Q&A: Brian Roberts

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For the past few years, Comcast president Brian Roberts has been building a
reputation as one of the consummate deal-makers in the cable industry, starting back in
1997 when he convinced Microsoft Corp. chairman Bill Gates to buy $1 billion of Comcast
stock. Roberts hasn't stopped there. He and his management team have engineered deals
--
the most recent the purchase of Lenfest Communications Inc.
-- which firmly
place Comcast as the No. 3 cable operator in the country, as well as one of the most
tightly clustered. Aside from acquisitions, many in the industry credit Roberts for
negotiating a very favorable settlement with AT&T Corp. regarding the bidding for
MediaOne Group Inc., and more importantly, avoiding a battle that could have fractured the
cable industry. Roberts spoke with
Multichannel News finance editor Mike Farrell
about Comcast's plans for the future as well as the cable industry's changing landscape.
An edited transcript follows:

MCN: In the past few weeks, Comcast has accelerated
deals for Lenfest Communications and system swaps with Time Warner Inc. in Indiana. Why
the rush to get those deals done faster, and what's next for Comcast?

BR: With Lenfest, it became apparent to all three
parties that restructuring the original deal in a way that created positive benefits for
each of the three parties [was necessary] and that the old deal was getting ready to
close, so it just accelerated discussions in a positive way. With Time Warner, that's been
in the works for awhile.

Again the same is true with our discussions with CalPERS
[California Public Employees' Retirement System] in buying out their minority interest [in
1995] of the former Maclean Hunter [Ltd.] systems.

But you could draw a broader conclusion which I'm not sure
is directly connected, in terms of what's next. The pace of consolidation is going to slow
down and companies are hopefully going to have to focus internally now on dealing with all
the incredibly disruptive things that have occurred in almost every MSO's life, with the
swaps and the consolidation.

Sixty percent of all Comcast subscribers will not have been
part of the Comcast family 12 months ago. That's not that atypical for many of the MSOs.
If you go down the list, there have been a lot of swaps. There have been a lot of
purchases.

There have been many moves, all of which for the long term
are extremely beneficial to the industry. So for the next 12 to 18 months, a major focus
for us at Comcast is to really make these systems, and these employees, and these
customers to feel a part of the Comcast family.

That's [Comcast Cable president] Steve Burke's No. 1 drive
and that's what we're doing. So we are launching a new Comcast credo, Comcast University
and a new logo. This is an opportunity. We did an internal look that this is a chance to
in effect start over with 60 percent of our universe. Is this the time to make some
changes we wanted to make anyway, because why do it one way, then change it? Let's do it
right from the beginning. I'm very pleased with how well we are focused on that.

MCN: Can you elaborate further?

BR: We have gone throughout the organization in
terms of trying to put into words, in a changing world, what we would like Comcast Cable
to be focused on for the next several years. We have established that we want our company
to be the company that consumers look to first for their changing communications needs.

Coupled with that is the selling of new products. So when
there is this opportunity to hook up your computer, do I pick DSL [digital-subscriber
line], satellite, broadband wireless or cable? We want you to pick cable.

When I can get a digital-television system, do I pick
satellite or do I pick Comcast? When you can get phone in the future, do I want to do
business with Comcast? So it is driven by a new product push, that's why you've seen us do
extremely well on digital boxes.

We've been doing this now for 15 months. And we are very
pleased with how far we have come. We see that that made the template for the next several
years where every 12 months, there's new product that we are focused on.

Next year, we are going to focus on modem sales, on getting
Comcast@@Home connections, as aggressively as we focused this year on digital boxes.

MCN: What about the logo?

BR: In terms of modernizing our logo, it is a very
subtle change -- we are not unhappy with where we are -- but we're not just in
cable. We're also in all these other communications products and the look is more youthful
and a little more fun, now that we're going to go to 60 percent of the trucks in the
company and paint them from Adelphia [Communications Corp.], Harron [Communications
Corp.], Lenfest, Time Warner, AT&T [Broadband & Internet Services] or TCI
[Tele-Communications Inc.].

