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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number 1-6590

Cox Communications, Inc.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ         No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.    þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes þ         No o

     As of June 30, 2003, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares of Class A Common Stock held by nonaffiliates was $6.922 billion based on the closing price on the New York Stock Exchange on such date.

     There were 593,094,656 shares of Class A Common Stock and 27,597,792 shares of Class C Common Stock outstanding as of January 30, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the 2003 Summary Annual Report are incorporated by reference into Part II, and portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III.

COX COMMUNICATIONS, INC.

2003 FORM 10-K ANNUAL REPORT

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PRELIMINARY NOTE

      This Annual Report on Form10-K is for the year ended December 31, 2003. This Annual Report modifies and supersedes documents filed prior to this Annual Report. The SEC allows Cox to “incorporate by reference” information that Cox files with it, which means that Cox can disclose important information to you by referring you directly to those documents. Information incorporated by reference is considered to be part of this Annual Report. In addition, information that Cox files with the SEC in the future will automatically update and supersede information contained in this Annual Report. In this Annual Report, “Cox,” refers to Cox Communications, Inc. and its subsidiaries, unless the context requires otherwise.

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PART I

Overview

      Cox Communications, Inc. is a multi-service broadband communications company serving approximately 6.6 million customers nationwide. Cox is the nation’s fourth largest cable television provider and offers an array of broadband products and services to both residential and commercial customers in its markets. These services primarily include analog and digital video, high-speed Internet access and local and long-distance telephone.

      Cox is an indirect 63.4% majority-owned subsidiary of Cox Enterprises, Inc. (CEI). CEI, a privately-held corporation headquartered in Atlanta, Georgia, is one of the largest diversified media companies in the U.S. with consolidated revenues in 2003 of approximately $10.8 billion. CEI, which has a 106-year history in the media and communications industry, also publishes 17 daily newspapers and owns or operates 15 television stations. Through its indirect majority-owned subsidiary, Cox Radio, Inc., CEI owns, operates or provides sales and marketing services for 78 radio stations clustered in 18 markets. CEI is also an operator of wholesale auto auctions through Manheim Auctions, Inc., an indirect wholly-owned subsidiary, and holds a majority interest in AutoTrader.com, which offers consumers an online inventory of new and used vehicles.

Business Strategy

      Cox’s strategy is to leverage the capacity and capability of its broadband network to deliver multiple services to consumers and businesses while creating multiple revenue streams. Cox believes that aggressive investment in the technological capabilities of its broadband network, the long-term advantages of clustering, the competitive value of bundled services and its commitment to customer and community service will enhance its ability to continue to grow its cable operations and offer new services to existing and new customers.

      Technology and Network Infrastructure. Cox strives to maintain the highest technological standards in the industry. Available service offerings depend on bandwidth capacity. The greater the bandwidth, the greater the capacity of the system. Cox’s cable systems generally have bandwidth capacities ranging from 400 to 750 megahertz or greater. At the end of 2003, Cox had upgraded 91% of its networks to a bandwidth capacity of 750 megahertz or greater and anticipates that approximately 93% of its networks will have a bandwidth capacity of 750 megahertz or greater by the end of 2004. At the end of 2003, digital cable was available to 98% of the homes passed by Cox’s broadband network, high-speed Internet was available to 98% of homes passed and telephone was available to 48% of homes passed.

      Clustering. As an integral part of its broadband communications strategy, Cox has continually sought the advantages and efficiencies of operating large local and regional cable system clusters. As of December 31, 2003, approximately 81% of Cox’s basic video customers were served by Cox’s 12 largest clusters, which averaged approximately 428,000 customers each. These clusters, represented by location, are:

      Locally and regionally clustered cable systems enable Cox to reduce expenses through the consolidation of marketing and support functions and to put in place more experienced management teams who are better equipped to meet the new competitive and regulatory challenges of today’s communications industry at the system level. Local and regional clusters also increase the speed and effectiveness of Cox’s new product and services deployment, enhancing its ability to increase both customers and revenues.

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      Bundling. Bundling is a fundamental business strategy for Cox. A bundled customer is one who subscribes to two or more of Cox’s primary services (video, high-speed Internet access and telephone). Cox offers the full bundle of services supported by a single, integrated back-office platform. That means customers can make one call regarding any and all of their services, can receive a single bill for all services and can receive multiple services at a discount. Cox believes that the bundle increases penetration and operating efficiencies, reduces customer churn and provides a competitive advantage. In 2003, the number of bundled customers grew by 37% to 2.3 million, and 36% of Cox’s basic video customers now subscribe to more than one service.

      Customer Service. Strong customer service is a key element of Cox’s business strategy to deliver advanced communications services to its customers. Cox has always been committed to customer service and has been recognized by several industry groups as a leader in providing excellent customer service. Cox believes that its high level of customer satisfaction helps it compete more effectively as it delivers its wide range of broadband communications services, including digital video, high-speed Internet access and local and long-distance telephone, as well as future services. Cox places special emphasis on training its customer contact employees and has developed customer service standards and programs that exceed national customer service standards developed by the National Cable and Telecommunications Association and the Federal Communications Commission (FCC).

      Community Service. A key element of Cox’s community service is enhancing education through the use of cable technology and programming. Cox participates in a wide range of education and community service initiatives in its communities nationwide. Cox’s major company-wide programs include:

	•	“Cox Cable in the Classroom,” which provides more than 6,000 schools and 3.7 million students with complimentary basic cable service and more than 540 hours of commercial-free educational cable programming on a monthly basis.
	•	“Cox Line to Learning,” which provides complimentary high-speed Internet access, exclusive curricula and distance-learning experiences to students in more than 900 accredited public and private schools in communities where high-speed digital services are available. Cox’s Line to Learning events link students through online video conferencing to experts in the workplace. These distance-learning events demonstrate the link between classroom activities and the wider world, enabled by Cox’s broadband technology.

      In addition, to help bridge the digital divide, Cox provides many local Boys and Girls Clubs of America with free or discounted high-speed Internet and cable service.

Products and Services

      Cox has one operating segment, broadband communications, and offers video and high-speed Internet access in almost all of its markets, telephone service in a growing number of markets and new advanced services in select markets. Cox experiences some seasonality in its business, primarily as a result of college students returning to school in the fall and people traveling to warmer climates for the winter. These factors generally result in increased revenues during the third quarter of the year.

Video

      Cox’s cable operations represent the primary element of its integrated broadband communications strategy. Video revenues represented 64%, 68% and 75% of total revenues in 2003, 2002 and 2001, respectively. Cox offers customers a full range of video services and packages. Customers generally pay initial connection charges and fixed monthly fees for video service. As of December 31, 2003, Cox’s cable systems provided video service to approximately 6.3 million customers.

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      Cox’s video service offerings consist of the following:

	•	Basic Cable. Basic cable includes, for a monthly fee, local broadcast signals available off-air, a limited number of broadcast signals from so-called “superstations,” and public, governmental and educational access channels.
	•	Expanded Basic. Expanded service includes, for an additional monthly fee, numerous satellite-delivered non-broadcast programming (such as CNN, MTV, USA, ESPN, A&E, TNT, The Discovery Channel, The Learning Channel and Nickelodeon).
	•	Premium Services. Premium services include, for an additional monthly fee, satellite-delivered programming that consists principally of feature motion pictures presented without commercial interruption, sports events, concerts and other entertainment programming (such as Home Box Office, Showtime, Starz and Cinemax).
	•	Pay-Per-View. Pay-per-view service allows customers to order, for a fee, a single showing of a recently released movie, sporting event or music concert without commercial interruption.
	•	Cox Digital Cable. Digital compression technology currently allows up to 12 digital channels to be inserted into the space of only one traditional analog channel. A set-top video terminal converts the digital signal into analog signals that can be viewed on a television set. A Cox Digital Cable customer can currently receive up to approximately 250 channels, including enhanced pay-per-view service, digital music channels, new networks grouped by genre and an interactive program guide. Customers pay a monthly fee for digital cable, which varies based on level of service and number of digital converters selected by the customer.

      In addition, Cox has introduced new video services to enhance its competitive position and generate additional revenues.

	•	Entertainment On Demand. Entertainment On Demand (also referred to as, video on demand) is an interactive service that provides access to hundreds of movies and other programming with full VCR like functionality, including the ability to pause, rewind and fast forward programs. Customers can also start a program whenever they like, stop the selection before it is completed and view a program repeatedly during the 24 hour rental period. Customers generally pay on a per-selection basis. Cox has already launched Entertainment On Demand in some markets, and is working with technology vendors and others to make Entertainment On Demand widely available.
	•	High-Definition Television. High definition television is high-resolution digital television. A high definition television signal has twice the color resolution, provides a picture that is six times sharper than that provided by a traditional analog television set and provides enhanced audio, such as Dolby DigitalTM. Cox provides high definition television service in 85% of Cox’s homes passed.
	•	Digital Video Recorders. A digital video recorder is a device that allows customers to store television programming on a hard disk drive so that customers can access this programming at a later time. The digital video recorder functions like a VCR, except that there is no videotape and it offers more sophisticated recording options and playback features. Cox has deployed digital video recorders in eight markets and plans on launching additional markets in 2004.

High-Speed Internet Access

      Cox offers several packages of high-speed Internet access services with varying speed, features and prices. These services are marketed under the Cox High Speed Internet and Cox Express brand names. Data revenues represented 15%, 11% and 7% of total revenues in 2003, 2002 and 2001, respectively. These services deliver access to the Internet at speeds of up to 100 times faster than traditional phone modems and provide unique online content that capitalizes on the substantial capacity of Cox’s broadband network. Cox uses its own nationwide Internet Protocol network to deliver high-speed data and Internet services to its customers. This network utilizes Cox’s coaxial cable infrastructure to connect subscribers to the Internet and other online services and includes standard Internet service provider functionality, such as web page hosting for

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      Cox is also offering home networking as part of its high-speed Internet product. A home network is a group of personal computers and other devices that communicate with each other through a common wired or wireless technology. Cox High Speed Internet customers can purchase a home networking product that includes the necessary wired or wireless equipment, a professional installation and 24-hour technical support. There is a one-time installation charge and a monthly fee for ongoing technical support.

Cox Digital Telephone

      Cox utilizes the capacity and reliability of its advanced broadband network by providing local telephone services and reselling long-distance services. Telephony revenues represented 8%, 7% and 5% of total revenues in 2003, 2002 and 2001, respectively. Cox provides traditional circuit-based telephony in eleven markets and, in late 2003, began offering telephony service using voice over Internet Protocol technology in its Roanoke, Virginia market. Cox currently serves 48% of its footprint with telephone service.

Cox Business Services

      Through both its dedicated fiber optic networks and its hybrid fiber coaxial cable networks, Cox Business Services provides a range of advanced communications services, including high-speed Internet access, local and long distance telephone and advanced voice and data transport solutions for companies of all sizes. Commercial revenues represented 5% of total revenues in both 2003 and 2002 and 4% of total revenues in 2001.

