Good morning, ladies and gentlemen, and welcome to Comcast's first quarter 2009 earnings conference call. (Operator Instructions)
I would now like to turn the call over to Senior Vice President, Investor Relations, Marlene Dooner. Please go ahead, Ms. Dooner.
Thank you, Operator, and welcome, everyone, to our first quarter 2009 earnings call. Joining me on the call are Brian Roberts, Steve Burke, and Michael Angelakis.
As always, let me first refer you to Slide 2, which contains our safe harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties. In addition, in this call we will refer to certain non-GAAP financial measures. Please refer to our 8-K for the reconciliation of non-GAAP financial measures to GAAP.
With that let me now turn the call to Brian Roberts for his comments. Brian?
Thank you, Marlene, and good morning, everyone.
Today we are pleased to report a solid start to 2009, demonstrating the underlying strength of our subscription businesses and our ability to continue to manage effectively in a challenging environment. Our results reflect very effective execution in my opinion. Reacting to the economic slowdown back in 2007, we adjusted early to this rapidly changing environment and we're continuing to fine-tune our strategy now to deliver these kinds of solid results and at the same time continue to strengthen the competitive advantages that we believe our platform has.
As we do this we are focused on balancing revenue, cash flow and unit growth. We are also intensely focused on managing operating expenses and capital and our strong first quarter results reflect all of these efforts. We generated $1.4 billion of free cash flow or a 95% growth driven by lower capital spending by Cable and healthy growth in revenues of 5% and operating cash flow growth of 2008.
At the same time, we're equally determined to reinforce the competitive advantages so we're investing in products, marketing and customer service and in high-growth businesses like Comcast Business Services while we execute on strategic initiatives like DOCSIS 3.0, wideband, and going all digital that are so important to our long-term success.
We've already deployed wideband to 35% of our footprint, with a goal to expand this deployment to 65% of our markets by year end.
We're also rapidly expanding our efforts to go all digital. This project will dramatically increase our product capabilities, help enhance the experience we offer our customers, particularly with more high definition television. As part of the remarks this morning Steve Burke will give a long update on where we are and why we think this is such a strategically important project.
All of our operating efforts are supported by a strong balance sheet and a disciplined financial approach, so across the board I believe we're in solid position as we begin 2009.
Let me now pass to Michael to cover the first quarter results in more detail.
Thank you, Brian. Let me begin by briefly reviewing our consolidated results, starting on Slide 4.
Overall, the company executed well in a difficult environment, reflecting our continued focus on profitable growth and proactive expense and capital management. For the first quarter, consolidated revenue increased 5% to $8.8 billion and operating cash flow grew 8.5% to $3.4 billion, resulting in a consolidated operating cash flow margin of 39%. Note that all of this is organic growth as there are no pro forma adjustments.
As you know, in addition to revenue and operating cash flow we are very focused on free cash flow, free cash flow per share, and adjusted earnings per share as important metrics in evaluating the strength of our consolidated businesses. In each of these key metrics our performance during the first quarter was very strong.
We generated consolidated free cash flow of $1.4 billion, an increase of 95% versus the first quarter of 2008 reflecting growth in consolidated OCF and declining capital intensity.
In addition, compared to the first quarter of 2008 our free cash flow per share more than doubled to $0.47 per share and our adjusted EPS increased 42% to $0.27 per share. The reason for the adjustment is to exclude a one-time gain in 2008 related to the dissolution of the Insight Midwest Partnership.
We are focused on execution and are pleased with these financial results, but there are several areas that could impact our results for the remainder of the year, specifically we have experienced a slowdown in gross connect activity and in March and April our connects have weakened further across all of our service categories. Also, the advertising market continues to be challenging, with cable advertising revenue down 25% this quarter. We continue to see weakness in key advertising categories, including autos, financials and housing-related sectors.
Our Programming division, which has been performing well, reported a 1% decline in revenue and a 2% decline in OCF as a result of an 8% decrease in advertising revenue in the first quarter. It is important to note that cable advertising revenue accounts for 3% of cable revenue and total advertising revenue accounts for approximately 5% of our total consolidated revenue.
