Issuu on Google+

September 24, 2012

U.S. Telecommunications, Cable & Satellite Broadcasting

CITI State of Telecom 2012 New York, New York

Craig Moffett • Senior Analyst • +1-212-969-6758 • craig.moffett@bernstein.com

See Disclosure Appendix of this report for important Disclosures and Analyst Certifications


Subscriber and ARPU Growth Combine to Yield a Given Revenue Growth Rate

Decomposition of Revenue Growth: Broadband, Pay TV and Post-Paid Wireless, 2008 to 2011 8% 7% Video 6% '10, 5.3%

'08, 7.4% Combination of subscriber and ARPU growth that y ields a giv en rev enue growth rate

ARPU Growth

5% 4% '11, 4.8% '09, 5.1% 3%

'11, 4.5%

2%

'11, 11.1%

'10, 9.7%

Source: Company reports, Bernstein estimates and analysis

Broadband

'10, 3.3%

1%

Post-paid wireless

0%

'09, 8.0%

'09, 2.4%

14%

'08, 4.8%

'08, 10.8%

-1%

14%

13%

12%

11%

10%

12%

10%

8%

9%

8%

7%

5%

4%

6%

6%

4%

2%

3%

1%

0%

2%

0%

-2%

Subscriber Growth

Source: Company reports, Bernstein estimates and analysis

2

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


ROIC by Sector

50% DirecTV 45% 40% 35%

15%

Verizon AT&T

10% AT&T 5% Verizon Wireline

T-Mobile

Sprint

Range = 13.2%

20%

MetroPCS US Cellular Leap

National Wireless

Range = 5.9%

Comcast Cablevision Time Warner Cable Charter

25%

0%

Range = 4.2%

30%

Range =

ROIC Ex-Unusuals, Goodwill and ARILI

Dish Network

Range = 4.8%

ROIC excluding Unusuals, Goodwill and ARILI Dispersions by Sector, 2011

Regional Wireless

Cable

Satellite

Source: Capital IQ, corporate reports and Bernstein estimates and analysis

3

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


ROIC is now much better (than historical) for cable, and worse for telecom

ROIC Excluding Unusuals, Goodwill and ARILI Minus WACC, 2011 Satellite

Cable

45%

40.1%

40%

36.2%

35% 30%

25.9%

25%

20%

15.6%

15% 10% 5%

3.7%

17.5% 13.9%

12.8%

1.2%

0% -0.4%

-5% -6.1%

-10%

-0.5% -6.1%

-7.4%

Dish Network

DirecTV

Time Warner Cable

Comcast ex-NBCU

Comcast

Charter

Cablevision

US Cellular

MetroPCS

Leap

T-Mobile

Sprint

Verizon

-15% AT&T

ROIC Ex-Unusuals, Goodwill, and ARILI Minus WACC

Telecommunications

Source: Capital IQ, corporate reports and Bernstein estimates and analysis

4

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Share  of  Broadband   Industry

47.4%

Q4  2 007

5

44.1%

Q4  2 009

27.4% 21.0%

Q1  2 012

79.0%

72.6%

70.5%

65.2%

63.2%

67.4%

69.2%

67.8%

69.6%

63.1%

55.9%

53.2%

100%

Q2  2 012

29.5%

Q4  2 011

34.8%

32.6%

Q1  2 011

Q3  2 011

30.8%

Q4  2 010

36.8%

32.2%

Q3  2 010

Q2  2 011

30.4%

Q2  2 010

36.9%

46.8%

Q3  2 009

53.5%

60.3%

55.7%

56.4%

52.4%

TTM  TelCo   Share  of  Broadband   Net  Adds TelCo  Share  of  Broadband   Net  Adds

Q1  2 010

46.5%

Q2  2 009

39.7%

44.3%

Q4  2 008 Q1  2 009

43.6%

47.6%

49.0%

52.6%

51.9%

80%

Q3  2 008

Q2  2 008

51.0%

48.1%

Q3  2 007

53.2%

52.0%

50.4%

50.2%

52.0%

50.3%

120%

Q1  2 008

48.0% 46.8%

Q2  2 007

49.6%

Q4  2 006 Q1  2 007

49.8%

-­‐20% Q3  2 006

0% 48.0%

20%

Q2  2 006

40% 49.7%

60%

Q1  2 006

Cable’s broadband superiority becomes increasingly incontrovertible

Broadband Flow Share: Cable versus Telecom

TTM  Cable  Share   of  Broadband   Net  Adds Cable  Share  of  Broadband   Net  Adds

Source: Company Reports, Bernstein Estimates and Analysis

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


6 Q2  2 012

Q1  2 012

Q4  2 011

Q3  2 011

Q2  2 011

Q1  2 011

Q4  2 010

Q3  2 010

(11)

(292)

(232)

(314)

(234)

(204)

(65)

(136)

(256)

(111)

(229)

(199)

(404)

-­‐5%

Q2  2 010

Q1  2 010

Q4  2 009

Q3  2 009

Q2  2 009

(12)