Cox Media

      Cox also derives revenues from the sale of advertising time on satellite-delivered networks such as Discovery, MTV and CNN through its advertising sales division, Cox Media. Advertising revenues represented 7% of total revenues in 2003 and 8% of total revenues in both 2002 and 2001. Currently, Cox inserts advertising on up to 49 analog channels in each of its cable systems and inserts advertising on digital channels in its major markets. In addition to advertising sales in Cox markets, Cox Media represents the advertising sales efforts of other cable operators.

      Viewership to cable networks has continued to increase over the past 15 years showing the increasing popularity of the medium. Cox expects continued growth of this revenue source as a result of this audience shift. In addition, Cox participates in the regional and national cable advertising market through its investment in National Cable Communications, L.L.C., a partnership that represents cable companies in connection with the sale of advertising space to advertisers. National Cable Communications is the nation’s largest representation firm in spot cable advertising sales.

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Customer Data

      The following table presents operating statistics for Cox’s primary services as of December 31, 2003 and 2002:

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Franchises

      Cable systems are constructed and operated under non-exclusive franchises granted by local governmental authorities that may choose to award additional franchises to competing companies at any time. Franchise agreements typically contain many requirements, such as time limitations on commencement and completion of system construction, service standards, including number of channels, types of programming and the provision of free service to schools and certain other public institutions, and the maintenance of insurance and indemnity bonds. Local regulation of cable television operations and franchising matters is subject to federal regulation under the Communications Act of 1934, as amended (the Communications Act) and the corresponding regulations of the FCC. See “Legislation and Regulation — Cable Franchising Matters.”

      As of December 31, 2003, Cox held approximately 855 cable television franchises. These franchises generally provide for the payment of fees to the issuing authority. The Communications Act prohibits franchising authorities from imposing annual franchise fees in excess of 5% of “gross revenues” derived from the provision of cable services and also permits the cable system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances.

      Cox has never had a franchise revoked, and it has never been denied a franchise renewal. Although franchises historically have been renewed, renewals may include less favorable terms and conditions than the existing franchise. The Communications Act provides for an orderly franchise renewal process and establishes comprehensive renewal procedures designed to protect cable operators against denials of renewal. A franchising authority may not unreasonably withhold the renewal of a franchise. If a franchise renewal is denied, and the franchise authority or a third party acquires the system, then the franchise authority must pay the operator the “fair market value” for the system covered by the franchise, but with no value allocated to the franchise itself. Cox believes that it has satisfactory relationships with its franchising authorities.

Programming Suppliers

      Cox has various contracts to obtain basic and premium programming from program suppliers whose compensation is typically based on a fixed fee per customer or a percentage of Cox’s gross receipts for the particular service. Some program suppliers provide volume discount pricing structures or offer marketing support to Cox. Cox’s programming contracts are generally for a fixed period of time and are subject to negotiated renewal. Cox’s programming costs have increased in recent years and are expected to continue to increase due to additional programming being provided to Cox’s customers, increased costs to produce or purchase programming, inflationary increases and other factors. Increases in the cost of programming services have been offset in part by additional volume discounts as a result of the growth of Cox and its success in selling such services to its customers.

Investments

      Cox has certain investments in businesses focused on cable programming, telecommunications and technology.

      Discovery Communications, Inc. Discovery provides nature, science and technology, exploration and adventure programming, and is distributed to customers in virtually all homes receiving cable television in the U.S. The principal businesses of Discovery are the advertiser-supported networks The Discovery Channel, The Learning Channel, Animal Planet Network, The Travel Channel and Discovery Europe, and the retail businesses of Discovery.com. In addition, Discovery is building a documentary programming library. At December 31, 2003, Cox owned a 25.0% interest in Discovery.

      Sprint PCS. Sprint Corporation offers personal communications services through its PCS Group.

      In April 2003, Cox sold its Sprint Corporation PCS Group (Sprint PCS) warrants, which were exercisable for approximately 6.3 million shares of Sprint PCS common stock, for nominal consideration. Cox recognized a pre-tax loss of $0.4 million as a result of this sale.

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      In August 2003, Cox terminated its series of prepaid forward contracts to sell up to 19.5 million shares of its Sprint PCS common stock. In connection with the termination, Cox sold the 19.5 million shares of Sprint PCS common stock, which had been pledged to secure its obligations pursuant to these prepaid forward contracts and were classified as trading. The prepaid forward contracts had been accounted for as zero-coupon debt, so the termination resulted in the elimination of $80.9 million of balance sheet debt at the date of the termination.

      In 2003, Cox sold 46.8 million shares of Sprint PCS common stock for aggregate net proceeds of approximately $246.4 million. Cox recognized an aggregate pre-tax gain of $154.5 million on the sale of these shares.

      At December 31, 2003, Cox’s remaining investment in Sprint PCS was comprised of 0.3 million shares of Sprint PCS common stock and 0.1 million shares of convertible preferred stock, which are convertible into approximately 4.0 million shares of Sprint PCS common stock. The estimated fair value of Cox’s investment in Sprint PCS was $59.9 million and $349.2 million at December 31, 2003 and December 31, 2002, respectively.

      Other. At December 31, 2003, Cox also had ownership interests in Liberate Technologies, In Demand, L.L.C. and National Cable Communications, L.L.C., as well as certain other public and private companies in the cable programming, telecommunications and technology businesses.

Competition

      Based on reported subscriber numbers of other providers of multi-channel video services, Cox is the sixth largest provider of multi-channel video services in the country. The following providers report higher subscriber numbers than Cox: Comcast Corporation, DirecTV (a subsidiary of Hughes Electronics Corporation which is 34% owned by a subsidiary of News Corporation Limited), Time Warner, Echostar Communications Corporation, and Charter Communications.

      Each of Cox’s broadband services operates in a competitive environment. Certain facilities-based competitors, including local telephone companies and satellite program distributors, offer cable and/or other communications services in various areas where Cox operates its cable systems. Cox anticipates that facilities-based competitors will develop in other areas that Cox serves. Cox’s services will likely face competition in the future from other competitors using additional spectrum the FCC makes available from time to time in spectrum auctions.

      Cable and Internet Access Competition. Cox’s cable systems compete with a variety of news, information and entertainment providers. Cox’s cable systems also face competition from all media for advertising dollars. In the communities in which Cox operates its cable systems, Cox may compete with one or more of the following businesses:

	•	direct broadcast satellite (commonly known as DBS) and direct-to-home satellite program distributors that transmit video programming, data and other information by satellite to customers’ receiving dishes;
	•	multichannel multipoint distribution service (also known as MMDS or wireless cable) that uses low-power microwave frequencies to transmit video programming and other information over-the-air to subscribers’ receiving dishes;
	•	local television broadcast stations providing free off-air programming that can be received using a roof-top antenna and television set;
	•	satellite master antenna television systems (also known as SMATV or private cable systems) that serve condominiums, apartments, office complexes and private residential developments;
	•	competitive cable systems that have been franchised by local governments to provide cable television services in areas where Cox operates (commonly known as overbuilders);
	•	distributors of home video products;

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	•	interactive online computer and Internet services;
	•	movie theaters;
	•	live concerts and sporting events; and
	•	books, newspapers and magazines.

      In order to compete effectively, Cox strives to provide, at a reasonable price to its subscribers:

	•	new products and services, including digital video and audio programming, high definition video programming, high-speed Internet access and telephone services;
	•	a greater variety of optional video programming packages;
	•	superior technical performance; and
	•	superior customer service.

      In recent years the FCC has adopted regulatory policies intended to provide a favorable operating environment for existing and new technologies that provide, or have the potential to provide, substantial competition to cable systems. These technologies include direct broadcast satellite service, among others. Direct broadcast satellite services are available throughout the country through the installation of a small roof top or side-mounted antenna. Direct broadcast satellite operators are among the cable industry’s largest competitors. The two largest direct broadcast satellite companies, EchoStar Communications Corporation and DirecTV, are currently offering nationwide high-power direct broadcast satellite services and are each among the four largest providers of multichannel video programming services on the basis of reported subscriber numbers. The recent acquisition of a de facto controlling interest in DirecTV by News Corporation Limited, which currently controls direct satellite broadcast operations in Europe, Asia and Latin America, could significantly enhance DirecTV’s ability to compete with Cox.

      Direct broadcast satellite service subscribership continues to grow. According to recent government reports, conventional, medium and high-powered satellites provide video programming to over 20.9 million subscribers in the U.S., which represents an approximate 22.2% share of the national multichannel video program distributor market. Direct broadcast satellite providers with high-power satellites typically offer more than 300 channels of programming, including local television broadcast stations and other programming services substantially similar to those provided by Cox’s cable systems. Direct broadcast satellite systems use video compression technology to increase channel capacity and digital technology to improve the quality and quantity of the signals transmitted to their subscribers. Unlike cable operators, direct broadcast satellite systems have limited ability to offer locally produced programming in each community where service is offered and do not have a significant local presence in most communities. Cox’s video service packages, including its digital cable services, are competitive with the programming, channel capacity and the digital quality of signals delivered to subscribers by direct broadcast satellite systems.

      The direct broadcast satellite industry also provides advanced communications services. Direct broadcast satellite providers currently offer one-way high-speed Internet access services using a telephone return path. DirecTV also is offering two-way high-speed Internet access services. DirecTV and Verizon Communications, one of the world’s largest telecommunications companies, recently announced a co-marketing agreement to offer bundled communications services, including local and long distance telephone, broadband Internet, mobile telephone and satellite TV services, immediately in Rhode Island and later this year in other parts of New England and the mid-Atlantic states. Another satellite company called WildBlue (formerly iSKY) reports that it plans to deliver two-way high-speed Internet access to residential and small business markets in the contiguous U.S. and portions of Canada in the second half of 2004 using the Ka-band and spot beam technology. EchoStar is offering its video programming services with the Internet services provided by EarthLink, an Internet service provider, using digital subscriber line technology, and it recently announced an agreement in which it will bundle its satellite video services with the telephone services of Sprint Corporation. Many of Cox’s cable systems offer high-speed Internet services that compete with the Internet services offered

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      Federal law allows local telephone companies to provide, directly to subscribers, a wide variety of services that are competitive with Cox’s cable television services, including video and Internet services, within and outside their telephone service areas. Telephone companies and other businesses construct and operate communications facilities using various technologies, including fixed wireless technology, that provide access to the Internet and distribute interactive computer-based services, data and other non-video services to homes and businesses. Many Internet service providers offer access to the Internet with dial-up services over ordinary telephone lines. The deployment of Digital Subscriber Line technology, also known as DSL, allows Internet access to subscribers at data transmission speeds equal to or greater than that of modems over conventional telephone lines. Monthly service fees for digital subscriber line services are comparable to charges for high-speed Internet services offered over cable systems, and dial-up Internet services often have a pricing advantage. Numerous companies, including telephone companies, have introduced digital subscriber line service, and certain telephone companies are seeking regulatory changes in order to provide high-speed broadband services without regard to present service boundaries and other regulatory restrictions. In Phoenix, Arizona and Omaha, Nebraska, where Cox operates cable systems, Qwest uses very high-speed digital subscriber line (also known as VDSL) technology to distribute video, high-speed Internet access and telephone service over existing copper phone lines. In 2003, BellSouth and Earthlink expanded their agreement to provide high-speed digital subscriber line technology to additional markets, including Baton Rouge and New Orleans. Similarly, Verizon Communications and DirecTV recently announced a co-marketing agreement to offer bundled communications services immediately in Rhode Island and later this year in other parts of New England and the mid-Atlantic states. Verizon recently announced that it will provide broadband communications services to EarthLink and will offer Internet telephony services to Earthlink customers.