Additionally, we are continuing to invest in areas that support profitable growth, like marketing, retention, targeted promotion, business services and longer-term competitive initiatives like DOCSIS 3.0 and all digital. As such, these expenses and related capital investment may accelerate throughout the year as we continue to balance our revenue, cash flow and unit growth.
While these items may impact us during 2009, we remain diligent with our expense control and are focused on delivering growth in revenue, operating cash flow and free cash flow as well as improving capital efficiency as it declines in absolute dollars and as a percentage of revenue in 2009.
Let's revenue our Cable division's first quarter results in more detail. Please refer to Slide 5.
In the first quarter of 2009 Cable revenue increased 5.5% to $8.3 billion, reflecting growth in each of our subscription businesses, including video, high-speed Internet, voice and business services. Total video, high-speed Internet and voice customer net additions were 549,000 in the first quarter. Overall, we have continued to experience lower gross connect activity as a result of the weakening economic environment and increased video competition. However, churn continues to be flat to down across all service categories. In addition, our bad debt continues to run at similar levels to prior year as a result of our increased use of credit screening.
Total revenue per customer remained healthy, increasing 8% to $115, reflecting the following components:
Total revenue for video increased 3%, resulting in a 6% increase in video ARPU and a decline in basic video customers. Our first quarter '09 net video customer loss was 78,000, which does include some benefit from the broadcast digital transition, particularly during February. We also expect to see some benefit in the second quarter around the June digital transition date. This quarter's increase in video ARPU reflects rate increases and a growth in digital and advanced services offset by additional bundling, promotions and weakness in pay-per-view.
For the first quarter of 2009 pay-per-view revenue was negatively impacted by fewer events and softness in movie buys. Our total number of on-demand views continues to increase, averaging over 300 million views per month, but we are seeing a greater shift to free on-demand content.
High-speed Internet revenue increased 9% in the quarter as we added 329,000 customers and had stable average revenue per customer of approximately $42. Our customer mix remains healthy as we continue to add more higher-tier customers than those on the economy level.
Voice revenue increased 32% for the first quarter, reflecting continued growth in our customer base and a modest decline in ARPU to approximately $39. We added 298,000 voice customers this quarter and now have 6.8 million CDV customers. Our penetration is now over 14% and we believe there is a long runway for growth in this business.
At the end of the first quarter of 2009 24% of our video customers took all three services compared to 18% in the first quarter of 2008.
Revenue from our business services segment increased 47% in the quarter to $176 million, demonstrating that in a difficult environment our value-based strategy is gaining momentum. Business services is growing nicely and the margins are now in line with our overall cable margins and we continue to expect business services to be a major contributor to our growth.
As I mentioned before, our local cable advertising business continues to be challenged, with revenue declining 25% this quarter and unfortunately we are not seeing any signs of an advertising recovery at this time.
Please refer to Slide 6 to revenue our cable division's operating expenses and operating cash flow results.
Total expenses in our cable segment increased 3.5% in the first quarter resulting in operating cash flow growth of 8% to $3.4 billion. Our cable operating cash flow margin in the first quarter increased to 40.8% from 39.7% compared to the first quarter of 2008.
As we expected, programming expenses increased 9.6% primarily reflecting higher digital programming costs as we increased our digital customer base and experienced higher sports programming costs. However, if we exclude programming costs, our total expenses increased 0.4% or essentially flat year-on-year even as we added 2.2 million video, Internet and voice customers during the past 12 months, demonstrating our strong focus on expense management.
In the first quarter of '09 we also continued to extract scale benefits and efficiencies in our high-speed Internet and digital voice businesses. Compared to the first quarter of 2008 our network and direct costs for high-speed Internet declined 13% and digital voice direct cost decreased 16%.
In other areas, administrative and other SG&A expenses declined 2%, primarily reflecting tighter controls and headcount reductions taken in 2008. Also marketing expenses decreased 8% year-on-year, but we do expect marketing expenses to trend higher throughout the rest of the year.