We wanted to get a new look for the new millennium, if you
will, and we're very pleased with that. [With Comcast University] we've decided to create
a facility, maybe stealing a page from GE or even Disney in having a central training
facility where every superior in the company -- anyone who manages people -- can,
over a relatively short period of time, come in and understand what the core values of
Comcast are.

That facility, this year in Philadelphia, will allow
everyone who is now new and the people who have been promoted and the people who have been
with us for many years, but particularly, it's an opportunity, there is so much new
change.

This is how you manage change and it's driven by our
growth. We will have doubled the size of Comcast Cable in one year. At the beginning of
'99, we have 4.5 million [subscribers]. At the end of the year, we're at 8.2 million.
That's pretty amazing.

At the same time, satellite has got local signals. The
telephone has DSL. We have more competition than we have ever had before, and we need to
re-energize our entire organization to be the best that we possibly can be and that's what
the credo stands for.

MCN: Is this a rebranding of Comcast?

BR: It's a focusing, a refocusing, of our entire
company toward a very defined strategy of aggressively rolling out new products and being
even better competitors than we have been because the world is changing, and of course
it's also an education process for all the people who are new to Comcast. .

That's why I say it was accelerated. It is not a radical
change. It's just a recognition that, I don't think I could sit here today and say this
year we doubled, and next year we'll double [again].

That's unrealistic. I think the consolidation, the trading,
is going to slow down. Now people are saying, 'What are you going to do with it? You've
got a bigger hand, you've got a better footprint, now what?' This is our 'now what.'

MCN: When the Lenfest and Time Warner deals close,
Comcast will have about 8.2 million subscribers. Is that the level you were shooting for?

BR: We've said internally we wanted to get to 10
million at some point. I think we are 82 percent successful and over time, there will be
selectively more acquisitions. But right now, I think that's arbitrary.

We are a major long-term, strategically-focused broadband
operator. The name of the game for Comcast now is execution, customer focus and successful
integration of many varied companies into one much more beautiful Comcast.

MCN: The Lenfest and Time Warner deals will give you
about 600,000 new revenue-generating units this year. Will that be mostly from digital
services?

BR: No, that's a combination of digital and cable
modems. We will have gone from -- we should get you the exact numbers, but we will end
with about 500,000 digital boxes and about 130,000 cable modems. At this time last year,
we might have been at 100,000 cable modems -- probably less than 100,000 digital boxes
and maybe less than 50,000 cable modems.

We are now doing more than 10,000 digital boxes a week and
2,000 cable modems a week. And we hope to accelerate that.

MCN: You also said that you were 'just getting
started.' Were you talking about these services?

BR: Yes.

MCN: Did you feel you needed to get to that level of
subscribers [8.2 million] before you could do that?

BR: We have not yet felt that we have, by any
stretch of the imagination, fully marketed these new products. The first year or so, 18
months, has been spent working out a lot of the bugs with digital boxes.

This is still the easiest. This is the TV-centric digital
box. We haven't gotten to the interactive Internet-centric, [electronic] mail,
video-on-demand digital box.

We have only marketed this in about two-thirds of our homes
where we've even offered a service. So as we look forward to the next year to two, we just
think this is a core part of our offering. We are now getting as much as half of all the
customers who buy cable to take a digital box, of the new customers who call and sign up.

We weren't even marketing it that way in the beginning. We
originally were just going back to our pay-television homes and saying, 'Why don't you
sign up for an extra service?' Now when people call and say, 'I just moved to town,' we
say, 'Our feature package includes a digital box.' So we are very bullish that the number
of revenue-generating units will grow substantially, could even double next year to over a
million.

That just shows you how wonderful this business is; why
we're so committed to the future of cable. It keeps reinventing itself every few years
with these new products, and it's been a while since pay television.

Now we see a flurry between digital, cable modems,
telephony and then interactivity, and then [electronic] commerce. We see just a wonderful
future for new products, at the same time we see that the core video business needs to be
protected because your competitors are better than ever in terms of satellite and other
technologies. So it's a fascinating time for this industry.