      As in recent years, Congress may again consider legislation that, if enacted into law, would eliminate or reduce significantly many of the regulatory restrictions on the offering of high-speed broadband services by local telephone companies. The FCC also has several rulemaking proceedings pending that may lead to a reduction or elimination of certain regulatory restrictions currently imposed on the offering of high-speed broadband services by local telephone companies. See “Legislation and Regulation — Cable Television.” Cox is unable to predict the outcome of these legislative or regulatory initiatives or the likelihood of success of competing video or cable service ventures by telephone companies or other businesses. Although Cox’s high-speed Internet services are very competitive with the Internet services delivered by telephone companies, Cox cannot predict the impact these competitive ventures might have on its business and operations.

      Real-time (i.e., streaming) and downloadable video accessible over the Internet continues to improve in quality and is becoming more widely available, although streaming Internet video has yet to become a significant competitor to traditional video services. As high-speed Internet services over cable systems become more ubiquitous, programming suppliers, such as the major movie studios, may bypass cable operators and market their services directly to consumers through video streaming over the Internet. In 2003, Yahoo Inc. introduced a video subscription service that offers entertainment and sports content. Cox is unable to predict the impact on its business and operations from companies providing Internet services or companies using the Internet to gain direct access to Cox’s subscribers.

      Cox’s cable systems also compete for subscribers with satellite master antenna television systems that receive signals transmitted by satellite at receiving facilities located on private property such as condominiums, apartments, office complexes and other private residential developments. These systems also are developing and/or offering high-speed Internet access and other broadband services along with video services. Satellite master antenna television systems, which normally are free of many regulatory burdens imposed on franchised cable systems, often enter into exclusive agreements with property owners or managers that may preclude franchised cable systems from serving their residents, although some states have enacted laws prohibiting such exclusive arrangements. Courts reviewing challenges to these laws have reached varying results. The FCC has ruled that private cable systems can distribute cable programming services across public rights-of-way to subscribers in multiple buildings over leased video distribution capacity acquired from local telephone

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      Cable systems also compete with multichannel multipoint distribution service systems (also known as MMDS or wireless cable systems), which are licensed by the FCC to serve specific areas using low-power microwave frequencies. The FCC’s regulations allow wireless cable systems the flexibility to employ digital technology in delivering two-way communications services, including high-speed Internet access, and along with the use of digital compression technology, wireless cable systems are able to deliver more channels and additional services, such as Internet service. Generally, wireless cable operators are now focusing on data transmission rather than video service. One such system in Phoenix, Arizona has over 10,000 customers subscribing to its Internet service and is competing with Cox’s cable system. A wireless cable operator also is authorized or has commenced service in several California communities where Cox operates.

      In addition, the FCC has awarded licenses in the 28 gigahertz band for a new multichannel wireless video service called Local Multipoint Distribution Service (also known as LMDS), which, like other wireless cable systems, is capable of transmitting voice and high-speed Internet access as well as video transmissions. The FCC recently completed an auction of a 500 megahertz block of spectrum in the 12.2 to 12.7 gigahertz band (spectrum previously allocated for direct broadcast satellite system use) in the Multichannel Video Distribution and Data Service (also known as MVDDS); the FCC is expected to issue at least 192 geographic area licenses throughout the United States authorizing new terrestrial digital wireless video, voice, and data transmission services. The FCC requirements for this new terrestrial digital wireless service requires licensees to operate on a “non-harmful interference” basis with the incumbent spectrum user. Based on the reported results of the spectrum auction, the FCC is expected to issue licenses in several Cox markets, including Las Vegas, Phoenix and San Diego. Cox is unable to predict whether any of these wireless communications services will have a material impact on its business and operations.

      Cox operates its cable systems pursuant to non-exclusive franchises that are issued by a community’s governing body such as a city council, a county board of supervisors or a state regulatory agency. Federal law prohibits franchising authorities from unreasonably denying requests for additional franchises, and it permits franchising authorities to operate cable systems. Companies that traditionally have not provided cable services and that have substantial financial resources (such as public utilities that own certain of the poles to which Cox’s cables are attached) may also obtain cable franchises and may provide competing communications services. To date, the number of competing cable systems in Cox’s service areas has been relatively slight, and fewer than 7% of Cox’s total homes passed are overbuilt by other cable operators at this time. While Cox believes that the current level of overbuilding has not had a material impact on its operations, it is unable to predict the extent to which adverse effects may occur in the future as a result of overbuilds. See “Legislation and Regulation — Cable Franchising Matters.”

      Other new technologies also compete with Cox’s cable-delivered services. The FCC has issued digital television (also known as DTV) licenses to incumbent television broadcast licensees. Digital television stations are capable of delivering high-definition television pictures, multiple digital program streams, as well as CD-quality audio programming and advanced digital services such as data transfer or subscription video. Digital television stations are now operating in many of Cox’s cable television markets. In the markets where Cox is now offering high definition (HD) digital services, Cox has reached agreements with many of these stations to carry at least their primary digital broadcast signal on Cox’s cable systems.

      Telephony Competition. Cox’s telephone services compete with various providers of both landline and wireless communications services, including cellular, personal communications services (also known as PCS), specialized mobile radio (also known as SMR) systems. The switched voice and data telecommunications market currently is dominated by incumbent local telephone companies (also known as incumbent local exchange carriers or ILECs); however, wireless communications service providers and long distance carriers also offer competition to Cox in the delivery of both voice and Internet services. Resellers of the incumbent

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      Subject to certain limitations for rural telephone companies, the FCC may preempt any state or local law or regulation that prohibits or has the effect of prohibiting any entity from providing telecommunications services. Federal law facilitates opening local exchange markets to competition, which has resulted in a substantial increase in Cox’s business opportunities to deliver telecommunications services over its cable broadband networks.

      Advances in communications technology, marketplace developments and regulatory and legislative changes will occur in the future. For further information concerning legislative and regulatory matters, please see “— Legislation and Regulation.” New technologies and services may develop and may compete with services offered by Cox over its communications facilities. Consequently, Cox is unable to predict the effect that ongoing or future developments might have on its business and operations.

Legislation and Regulation

Cable Television

      The cable industry is regulated to varying degrees by the FCC, certain state governments and agencies and most local governments. In addition, legislative and regulatory proposals under consideration from time to time by Congress and various federal, state and local agencies may materially affect the cable industry. The following is a summary of federal laws and regulations affecting the growth and operation of the cable industry and a brief description of certain state and local laws.

      The Communications Act of 1934, as amended by the Cable Communications Policy Act of 1984 (the 1984 Cable Act), the Cable Television Consumer Protection and Competition Act of 1992 (the 1992 Cable Act), and the Telecommunications Act of 1996 (the 1996 Telecommunications Act), establishes comprehensive national standards and guidelines for the regulation of cable television systems and allocates responsibility for enforcing federal regulatory policies among the FCC, state and local governmental authorities. The courts, especially the federal courts, have an important oversight role as the statutory and regulatory provisions and policies are interpreted and enforced by various governmental units. Court actions and regulatory proceedings will continue to refine the rights and obligations of cable operators and governmental authorities under federal law. The results of these judicial and administrative proceedings may materially impact Cox’s business and operations.

     The Communications Act and FCC Regulations

      The Communications Act and the regulations and policies of the FCC affect significant aspects of Cox’s cable system operations, including:

	•	subscriber rates;
	•	the content of programming Cox offers to subscribers, as well as the manner in which Cox markets its program packages to subscribers;
	•	the use of Cox’s cable system facilities by local franchising authorities, the public and unrelated companies;
	•	the use of utility poles and conduits;
	•	cable system and program ownership limitations; and
	•	franchise agreements with local governmental authorities.

      Rate Regulation. The Communications Act and FCC regulations authorize certified local franchising authorities to regulate rates for basic tier cable services and associated customer equipment and installations in

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      The Communications Act and the FCC’s regulations also:

	•	prohibit regulation of rates for non-basic multi-channel video service packages and video programming offered on a per channel or per program basis, as well as regulation of rates by local franchising authorities for other non-basic services provided over the cable system;
	•	require operators to establish a uniform rate structure for cable services throughout each franchise area that is not subject to effective competition, subject to certain exceptions allowing operators to establish reasonable categories of customers and services;
	•	permit operators to offer non-predatory bulk discount rates for subscribers in commercial and residential developments and to offer discounted rates to senior citizens and other economically disadvantaged groups; and
	•	permit regulated basic equipment and installation rates to be computed by aggregating costs of broad categories of equipment at the franchise, system, regional or company level.

      Approximately 221 communities served by Cox’s cable systems currently regulate Cox’s basic service and equipment rates. These communities represent approximately 25% of total communities served by Cox and approximately 50% of the total number of equivalent basic subscribers served by Cox’s cable systems. The regulation of Cox’s basic service and equipment rates in these communities has not materially impacted Cox’s business and operations and Cox does not believe that it will do so in the future.

      Content Requirements and Restrictions. The Communications Act and FCC regulations permit a local commercial television broadcast station to elect once every three years to require a cable operator in the station’s designated market area either:

	•	to carry the station on certain designated channel positions on the operator’s cable system (subject to certain exceptions); or
	•	to negotiate an agreement for the station’s “retransmission consent” that permits the operator to carry the station on the cable system.

      The Communications Act requires a cable operator to devote as much as one-third of its activated channel capacity for the mandatory carriage of local commercial television stations. The Communications Act also gives local non-commercial television stations mandatory carriage rights; however, such stations are not given the option to negotiate retransmission consent for the carriage of their signals by cable systems. Cable systems must negotiate retransmission consent for any additional “distant” commercial television stations (except for certain commercial satellite-delivered independent “superstations” such as WGN), commercial radio stations and certain low-power television stations.

      The FCC has a pending administrative proceeding in which it is considering various proposals for mandatory carriage of digital television signals. In the first phase of this proceeding, the FCC:

	•	declined to order the carriage of both the analog and digital signals of television stations;
	•	implemented technical and operational standards for the carriage of digital television signals;

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	•	determined that a television broadcast station licensee that is operating only on its authorized digital channel and/or that has surrendered its analog broadcast channel has mandatory carriage rights for its digital broadcast channel on cable systems in its local service area;
	•	authorized the digital-only broadcast station to elect whether the operator’s cable system will carry the station’s signal in a digital or converted analog format; and
	•	authorized broadcasters with both analog and digital signals to tie the carriage of their digital signals with the carriage of their analog signals as a retransmission consent condition.

