As the marketplace for basic video services has matured, the cable industry has responded by introducing new services, including enhanced video services like HDTV and VOD, high-speed Internet access and IP-based telephony.

According to a Forrester Research report dated February 2005, the number of HDTV sets in the U.S. is estimated to be approximately 23 million at the end of 2006 and is forecasted to more than double over the next three years.

The increasingly wide variety of content made available via VOD, high definition and Pay-Per-View programming, along with the proliferation of DVRs, is driving customer demand for advanced video services. Bandwidth-intensive online applications, such as peer-to-peer file sharing, gaming, and music and video downloading and streaming, are driving demand for reliable high-speed data services.

Currently, high-speed data penetration in the United States is relatively low compared with some other industrialized countries and has the potential to grow. International Data Corporation estimates that as of year end 2006, high-speed data penetration in the U.S. will reach approximately 36% of all households, compared to penetration rates of approximately 56% and 51% in Canada and The Netherlands, respectively.

IP-based telephony service is proving to be an attractive low-cost, high quality alternative to traditional telephone service as provided by incumbent local telephone companies. The cable industry already provides this service to over 6 million subscribers as of June 30, 2006.

The Company offers a full range of analog and digital video service levels, as well as advanced services such as VOD, HDTV, and set-top boxes equipped with DVRs.

- Analog video service is available in all of the Company’s operating areas. The Company typically offers two levels or “tiers” of service—Basic and Standard—which together offer, on average, approximately 70 channels for viewing on “cable-ready” television sets without the need for a separate set-top box;

- Subscribers to the Company’s digital video services receive a wide variety of up to 250 digital video and audio services;

- The Company offers a number of On-Demand services that enable users to view what they want, when they want it. These services feature advanced functionality, such as the ability to pause, rewind and fast-forward the programming using the Company’s VOD system;

- The Company generally offers approximately 15 channels of high definition television, or HDTV, in each of its systems, mainly consisting of broadcast signals and standard and premium cable networks, as well as HDTV Movies-on-Demand in the Company’s historical operating areas.

The Company offers residential and commercial high-speed data services in all its historical operating areas. The Company’s high-speed data services provide customers with a fast, always-on connection to the Internet.

Digital Phone is the newest of the Company’s core services. With Digital Phone service, the Company can offer the customers a combined, easy-to-use package of video, high-speed data and voice services.

Cost of revenues were $2.3 billion for the six months ended June 30, 2006 and $2.1 billion for the six months ended June 30, 2005, an increase of $200 million, or 15%.

Depreciation expense increased 9% to $829 million for the six months ended June 30, 2006 from $762 million for the six months ended June 30, 2005.

Operating income increased 23% to $1.1 billion for the six months ended June 30, 2006 from $896 million for the six months ended June 30, 2005.

Net interest expense decreased to $225 million for the six months ended June 30, 2006 from $235 million for the six months ended June 30, 2005.

Net income was $530 million for the six months ended June 30, 2006 compared to $598 million for the six months ended June 30, 2005.