As we continue to focus on expense management we are also absorbing additional operating expenses to support our key strategic initiatives such as all-digital, the broadcast digital transition and our focus on improving the customer experience, which is reflected in the 10% increase in technical labor and the 8% increase in customer service expenses. While we continue to evaluate our cost structure and to extract further efficiencies, we will also make these types of investments to support profitable growth and to enhance our products' superiority and improve the customer experience.
Please refer to Slide 7 to review capital expenditures for the quarter.
In the first quarter of 2009 capital expenditures decreased 19% to $1.2 billion, representing 13.1% of revenue. The decline in CapEx was the result of improved efficiencies, lower activity levels, more favorable CPE pricing, and reduced construction spend. This result was achieved even as we invested in the growth of advanced video services, high-speed Internet and digital voice services as well as in our all-digital DOCSIS 3.0 and business service efforts.
Consistent with historical trends, capital expenditures continues to be predominantly growth oriented, with growth CapEx accounting for 76% of cable CapEx in the quarter. We remain very returns focused and are confident this growth investment will yield attractive return on incremental capital.
Over the past three months we added 549,000 video, voice and data customers. We added or upgraded 288,000 digital customers and 452,000 advanced service customers who received 1.2 million digital set top boxes and adapters. Approximately half or 650,000 of these box deployments were advanced HD and/or DVR set tops. We now have 8.2 million HD and/or DVR customers and our advanced services penetration is over 47% of total digital video customers.
Also, we continued to purchase and deploy digital adapters in the first quarter to support our rollout of our all-digital initiative which began in the fourth quarter. As Brian mentioned, Steve will spend more time discussing this progress on all-digital in a few minutes.
We also continued to purchase equipment for DOCSIS 3.0 or wideband and as Brian mentioned, we have already deployed the service to 35% of our footprint, with a goal of 65% by year end. We do expect our CapEx will modestly increase from these first quarter levels as we continue to aggressively invest to sustain our momentum in business services and expand our deployment of wideband and all-digital. Nevertheless, we continue to expect our full year CapEx will be both lower in absolute dollars and as a percentage of revenue when compared to 2008.
Please refer to Slide 8.
As I mentioned, in the first quarter of 2009 solid operating cash flow growth of 8.5%, coupled with reduced capital expenditures, resulted in free cash flow growth of 95% to $1.4 billion. Our financial strategy remains focused on a disciplined and returns-oriented approach to allocating capital as well as on growing free cash flow and free cash flow per share. As we have previously indicated, we plan to utilize our internally generated free cash flow and pay down maturities this year. The economic environment clearly remains difficult and volatile and with modest debt reduction we are improving the risk profile of the company and increasing free cash flow and free cash flow per share, which we believe is also accretive to equity values.
As we continue to evaluate our capital allocation strategy, share repurchases remain an option for further consideration. We currently have $4.1 billion of availability under our stock repurchase program and although we did not repurchase any shares in the first quarter, we may repurchase our stock from time to time.
Additionally, we remain very committed to our dividend. In January we paid a cash dividend totaling $180 million. We paid our second quarter dividend yesterday which totaled $195 million, reflecting our recent 8% dividend increase.
Now let me pass the call to Steve.
Thank you, Mike.
Rather than go through each line of business the way we typically do, I thought what we'd do this morning with the time I have is discuss our [break in audio], more VOD, faster Internet speeds, interactive advertising, and other improvements.
We recapture approximately 250 megahertz to 300 megahertz of spectrum by moving 40 to 50 channels from analog to digital - that's what we call the all-digital conversion. That's more bandwidth than we gain from upgrading our plan from 500 megahertz to 750 megahertz. More importantly, we estimate the total cost of about $1 billion is less than 10% of what a physical rebuild would cost us historically and we can complete it in a fraction of the time. This investment will be spread over 2009 and 2010 and is built into all of our budgets and projections, including our expectation for CapEx to be lower in absolute dollars as a percentage of revenue.
Our digital conversion involved reclaiming 40 to 50 analog channels and leaving just the lifeline channels transmitting in the traditional analog format. To do this we need to connect digital devices to all TVs receiving expanded basic service.
About 14% of our customers take lifeline service. These customers will continue to receive their signals in analog and for them there is no change.