      The FCC continues to evaluate additional modifications to its digital broadcast signal carriage requirements. Cox cannot predict the ultimate outcome of this proceeding, or the impact any new carriage requirements may have on the operation of its cable systems.

      Except in areas where Cox is subject to effective competition, the Communications Act requires Cox’s cable systems to permit subscribers to purchase video programming offered by Cox on a per channel or a per program basis without the necessity of subscribing to any tier of video service, other than basic service. All of Cox’s systems are in compliance with this requirement.

      One of the underlying competitive policy goals of the federal communications laws is to limit the ability of vertically integrated program suppliers from favoring affiliated cable operators over unaffiliated program distributors. Consequently, with certain limitations, until 2007, federal law generally:

	•	precludes any satellite video programmer affiliated with a cable company, or with a common carrier providing video programming directly to its subscribers, from favoring an affiliated company over competitors;
	•	requires such programmers to sell their programming to other multichannel video distributors; and
	•	limits the ability of such programmers to offer exclusive programming arrangements to their affiliates.

      The Communications Act contains restrictions on the transmission by cable operators of obscene programming. The Communications Act also requires cable operators, upon the request of a subscriber, to scramble or otherwise fully block any channel that is not included in the programming package purchased by the subscriber. Cable operators are also required to provide by sale or lease a lockbox or other device that permits a subscriber to block the viewing of specific channels during specified periods selected by such subscriber.

      The FCC actively regulates other aspects of a cable operator’s programming, including:

	•	use of syndicated and network programs and local sports broadcast programming;
	•	advertising in children’s programming;
	•	political advertising;
	•	programming created or controlled by the cable operator (i.e., origination cablecasting);
	•	sponsorship identification; and
	•	closed captioning of video programming.

      The FCC has also initiated a regulatory proceeding to evaluate its jurisdiction and regulatory authority over the distribution of interactive television services, including advanced instant messaging and interactive menu services. A federal appellate court recently vacated the FCC’s decision to require video programmers, including cable operators, to provide simultaneous audio description of video activity occurring on certain programming to assist visually impaired persons.

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      Use of Cox’s Cable Systems by the Government and Unrelated Third Parties. The Communications Act allows local franchising authorities and unrelated third parties to have access to cable systems’ channel capacity for their own use. For example, the Communications Act:

	•	permits franchising authorities to require that cable operators provide channel capacity for public, educational and governmental access programming; and
	•	requires cable systems with 36 or more activated channels to designate a significant portion of their channel capacity for programming provided by unaffiliated third parties under regulated lease arrangements.

      The FCC regulates various aspects of third party use of channel capacity on cable systems, including the rates and certain terms and conditions of such commercial use.

      Various consumer groups and companies, including telephone companies and Internet service providers, have lobbied vigorously for local, state and federal governments to mandate that cable operators provide capacity on their systems so that these companies and others may deliver high-speed Internet and interactive television services directly to subscribers over cable systems. Municipal efforts to impose unilaterally so-called “open access” requirements on cable operators have not generally been successful and have been rejected by several federal courts, although the rationale for each decision has varied. The FCC, in connection with its review of the AOL-Time Warner merger, imposed, together with the Federal Trade Commission, limited multiple access, technical performance and other requirements related to the merged company’s Internet and Instant Messaging platforms.

      In 2002, the FCC decided that the provision of broadband Internet services over cable systems is an interstate “information service,” and not a “cable service” or “telecommunications service.” The FCC confirmed that cable operators offering integrated high-speed Internet services are not subject to common carrier requirements to offer the transport functions underlying their Internet services on a stand-alone basis to unaffiliated Internet service providers. In October 2003, a three-judge panel for the U.S. Court of Appeals for the Ninth Circuit concluded that broadband Internet service delivered over a cable system is in part a telecommunications service and therefore it vacated in part and remanded the FCC’s decision for further proceedings at the FCC. The FCC’s petition for rehearing en banc by the Ninth Circuit in this case is pending. The FCC has a separate rulemaking pending to assess issues concerning the regulation of broadband Internet services provided over cable systems, including whether the FCC can and should exercise authority to develop a new regulatory framework for Internet service provided over cable systems as a facilities-based interstate information service and the role, if any, of state and local governmental authorities in regulating such services. Similarly, in a rulemaking proceeding involving regulation of incumbent local exchange carriers’ broadband services, the FCC has proposed to classify broadband Internet services provided by local telephone companies over their own wireline facilities as “information services.” The outcome of the pending appeal of the FCC’s regulatory classification of high-speed Internet services provided over cable systems and the pending FCC broadband rulemaking proceedings may affect significantly Cox’s regulatory obligations, including whether Cox will be required to obtain additional local authority to use the local rights-of-way for the delivery of high-speed Internet services or to pay local governmental franchise fees and/or federal and state universal service fees on high-speed Internet service revenues. Cox cannot predict the ultimate outcome of these judicial and administrative proceedings or the impact of any new regulatory requirements on Cox’s business and operations.

      In June 2000, the federal appellate court for the Ninth Circuit, which has jurisdiction over California, Nevada and Arizona (among other states), decided in a dispute between AT&T Broadband and the City of Portland that the Internet service offered by AT&T Broadband was not a cable service. As a result, Cox determined that it could incur liability in those states if it continued to collect and remit franchise fees on revenue derived from its high-speed Internet services. Additionally, because the FCC ruled in March 2002 that high-speed Internet services provided over cable systems are not cable services, Cox notified all of its local franchising authorities that it no longer could collect and remit franchise fees on its high-speed Internet service revenues. For a discussion of certain related matters, see Item 3. “Legal Proceedings.” Although various local franchising authorities have objected to the termination of franchise fee payments on the

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      Legislation has been introduced previously in Congress, which, among other things, would have required cable operators to offer interconnection to unaffiliated Internet service providers on terms and conditions regulated by the FCC. Although the legislation was not enacted, Cox cannot predict if similar proposals will be introduced or adopted in the future or whether such proposals, administrative proceedings or litigation will have a material impact on its business and operations.

      Pole Attachments. The Communications Act requires public utilities to provide cable systems and telecommunications carriers with nondiscriminatory access to any pole, conduit or right-of-way controlled by the utility. The Communications Act also requires the FCC to regulate the rates, terms and conditions imposed by public utilities for use of utility poles and conduit space unless state authorities have certified to the FCC that they adequately regulate pole attachment rates, as is the case in certain states where Cox operates. In the absence of state regulation, the FCC will regulate pole attachment rates, terms and conditions only in response to a formal complaint. The FCC’s original rate formula governs the maximum rate certain utilities may charge for attachments to their poles and conduit by cable operators providing cable services and other non-telecommunications services. The FCC also adopted a second rate formula that became effective in February 2001 and that governs the maximum rate certain utilities may charge for attachments to their poles and conduit by companies providing telecommunications services, including cable operators. Any resulting increase in attachment rates due to the FCC’s new rate formula will be phased in over a five-year period in equal annual increments, that began in February 2001.

      The U.S. Supreme Court has upheld the FCC’s jurisdiction to regulate the rates, terms and conditions of cable operators’ pole attachments that are simultaneously used to provide high-speed Internet access and cable services, and a federal appellate court recently confirmed that the FCC’s rate formulas, as applied in a specific case, provide “just compensation” under the Federal Constitution. Several other recent federal appellate court decisions have also upheld various aspects of the FCC’s pole attachment regulations and policies, which decisions will provide more certainty for Cox in its negotiations with various utilities for the use of space on poles and in underground conduits.

      Cox is involved in two complaint proceedings filed at the FCC by various state cable associations challenging certain utilities’ rate increases and the unilateral imposition of new contract terms. The utilities in these cases challenged, among other things, the constitutionality of the FCC’s pole attachment rate formulas. These cases were decided in 2003 by the FCC in favor of the cable operators; however, the utilities involved either have requested the FCC to reconsider its decision or have appealed the decision to a federal appellate court. Both cases are pending further action by the FCC or a federal court. Cox is unable to predict the outcome of the legal challenges to the FCC’s regulations or the ultimate impact any revised FCC rate formula, any new pole attachment regulations or any modification of the FCC’s regulatory authority might have on Cox’s business and operations

      Ownership Limitations. The Communications Act authorizes the FCC to impose nationwide limits on the number of subscribers under the control of a cable operator and on the number of channels that can be

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	•	subscriber ownership information reporting requirements; and
	•	attribution rules that identify when the ownership or management by Cox or third parties of other communications businesses, including cable systems, television broadcast stations and local telephone companies, may be imputed to Cox for purposes of determining Cox’s compliance with the FCC’s ownership restrictions.

      The federal courts have rejected constitutional challenges to the statutory ownership limitations; but a federal appellate court recently concluded that the FCC’s nationwide cable subscriber ownership limit and its cap on the number of affiliated programming channels an operator may carry on its cable systems were unconstitutional and that certain of its ownership attribution rules were unreasonable. The FCC has initiated a rulemaking proceeding to evaluate the feasibility of new horizontal and vertical cable ownership limitations and revised attribution standards. Cox is unable to predict the outcome of this FCC proceeding or the impact any new FCC ownership restrictions or attribution rules might have on its business and operations.

      The 1996 Act eliminated the statutory prohibition on the common ownership, operation or control of a cable system and a television broadcast station in the same market. The FCC eliminated its regulations precluding the cross-ownership of a national broadcasting network and a cable system, and its regulations prohibiting the common ownership of other broadcasting interests and cable systems in the same geographical areas. This broadcast-cable cross-ownership rule prohibited Cox from owning or operating a cable system in the same area in which CEI or one of CEI’s subsidiaries owns or operates a television broadcast station. Although the FCC recently modified many of its media ownership restrictions, it has not proposed to implement a new broadcast-cable cross-ownership prohibition. With the FCC’s elimination of its cable-broadcast cross-ownership restriction, Cox may obtain an enhanced degree of flexibility in structuring its cable operations.

      Local Telephone Company Ownership of Cable Systems. Federal law permits potentially strong competitors such as telephone companies to enter into the cable business. Local telephone companies may offer video services in their local telephone service areas, and legal barriers to competition that exist in state and local laws and regulations are preempted. Federal law sets basic standards for relationships between telecommunications providers, limits acquisitions among cable systems and telephone companies in the same market and prohibits certain joint ventures between local telephone companies and cable operators in the same market.

      Local telephone companies and other entities may provide video programming services as traditional cable operators or, among other things, as open video system (also known as OVS) operators, subject to certain conditions, including setting aside a portion of their channel capacity for use by unaffiliated program distributors on a non-discriminatory basis. Open video system operators are exempt from several of the regulatory obligations that currently apply to cable operators. However, certain restrictions and requirements remain applicable to open video system operators, including, without limitation, the obligation to obtain FCC certification for open video system operations and any necessary local operating authority, and the obligation to comply with the FCC’s sports blackout, network non-duplication, syndicated exclusivity and mandatory carriage rules.