MCN: Was 8.2 million the critical mass for you to do
this? Would you have been able to do the same thing at 7 million?

BR: That's arbitrary. I don't know that I can
specifically say what that number needed to be, but I do believe we needed to be larger,
better clustered, in order to have the market look at our company -- the financial
markets -- with the same lower cost of capital, access to investment-grade borrowings,
liquidity of the equity to be attractive to people who would take our stock such as
[Lenfest Communications president] Gerry Lenfest.

It's a combination of many things. I'm not sure I can pick
a specific point.

We also wanted all of our employees to know this the
largest -- or one of the largest -- primarily cable-focused companies out there.
As a public stock, we are the purest cable play. So it all has its benefits, that growth
was an important part, and this was a very unique period. Are you committed to this
business for the next period of time with all the uncertainty that lies ahead or are you
looking to exit?

MCN: As far as these services go, you've talked
about digital and high-speed data. Where does telephony fit in?

BR: Well, we just demonstrated at our investor
conference two weeks ago, our IP [Internet-protocol] phone working real-time over our
cable system. We have been working with Lucent [Technologies Inc.] and with Motorola
[Corp.] to begin to perfect a way to offer telephony that's an additional level of service
when you get a cable modem.

It'll be that simple. I've already got a cable modem? Well,
gee, for another X dollars, here's a phone service. No major change to anything in the
system. And that has been our focus for a long time.

IP phone is the technology platform that appeals to us and
has appealed to us from the beginning. So we hope to expand our trial and our tests and
head toward a day in the not too distant future when we're going to be in business.

MCN: You and other MSOs have to make deals with
AT&T on telephony. Would you go it alone if you can't come to final terms? Or will it
basically be AT&T/MediaOne and Cox in the cable phone business?

BR: It's premature to know how best we're going to
be in the phone business, but it is my hope and desire to do so in partnership with
AT&T. AT&T is properly focusing on getting [the] MediaOne [deal] closed, and
unfortunately that's taking longer than anyone had maybe originally expected.

And until that happens, I don't think they're as focused on
phone deals because they can't be implemented. Also there's a view, if you're going to use
the IP technology as compared to [circuit-switched] that if you are not ready to go into
commercial business today, there is no reason to define the relationship until you are
ready to start.

MCN: You said you're now focusing on execution, not
acquisitions, but will you look to buy more programming?

BR: Absolutely. The company has to be able to do a
variety of things at the same time, so if there is an opportunity to make more
acquisitions in cable, that's always a priority. But we have a really professional
outstanding group led by Steve [Burke] who is focused on just taking what we have and
making it work.

Another group headed by [executive vice president] Larry
Smith and [senior vice president and treasurer] John Alchin are figuring out, 'Okay,
what's the right thing for us to do next?'

That's the beauty of having such a great team, which is
probably the thing I'm most proud of at Comcast: the wonderful team we have been able to
continuously attract and make better each year. We certainly had a good year in that
regard this year.

In the programming area, there is not the kind of frenzied
consolidation that there has been in the cable distribution side.

So that said, we continue to look to grow our programming
business and expand the ones that we are fortunate enough to already either own or be a
partner in.

MCN: Are you close to any deals?

BR: No. There is nothing that I can talk about at
this point.

MCN: It's been good for cable stocks to have Paul
Allen and AT&T in the business, but they also tend to cut deals that sometimes rub
operators the wrong way, like investing in RCN or pitching the FCC unilaterally on access
arrangements. Do the new guys need to play better with their peers or does the rest of the
industry just have to accept that these new guys have their own agendas?

BR: The rest of the industry has to accept that
-- what's the song, "These Are the Good Old Days?" Many of us need to accept
the fact that there's been a major sea change. And whether people like it or not, it has
occurred. So I for one think that okay, let's embrace the change. Yes, it's hard. Yes,
it's different, but it's not bad.

So we're working very hard to build relationships with some
of the new players who have broader agendas than just cable TV. Now whether that's
AT&T or Paul Allen, they both are extremely successful, have made an incredible
commitment to this industry, but it's not all that they do, whereas in the past, that's
all that a number of the entrepreneurs who are in this business -- that's all that
they did.