(71)

151  

2%

Q1  2 009

Q4  2 008

Q3  2 008

-­‐3%

(186)

-­‐2%

Q2  2 008

Q1  2 008

470  

3%

Q4  2 007

Q3  2 007

686  

695  

552  

5%

Q2  2 007

Q1  2 007

Q4  2 006

6%

Q3  2 006

8%

1,143  

1,044  

1,083  

979  

9% Subscriber  G rowth   Rate

1,250  

1,000   750  

500  

250  

0% 0  

Subscribers  G ains  ( Losses)  ( 000s)

1,411  

11%

Q2  2 006

Q1  2 006

Subscriber  G rowth   Rate

DSL is Now in Decline

DSL Net Additions (Losses)

Susbcriber  G ains  (Losses) 1,750  

1,500  

(250)

(500)

(750)

Source: Bernstein Analy sis

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


The Reversal of DSL has Exacerbated the Rate of Decline for the Wireline TelCo

Composite TelCo Broadband Net Additions (Fiber plus DSL) 5,000  

Subscriber  G ains  (Losses)  (000s)

4,000  

3,945  

3,000   2,307   1,909  

2,000  

1,072  

1,012  

1,000  

450  

201  

-­‐ (321) (1,000)

2015E

2014E

2013E

2012E

2011

2010

2009

2008

2007

(692)

Source: Bernstein Estimates and Analy sis

7

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


8

24.8%

23.9%

22.6% 23.1%

2Q 2012

23.8% 1Q 2012

4Q 2011

21.4%

23.8%

2Q 2011

3Q 2011

23.6%

18%

1Q 2011

Verizon

23.5%

22%

4Q 2010

22.7%

24%

3Q 2010

2Q 2010

1Q 2010

25.5%

26.2%

26.9%

24.8%

26%

4Q 2009

AT &T

3Q 2009

2Q 2009

20%

26.2%

28%

1Q 2009

28.0%

28.1%

27.8%

35.1%

35.7%

33.9%

33.5%

33.4%

33.4%

32.1%

33.1%

33.4%

33.4%

33.9%

32.6%

31.6%

31.6%

32.5%

32.3%

31.0%

35.9%

34.9%

33.7%

31.5%

29.4%

34%

4Q 2008

3Q 2008

2Q 2008

1Q 2008

4Q 2007

28.2%

27.7%

32%

3Q 2007

30%

35.3%

36%

28.0%

38%

2Q 2007

1Q 2007

Wireline EBITDA Margin

As Volumes Fall, Wireline Margins Are Deteriorating

Verizon and AT&T: Wireline Margins

Source: Bernstein Estimates and Analy sis

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


FiOS: Nearing End of Growth Cycle

FiOS: Projected Video Subscribers and Subscriber Growth 4,500

2,000

*estimated based on market penetration curv e estimated f rom 1Q 2006-2Q 2012 results; assumes 18M home passings by end of 2015 and that marketed v ideo homes/passed homes = 90% by end of 2015 Source: Company Reports, Bernstein Estimates and Analy sis

0.3%

1.5%

4.6%

50%

2015E

2014E

2013E

0%

2006

2015E

2014E

2013E

2012E

2011

2010

2009

-

2008

-

100%

8.7%

1,000 500

2007

150%

1,500

100

2006

200%

2012E

200

2,500

14.1%

300

250%

2011

400

300%

3,000

27.9%

500

3,500

2010

600

350%

49.2%

700

4,000

2009

FiOS Video Subscribers* (000s)

800

400%

Estimated* Y oY % Subscriber Growth

103.4%

Estimated*

Actual

2008

900

FiOS Video Net Additions* (000s)

5,000

Actual

355.6%

1,000

2007

FiOS: Projected Video Net Additions

*estimated based on market penetration curv e estimated f rom 1Q 2006-2Q 20012results; assumes 18M home passings by end of 2015 and that marketed v ideo homes/passed homes = 90% by end of 2015 Source: Company Reports, Bernstein Estimates and Analy sis

9

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


U-Verse: Nearing End of Growth Cycle

300% 250%

4,000 200%

3,000 150%

1,000

100% 7.3%

2,000

*estimated based on market penetration curv e estimated f rom 1Q 2007-2Q 2012 results; assumes 33M home passings by end of 2015 and that marketed homes/passed homes = 85% by end of 2014 Source: Company Reports, Bernstein Estimates and Analy sis

50%

2015E

2014E

2013E

2012E

2011

2010

2009

0%

2007

2015E

2014E

2013E

2012E

2011

2010

2009

2008

2007

-

5,000

11.0%

200

350%

14.4%

400

6,000

20.8%

600

400%

Estimated* Y oY % Subscriber Growth

27.2%

U-Verse Video Subscribers* (000s)

U-Verse Video Net Additions* (000s)