      Local telephone companies providing cable service through cable systems or open video systems are not bound by common carrier obligations, which otherwise would require a telephone company to make capacity available on its network on a nondiscriminatory basis for the provision of cable service directly to subscribers by unaffiliated third parties. The FCC has ruled that cable operators may elect to operate open video systems, but only if they are subject to effective competition as defined by federal law. The FCC’s rules prohibit a cable operator from terminating an existing franchise agreement to become an open video system operator. Cox does not operate any open video systems, and no open video systems currently operate in any of Cox’s franchise areas.

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      General Ownership Limitations. The Communications Act generally prohibits Cox, with certain limited exceptions, from owning and/or operating a satellite master antenna television system or a wireless cable system in any area where Cox provides franchised cable television service. The FCC’s rules, however, permit a cable operator to offer service through satellite master antenna television systems in the operator’s existing franchise area so long as the service is offered according to the terms and conditions of the cable operator’s local franchise agreement.

      In 1998, the FCC initiated a rulemaking proceeding, which, among other things, sought comments on whether the FCC should implement cross-ownership restrictions between direct broadcast satellite operators and cable operators. That proceeding remains pending, and no FCC rule currently prohibits cross-ownership between direct broadcast satellite providers and cable system operators. The FCC has stated that it would evaluate cross-ownership issues case-by-case in the context of FCC license transfer proceedings.

      Other Regulatory Requirements of the Communications Act and the FCC. The Communications Act and the FCC’s rules also include provisions concerning, among other things:

	•	customer service;
	•	subscriber privacy;
	•	marketing practices;
	•	equal employment opportunity;
	•	technical standards and equipment compatibility;
	•	antenna structure notification, marking, and lighting;
	•	emergency alert system requirements; and
	•	the collection from cable operators of annual regulatory fees, which are calculated based on the number of subscribers served and the types of FCC licenses held.

      The FCC adopted cable inside wiring rules to provide specific procedures for the disposition of residential home wiring and internal building wiring where a subscriber terminates service or where an incumbent cable operator is forced by a building owner to terminate service in a multiple dwelling unit building. The FCC’s inside wiring rules are intended to facilitate the ability of competitors to access incumbent cable operators’ internal building distribution plant.

      The FCC also adopted regulations regarding compatibility between cable systems and consumer electronics equipment. The FCC’s rules assure the competitive availability of customer premises equipment, such as set-top converters or other navigation devices, which are used to access services offered by cable systems and other multichannel video programming distributors. Cable operators are required to separate security from non-security functions in certain customer premises equipment by making available modular security components that would function in set-top converters purchased or leased by subscribers from retail outlets. Effective January 1, 2005, Cox will be prohibited from selling or leasing new navigation devices or set-top converters that integrate both security and non-security functions. Cox, however, will not be required to discontinue the leasing of older set-top converters that include integrated security functions if those converters are provided to subscribers before January 1, 2005.

      The FCC also actively regulates other aspects of Cox’s cable operations and has adopted regulations implementing its authority and jurisdiction under the Communications Act. The FCC may enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and the imposition of other administrative sanctions such as the revocation of FCC licenses needed to operate certain transmission facilities often used in cable operations. Local franchising authorities are also permitted to enforce the FCC’s technical and consumer protection standards. Pending FCC proceedings may change existing rules or lead to new regulations. Cox is unable to predict the impact that any further FCC rule changes may have on its business and operations.

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     Cable Copyright Matters

      Cox’s cable systems utilize local and distant television and radio broadcast signals in their channel line-ups. This programming is protected by federal copyright law. Cox, however, generally does not obtain licenses to display this programming directly from its owners. Consequently, Cox must comply with a federal compulsory licensing process that covers television and radio broadcast signals. In exchange for contributing a percentage of its revenues to a federal copyright royalty pool and following certain other requirements, Cox obtains blanket permission to retransmit the copyrighted material carried on broadcast signals. The nature and amount of future copyright payments for broadcast signal carriage cannot be predicted at this time. Increases in such payments may be passed through to subscribers as external costs under the FCC’s cable rate regulations.

      The Copyright Office has recommended that Congress revise both the cable and satellite compulsory copyright licenses. Congress modified the satellite compulsory license in a manner that permits direct broadcast satellite operators to be more competitive with cable operators such as Cox. The possible simplification, modification or elimination of the compulsory copyright license is the subject of continuing legislative review. The elimination or substantial modification of the cable compulsory license could adversely affect Cox’s ability to obtain suitable programming and could substantially increase the cost of programming that remains available for distribution to Cox’s subscribers. Cox cannot predict the outcome of this legislative activity.

      Cox distributes to subscribers programming that contains music, including local advertising, local origination programs, access channels and pay-per-view events. The cable industry reached agreements with the three major music performing rights organizations for a standard license covering the performance of music in certain programming, including advertising inserted by the cable operator in programming produced by other parties, and Cox has executed music performance license agreements with these organizations. Although each of these agreements will require the payment of music license fees for earlier time periods and for future periods, Cox does not believe such license fees will have a significant impact on its business and operations.

     Cable Franchising Matters

      Because cable systems use local streets and rights-of-way, they are subject to state and local regulation, which typically is implemented through the franchising process. Consistent with the Communications Act, state and/or local officials are usually involved in franchisee selection and in establishing requirements for system capabilities and construction, insurance, basic service rates, consumer relations, billing practices and community-related programming and services. Upon receipt of a franchise, the cable system owner usually assumes a broad range of obligations to the issuing authority that directly affect the system’s business. Franchise terms and conditions vary materially from jurisdiction to jurisdiction, and even from city to city within the same state. Although franchising matters normally are resolved at the local level through a franchise agreement and/or a local ordinance, the Communications Act provides certain guidelines and requirements that govern a cable operator’s relationship with its local franchising authority. For example, the Communications Act:

	•	generally prohibits a cable operator from operating without a franchise;
	•	encourages competition with existing cable systems by:

	—	allowing municipalities to operate their own cable systems without franchises; and
	—	preventing franchising authorities from granting exclusive franchises or from unreasonably refusing to award additional franchises covering an existing cable system’s service area;

	•	permits local authorities, when granting or renewing franchises, to establish requirements for cable-related facilities and equipment;

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	•	permits local authorities, in granting or renewing a cable franchise, to require the provision of channel capacity for public, educational and governmental channels, and to require the construction of institutional networks;
	•	prohibits franchising authorities from establishing requirements for specific video programming or information services other than in broad categories;
	•	permits a cable operator to seek modification of franchise requirements from the franchising authority or by judicial action if changed circumstances warrant the modification;
	•	generally prohibits franchising authorities from:

	—	imposing requirements in the grant or renewal of a cable franchise that require, prohibit or restrict the provision of telecommunications services;
	—	imposing cable franchise fees on revenues derived from providing telecommunications services over the cable system; or
	—	restricting the use of any type of subscriber equipment or transmission technology;

	•	limits franchise fees to 5% of gross revenues derived from providing cable services over the cable system;
	•	establishes formal and informal procedures for renewal of cable franchises that are designed to protect cable operators from arbitrary denials of renewal; and
	•	permits state or local franchising authorities to adopt certain additional conditions regarding the transfer of cable system ownership.

      Cox’s franchises typically require the periodic payment of fees to franchising authorities of up to 5% of “gross revenues,” as defined by each franchise agreement. Under the Communications Act and FCC rules, these franchise fees may be passed on to subscribers and separately itemized on subscriber bills. The FCC has ruled that franchise fees paid by cable operators on non-subscriber related revenue generated from such things as cable advertising and home shopping commissions may be passed through to subscribers and itemized on subscriber bills regardless of the source of the revenues on which they were assessed. Local franchising authorities appealed this FCC decision and the U.S. Court of Appeals for the Fifth Circuit affirmed the FCC’s ruling in 2003. In connection with its March 2002 decision classifying high-speed Internet services provided over a cable system as interstate information services, the FCC stated that revenues derived from cable operators’ Internet services should not be included in the revenue base from which franchise fees are calculated. That FCC decision also was challenged in a federal appellate court by local governmental and consumer groups, and in October 2003, the United States Court of Appeals for the Ninth Circuit vacated the FCC’s decision classifying cable operators’ Internet services as an interstate “information service” and not a “telecommunications service; however, the FCC is seeking further review of that decision which is not yet final. Because of the FCC’s decision, Cox notified all of its local franchising authorities that it no longer could collect and remit franchise fees on its high-speed Internet service revenues. For a discussion of this and other related matters, see “Legislation and Regulation — Cable Television — Use of Cox’s Cable Systems by the Government and Unrelated Third Parties.” Cox is unable to predict the ultimate resolution of these matters, but does not expect that any additional franchise fees it may be required to pay will be material to Cox’s business and operations.

      The Communications Act contains franchise renewal procedures designed to protect cable operators against arbitrary denials of renewal. Even if a franchise is renewed, however, the franchising authority may seek to impose as a condition of renewal new requirements, such as upgrades in facilities and services or increased franchise fees. Similarly, if a franchising authority’s consent is required for the purchase or sale of a cable system or franchise, the franchising authority may attempt to impose additional franchise requirements as a condition for such consent.

      Historically, cable operators providing satisfactory services to their subscribers and complying with the terms of their franchises typically have obtained franchise renewals. Cox believes it generally has met the

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      The Communications Act places certain limitations on a franchising authority’s ability to control cable system operations, and courts have from time to time reviewed the constitutionality of several general franchise requirements, including franchise fees and access channel requirements, often with inconsistent results. Federal law immunizes franchising authorities from monetary damage awards arising from their regulation of cable systems or decisions regarding franchise grants, renewals, transfers and amendments.

      A number of states subject cable systems to the jurisdiction of centralized state governmental agencies, some of which impose public utility-type regulation on cable operators. Attempts in other states to regulate cable systems are continuing and can be expected to increase. To date, the states in which Cox operates that have enacted such state level regulation are Connecticut, Massachusetts and Rhode Island. State and local franchising jurisdiction is not unlimited, however, and must be exercised in accordance with federal law.

Telecommunications

      The telecommunications services currently offered by Cox are subject to varying degrees of federal, state and local regulation. The FCC exercises jurisdiction over all aspects of interstate and international telecommunications services and the facilities used to provide those services. The 1996 Telecommunications Act established a national policy of promoting local exchange competition and set standards to govern relationships among telecommunications providers, including, among others, the interconnection of competitive carriers and the unbundling of monopoly incumbent local telephone company services. The statute expressly preempted legal barriers to telecommunications competition under state and local laws. The 1996 Telecommunications Act also established new requirements for the maintenance of universal telephone service and imposed obligations on telecommunications providers to maintain customer privacy. Cox’s ability to offer telephone services in competition with incumbent local telephone companies and others will be affected by the degree and form of regulatory flexibility ultimately afforded by the FCC to incumbent local telephone companies and other companies, and will depend, in part, upon FCC determinations regarding telecommunications markets generally.

      Local Telephone Competition Rules. While the current switched voice and data market is dominated by incumbent local telephone companies (also known as incumbent local exchange carriers or ILECs), the 1996 Telecommunications Act created unprecedented opportunities for newer entrants into these markets, such as Cox. Because incumbent local telephone companies historically had exclusive state franchises to provide telephone services, they established monopoly relationships with their customers. Subject to certain limited exemptions for rural telephone companies, the FCC may preempt any state law or regulation that prohibits or has the effect of prohibiting any entity from providing telecommunications services.