72% of our customers today have digital service. For these customers we only need to worry about TVs in rooms that don't currently have digital boxes. We estimate somewhere around 20 million digital devices will be necessary for these television sets in other rooms.
Roughly 14% of our customers are analog expanded basic subscribers. To these people we would give one set top box and two adapters for free as we go through the transition. We estimate this will equate to roughly 10 million adapters and 2 to 3 million regular set top boxes for this segment.
We convert systems over a six to 12-month period zone-by-zone according to ad sales geography. First we spend some time getting digital penetration as high as possible. We then reclaim the channels in two ways. We've developed a very detailed process for doing this and began implementing it in markets earlier this year. To make this work financially we first had to create a low-cost digital adapter, which cost us about 25% of the price of a digital set top box, roughly $30.
After conversions are complete our customers get substantial benefits. Existing analog customers get digital picture quality, a dozen new channels, 40 to 50 music channels and an interactive guide at no additional cost. Advanced customers obviously get more high def, wideband, ethnic channels, etc.
We've begun digital migrations in cities like Portland, Seattle and the San Francisco Bay Area and are preparing many other markets, such as Atlanta, Philadelphia and Baltimore. At the end of the first quarter approximately 5% of our footprint has already completed the digital conversion.
Portland was our first major market and the one which is furthest along. Over half of the Portland market, which has roughly 600,000 subscribers, has converted and the entire digital conversion process will be done in about 60 days. To date the customer experience and reaction has been favorable. Our network and the digital adapters are working very well. Customer satisfaction remains good and we've been able to operationalize the conversion with many less headaches than we thought.
The key success factor so far has been the high rate of self-installation. Currently over three-quarters of our customers elect to self-install the digital adapter. We have a website and automated telephone-based response system that customers can use to order and activate their adapters. The results in Portland have been encouraging enough that we're looking at speeding up our rollout to over half our footprint by the end of this year.
So far the economics of digital conversions look very positive. We're seeing incremental call volume in our call centers, but costs are running below expectations due to less truck rolls than forecast thanks to a high rate of self-install. While returns will vary by market and it's early on in the process, based on results to date we believe that digital conversions have a 20% plus ROI in addition to the strategic value of recapturing bandwidth and the product enhancements I mentioned earlier.
On the revenue side, going all-digital has a number of benefits. First, it reduces theft because it's easier to steal analog signals than digital signals. Theft reduction will give us more video customers in total plus an increase in expanded basic customers who currently pay for the lifeline service but get a higher tier illegally.
We also get higher pay-per-view revenue from customers previously unable to order video on demand. We're seeing double-digit increases in pay-per-view versus markets that have not made the digital transition.
Finally, we get a revenue lift from higher tiers of digital services taken by some people as they convert from analog to digital. People who see video on demand in an interactive guide often want more of our services and they are therefore easier to upgrade.
In addition to these revenue enhancements, there are also cost benefits once a system converts to all-digital. The need for technicians to visit customers' homes, i.e., truck rolls, is reduced, especially with routine actively. A lot of work can be done remotely from a centralized location. In some systems we've seen a 95% decline in certain types of activities. On a company wide basis this could lead to the elimination of millions of truck rolls per year.
In summary, our digital conversions are a major initiative for the company. Virtually every person in every system in our company will be involved in the digital conversion process during the next 18 months or so and once we're done they will transform our company. We also think they'll help us financially because they have such a positive return on investment. We'll update you on the progress of our digital conversions in future calls, but right now we're optimistic we can continue to report solid financial results while completing the conversions. And once they are done, we'll emerge in great fighting shape.
Marlene, let's open it up for calls.
Operator, let's open up the call for Q&A.
(Operator Instructions) Your first question comes from Jessica Reif-Cohen - BAS-ML.
Jessica Reif-Cohen - BAS-ML
I was wondering - actually, two questions - if you could quantify the impact of over-the-air both on basic subs and any pull through on voice and data?
And secondly, can we explore video on demand a little deeper? You guys did day-and-date with Twilight. Can you talk about those results? What is it that's not taking this to another level? Is it the guides? Is it just the number of channels or is it the window?