800

Actual

44.6%

Estimated* 1,000

7,000

97.5%

Actual

2008

1,200

U-Verse: Projected Video Subscribers and Subscriber Growth

352.4%

U-Verse: Projected Video Net Additions

*estimated based on market penetration curv e estimated f rom 1Q 2007-2Q 2012 results; assumes 33M home passings by end of 2015 and that marketed homes/passed homes = 85% by end of 2014 Source: Company Reports, Bernstein Estimates and Analy sis

10

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


A Cable Company Is an Infrastructure Provider, not a Media Company

The Transport Function

$90

$90

$80

$80

$70

$70 Dollars per Month

Dollars per Month

Status Quo

$60 $50 $50

$40

$80

$60

$50 $50 $40

$30

$30

$50 $20

$20

$30

$30

$10

$10

$0

$0 Content

Margin

Content

ARPU

Margin

ARPU

Transport

Source: Bernstein analysis

Source: Bernstein analysis

11

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Projected Industry ROICs

Industry ROICs Excluding Unusuals, Goodwill and ARILI, 2009 to 2016E 50% Industry ROIC Excluding Unusuals, Goodwill, and ARILI

45.1%

45.9% 43.0%

45%

38.9%

Wireline

40%

37.5%

National wireless 35%

32.7%

36.6%

36.1%

Regional wireless Cable

33.8%

Satellite

30%

31.7% 29.2%

25%

26.2%

20%

23.3%

23.4%

10.3%

10.4%

5.0%

4.9%

24.3%

20.0% 15% 9.4% 10%

6.5%

4.6%

2009

2010

0%

12.0%

12.2%

12.2%

4.8%

5.1%

5.4%

5.7%

4.3%

4.4%

4.6%

4.8%

4.8%

2012E

2013E

2014E

2015E

2016E

4.6%

5% 4.8%

11.2%

10.6%

4.8%

2011

Source: Capital IQ, corporate reports and Bernstein estimates and analysis

12

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Disclosure Appendix

13

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Valuation Methodology We value AT&T and Verizon on a combination of P/FE and a sum of the parts analysis. Assigned multiples are based on historical performance, colored by the company's current allocation of capital. We value AT&T on a combination of a target P/FE multiple of 13.0x applied to our estimated forward earnings, as adjusted, and a sum of the parts analysis which yields a warranted blended EV/EBITDA multiple of 5.6x after adjusting for postretirement liabilities. We add the probability-weighted expected value associated with the proposed acquisition of T-Mobile USA. We value Verizon on a combination of a target P/FE multiple of 13.0x applied to our estimated earnings, as adjusted, and a sum of the parts analysis which yields a warranted blended EV/EBITDA multiple of 5.7x after adjusting for postretirement liabilities. We value the DBS sector on the basis of Steady State Cash Flow (SSCF) multiples, adjusted for market value estimates for nonDBS assets. SSCF multiples have historically clustered around 9-11x trailing SSCF for DirecTV and Dish Network, with higher multiples reflecting higher growth expectations, and lower multiples reflecting lower growth expectations. We currently apply a 7.5x SSCF multiple to our forecast forward 12 month SSCF for DirecTV and a 6.0x multiple for Dish Network, reflecting a 12 month look forward as the basis of our 12 month target price, and lower-than-historical SSCF multiples to reflect the sector's and the companies' diminished longer term growth prospects. We value the company's Latin American assets using a forward SSCF multiple of 6.5x for PanAmericana and Sky Brazil, and a 10.0x trailing EBITDA multiple for Sky Mexico. We value Comcast on a sum-of-the-parts basis. Our target is based on a forward 12 month EV/forecast EBITDA multiple of 6.25x for the core cable distribution business, 8.0x forward EV/ EBITDA for the cable networks businesses of Comcast and NBCU, and 6.0x forward EV/EBITDA for NBCU's broadcast business. We value other consolidated and non-consolidated operations and nonpublic equity investments on various bases as appropriate. Publicly traded investments are carried at current market value. In order to derive our price target for Time Warner Cable, we use a target multiple of 6.5x forward 12 month forecast EBITDA, and add back the NPV of Time Warner Cable's deferred tax asset. We estimate that Time Warner Cable will realize approximately $330 million of tax savings per year for fifteen consecutive years from the 2006 acquisition of Adelphia as a result of its step-up in basis. When calculating the net present value of these tax shields, we apply an 7.50% discount rate, which corresponds to Time Warner Cable's estimated weighted average cost of capital. We value Cablevision on a sum-of-the-parts basis. Our target is based on a forward 12 month EV/forecast EBITDA multiple of 6.5x for the core cable business. We value other assets and liabilities on various bases as appropriate.