      The 1996 Telecommunications Act also imposed access and interconnection requirements on incumbent local telephone companies to open their networks to competitors. State regulators generally are responsible for arbitrating interconnection disputes that arise between incumbent local telephone companies and new entrants and for reviewing and approving interconnection agreements entered into between new entrants and incumbent local telephone companies. Carriers can appeal state commission decisions concerning interconnection agreements to United States district courts.

      The FCC adopted pricing standards and negotiation and arbitration guidelines that the states must follow in reviewing interconnection agreements between incumbent local telephone companies and their competitors. Although these rules initially were adopted in 1996, many of the rules governing the extent to which incumbent local telephone companies must provide unbundled elements of their networks to competitors

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	•	limit the access of competitive carriers to new broadband facilities constructed by incumbent telephone companies;
	•	eliminate unbundling for the highest-capacity transport facilities, including connections from the customer location to the ILEC’s switch;
	•	phase out “line sharing,” a mechanism that permits competitive providers of broadband services to purchase only a portion of the capacity on a telephone line; and
	•	require state regulators to conduct proceedings to determine whether incumbent telephone company switching and transport facilities should continue to be unbundled for certain categories of customers. These state regulatory proceedings are expected to be completed by June, 2004.

      Both incumbent telephone companies and competitive local exchange carriers (known as CLECs) have appealed aspects of this decision. The new rules are expected to disadvantage competitive carriers, such as AT&T, WorldCom and Covad, that make significant use of unbundled elements of the networks of other carriers to provide local telephone services. In the same order, the FCC adopted a notice of proposed rulemaking on the “pick and choose” rule, which permits CLECs to adopt all or any part of an existing interconnection agreement, rather than negotiating specific terms. If the FCC modifies the current rule, Cox and other CLECs could have significantly less flexibility in obtaining favorable terms for interconnection.

      The FCC’s pricing rules for incumbent local telephone companies pricing of unbundled network elements and interconnection were upheld in May 2002 by the U.S. Supreme Court. However, the FCC is considering modifying its rules governing intercarrier compensation and on September 15, 2003 released a notice of proposed rulemaking on the overall pricing framework. If the FCC modifies the intercarrier compensation rules, Cox’s costs for interconnection could decrease, but Cox also may lose revenues it now receives for providing interconnection to other local telephone companies, including incumbent local telephone companies. If the FCC modifies its overall pricing rules, Cox’s costs for interconnection and for use of unbundled elements of ILEC networks could increase.

      The terms of intercarrier compensation for local calls to Internet service providers have been the subject of ongoing disputes between CLECs and ILECs at state commissions and the FCC. In particular, CLECs, including Cox, have had repeated disputes with incumbent local telephone companies concerning the ILECs’ refusal to pay reciprocal compensation for Internet-bound traffic. Although most states have ruled otherwise, the FCC has twice held that such traffic is not subject to the standard compensation for termination of local calls and adopted rules that decreased compensation for carrying such traffic. Both FCC decisions were overturned by the U.S. Court of Appeals for the District of Columbia Circuit, but the FCC’s second order was not vacated. Instead, it was remanded for the FCC to consider whether it could find a proper legal basis for its authority to regulate such traffic. This remand remains pending. Cox cannot be assured that it will recover reciprocal compensation for traffic delivered to Internet service providers to which Cox believes it is entitled under its existing interconnection agreements.

      Under the 1996 Telecommunications Act, competitive wireline entrants such as Cox are subject to federal regulatory requirements for the provision of local exchange service in any market. All local telephone companies must provide telephone number portability, dialing parity, reciprocal compensation for transport and termination of local traffic, resale, and access to rights-of-way. These requirements also place burdens on new entrants that may benefit their competitors. In particular, the resale requirement means that a company could seek to resell services using the facilities of a new entrant such as Cox without making a similar investment in facilities. In addition to incumbent local telephone companies and existing competitive access providers, new entrants potentially capable of offering telecommunications services include cable companies, electric utilities, long-distance carriers, microwave carriers, terrestrial and satellite wireless service providers, resellers and private networks built by large end-users or groups of these entities in combination. On November 10, 2003, the FCC issued an order facilitating the transfer of telephone numbers between landline

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      Access Charges. The FCC has adopted an order implementing requirements designed to cause the access charge rates of competitive local telephone companies to decrease over time until they reach the rates charged by incumbent local telephone companies. This transition will be completed in June, 2004. The FCC also held that a long distance carrier’s refusal to serve the customers of a competitive local telephone company whose access charges comply with the FCC’s benchmarks generally would constitute a violation of the duty of all common carriers to provide service upon reasonable request. Consequently, while the access charges collected by competitive local telephone companies, including Cox, have declined under the FCC’s order, the order also will ensure that the competitive local telephone company’s customers have access to a fully interconnected telecommunications network.

      Bell Company Long Distance Service. The 1996 Telecommunications Act included provisions to allow Bell companies to provide long distance service after meeting a series of statutory tests. Obtaining long distance authority in a state improves a Bell company’s competitive position with respect to other providers of local telephone service and may reduce its incentive to continue to comply with its obligations to open its market to local competition. During 2003, the Bell companies completed the process of obtaining long distance authority in every jurisdiction where they had been subject to the prohibition on providing long distance service, including all of the states where Cox provides local telephone service.

      Universal Service. One of the goals of the Communications Act is to extend telephone service to all citizens of the United States, that is, to provide universal service. Prior to the 1996 Telecommunications Act, this goal was achieved primarily by state commissions maintaining the rates for basic local exchange service at an affordable level.

      The 1996 Telecommunications Act required the FCC to establish an explicit mechanism for subsidizing service to high cost areas and low-income customers, the traditional subjects of universal service rules, and to create programs to subsidize service to schools, libraries and rural health care providers. Telecommunications carriers (subject to limited exemptions) must contribute to funding these universal service programs. On October 27, 2003, the FCC released an order modifying the ways in which rural and non-rural high-cost support is calculated. The new rules could reduce the amounts required to be contributed by carriers to the high-cost fund in the future. Moreover, the FCC’s 2002 tentative conclusion that broadband Internet services provided by telephone companies should be classified as information services under the Communications Act has led to questions regarding whether similar services provided by cable operators should be subject to universal service fund contributions.

      Under the contribution factors for 2003, Cox contributed approximately $11.5 million of its interstate telecommunications revenues to the federal Universal Service Fund. In addition to the federal universal service plan, most or all states likely will adopt their own universal service support mechanisms.

      The universal service subsidy mechanism may provide an additional source of revenue to those local telephone companies or other carriers (e.g., wireless providers) willing and able to provide service to markets that are less financially desirable either due to the high cost of providing service or the limited revenues that might be available from serving a particular subset of customers in an area, such as residential customers. Cox may be a beneficiary of such programs, but its universal service contribution obligations also may increase to the extent that other providers obtain subsidies. On February 7, 2003, the FCC adopted a notice of proposed rulemaking to consider whether there should be additional limits on the ability of wireless providers and other competitive carriers, including Cox, to be eligible for universal service funding.

      Regulatory Forbearance. Another goal of the 1996 Telecommunications Act is to increase competition in the telecommunications services market, thereby reducing the need for continuing regulation of these services. To this end, the 1996 Telecommunications Act requires the FCC to streamline its regulation of incumbent local telephone companies and permits the FCC to refrain from regulating particular classes of telecommunications services or providers. The FCC has established a framework for granting certain local telephone companies relief from the FCC’s rate level, rate structure and tariffing rules once these local

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      Telephone Numbers. Local telephone companies must have telephone numbers to provide service to their customers and access to and use of telephone numbers is governed by FCC rules. The most significant numbering rules require carriers to meet specified number usage thresholds before they can obtain additional telephone numbers; to share blocks of telephone numbers, a requirement known as “number pooling”; and to provide detailed reports on their number usage, which will be subject to third-party audits. The FCC also has adopted rules and orders that delegate to certain states a larger role in conserving telephone numbers, including expanded rights to ration access to numbers. Several states served by Cox, including California, Connecticut, Louisiana and Oklahoma, have sought number conservation authority from the FCC.

      Voice over Internet Protocol Services. In 2003, regulatory issues concerning voice services offered via Internet Protocol were raised at both the federal and state level. Providers of these services, such as Vonage and 8x8, argue that they are not subject to state regulation because their offerings constitute interstate information services, regulated only by the FCC. State regulators in several states, including California, where Cox provides competitive telephone service, and Minnesota have begun inquiries into the extent to which voice over Internet Protocol services should be regulated. Among the issues raised by these services is the extent to which they can or should be required to comply with state 911 laws and how to ensure universal telephone service if voice over Internet Protocol services are not regulated. On February 12, 2004, the FCC adopted a notice of proposed rulemaking to address these issues and asked for comment on a petition seeking forbearance from regulation of voice over Internet Protocol services. In addition, the FCC has announced that it will open a separate proceeding on how Internet Protocol-based services will comply with laws permitting surveillance of communications by law enforcement agencies. While nearly all of Cox’s telephone services are provided using traditional circuit-switched technology, Cox is offering voice over Internet Protocol services in Roanoke, Virginia and plans to expand its use of Internet Protocol technologies. To the extent that providers of such services are deemed to be exempt from state regulation, providers of circuit-switched services, including Cox, could be disadvantaged in the marketplace.

      State Telecommunications Regulation. In addition to federal rules and regulations that apply to Cox’s telephony operations, state commissions regulate, to varying degrees, the intrastate services of telecommunications providers including those provided by Cox. New entrants providing local exchange services typically must apply for and receive state certification and operate in accordance with state commission pricing, terms and quality-of-service regulations. Under the 1996 Telecommunications Act, state commissions also must review interconnection agreements entered into between incumbent local telephone companies and new entrants, as well as enforce the terms of disputed agreements. If a state commission refuses to fulfill these responsibilities, carriers may seek relief from the FCC. Cox and several other carriers have been required to seek such relief for matters arising in Virginia because the Virginia State Corporation Commission had determined that it will not consider matters brought under the 1996 Telecommunications Act. The Virginia-related matters now pending before the FCC include the arbitration of the terms of interconnection agreements between Verizon and three competitive local telephone companies, including Cox. The Virginia legislature has passed legislation that requires the State Corporation Commission to consider matters brought before it pursuant to the 1996 Telecommunications Act.

      State commissions also may choose to assess universal service funding contributions from new carriers provided that a state’s program is consistent with the FCC’s universal service rules, which could increase Cox’s costs. State commissions also are playing an increasing role in telephone number assignment and

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      The foregoing summary does not purport to describe all present and proposed federal, state and local regulations and legislation affecting the cable or telephony industries. Other existing federal regulations, copyright licensing and, in many jurisdictions, state and local franchise requirements currently are the subject of a variety of judicial proceedings, legislative hearings, and administrative and legislative proposals that could alter, in varying degrees, the manner in which cable or telephony systems operate. Cox cannot predict at this time the outcome of these proceedings or their impact upon the cable or telecommunications industries or upon Cox’s business and operations.