Let me answer both of those, starting with the video on demand. We are chipping away at the whole notion of day-and-date. We have a lot of films right now that are concomitant with the DVD release. We also have a number of studios that have shortened the window between the DVD release and when the films are available for video on demand.
I agree with your underlying premise that we haven't taken it to the next level in that the consumer doesn't generally believe that when a video is on DVD it's also on video on demand, but I do think we're making progress toward that. And we've been at this for awhile and continue to chip away at it.
Regarding the broadcast transition, it's actually very difficult to precisely say how many subscribers we gain because if somebody calls up and says I want to take advantage of your $9.95 lifeline offer, they could be somebody who's converting from over-the-air to cable or they could be somebody who just wants to take advantage of that offer, and at the same time there's some people who go all the way to expanded basic. So it's hard to precisely say, but clearly we had an impact and expect an impact in the second quarter as well.
If you look at the drag on effect, about between 40% and 45% of all the people that come in on that offer, the $9.95 offer, take another service or upgrade beyond that offer, so it clearly not only helps you with basic subs but helps you with high-speed data and phone.
Your next question comes from Spencer Wang - Credit Suisse.
Spencer Wang - Credit Suisse
I got on the call a little bit late so I apologize if you've already addressed this but, Steve, could you just talk a little bit about the uptake of DOCSIS 3.0? I think you guys earned 35% of your footprint.
And then, Mike, you guys had really nice margin improvement in the first quarter. Could you just talk about the opportunity to increase margins for the balance of the year?
Well, on DOCSIS 3.0, first of all, we are hard core on DOCSIS 3.0. We really believe in it. We want to have the majority of our company DOCSIS 3.0 capable by the end of this year, certainly over two-thirds of the footprint by the end of this year. We're about a third of the footprint right now.
From a technical point of view everything is going great. We're starting to offer the service to our customers in a bunch of different markets and one of the reasons why we think it's so important is for the vast majority of our footprint - maybe 75% to 80% of our footprint - the [R-Box] can't compete when we go up to 50 meg and beyond. And even in fiber [Felco] rollouts we can be fully competitive with DOCSIS 3.0. So we're very committed to it.
I don't think it's necessarily affecting our financials or our high-speed data subs right now, but we're rolling out and we're adding more markets and technically it's working and the cost curve we assumed we would be on we're right on, so it's all going well.
Spencer, I'll take the margin question. I think we did a good job, obviously, in the first quarter with margins. There's some put and takes with regards to negative and positive attributes related to our margins. We really look at our margin as being relatively stable and we expect that through the rest of this year, that we'll have some put and takes but overall they'll net out and be pretty stable.
Your next question comes from Craig Moffett - Sanford Bernstein.
Craig Moffett - Sanford Bernstein
Two questions if I could. First, subscriber trends, Time Warner Cable said yesterday that second quarter trends have sort of returned to fourth quarter levels. I'm wondering if you're seeing the same thing.
And then a question for Michael. I wonder if you could just elaborate a little bit more on your expectations around capital structure. You had a shelf registration earlier this week that presumably gives you some flexibility to refi this year's maturities if that's what you choose to do. Should we read into that the possibility that share repurchases might come sooner rather than later?
On the subscriber trends, I would agree in sentiment with what Time Warner said. There's no question in March and April, from a basic subscriber point of view, our activity levels were lower than we wish they were.
I think as we go through this -
Craig Moffett - Sanford Bernstein
Sorry to interrupt, but is that just normal seasonality because you would expect that in the second quarter anyway or is it something different?
I think what we're finding, well, second quarter and third quarter are traditionally slower quarters for cable companies than the first and the fourth, so you've got that. But I do think what's happened in March and April is the economy, from our perspective, it feels like you have months that are better than you think, months that are slightly worse than you think, and it's kind of rolling a little bit more than just a linear thing. And a lot of this has to do with housing starts and just the overall sentiment out there.
But I do think it's fair to say January, February and maybe the beginning of March we were feeling better, and then March and April have been slower. We're doing a bunch of things. And all of this is on the margin. The difference between a great month and a bad month in terms of basic subscribers can be one-tenth of one percent of our total base, so everything's very marginal in terms of its impact. But I do think March and April were tougher than January and February.