14

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Risks The risks to our target price for AT&T include: Failure to gain regulatory approval to close the proposed T-Mobile USA transaction, adverse financial or other consequences associated with any conditions required to garner regulatory approval, or the inability to wring the expected synergies out of a combined entity. A steeper, or more sudden, deceleration in wireless subscriber growth – as a consequence of wireless saturation or economic weakness – would lead to sharply slower growth, and would likely be met with severe multiple contraction, in our view. Faster-than-anticipated penetration of the Small and Medium Business market by the MSOs would undermine revenue and EBITDA recovery in the Enterprise segment. Additional spending on fiber expansion (FTTX) projects, or acquisitions targeting the Consumer Wireline segment (including purchasing a Satellite Pay TV provider) would yield lower ROIC and consequent multiple contraction. Overpayment in an acquisition, which could be a variety of potential targets. Our target price for Verizon is below the current trading range. Upside risks to our target price include: Lower-than-expected inflationary pressures in the macro-economy, which could result in generally lower interest rate expectations, and consequently, make current dividend yields more attractive relative to investment alternatives. Faster growth in wireless subscribers than we anticipate, which could be a result of stronger economic growth, increased market share for Verizon, or higher terminal wireless market penetration than we forecast. Slower-than-anticipated penetration of the Small and Medium Business market by the MSOs would help to preserve revenue and foster an EBITDA recovery in the Enterprise segment. Subscriber gains as a result of fiber expansion (FTTX) projects could be greater than we forecast, yielding a higher ROIC and possible multiple expansion. Access line and DSL losses in the TelCo segment could be less severe than we forecast, leading to better than expected revenues and margins. A faster-than-expected recovery in Enterprise revenues and margins. Acquisition of Vodafone's 45% stake in Verizon Wireless at an attractive price would be accretive to value and would remove a significant overhang from the shares.

15

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Risks, continued Upside risks to our target price for Dish Network include: Faster-than-expected subscriber growth would likely yield multiple expansion, almost irrespective of economic cost. A stronger-than-expected economic recovery could result in renewed demand for premium services, providing upside to ARPU. An acquisition of DirecTV by AT&T or Verizon, which has been the subject of speculation for years, if it were to occur, would likely create perceived "scarcity value," and would raise valuation multiples for Dish Network. Potential value creation resulting from Dish's recently acquired assets, namely their spectrum holdings and Blockbuster. Downside risks to our target price for Dish Network include: Slower-than-expected subscriber growth would likely yield multiple contraction. A weaker-than-expected economic recovery could result in reduced demand for premium services, providing downside to ARPU. A premium of some amount is likely baked into Dish's share price based on the widely-held expectation that an acquisition by AT&T or Verizon is likely. A change in these expectations could result in multiple contractions. Attempts to build a terrestrial network based on the company's spectrum holdings would likely be a value destructive activity, and attempts to turnaround Blockbuster may also yield negative returns. An unfavorable resolution to Dish's litigation with AMC Networks and Cablevision with regards to VOOM could be material. Risks to our price targets for the Cable operators include the risk that the competitive pricing environment will be more aggressive than we expect. Notwithstanding our analysis of rational pricing strategies, players may adopt irrational pricing behavior. Alternatively, mere expectations of a more challenging pricing environment, even in the absence of evidence of price competition, may continue to weigh on the stocks for some time. New pathways to the home for video or other entertainment could also reduce the value of cable's video distribution bottleneck. Deep fiber deployments by the RBOCs will impact cable subscribers and revenue growth rates, and could occur more quickly, or have a more significant pricing impact, than we have forecast. Comcast Video pricing could come under pressure as growth for the satellite operators and TelCos slows. The fear of disintermediation (video over the internet) may continue to depress terminal values indefinitely. Longer term, cable's advantaged position in broadband could result in regulation. Time Warner Cable Video pricing could come under pressure as growth for the satellite operators and TelCos slows. The fear of disintermediation (video over the internet) may continue to depress terminal values indefinitely. Longer term, cable's advantaged position in broadband could result in regulation. Cablevision Cablevision has a history of erratic corporate governance. A return of cash to shareholders cannot be assured. Cablevision faces a very substantial overlap with Verizon's FiOS that could result in greater share loss or lower prices than anticipated. The fear of disintermediation (video over the internet) may continue to depress terminal values indefinitely. Longer term, cable's advantaged position in broadband could result in regulation.