Employees

      At December 31, 2003, Cox had approximately 22,150 full-time-equivalent employees. Cox considers its relations with its employees to be satisfactory.

Available Information

      Cox’s website address is http://www.cox.com. You may obtain on or through this website, free of charge, copies of Cox’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports are available on Cox’s website as soon as reasonably possible after they are electronically filed with the SEC.

      Cox’s principal physical assets consist of cable operating plant and equipment, including signal receiving, encoding and decoding devices, headends and distribution systems and customer house drop equipment for each of its cable systems. The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. Cox’s distribution system consists primarily of coaxial and fiber optic cables and related electronic equipment. Customer premise equipment consists of decoding converters, cable modems and telephone network interface units. The physical components of cable systems require maintenance and periodic upgrading to keep pace with technological advances.

      Cox’s cable distribution plant and related equipment are generally attached to utility poles under pole rental agreements with local public utilities, although in some areas the distribution cable is buried in underground ducts or trenches. Cox owns or leases parcels of real property for signal reception sites (antenna towers and headends), microwave facilities and business offices in each of its markets and leases most of its service vehicles. Cox believes that its properties, both owned and leased, taken as a whole, are in good operating condition and are suitable and adequate for Cox’s business operations.

      Cox’s subsidiary Cox Communications Louisiana L.L.C. (Cox Louisiana) is a defendant in a putative subscriber class action suit in Louisiana state court filed on November 5, 1997. The suit challenges the propriety of late fees charged by Cox Louisiana in the greater New Orleans area to customers who fail to pay for services in a timely manner. The suit seeks injunctive relief and damages under certain claimed state law causes of action. The action is being defended vigorously. The outcome of this matter cannot be predicted at this time.

      On November 14, 2000, GTE.NET, L.L.C. d/b/a Verizon Internet Solutions and Verizon Select Services, Inc. filed suit against Cox in the United States District Court for the Southern District of California. Verizon alleged that Cox has violated various sections of the Communications Act of 1934 by allegedly refusing to provide Verizon with broadband telecommunications service and interconnection, among other

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      On August 23, 2002, plaintiff Redefining Progress, on behalf of itself and all others similarly situated, sued Fax.com, Inc., Cox Business Services, L.L.C. and others in United States District Court for the Northern District of California, alleging that Fax.com has sent numerous unsolicited advertisements by facsimile in violation of a federal statute. The complaint alleges that Cox Business Services, which provides telecommunications services to Fax.com, is also liable for the facsimiles in violation of the Telephone Consumer Protection Act of 1991 (TCPA), Sections 206 and 207 of the Telecommunications Act of 1996 and certain state laws. The suit seeks an award of statutory damages in the amount of $500 for each violation of the TCPA, treble damages, injunctive relief, the establishment of a constructive trust and other relief. On October 11, 2002, Cox Business Services moved to dismiss for lack of subject matter jurisdiction, for failure to state a claim, and based on the primary jurisdiction of the FCC. On March 3, 2003, the court granted Cox Business Services’ motion to dismiss for lack of subject matter jurisdiction. The time for appeal has expired; therefore, the matter is concluded. A nearly identical federal court suit was filed in the United States District Court for the Northern District of California on September 4, 2002 by plaintiff Daniel David, on behalf of himself and all others similarly situated, against Fax.com, Cox Business Services and others, but was not served until December 4, 2002. The David suit was reassigned to the same judge presiding over the suit filed by Redefining Progress, and it asserts substantially the same claims and seeks substantially the same relief. The David suit was stayed pending the outcome of Cox Business Services’ motion to dismiss the Redefining Progress suit. On May 3, 2003, the court entered an order dismissing this case in light of its ruling in the Redefining Progress suit, and that ruling was not appealed. The matter thus is concluded.

      In addition, on September 8, 2002, plaintiff Daniel David, on behalf of himself and all others similarly situated, filed a nearly identical case against Fax.com, Cox Business Services and others in the Superior Court of California, Alameda County. The complaint asserts various causes of action including violation of the TCPA, trespass to chattels, violation of Section 17-200 of the California Business and Professions Code and unjust enrichment. The suit seeks damages and injunctive relief similar to that sought in the related federal suits. This action was stayed until October 2003. On October 24, 2003, Cox Business Services filed an amended demurrer and set it for hearing on December 6, 2003. On December 9, 2003, pursuant to a stipulation of Cox Business Services and plaintiff, the court entered an order sustaining the demurrer as to Cox Business Services and dismissing Cox Business Services from the case effective as of December 16, 2003. Thus, the matter is concluded.

      Cox @Home, Inc., a wholly-owned subsidiary of Cox, is a stockholder of At Home Corporation, also called Excite@Home, formerly a provider of high-speed Internet access and content services, which filed for bankruptcy protection in September 2001. On September 24, 2002, a committee of bondholders of Excite@Home sued Cox, Cox @Home and Comcast Corporation, among others, in the United States District Court for the District of Delaware. The suit alleges the realization of short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 from purported transactions relating to Excite@Home common stock involving Cox, Comcast and AT&T Corp., and purported breaches of fiduciary duty. The suit seeks disgorgement of short-swing profits allegedly received by the Cox and Comcast defendants totaling at least $600.0 million, damages for breaches of fiduciary duties in an unspecified amount, attorney’s fees, pre-judgment interest and post-judgment interest. On November 12, 2002, Cox, Cox @Home, and David Woodrow filed a motion to dismiss or transfer the action for improper venue or, in the alternative, to transfer the action pursuant to 28 U.S.C. Sec. 1404. On September 30, 2003, the Delaware District Court ordered the action transferred to the United States District Court for the Southern District of New York. On December 22, 2003, Cox and Cox@Home filed a motion to dismiss, or, in the alternative, for judgment on the pleadings, with respect to the Section 16(b) claim. That motion is pending. Cox and Cox @Home intend to defend this action vigorously. The outcome cannot be predicted at this time.

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      Jerrold Schaffer and Kevin J. Yourman, on May 26, 2000 and May 30, 2000, respectively, filed class action lawsuits in the Superior Court of California, San Mateo County, on behalf of themselves and all other stockholders of Excite@Home as of March 28, 2000, seeking (a) to enjoin consummation of a March 28, 2000 letter agreement among Excite@Home’s principal investors, including Cox, and (b) unspecified compensatory damages. Cox and David Woodrow, Cox’s former Executive Vice President, Business Development, among others, are named defendants in both lawsuits. Mr. Woodrow formerly served on the Excite@Home board of directors. The plaintiffs assert that the defendants breached purported fiduciary duties of care, candor and loyalty to the plaintiffs by entering into the letter agreement and/or taking certain actions to facilitate the consummation of the transactions contemplated by the letter agreement. On February 26, 2001, the Court stayed both actions, which had been previously consolidated, on grounds of forum non-conveniens. A related suit styled Linda Ward, et al. v. At Home Corporation (No. 418233) was filed on September 6, 2001, in the same court. On February 7, 2002, the Court consolidated the Ward action with the Schaffer/ Yourman action, thereby also staying the Ward action. On June 18, 2002, the court granted plaintiffs’ motion to lift the stay and authorized discovery to proceed regarding Cox’s pending motion to dismiss for lack of personal jurisdiction. On September 10, 2002, the United States Bankruptcy Court for the Northern District of California in the Excite@Home bankruptcy proceeding held that the claims in the suits were derivative and, thus, constituted the exclusive property of the Excite@Home bankruptcy estate. The Bankruptcy Court thereafter ordered the plaintiffs to dismiss the suits. Plaintiffs subsequently appealed the Bankruptcy Court’s decision to the United States District Court for the Northern District of California. On September 29, 2003, the District Court affirmed the order of the Bankruptcy Court. On October 27, 2003, plaintiffs filed a notice of appeal of the District Court’s decision to the United States Court of Appeals for the Ninth Circuit. Cox intends to defend this action vigorously. The outcome cannot be predicted at this time.

      On April 26, 2002, Frieda and Michael Eksler filed an amended complaint naming Cox as a defendant in a putative class action lawsuit in the United States District Court for the Southern District of New York against AT&T Corp. and certain former officers and directors of Excite@Home, among others. Cox was served on May 10, 2002. This case has been consolidated with a related case captioned Semen Leykin v. AT&T Corp., et al., and another related case, and an amended complaint in the consolidated case, naming Cox as a defendant, was filed and served on November 7, 2002. The putative class includes persons who purchased and held shares of Excite@Home common stock between the time period March 28, 2000 and September 28, 2001. The sole count against Cox asserts a claim against Cox as an alleged “controlling person” of Excite@Home under Section 20(a) of the Securities Exchange Act for violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The suit seeks from Cox unspecified monetary damages, statutory compensation and other relief. In addition, a claim against Cox’s former Executive Vice President, David Woodrow, who formerly served on Excite@Home’s board of directors, is asserted for breach of purported fiduciary duties. The suit seeks from Woodrow unspecified monetary and punitive damages. On February 11, 2003, Cox and Woodrow filed a dispositive motion to dismiss on various grounds, including failure to state a claim. On September 17, 2003, the District Court granted the motion in part and denied it in part. Specifically, the Court dismissed several purported statements by Excite@Home as bases for potential liability because they were merely generalized expressions of confidence and optimism constituting “puffery,” dismissed the fiduciary duty claim against Mr. Woodrow as pre-empted by the federal securities laws, and denied the motions as to the remaining allegations of the complaint. On October 7, 2003, Cox and Mr. Woodrow sought reconsideration of a portion of the Court’s order. On December 24, 2003, the plaintiffs moved to certify a class of persons who purchased Excite@Home stock between March 28, 2000 and September 28, 2001, or held such stock as of April 28, 2000. Both these motions are pending. On February 17, 2004, the Court granted plaintiffs leave to file a motion to amend the complaint to add an additional claim for relief against all defendants under Section 14(a) of the Securities Exchange Act in connection with an allegedly false or misleading proxy statement issued by Excite@Home. On February 24, 2004, the Court granted Cox’s and Mr. Woodrow’s motion for reconsideration and dismissed plaintiffs’ allegations that Cox and Mr. Woodrow were “control persons” with respect to primary violations of Rule 10b-5 alleged to have occurred after August 28, 2000. Cox intends to defend this action vigorously. The outcome cannot be predicted at this time.

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      On July 3, 2003, Leo James filed a putative class action lawsuit against Cox and David Woodrow, among others, in the United States District Court for the Southern District of New York. Cox was served on October 27, 2003. Mr. James is represented by the same attorneys who represent the individuals who were previously designated lead plaintiffs in the Leykin action described above. The complaint in the James action asserts claims substantially similar to the operative allegations in the Leykin action described above. Accordingly, the sole count against Cox asserts a claim against Cox as an alleged “controlling person” of Excite@Home under Section 20(a) of the Securities Exchange Act for violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and seeks from Cox unspecified monetary damages, statutory compensation and other relief. On November 17, 2003, Cox and certain other defendants jointly filed a motion to dismiss the James action on the grounds that, among other things, it was duplicative of the Leykin action. That motion is pending. Cox intends to defend the action vigorously. The outcome cannot be predicted at this time.