Craig, we did file a shelf. Our previous one had expired, so this shelf is really just a renewal of that. I wouldn't read anything into it. It's typical housekeeping for us.
With regards to capital structure, I think we've been consistent that we have some maturities this year, actually over the next 90 days. We'll meet those maturities with our internally generated cash flow. But as I mentioned in our remarks, we're always evaluating our capital allocation strategy and that does include buybacks.
I do want to [inaudible] a bit is I think the economy is still very tough. Obviously there's some optimism out there, but if you look at vacancy rates and foreclosures and unemployment and even what's happening in moves, there's some troubling statistics, so I think we're still being a bit conservative.
Your next question comes from Ingrid Chung - Goldman Sachs.
Ingrid Chung - Goldman Sachs
So two questions. First, what's your strategy in terms of addressing online video viewership? Is there certain programming that keeps people on your video service, like maybe sports and local?
And then the second quarter, Steve, you just spent some time talking about your all-digital initiative. Why have you chosen to go all-digital rather than use switch digital video?
Let me begin and Steven can add to it. I think we really believe that we want to be in a position with the consumer to find a way to offer whatever platform the consumer wants to consume content on, to find a way, consistent with maintaining the business success for both the content providers and ourselves and other distributors, and at the same time is as consumer friendly as possible so that as this technology continues to ripen we're in the right place.
And I think we're excited about certain steps that appear to be something that we're going to be able to take here and we'll have more as this develops later in the year, which is to be able to say certain content is now available on your PC and we'll evolve that to other platforms as we grow on demand online.
At the recent cable convention there were several content companies also trying to talk through how to do this. There's questions around how to see if there's some standards that can be set on how to make sure digital rights management and security work, etc. And I've said previously that we believe the trend is not causing people, other than maybe very rare examples in certain young demos who may not have subscribed, to say I can live without my cable subscription or my satellite subscription because I can get all the content online, and yet there's many people enjoying online content and that's powering broadband.
And one of the things Steve said earlier was that DOCSIS 3.0, part of our strategy is to continually reinforce the message that the absolute best place to get broadband and the highest value for that broadband product, whichever one of our products you take, is to buy Comcast high-speed Internet. And I think that, generally speaking, is a very good place for us to be.
So hopefully that answers that part. Steve?
So on the all-digital, there are a variety of ways to get more bandwidth. You can rebuild and go to a gig, you can introduce switch digital, or you can do all-digital conversions. And when we looked at all the different ways to get more bandwidth, we felt if you say I want it quickly, I want to spend as little as possible, I want to have the minimal intrusion on the customer experience, when you analyze all those variables and you can get a digital adapter for around $30 - that was a really key thing that we did - for us it all points to going all-digital.
And really behind all the desire to get moving quickly and get the entire company done was really to get to 100 high def channels as soon as possible and offer wideband. And when you put that all together, really the cost of the activity and the reliability and the ability to get it done quickly, for us it pointed to all-digital.
Your next question comes from Vijay Jayant - Barclays Capital.
Vijay Jayant - Barclays Capital
I've got a couple. First, you saw Cablevision announced 100 megabyte service for about $100 and I think you have a 50 megabyte service for $140. I just want to understand the philosophy on DOCSIS 3.0 pricing. Is there a certain speed level after which it just becomes a premium service and you can charge some incremental dollar or is it truly variable to speed?
Secondly, on Programming costs per sub it looked like about 12% subscriber per month. I put [inaudible]. Can you talk about is the video business ever going to have incremental improvements in margins given that dynamic or is this just a short-term phenomenon that changes over the next year or so?
Well, on the pricing question, this is a brand-new product. We're going to trial different things, other providers will trial different things, and we'll see what resonates with the consumer.
Today's applications, you know, this is chicken and egg. And I think it's great that others are rolling out this platform now and I think you're going to begin to see innovation around what to do with 50 or 100 meg, so that's one we're going to have to talk about down the road as to exactly what's the right pricing model.