So it was less complicated. But that's the price of our
success, and I frankly think it's getting much better each day because people have found
ways to continue to work together on public policy, on new technologies, and those
initiatives where it's very important that there's some collaborative efforts, whereas in
other areas folks are pursuing their own strategies for growth that may differ from one
another.

That's okay. In the long run, it will be good to have all
this fresh thinking in the industry. .

MCN: You helped bring Bill Gates into the U.S cable
industry, but except for good return on his Comcast stock, Microsoft hasn't made much
headway in supplying software to you or other MSOs. Can Microsoft be a big player in
cable?

BR: Microsoft has made an incredible contribution
and maybe unlike any other in a long time, if ever, to this industry and it's been a
win-win for both sides. They put a spotlight on the vitality of broadband and that I
believe is part of the attractiveness for Paul Allen, AT&T and the financial
community. That has led to the domino effect that has triggered everyone to rebuild to
750-megahertz or 860 [MHz] faster than ever would have happened.

When I first sat down alone with Bill Gates that was his
objective, to get broadband built.

Now you are seeing broadband wireless. You are seeing an
acceleration of DSL. That is all I believe is in Microsoft's long-term interest. The
individual relationships, company by company, are still a bit premature because we don't
have yet the [General Instrument Corp. DST] 5000-level box, which is required to take
advantage of the sophisticated operating systems.

But Microsoft has made a great deal with AT&T. They're
an investor in Road Runner. Their commitment, again, albeit not exclusively to our
industry has spurred a revitalization of the entire industry. That was very much in their
minds, not to mention that they made 500 percent returns in two-and-a-half years.

MCN: Do you think some of the other MSOs, especially
those that have been around for a while, might be a little leery of letting Microsoft or
Bill Gates get heavily involved in technologies that will determine much of their future?
MSOs may not mind taking Gates' money, but they would mind giving up control of advanced
services.

BR: Well, I don't think it's Microsoft-specific,
that sentiment. That's a natural business tension as to who brings what to a negotiation.
That is -- what's the value of each party's contribution when you define a new space?

Some folks will want to try and go it alone, and others
will want to use services by Microsoft and others. It remains to be seen what the value
proposition will be ultimately, long term.

But I don't think it's any different than the same tension
that exists in doing the phone deal with AT&T, or doing another deal with any cable
programmer. There is always a kind of a tension, respect, love, fear, all bundled into one
fun negotiating process.

MCN: What about Excite@@Home? Are you happy with the
level of support you have received from them?

BR: Excite@@Home has done a fabulous job of helping
ramp up cable-modem services in a way that we certainly wouldn't be as far along if we had
gone it alone. When AT&T came into the industry, all that happened was the adjustment
that was necessary when you have one leader passing the reigns to a new leader.

Last week's announcements [of a media-services tracking
stock for Excite@@Home] are seeing the fruit of many months of work to come up with a
unified approach to where Excite@@Home goes next.

The market is certainly very pleased with the new proposed
tracking stock for the content side. There are legitimate issues for AT&T that needed
to get resolved, and [they are] doing so through a very constructive process that was a
combination of @@Home leadership and AT&T's leadership and John Doerr and many others.
John, alone, [must] take the great beginning that @@Home has had and now figure out where
we go next.

MCN: It seems that there were some real problems
between @@Home and its cable partners. Was that more due to the fact that maybe @@Home
wasn't articulating what wanted to do -- or what it was doing -- to some of the
cable partners?

BR: I am pleased that whatever tension might have
been there, I don't think is there now.

MCN: There has been some talk that the board
meetings could get pretty intense.

BR: Gossip.

MCN: So there wasn't too much dissension?

BR: It's not inappropriate that when you're making
major sea changes -- AT&T stepping in where TCI used to be -- that everyone
had to find their sea legs together.

Again, it's not necessarily bad. It's just a fact, and we
are on our way to finding our sea legs jointly, all of us, and it's been very
constructive. I credit, personally, [AT&T chairman] Mike Armstrong's personal
involvement and focus, along with the management of @@Home, to getting us where we are
now.

