Cable & Satellite TV
CHANNEL CHECK
From the Cable Front Lines
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Over the last three weeks we have performed a series of cable operator
channel checks by speaking with operating executives throughout the cable
industry. While our conversations spanned current performance across all 3
of cable’s main product lines, we focused in particular on the voice business.
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Consistent with recent quarters, our checks indicate a continued slowdown
in VoIP net adds. The primary culprit appears to be the weak housing
market (as opposed to wireless substitution), which results in fewer
opportunities to sell-in voice. Our analysis suggests CMCSA should show
stronger VoIP growth in 2009 than TWC, given a greater increase in
CMCSA’s VoIP footprint in ‘09.
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Although data growth is also slowing, the pace of the deceleration is largely
in line with our expectations. We believe this reflects incremental broadband
penetration and continued market share gains from DSL.
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We do not expect major surprises in video. On a positive note, pricing
appears to remain rational as virtually all of the major cable, DBS, and telco
operators have announced (or we expect will announce) mid-single digit rate
increases for 2009. While we do expect incremental promotional activity
given the weak consumer backdrop, there are no major signs of a price war
erupting in video.
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We have trimmed our EBITDA estimates for Comcast and Time Warner
Cable by ~1% in 2009 to reflect slower RGU growth given our channel
checks. We now forecast that both MSO’s will grow revenue and EBITDA by
~6.5% in 2009, roughly 30-60 basis points slower than our original forecast.
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However, we continue to rate the Cable/DBS sector Market Overweight
given the more defensive characteristics of the group relative to the more
cyclical entertainment and Internet stocks in our coverage universe. This is
evidenced by the relatively minor magnitude of our estimate reduction (~1%
decrease in ‘09 EBITDA) and our projection for still positive growth in 2009.
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We view cable valuation at ~5.0x 2009 EV/EBITDA as attractive, particularly
compared to historical valuation multiples of 5x-10x. In the near term, we
prefer CMCSA over TWC given the latter’s expected increase in float as part
of its separation from TWX, and its higher leverage.

From the Cable Front Lines
Summary
Over the last three weeks we have performed a series of cable operator channel checks by
speaking with operating executives throughout the cable industry. Our contact with these
individuals was all done via telephone. Conversations lasted between 10 minutes to over one
hour. The goal of our channel checks was to gain a better understanding of near term and longer
term cable subscriber and ARPU trends (e.g., video subscriber/ARPU growth, HSD
subscriber/ARPU growth, telephony subscriber/ARPU growth). We acknowledge that
extrapolating longer term trends from such conversations can be difficult, but we regard the color
and anecdotes that were relayed to us in our discussions as instructive.
Key Channel Check Findings
■ Similar to reported results from recent quarters, our checks suggest that the cable business is
seeing slowing growth driven by the housing market, the economy, and, to a lesser extent, by
competition.
■ In particular, phone subscriber growth seems to be the area of greatest concern for operators,
and for some, the business has slowed beyond original expectations and plan. And while
executives are “not panicking”, they remain “concerned.”
■ Indications are that HSD growth continues to slow, but at a pace that is generally in line with
our expectations and more moderate than phone. We believe that (1) the lack of perfect
substitute, (2) cable’s superior product vs. DSL, and (3) the fact that the HSD market is not
fully mature, are the key reasons for HSD’s continued strength in the face of competition and
adverse market conditions.
■ Operators reported mixed results/views regarding video. Some indicated that they continued
to lose basics, while others noted “flattish” growth. We heard nothing, however, that changed
our view that for large operators, such as Comcast and TWC, basic losses should continue for
the foreseeable future, but at levels that should be manageable.
Checks Consistent with Recent, Albeit Limited, Commentary from Public MSOs
Our checks with private operators provided more anecdotal and data rich evidence regarding
cable’s slowdown than what public operators have been willing to reveal. However, our findings
were consistent with what some public operators (e.g., Time Warner Cable, Mediacom) have
been saying regarding 4Q08 trends; that RGU growth has slowed across the board (phone
subscriber growth has been especially hard hit for some), that consumers are managing their bills
more carefully (e.g., reducing premium services like DVRs, HBO/Showtime, pay per view, etc.),
and that local advertising is in disarray.
Fine Tuning Estimates. . .
Based on our work, we are fine tuning our 2009 estimates lower. Overall, we have trimmed our
EBITDA estimates for Comcast and Time Warner Cable by ~1%. We now forecast that both
MSO’s will grow revenue and EBITDA by ~6.5% in 2009, roughly 30-60 basis points slower than
our original forecast. Given the uncertainty surrounding both the economy and the duration of the
recession, we are also, largely for the sake of conservatism, trimming our longer term video, voice
and subscriber estimates for both CMCSA and TWC. Our revisions now imply that cable will grow
EBITDA at a ~4.5%-5.0% compound annual rate from 2008-2013 vs. ~5.0%-6.0% previously.
Details of our estimate changes and our new forecasts for CMCSA and TWC can be found on
pages 16-24.
. . . But We Still Like Cable
Despite our revised forecasts, we continue to rate the Cable/DBS sector Market Overweight given
the more defensive characteristics of the group relative to the more cyclical entertainment and

Internet stocks in our coverage universe. This is evidenced by the relatively minor magnitude of
our estimate reduction (~1% decrease in 2009 EBITDA for Comcast and Time Warner Cable) and
our projection for still positive revenue, EBITDA, and EPS growth in 2009. We continue to view
valuation at ~5.0x 2009 EV/EBITDA as attractive, particularly compared to historical cable
valuation of 5x-10x. In the near term, we prefer CMCSA over TWC given the latter’s expected
increase in float as part of its separation from TWX and its higher leverage.
Understanding The Drivers of VoIP Sub Growth
Our recent discussions with private operators indicated that most MSOs are seeing a substantial
slowdown in phone subscriber growth. Our conversations deepened our understanding of the
factors that are impacting cable VoIP subscriber growth today. In this next section, we take a
closer look at the key drivers of cable telephony growth (see Exhibit 1), as relayed to us in our
discussions with operators, and how the cable VoIP landscape is changing.