16

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Disclosure Appendix

17

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Disclosure Appendix - Valuation Methodology Verizon We value Verizon using a combination of P/FE and a sum of the parts analysis. Assigned multiples are based on historical performance, colored by the company's current allocation of capital. We use a target P/FE multiple of 13.0x applied to our estimated forward earnings, as adjusted, and a sum of the parts analysis which yields a warranted blended forward EV/EBITDA multiple of 5.7x after adjusting for postretirement liabilities. AT&T Inc We value AT&T using a combination of P/FE and a sum of the parts analysis. Assigned multiples are based on historical performance, colored by the company's current allocation of capital. We use a target P/FE multiple of 13.0x applied to our estimated forward earnings, as adjusted, and a sum of the parts analysis which yields a warranted blended forward EV/EBITDA multiple of 5.7x after adjusting for postretirement liabilities. DISH Network Corp We value Dish Network using a Steady State Cash Flow (SSCF) multiple, adjusted for market value estimates for non-DBS assets. We currently apply a 6.0x SSCF multiple to our forecast forward 12 month SSCF for Dish Network, and value its spectrum and Blockbuster assets at adjusted cost. DIRECTV Group Inc We value DirecTV using Steady State Cash Flow (SSCF) multiples, adjusted for market value estimates for non-DBS assets. We apply a 6.5x SSCF multiple to our forecast forward 12 month SSCF for DirecTV US. We value the company's Latin American assets using a forward SSCF multiple of 12.0x for PanAmericana and Sky Brazil, and a 12.0x forward EBITDA multiple for Sky Mexico. Comcast Corp We value Comcast on a sum-of-the-parts basis. Our target is based on a forward 12 month EV/forecast EBITDA multiple of 7.0x for the core cable business, 8.0x for NBCU's cable networks segment, 6.0x for NBCU's broadcast segment, 6.0x for NBCU's film segment, and 8.0x for NBCU's parks segment. We value other assets and liabilities on various bases as appropriate. Cablevision Systems Corp We value Cablevision on a sum-of-the-parts basis. Our target is based on a forward 12 month EV/forecast EBITDA multiple of 6.0x for the core cable business. We value other assets and liabilities, including the company's significant tax assets, on various bases as appropriate. Time Warner Cable Inc We value Time Warner Cable on a sum-of-the-parts basis. Our target is based on a forward 12 month EV/forecast EBITDA multiple of 7.0x for the core cable business. We value other assets and liabilities, including the company's significant tax assets, on various bases as appropriate. Charter Communications Inc We value Charter on a sum-of-the-parts basis. Our target is based on a forward 12 month EV/forecast EBITDA multiple of 7.5x for the core cable business. We value other assets and liabilities, including the company's significant tax assets and the liability associated with the meaningful number of options and warrants outstanding, on various bases as appropriate.

18

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Disclosure Appendix - Risks Verizon Upside risks to our Verizon target price include: - Lower-than-expected inflationary pressures in the macro-economy, which could result in generally lower interest rate expectations, and consequently, make current dividend yields more attractive relative to investment alternatives. - Faster growth in wireless subscribers than we anticipate, which could be a result of stronger economic growth, increased market share for Verizon, or higher terminal market penetration than we forecast. - Slower-than-anticipated penetration of the Small and Medium Business market by the MSOs would help to preserve revenue and foster an EBITDA recovery in the Enterprise segment. - Subscriber gains as a result of fiber expansion (FTTH) projects could be greater than we forecast, yielding a higher ROIC and possible multiple expansion. - Access line and DSL losses in the TelCo segment could be less severe than we forecast, leading to better than expected revenues and margins. - A faster-than-expected recovery in Enterprise revenues and margins. - Acquisition of Vodafone's 45% stake in Verizon Wireless at an attractive price would be accretive to value and would remove a significant overhang from the shares. Downside risks to our Verizon target price include: - A steeper, or more sudden, deceleration in wireless subscriber growth – as a consequence of wireless saturation or economic weakness – would lead to sharply slower growth, and would likely be met with severe multiple contraction, in our view. - Faster-than-anticipated penetration of the Small and Medium Business market by the MSOs would undermine revenue and EBITDA recovery in the Enterprise segment. - Additional spending on fiber expansion (FTTX) projects, or acquisitions targeting the Consumer Wireline segment (including purchasing a Satellite Pay TV provider) would yield lower ROIC and consequent multiple contraction. - Investors could view stocks with high dividend yields, like Verizon, as being less attractive if interest rates rise. - Overpayment in an acquisition, which could be a variety of potential targets. AT&T Inc Downside risks to our AT&T target price include: - A steeper, or more sudden, deceleration in wireless subscriber growth – as a consequence of wireless saturation or economic weakness – would lead to sharply slower growth, and would likely be met with severe multiple contraction, in our view. - Faster-than-anticipated penetration of the Small and Medium Business market by the MSOs would undermine revenue and EBITDA recovery in the Enterprise segment. - Additional spending on fiber expansion (FTTX) projects, or acquisitions targeting the Consumer Wireline segment (including purchasing a Satellite Pay TV provider) would yield lower ROIC and consequent multiple contraction. - Investors could view stocks with high dividend yields, like AT&T, as being less attractive if interest rates rise. - Overpayment in an acquisition, which could be a variety of potential targets. Upside risks to our AT&T target price include: - Lower-than-expected inflationary pressures in the macro-economy, which could result in generally lower interest rate expectations, and consequently, make current dividend yields more attractive relative to investment alternatives. 19