But clearly one of the things that we're able to do with DOCSIS 3.0 that isn't quite as headline grabbing but may be much more impactful is to increase the speed to all of the existing customers using this platform in a very dramatic way that will clearly differentiate us in many of our markets where they don't have to subscribe to a premium tier. And if you go back to what I said in the previous answer, if the goal is to make sure that we are the fasted Internet at whatever package you take, we're the best value. But it's the premier product in the market. That is the positioning that I hope that we're able to achieve using the DOCSIS 3.0 platform.
Vijay, on the Programming side, total we experienced over 9% increase in Programming for the quarter. Obviously that's not a heartwarming number and I think that we are working really hard to bring that number down.
In addition, we are growing revenues on the video side; we're having certainly more digital penetration and so forth. So I think that the number we're looking at this quarter is abnormally high. We don't think that's a normalized number in terms of 9.6%.
Your next question comes from John Hodulik - UBS.
John Hodulik - UBS
First, for Michael, can you update us on the company's target leverage ratios, especially given the improvements we've seen in the credit markets and the upcoming maturities the company has?
And then, Steve, in the past you've talked about the changes that you're seeing in telco competition. Could you just give us an update maybe on what you've seen over the last several months? It seems as if the telcos aren't building out as fast as they may have been in the past and just what you guys are seeing in the market there.
John, on the target leverage ratios I would just say I don't think anything is set in stone with regards to target leverage ratios. I think there's a lot of external factors that really can impact one's view on what leverage ratios should be.
We ended the year about 2.5 times; we're this quarter roughly 2.4 times. As we execute our plan this year, that number will come down somewhat. And I think we're going to evaluate how the macroeconomic world looks, but I don't think there is anything that is really set in stone particularly with regards to ratio.
Previously we had talked about 2.5 a bit. I think given where the economy has been and so forth, that number's coming down slightly.
In terms of telco competition, we probably hear all the same rumors that you do, but we're operating under the assumption that they're going to keep building and they're going to continue to be very aggressive competitors as they have been in the past. And to the degree we get positive news in the future, that's great, but I think if you're sitting where we're sitting you have to assume they continue to do what they say they're going to do.
Your next question comes from Jason Bazinet - Citigroup.
Jason Bazinet - Citigroup
If you look at the JDPower customer satisfaction scores over long periods of time there's sort of these perennial winners like Cox, but what's been intriguing, I guess, there've been a few companies that have sort of lagged like Insight and Cablevision that have suddenly leapt off the page and really improved customer satisfaction.
I guess my question for Brian is Comcast seems to sort of bounce sort of relatively stable and it seems like there's pretty strong evidence that if you get that metric up you can have much better basic sub growth. Is this a major priority for the firm going forward as competition ramps or is it something you've focused on and just not been able to really move the needle given just the breadth of the operation?
Well, we're not totally convinced with the premise of the question. That said, we are convinced that we want customer satisfaction to improve and the customer experience to improve, whether it's in that particular survey or in our own analysis. And I think that begins with starting with real substance of network reliability and improved customer care, and I think we have made it a huge focus of the company. I've said so in the past and I think we feel that we've made some progress, and we'll keep reporting to you on that progress.
There's a lot that goes into some of the results of those surveys; individual companies have their own ways of doing them. But we have a very broad look at customer satisfaction at Comcast. We've put a lot of focus in, all of our management. In fact, Steve and Dave Watson and others, my father and myself, we've been to see probably 80% of the supervisors and leaders of the company in the last 90 days on that very subject. So it is a huge focus in the company.
Your next question comes from Douglas Mitchelson - Deutsche Bank Securities.
Douglas Mitchelson - Deutsche Bank Securities
So Cox indicated recently that it was targeting $1 billion of commercial revenue in 2010. You've got about five times their footprint size, so that implies an opportunity of about $5 billion for commercial revenue. I know your stated target, Steve, is $2.5 billion in a few years and Cox had quite a head start on you, but is that $5 billion opportunity a silly number or is that a fair longer-term target and what do you need to do on the execution side to ramp growth enough to get to that kind of level?
