diverse constituencies, including children, women, veterans, educators, athletes and civic activists.

Just as importantly, we're connecting American investors to growth. By the end of 2001, about 87 percent of all cable homes were passed by at least 550 megahertz plant; 74 percent of cable homes were passed by systems of 750 MHz or higher; and more than 70 million households were passed by activated two-way plant, allowing for full deployment of interactive, cable-modem and competitive local telephone services. Even as great potential lies ahead, consumers already had purchased 24 million new service units of digital video, broadband Internet or cable telephone service, by the end of last year. For investors, we believe greater returns lie ahead.

There's no question that we're working in a market place that's more competitive than ever, facing challenges — from competitors, the capital markets and rising customer expectations — that our predecessors could only imagine. But as we walk the exhibit floor and convention hallways of Cable 2002, we should all feel heartened by the progress we've made in connecting America and the incredible potential still to come from that investment.