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Disclosure Appendix - Risks - Faster growth in wireless subscribers than we anticipate, which could be a result of stronger economic growth, increased market share for AT&T, or higher terminal market penetration than we forecast. - Slower-than-anticipated penetration of the Small and Medium Business market by the MSOs would help to preserve revenue and foster an EBITDA recovery in the Enterprise segment. - Subscriber gains as a result of fiber expansion (FTTN) projects could be greater than we forecast, yielding a higher ROIC and possible multiple expansion. - Access line and DSL losses in the TelCo segment could be less severe than we forecast, leading to better than expected revenues and margins. - A faster-than-expected recovery in Enterprise revenues and margins. DISH Network Corp Upside risks to our Dish Network target price include: - Faster-than-expected subscriber growth would likely yield multiple expansion, almost irrespective of economic cost. - A stronger-than-expected economic recovery could result in renewed demand for premium services, providing upside to ARPU. - An acquisition of DirecTV by AT&T or Verizon, which has been the subject of speculation for years, if it were to occur, would likely create perceived "scarcity value," and would raise valuation multiples for Dish Network. - Potential value creation resulting from Dish's recently acquired assets, namely their spectrum holdings and Blockbuster. Downside risks to our Dish Network target price include: - Slower-than-expected subscriber growth would likely yield multiple contraction. - A weaker-than-expected economic recovery could result in reduced demand for premium services, providing downside to ARPU. - A premium of some amount is likely baked into Dish's share price based on the widely-held expectation that an acquisition by AT&T or Verizon is likely. A change in these expectations could result in multiple contraction. - Attempts to build a terrestrial network based on the company's spectrum holdings would likely be a value destructive activity, and attempts to turnaround Blockbuster may also yield negative returns. - An unfavorable resolution to Dish's litigation with AMC Networks and Cablevision with regards to VOOM could be material. DIRECTV Group Inc Downside risks to our DirecTV target price include: - Slower-than-expected subscriber growth would likely yield multiple contraction. - A weaker-than-expected economic recovery could result in reduced demand for premium services, providing downside to ARPU. - A premium of some amount is likely baked into DirecTV's share price based on the widely-held expectation that an acquisition by AT&T or Verizon is likely. A change in these expectations could result in multiple contraction. - DirecTV's Latin American businesses are subject to significant macroeconomic risks. Upside risks to our DirecTV target price include: - Faster-than-expected subscriber growth would likely yield multiple expansion. - A stronger-than-expected economic recovery could result in increased demand for premium services, providing upside to ARPU. - An acquisition of Dish Network by AT&T or Verizon, which has been the subject of speculation for years, if it were to occur, would likely create perceived 20

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Disclosure Appendix - Risks - "scarcity value," and would raise valuation multiples for DirecTV. - DirecTV's Latin American businesses could outperform expectations. Comcast Corp Downside risks to our Comcast target price include: - The competitive pricing environment could be more aggressive than we expect. Notwithstanding our analysis of rational pricing strategies, players may adopt irrational pricing behavior. Alternatively, mere expectations of a more challenging pricing environment, even in the absence of evidence of price competition, may continue to weigh on the stocks for some time. - New pathways to the home could reduce the value of Comcast's distribution bottleneck. Additional deep fiber deployments by the RBOCs could impact subscriber and revenue growth rates, and could occur more quickly, or have a more significant pricing impact, than we have forecast. - Video pricing could come under pressure as growth for the satellite operators and TelCos slows. - The fear of disintermediation (video over the internet) may continue to depress terminal values indefinitely. - Longer term, cable's advantaged position in broadband could result in regulation. - NBCU's cable networks may not be able to raise prices at rates in-line with historical averages. Cablevision Systems Corp Downside risks to our Cablevision target price include: - The competitive pricing environment could be more aggressive than we expect. Notwithstanding our analysis of rational pricing strategies, players may adopt irrational pricing behavior. Alternatively, mere expectations of a more challenging pricing environment, even in the absence of evidence of price competition, may continue to weigh on the stocks for some time. - New pathways to the home could reduce the value of Cablevision's distribution bottleneck. Additional deep fiber deployments by the RBOCs could impact subscriber and revenue growth rates, and could occur more quickly, or have a more significant pricing impact, than we have forecast. - Video pricing could come under pressure as growth for the satellite operators and TelCos slows. - The fear of disintermediation (video over the internet) may continue to depress terminal values indefinitely. - Longer term, cable's advantaged position in broadband could result in regulation. - Cablevision has a history of erratic corporate governance. A return of cash to shareholders cannot be assured. Upside risks to our Cablevision target price include: - Market share gains by Verizon's FiOS within Cablevision's service areas may be less than expected, or competitive intensity may lessen, resulting in improved subscriber and ARPU performance for Cablevision. - Cablevision carries significant leverage, so modest improvements in underlying financial performance or the enterprise value multiple applied by investors could yield outsized increases in the share price. - Management could close the performance gap between the acquired Bresnan properties and the core New York Metro properties. - An acquisition of the company by another cable operator, or an MBO by the controlling Dolan family. Time Warner Cable Inc Downside risks to our Time Warner Cable target price include: - The competitive pricing environment could be more aggressive than we expect. Notwithstanding our analysis of rational pricing strategies, players may adopt irrational pricing behavior. Alternatively, mere expectations of a more challenging pricing environment, even in the absence of 21