Well, it's hard to tell. What I will say is we're currently growing 45% revenue growth or 50% revenue growth if you look at our performance right now and you keep growing at that rate, that $500 million is going to go up real fast. And whether it ends up going to $2.5, $3.5, $4.5, $5.5 billion, I don't know, but I do think there's a huge business there and we just want to keep growing at the kind of ramps we're at right now.
I would challenge our team to have the same kind of penetration that Cox or anybody else has, and I don't really see a reason why we can't. You do have to adjust. Everybody's got different geography. We may have less small businesses or more small businesses pro rata in our footprint than Cox or someone else, but net of those adjustments there's no reason why we can't exceed the $2.5 billion. And whether it ends up being $3.5, $4.5, $5.5 billion, I think it's too early to say.
Douglas Mitchelson - Deutsche Bank Securities
Well, if you look at your team right now on the commercial side, are you gathering as much share as you can possibly take or are you still ramping the size of those operations?
I think we're moving pretty nicely right now. I was a little frustrated 18 months ago and said that on one of these calls. I've spent a lot of time with Bill Stemper and his team. We have a monthly review of all their metrics. And they are fully staffed. We have a great sales force, we have a great strategy, the installations are getting done. And anytime a $500 million business grows 45% a year, I think you're doing a lot of things right and I think they are. If we can keep that ramp rate going, I think we're doing a good job.
Your next question comes from Benjamin Swinburne - Morgan Stanley.
Benjamin Swinburne - Morgan Stanley
Brian, I wanted to ask you about what's coming out of Washington these days now that we've left the Kevin Martin FCC behind and some new goals have been set out specifically around broadband stimulus, net neutrality, the litigation on the ownership caps and what we've heard from a lot of people on consumption-based billing. If you could just comment broadly on how you view the administration, the FCC in terms of your priorities, that would be very helpful.
And then I just had a quick question for Steve on whole home DVR. Is that a product you guys are focused on rolling out? At least anecdotally it sounds like people who have that from some of the telcos are pretty happy with the service. Is that something that Comcast will roll out this year?
I'm not quite sure how to - there's a lot in the Washington question. I just think that we feel we've turned a corner into a new era and I'm going to refrain from commenting on [inaudible] except to say that it's a new day. And it'll have its issues, but I think as long as the industry is able to articulate its case and have a fair debate, you know, for many, many years policies when these new days begin, the industry seems to have had a very fair outcome.
And so there are issues around the industry but right now I think there are much bigger issues being debated in Washington on the policy of the economy, the auto industry and health care. Our industry, I think, is able to look at things like broadband stimulus and try to point, even though we're not really directly there saying that's something we're focused on, receiving dollars, but that it should try to go to unserved areas.
I mean, there are points of views on each of the subjects you talked about. We're not at the moment - we do have a 250 gig byte cap, but we're not actively trialing something different right now. We, however, do believe in the long run these are areas that should be - as the technology evolves, you're going to have to have conversations about what are ways to evolve the way you manage your network.
So, you know, we'll have lots of opportunity to get specific, but right now we're pretty pleased to try to stay focused on our execution. There's nothing right this minute that's imminent it doesn't seem to me.
So it's interesting. I was thinking we don't really talk about product enhancements frequently on these calls and we're rolling out a lot of product enhancements as we speak - caller ID to the television set, changes in our guide, so on and so forth. We do want to do whole home DVR; it is on our road map and within the next nine to 12 months you'll see it. But that's just one of a number of things that we're pretty consistently rolling out right now to improve our video service.
Your last question comes from Marci Ryvicker - Wachovia.
Marci Ryvicker - Wachovia
First, what percent of your footprint is currently [pathed] by fiber today and how does this compare, I guess, to the last couple of quarters?
And then secondly, is churn higher in the markets where you're doing the all-digital conversion, at least during the conversion period?
Right now we are at about 24% over built by AT&T and Verizon, split roughly half and half with that.
So, interesting on the churn question, we're not seeing any real differential per your question overall. As I mentioned, churn is down on every service category. But in those particular markets we are not seeing any major differential.
Thank you all. Operator, we can now close the call. We thank you all for joining us this morning.
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