AT&T Details Results and Outlines Growth Plans For Broadband Business "More Than a Cable TV Company".

Business Editors

NEW YORK--(BUSINESS WIRE)--July 24, 2001

In a teleconference briefing today, AT&T presented a comprehensive financial and operational update on the company's broadband business.

"We want investors to see that AT&T Broadband is not just the nation's largest cable TV company but the leading provider of integrated residential broadband services," said AT&T Chairman and CEO C. Michael Armstrong.

AT&T said its Broadband unit is meeting or exceeding its targets for clustering systems, upgrading facilities, and accelerating the rollout of advanced new services.

"AT&T Broadband is only a year old, and it is already the industry leader in providing advanced digital services such as telephony, high-speed data and digital video," Armstrong said. "Transforming two cable companies into a leading broadband business certainly put some pressure on margins, but it was a strategic decision to maximize the growth potential of our cable infrastructure."

"Revenue from advanced services grew more than 60 percent compared to last year," said Daniel E. Somers, President and CEO of AT&T Broadband. "Digital video is highly profitable. High-speed data is expected to break even in the third quarter. And telephony is expected to break even in nine months. Our investment in advanced services is paying off."

Advanced services drove AT&T Broadband's average revenue per subscriber to $55.34 in the second quarter, well above the industry average. The company said it expects overall revenue growth for the full year to be at a mid-teens rate.

The unit's continuing rapid growth of subscribers for new services was also seen in the second quarter when AT&T Broadband added, on a pro forma basis, about 553,000 advanced service subscribers. This represented an increase of approximately 46 percent from the number added in the year-ago quarter. As of June 30, AT&T Broadband had 848,000 broadband telephony customers, 1.3 million high-speed data customers and 3.1 million digital video customers for a total of 5.3 million advanced service subscribers.

AT&T Broadband plans to spend $3.6 billion in capital in 2001, with the majority focused on providing advanced services and plant upgrades.

The company said the total number of potential customers who subscribe to its advanced services has significantly increased since it acquired TCI and MediaOne, and AT&T Broadband outpaces the industry in providing these new services across its markets.

"When we acquired TCI, it had an 11 percent digital video penetration level, a 2 percent high-speed data penetration level and no broadband telephony customers," said Somers. "MediaOne started with 3 percent digital video penetration, 5 percent high-speed data penetration and 4 percent broadband telephony penetration. Today, we have a 22 percent digital video penetration level, a 10 percent high-speed data penetration and 14 percent broadband telephony penetration. We are well on our way to reaching our 2005 goal of mid- 50 percent penetration of digital video, high 20 percent for high-speed data and mid 30 percent for broadband telephony."

The company noted that its decision to simultaneously deploy all three products, including the start-up costs and the expenses related to the dramatic growth of broadband telephony and high-speed data impacted profit margins. However, the company said that it expects to improve its margin by 300 basis points this year.

"In the second quarter, excluding a $100 million restructuring charge we took to further streamline our cost structure, our EBITDA margin, excluding other income, was 23.4 percent, up substantially from the 18.3 percent achieved in the first quarter," Somers said. "We are committed to delivering $500 million in annualized margin improvement by year-end 2001 and to achieve industry benchmark margins within the next three years."

In the past year as it integrated the operations of TCI with MediaOne, the company said it reduced more than 200 cable head-ends to 40, consolidated 200 call centers into 30 and decreased its employee base from 53,000 to 43,000.

AT&T said the Broadband unit has upgraded and reconfigured its systems with a focus on major markets. AT&T Broadband moved aggressively to upgrade more than 70 percent of its cable network - 127,000 plant miles - by the end of the second quarter 2001. And through strategic system clustering, the company said more than 83 percent of AT&T Broadband's customers are now in 12 of the top 20 markets.

AT&T Broadband acknowledged that its 56 percent basic video penetration lags the industry's 63 percent level. The company said the unit is taking action to increase video penetration at or above industry growth rates for the next 2 to 3 years.

As a result of all of these actions, AT&T Broadband said it expects to be free cash flow positive by year-end 2003.

The foregoing are "forward-looking statements" which are based on management's beliefs as well as on a number of assumptions concerning future events made by and information currently available to management.

Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside AT&T's control, that could cause actual results to differ materially from such statements. These factors include the rate of decline of traditional long distance voice services, technology change and substitution, the actions of competitors in all segments in setting prices, conditions of excess capacity, and rates of implementation of regulatory changes that favor competitors and promote remonopolization.

For a more detailed description of the factors that could cause actual results to differ from forecast, please see AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

EDITOR'S NOTE:

Today's briefing with the financial community will be web cast live on the Internet beginning at 1:00 p.m. EDT. AT&T will present a comprehensive financial and operational update on its Broadband business via conference call and web cast. Executive team members from AT&T and AT&T Broadband will present the current status and future view of the business and answer questions. The slide presentation referenced during the briefing will be available via AT&T's web site shortly before 1:00 p.m. Presentation slides and audio will also be available for downloading. To access the call, please dial 877-209-9920 (domestic) or 612-332-0725 (international) or web cast at www.att.com/ir. A replay will be available beginning at 5:00 p.m. EDT on Tuesday until midnight on Thursday, July 26. To access the replay, please visit www.att.com/ir or dial 800-475-6701, access code: 595485 (domestic) or 320-365-3844, access code: 595485 (international).