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Disclosure Appendix - Risks - evidence of price competition, may continue to weigh on the stocks for some time. - New pathways to the home could reduce the value of Time Warner Cable's distribution bottleneck. Additional deep fiber deployments by the RBOCs could impact subscriber and revenue growth rates, and could occur more quickly, or have a more significant pricing impact, than we have forecast. - Video pricing could come under pressure as growth for the satellite operators and TelCos slows. - The fear of disintermediation (video over the internet) may continue to depress terminal values indefinitely. - Longer term, cable's advantaged position in broadband could result in regulation. Charter Communications Inc Downside risks to our Charter target price include: - The competitive pricing environment could be more aggressive than we expect. Notwithstanding our analysis of rational pricing strategies, players may adopt irrational pricing behavior. Alternatively, mere expectations of a more challenging pricing environment, even in the absence of evidence of price competition, may continue to weigh on the stocks for some time. - New pathways to the home could reduce the value of Charter's distribution bottleneck. Additional deep fiber deployments by the RBOCs could impact subscriber and revenue growth rates, and could occur more quickly, or have a more significant pricing impact, than we have forecast. - Video pricing could come under pressure as growth for the satellite operators and TelCos slows. - The fear of disintermediation (video over the internet) may continue to depress terminal values indefinitely. - Longer term, cable's advantaged position in broadband could result in regulation. - Tax-related assets comprise a significant portion of Charter's value, and changes in tax rates or the inability to utilize these assets could impair their value.

22

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Disclosure Appendix SRO REQUIRED DISCLOSURES References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited, and Sanford C. Bernstein (business registration number 53193989L), a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, collectively. Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration, productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating investment banking revenues. Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on the U.S. and Canadian exchanges, versus the MSCI Pan Europe Index for stocks listed on the European exchanges (except for Russian companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on emerging markets exchanges outside of the Asia Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges - unless otherwise specified. We have three categories of ratings: Outperform: Stock will outpace the market index by more than 15 pp in the year ahead. Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead. Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead. Not Rated: The stock Rating, Target Price and estimates (if any) have been suspended temporarily. As of 09/10/2012, Bernstein's ratings were distributed as follows: Outperform - 42.1% (0.5% banking clients) ; Market-Perform - 49.6% (0.4% banking clients); Underperform - 8.3% (0.0% banking clients); Not Rated - 0.0% (0.0% banking clients). The numbers in parentheses represent the percentage of companies in each category to whom Bernstein provided investment banking services within the last twelve (12) months. Accounts over which Bernstein and/or their affiliates exercise investment discretion own more than 1% of the outstanding common stock of the following companies TWC / Time Warner Cable Inc. Bernstein currently makes a market in the following companies DISH / DISH Network Corp, DTV / DIRECTV Group Inc, CMCSA / Comcast Corp. This research publication covers six or more companies. For price chart disclosures, please visit www.bernsteinresearch.com, you can also write to either: Sanford C. Bernstein & Co. LLC, Director of Compliance, 1345 Avenue of the Americas, New York, N.Y. 10105 or Sanford C. Bernstein Limited, Director of Compliance, 50 Berkeley Street, London W1J 8SB, United Kingdom; or Sanford C. Bernstein (Hong Kong) Limited, Director of Compliance, Suites 3206-11, 32/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong, or Sanford C. Bernstein (business registration number 53193989L) , a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, Director of Compliance, 30 Cecil Street, #28-01 Prudential Tower, Singapore 049712.

23

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


12-Month Rating History as of 09/11/2012 Ticker Rating Changes CHTR CMCSA CVC DISH DTV T TWC VZ

O (IC) 06/07/12 O (RC) 12/14/10 M (RC) 05/10/10 M (RC) 10/10/08 O (RC) 01/11/12 M (RC) 10/25/11 O (RC) 11/02/10 U (RC) 10/12/10

M (RC) 04/24/08 O (RC) 03/24/11

Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated Rating  Actions:  IC  -­‐  Initiated  Coverage,  DC  -­‐  Dropped  Coverage,  RC  -­‐  Rating  Change

 

OTHER DISCLOSURES A price movement of a security which may be temporary will not necessarily trigger a recommendation change. Bernstein will advise as and when coverage of securities commences and ceases. Bernstein has no policy or standard as to the frequency of any updates or changes to its coverage policies. Although the definition and application of these methods are based on generally accepted industry practices and models, please note that there is a range of reasonable variations within these models. The application of models typically depends on forecasts of a range of economic variables, which may include, but not limited to, interest rates, exchange rates, earnings, cash flows and risk factors that are subject to uncertainty and also may change over time. Any valuation is dependent upon the subjective opinion of the analysts carrying out this valuation. This document may not be passed on to any person in the United Kingdom (i) who is a retail client (ii) unless that person or entity qualifies as an authorised person or exempt person within the meaning of section 19 of the UK Financial Services and Markets Act 2000 (the "Act"), or qualifies as a person to whom the financial promotion restriction imposed by the Act does not apply by virtue of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or is a person classified as an "professional client" for the purposes of the Conduct of Business Rules of the Financial Services Authority.