MCN: On the access side, do you think that you and
the other larger MSOs can make some kind of business arrangement that will make the access
issue go away after the @@Home exclusivity period expires?

BR: Well, you're going to see an awful lot of effort
by folks to have their own set of commercial relationships that are different for each
company, and AT&T has said publicly that exclusivity is something that they're not
going to maintain and that's probably true for Comcast as well.

We can have commercial behavior that will totally render
moot some of the debate on what might be behavior that would require governmental
intervention. What I find galling is the double standard that AOL and GTE have maintained.
AOL has least 70 to 75 percent market share and somehow finds cable's less than five
percent market share threatening.

It seems absurd. I believe, from GTE's perspective, they're
just trying to slow down this industry's broadband march -- in some ways, [the march]
that Bill Gates started -- because they're not ready with their network. So our
philosophy is to keep our head down and rebuild as fast as possible every one of these new
systems that we are acquiring and get ready internally with our entire team focused on
rolling out the new products. I think our commercial behavior will hopefully be exactly
what the government wants us to do which is to compete, to innovate and hopefully to not
have to deal with regulation.

MCN: Do you think the data business is at the point
now where it could use a jump-start from some kind of tie-in with AOL?

BR: I don't think that's necessary at all. We allow
people to buy AOL as a premium service and AOL, in my opinion, when you give people fast
Internet, they love it. We're always looking to have a better relationship with someone
like AOL, but I don't understand their strategy at this point. I don't think it's
endearing them and making that kind of scenario you describe any more realistic.

MCN: So you don't see any deals with AOL?

BR: We have no discussion going on with AOL. But we
do not need AOL to have a successful cable business, if that's your question. We have a
fabulous business.

MCN: Is speed the biggest selling point right now
for cable-modem service?

BR: It's the speed, broadly defined. The
"always-on" feature. It's hopefully the in-home service. It's the broadband
content, which is accessing the speed that is easily made available. In our case, it's
that we have a lot of local content.

MCN: Is there a point, though, that when cable data
services are more widely available, when DSL starts getting rolled out in more markets,
that cable will have to offer something extra? The telcos have a lot of those
relationships with AOL already. Does that put you at a disadvantage?

BR: Well, long-term, we'd like the philosophy to be
-- and it is today -- that you can go anywhere you want on the Internet as a
consumer.

And today, if you want to go to Yahoo or Excite or Go or
AOL, you can do so. Every one of those sites except AOL is free. About 99.9 percent of the
Internet is free. AOL happens to want to charge for their content site.

.

MCN: A lot of people have characterized you as one
of the emerging deal makers -- the investment from Microsoft, the initial bid for
MediaOne and then a very favorable settlement agreement with AT&T. But you still have
a tie to the past through your father, Comcast chairman Ralph Roberts. How do you see
yourself stacking up against the new players in the industry?

BR: Well, I think that business executives are part
of a team, they're not really in the truest sense doing one thing by themselves. If you
ever work in one of these enterprises, you would know that you have to approach a new
opportunity with an entire team effort.

In my case, that runs a lot of ways. We have fantastic
dealmakers. We also have fabulous operators.

I have a partner in my dad and [vice chairman] Julian
Brodsky's advisory years of experience. They all sort of mesh and allow for Comcast to
function. To the extent that I'm a major part of that team, probably the most rewarding
aspect of being in business is knowing that we've been able to take a company and grow it
literally more than 10 times its size in less than 10 years and to have it still have that
special feeling when people come to work here, when people do business with us.

If I were to look at what am I most proud of, it's not
deal-making per se, or a specific transaction, it's the being of Comcast, and what that
means. What does it stand for to investors, to customers, to employees, to senior
executives who give up their careers and can work anywhere in the world, and choose to
work here?

I probably get more satisfaction from people who could be
anywhere and who have the financial resources to do anything, and want to wake up in the
morning and come to work for Comcast, and that's not just Brian. That's a legacy that was
begun with my dad and his founding vision and philosophy.

That gets me passionate, as you can tell, as compared to
any one transaction, getting up and crowing, oh, well, we made the greatest deal in the
world. That's true today. Somebody will do something better tomorrow. I'd like to look at
us as more of a complete company that happens to be good at deal making.

MCN: Do you think that puts you at an advantage
though because you do have the ties to the way that business in cable industry has been
done for quite awhile?

BR: Absolutely. I think in real assets, Comcast is
the entrepreneurial legacy, our ability to be fleet and quick and not bureaucratic. It is
our ability to effectively focus on this industry, and it's the fact that we're hungry.
We've built a second generation. Not just me, but an entire second generation, all levels
of the organization.

But we are also guided by the first generation. It's unique
in business to have the sustainability of that model with the near absence of tension and
politics in a company that could be approaching $45 billion in market cap.

So I am very much trying to figure out how do we use that
as an asset. Every day, when somebody wants to sell their business, we say you should like
our stock, or when we meet someone who wants to work, this is where you should make your
home. And for me, that's what makes business exciting.

MCN: Do you and your dad still work pretty closely
on deal making?

BR: Every major decision, there is unanimity, at
least between the two of us, and typically between the senior team. The only change that's
happened the last few years is my dad wants the younger guys to run, and he gets to sit
there and tell us how we're doing and give us suggestions on how to do it better.

What's great is, every time we have an idea or every time
we do something that you can feel good about, it means the most when my dad comes in and
says: "You guys did great. That was just fabulous."

MCN: Back in April, you surprised everybody when you
made the bid for MediaOne.

BR: Right.

MCN: Were you surprised AT&T made a competing
bid, or were you expecting it?

BR: We always knew it was a possibility. We know the
rules. And under the circumstances, we had as amicable and as productive a resolution to
an awkward situation that you could ever have hoped for.

I would credit Amos [Hostetter], Mike Armstrong, Leo [J.
Hindery, Jr.], and my dad. There were some very creative folks to how to make everybody
come away with even more than perhaps they had originally hoped for, or if not more, at
least better.

MCN: A lot of people were expecting a knockdown,
drag-out fight that had the potential to split the industry. Was avoiding an
industry-splitting battle one of the primary drivers for you to settle?

BR: We were able to construct a win-win outcome that
in some ways assured better clustering for both companies. There are an awful lot of
swaps, some 3 million subs are moving back and forth between the various companies.
Actually more than that, probably closer to 4 million. And we're hopefully going to have a
telephony relationship. They have a first shot to make that happen with our company. I
think that was very important.

And I do think from both camps' perspective, we recognized
that we all were going to have to live together, work together, and this is a defining
moment in allowing everyone to walk away with their head high. I'm very appreciative of
AT&T's behavior at a time when they could have just said 'Let's just win. Let's not
worry about Comcast.'

MCN: Do you see any situation where Comcast itself
might sell out?

BR: We're having too much fun. We are very committed
to the growth strategy, to rolling out the new products and building value for the
long-term.

MCN: You were named chairman of Cable Television
Laboratories Inc. earlier this year, replacing Liberty Media chairman John Malone. Can you
talk a little about that?

BR: I would just say that among the things that I'm
very proud of has been the smooth integration or set of added responsibilities that I've
got as the chairman of CableLabs, and it's fortunate that John Malone has stayed active
and involved.

He founded CableLabs. But this is a critical time for
CableLabs, where we're trying to make the standards so that things like boxes, which are
such a bounding success, can be replicated in open-cable boxes, in the pod, so people can
purchase these devices at retail.

If you look at the long-term threat to this industry, it's
that all the retailers want to sell our competitors' products and not ours.

We need to change that and level that playing field. In
order to do that, we need standards. When you look at telephony, the same will be true and
IP and interactive services, on down the line.

CableLabs -- and keeping it functioning well, with all
of the new players -- has never been more critical to the industry. Both AT&T and
Paul Allen have been fantastic contributors to CableLabs in a short period of time and we
haven't missed a beat.

[CableLabs president] Dick Green is doing a great job. I'm
having a lot of fun in that role. It's very different for me than what I have typically
done.

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