To our readers in the United States: Sanford C. Bernstein & Co., LLC is distributing this publication in the United States and accepts responsibility for its contents. Any U.S. person receiving this publication and wishing to effect securities transactions in any security discussed herein should do so only through Sanford C. Bernstein & Co., LLC. To our readers in the United Kingdom: This publication has been issued or approved for issue in the United Kingdom by Sanford C. Bernstein Limited, authorised and regulated by the Financial Services Authority and located at 50 Berkeley Street, London W1J 8SB, +44 (0)20-7170-5000. To our readers in member states of the EEA: This publication is being distributed in the EEA by Sanford C. Bernstein Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority and holds a passport under the Markets in Financial Instruments Directive. To our readers in Hong Kong: This publication is being distributed in Hong Kong by Sanford C. Bernstein (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission (Central Entity No. AXC846). This publication is solely for professional investors only, as defined in the Securities and Futures Ordinance (Cap. 571). To our readers in Singapore: This publication is being distributed in Singapore by Sanford C. Bernstein, a unit of AllianceBernstein (Singapore) Ltd., only to accredited investors or institutional investors, as defined in the Securities and Futures Act (Chapter 289). Recipients in Singapore should contact AllianceBernstein (Singapore) Ltd. in respect of matters arising from, or in connection with, this publication. AllianceBernstein (Singapore) Ltd. is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C. It is regulated by the Monetary Authority of Singapore and located at 30 Cecil Street, #28-01 Prudential Tower, Singapore 049712, +65-62304600. The business name "Sanford C. Bernstein"

24

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


is registered under business registration number 53193989L. To our readers in Australia: Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited and Sanford C. Bernstein (Hong Kong) Limited are exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 in respect of the provision of the following financial services to wholesale clients: providing financial product advice; dealing in a financial product; making a market for a financial product; and providing a custodial or depository service.

Sanford C. Bernstein & Co., LLC., Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited and AllianceBernstein (Singapore) Ltd. are regulated by, respectively, the Securities and Exchange Commission under U.S. laws, by the Financial Services Authority under U.K. laws, by the Hong Kong Securities and Futures Commission under Hong Kong laws, and by the Monetary Authority of Singapore under Singapore laws, all of which differ from Australian laws. One or more of the officers, directors, or employees of Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited, Sanford C. Bernstein (business registration number 53193989L) , a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, and/or their affiliates may at any time hold, increase or decrease positions in securities of any company mentioned herein. Bernstein or its affiliates may provide investment management or other services to the pension or profit sharing plans, or employees of any company mentioned herein, and may give advice to others as to investments in such companies. These entities may effect transactions that are similar to or different from those recommended herein. Bernstein Research Publications are disseminated to our customers through posting on the firm's password protected website, www.bernsteinresearch.com. Additionally, Bernstein Research Publications are available through email, postal mail and commercial research portals. If you wish to alter your current distribution method, please contact your salesperson for details. Bernstein and/or its affiliates do and seek to do business with companies covered in its research publications. As a result, investors should be aware that Bernstein and/or its affiliates may have a conflict of interest that could affect the objectivity of this publication. Investors should consider this publication as only a single factor in making their investment decisions. This publication has been published and distributed in accordance with Bernstein's policy for management of conflicts of interest in investment research, a copy of which is available from Sanford C. Bernstein & Co., LLC, Director of Compliance, 1345 Avenue of the Americas, New York, N.Y. 10105, Sanford C. Bernstein Limited, Director of Compliance, 50 Berkeley Street, London W1J 8SB, United Kingdom, or Sanford C. Bernstein (Hong Kong) Limited, Director of Compliance, Suites 3206-11, 32/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong, or Sanford C. Bernstein (business registration number 53193989L) , a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, Director of Compliance, 30 Cecil Street, #28-01 Prudential Tower, Singapore 049712. Additional disclosures and information regarding Bernstein's business are available on our website www.bernsteinresearch.com. CERTIFICATIONS I/(we), Craig Moffett, Senior Analyst(s)/Analyst(s), certify that all of the views expressed in this publication accurately reflect my/(our) personal views about any and all of the subject securities or issuers and that no part of my/(our) compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views in this publication.

Copyright 2012, Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited, and AllianceBernstein (Singapore) Ltd., subsidiaries of AllianceBernstein L.P. ~1345 Avenue of the Americas ~ NY, NY 10105 ~212/756-4400. All rights reserved. This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Bernstein or any of their subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction. This publication is based upon public sources we believe to be reliable, but no representation is made by us that the publication is accurate or complete.

25

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


We do not undertake to advise you of any change in the reported information or in the opinions herein. This publication was prepared and issued by Bernstein for distribution to eligible counterparties or professional clients. This publication is not an offer to buy or sell any security, and it does not constitute investment, legal or tax advice. The investments referred to herein may not be suitable for you. Investors must make their own investment decisions in consultation with their professional advisors in light of their specific circumstances. The value of investments may fluctuate, and investments that are denominated in foreign currencies may fluctuate in value as a result of exposure to exchange rate movements. Information about past performance of an investment is not necessarily a guide to, indicator of, or assurance of, future performance.

26

U.S. Telecommunications, U.S. Cable & Satellite Broadcasting


Craig Moffett Presentation