      Cox and its subsidiaries are parties to various other legal proceedings that are ordinary and incidental to their businesses. Management does not expect that any of these other currently pending legal proceedings will have a material adverse impact on Cox’s consolidated financial position, results of operations or cash flows.

      None.

PART II

      The information required by this Item is incorporated by reference to the section entitled “Shareholder Information” of Cox’s 2003 Summary Annual Report. See Exhibit 13. “Portions of the 2003 Summary Annual Report.”

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      Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7. for a discussion of events that affect the comparability of the information reflected in the selected consolidated financial data for each of the years in the three-year period ended December 31, 2003.

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      The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the “Consolidated Financial Statements and Supplementary Data” in Item 8.

Executive Overview

      Cox Communications, Inc., an indirect 63.4% majority-owned subsidiary of Cox Enterprises, Inc. (CEI), is a multi-service broadband communications company serving approximately 6.6 million residential and commercial customers nationwide. Cox is the nation’s fourth largest cable television provider and offers an array of broadband products and services including analog and digital video, high-speed Internet access and local and long-distance telephone.

      Cox’s business strategy is to leverage the capacity and capability of its broadband network to deliver multiple services to consumers and businesses while creating multiple revenue streams for Cox. Cox believes that its investments in the technological capabilities of its broadband network, the long-term advantages of clustering, the competitive value of bundled services and its commitment to customer care and community service will enhance its ability to increase revenues in an increasingly competitive environment.

      Cox’s management primarily focuses on continued growth and profitability of all of its lines of business and effective execution of its bundling strategy and other product lines in a heightened competitive landscape. Cox concentrates on bundling, integrating, and differentiating its products and services to compete effectively against its primary competitors, which include direct broadcast satellite operators and regional bell operating companies, in its large local and regional clusters. Cox is committed to providing new and enhanced services that cater to the evolving needs of its customers. Cox has introduced high-definition television, digital video recorder service, Entertainment on Demand and several tiers of high-speed Internet service in many of its markets to enhance its current product offerings and further differentiate its products from its competitors.

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      In 2003, the regional bell operating companies announced partnerships with direct broadcast satellite operators to add video service to their bundle of voice and Internet services. Although these partnerships present a new competitive challenge and signal an increased industry focus on competitive bundled offerings, Cox believes that its experience in bundling video, telephone and Internet services and its fully integrated back-office and billing platform provide a competitive advantage and position Cox to successfully execute its strategy. Cox’s management constantly monitors the competitive landscape and carefully evaluates and adjusts its market response accordingly.

      Cox’s management also continues to monitor the regulatory landscape. The industry-wide introduction of voice over Internet Protocol technology has raised many regulatory questions. Cox continues to analyze new and proposed regulatory changes and their potential impact on its products and services.

      In 2003, Cox completed several transactions to reduce the complexity of its balance sheet and reduce its leverage. In this regard, Cox purchased through tender offers 98% of its exchangeable subordinated debentures and terminated its series of prepaid forward contracts. Prior to these purchases and terminations, Cox was required to make certain mark-to-market adjustments in accordance with accounting guidelines to reported indebtedness because these securities were indexed to shares of Sprint PCS common stock Cox held. These non-cash adjustments directly caused fluctuations to, and volatility in, net income. Cox believes that its simplified balance sheet will enhance investors’ ability to compare Cox’s earnings in future periods.

      Cox’s management will continue to monitor and develop new advanced service offerings and adapt to the competitive and legal framework to deliver compelling and competitive services to consumers and businesses.

Investments

      See “Investments” in Part I, Item 1. “Business” and Note 5. “Investments” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

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Results of Operations

2003 compared with 2002

      The following table sets forth summarized consolidated financial information for each of the two years in the period ended December 31, 2003.

NM denotes percentage is not meaningful

      The following table sets forth summarized revenue information for each of the two years in the period ended December 31, 2003.

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      The 14% increase in total revenues was primarily attributable to:

	•	a 31% increase in customers for advanced services (digital cable, high-speed Internet access and telephony);
	•	an increase in basic cable rates resulting from increased programming costs and inflation, as well as increased channel availability;
	•	a $5 price increase on monthly high-speed Internet access adopted in select markets in the fourth quarter of 2002 and in most of Cox’s remaining markets in the first quarter of 2003; and
	•	an increase in commercial broadband customers.

      Cox has experienced solid growth in digital cable, residential high-speed Internet and telephony customers. Cox expects this trend to continue and anticipates continued consumer demand for its existing portfolio of broadband products, as well as for new services such as Entertainment On Demand, Home Networking and high-definition television and digital video recorders.

      The following table sets forth summarized operating expenses for each of the two years in the period ended December 31, 2003.

      Cost of services includes cable programming costs, which are costs paid to programmers for cable content and are generally paid on a per-subscriber basis. Cost of services also includes other direct costs and field service and call center costs. Other direct costs include costs that Cox incurs in conjunction with providing its residential, commercial and advertising services. Field service costs include costs associated with providing and maintaining Cox’s broadband network and customer care costs necessary to maintain its customer base.

      Cost of services increased $279.2 million over 2002 partially due to a $122.0 million increase in programming costs. Approximately 10% of the increase was attributable to programming rate increases, and the remaining 2% was related to basic and digital customer growth. Other cost of services increased $157.2 million, primarily due to:

	•	1.2 million in net additions of advanced-service customers over the last twelve months; and
	•	increased labor costs due to the transition from upgrade construction and new product launches to maintenance and related customer costs directly associated with the growth of new subscribers.

      Cox recorded a one-time non-recurring charge of approximately $9.8 million in 2002 associated with the continuation of Excite@Home high-speed Internet service following the bankruptcy of Excite@Home, and excluding this one-time charge, other cost of services increased 16% in 2003.

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      Selling, general and administrative expenses include marketing, salaries and benefits, commissions and bonuses, travel, facilities, insurance and other administrative expenses. Selling, general and administrative expenses increased $103.5 million primarily due to:

	•	a $90.2 million increase in general and administrative expenses relating to increased labor costs, expenses related to trials of new video and telephony products, and public relations expenses related to our campaign aimed at the rising costs of programming; and
	•	a $13.3 million increase in marketing expense relating to the promotion of new services and bundling alternatives, partially offset by an 8% decrease in costs associated with Cox’s advertising sales business, Cox Media.

      Cox expects continued increases in programming costs and will continue to pass through some portion of these increases to its customers. In addition, Cox expects continued growth in advanced services, which include digital cable, high-speed Internet access and telephony, both as a result of increased penetration where these services were available in 2003 and continued roll-out of these services in new areas during 2004. As a result of these trends, Cox expects its cost of services and, to a lesser degree, selling, general and administrative expenses to increase.

      Depreciation and amortization for the year ended December 31, 2003 increased to $1.5 billion from $1.4 billion for the comparable period in 2002. This was due to an increase in depreciation from Cox’s continuing investment in its broadband network in order to deliver additional services, and an increase in amortization resulting from a non-cash impairment charge of $25.0 million recognized in the first quarter of 2003, upon completion of an impairment test of franchise value in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. Cox completed its next impairment test in accordance with SFAS No. 142 in August 2003. The August 2003 test indicated no impairment of franchise value. Cox will continue to invest in its broadband network and new services, which management expects will result in increased revenues to offset increased depreciation expense.

      Interest expense decreased 15% to $467.8 million primarily due to interest savings as a result of Cox’s interest rate swap agreements and a reduction of outstanding indebtedness.

      Cox does not hold or issue derivative instruments for trading purposes and is not a party to leveraged instruments. From time to time, however, Cox uses derivative instruments to manage its exposure to changes in the fair value of certain of its assets or liabilities or to manage its exposure to changes in interest rates or equity prices. These derivative instruments are designated and accounted for by Cox as hedges of the underlying exposure being managed, as prescribed by SFAS No. 133. During 2003 and 2002, Cox used the following derivative instruments in its hedging activities:

	•	twelve interest rate swap agreements with an aggregate principal amount of $1.8 billion that are designated and accounted for as fair value hedges. Cox has assumed no ineffectiveness with regard to these interest rate swap agreements as the agreements qualify for the short-cut method of accounting for fair value hedges of debt instruments, as prescribed by SFAS No. 133. These interest rate swaps are designed to assist Cox in maintaining a mix of fixed and floating rate debt by converting a portion of existing fixed-rate debt into a floating-rate obligation. These interest rate swaps derive their value primarily based on changes in interest rates. Cox’s expectations with respect to its hedging strategy underlying these interest rate swaps have been met since the swap agreements have resulted in Cox increasing its proportion of floating rate debt.

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	•	a series of costless equity collar arrangements that were designated and accounted for as fair value hedges to manage Cox’s exposure to changes in the fair value of 15.8 million shares of Sprint PCS common stock, 22.5 million shares of AT&T common stock and 17.2 million shares of AT&T Wireless common stock held by Cox. These equity collar arrangements derived their value primarily based on changes in the fair value of the underlying equity security. As described in Note 5. “Investments” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data,” Cox terminated all of these equity collar arrangements and sold the underlying shares of common stock during the first quarter of 2002. Hence, there were no active hedging activities with respect to Cox’s investments at December 31, 2002, and Cox did not undertake any hedging activity with respect to investments in 2003.

      In addition to the foregoing derivatives, upon adoption of SFAS No. 133, certain of Cox’s debt instruments contained embedded derivatives, as defined, and certain investments met the definition of freestanding derivatives. Cox has not designated these embedded and freestanding derivatives as hedges under SFAS No. 133 and, as such, changes in their fair value are being recognized in earnings as derivative gains or losses. During 2003 and 2002, Cox had the following embedded derivatives or freestanding derivatives outstanding that have not been designated as hedges:

	•	embedded derivatives contained in Cox’s outstanding series of three exchangeable subordinated debentures known as the PRIZES, the Premium PHONES and the Discount Debentures. These debentures are exchangeable for the cash value of shares of Sprint PCS common stock or, in the case of the Discount Debentures, at Cox’s option, the related shares. These embedded derivatives derive their value primarily based on changes in the fair value of Sprint PCS common stock, U.S. Treasury rates and Cox’s credit spreads.
	•	embedded derivatives contained in Cox’s series of prepaid variable forward contracts secured by 19.5 million shares of Sprint PCS common stock and accounted for as zero-coupon debt. These embedded derivatives also derive their value primarily based on changes in the fair value of Sprint PCS common stock, U.S. Treasury rates and Cox’s credit spreads.
	•	stock purchase warrants to purchase equity securities of certain publicly-traded or privately-held companies that can be exercised and settled by delivery of net shares, such that Cox pays no cash upon exercise. These warrants meet the definition of a freestanding derivative, as prescribed by SFAS No. 133, and derive their value primarily based on the change in the fair value of the underlying equity security.

      For a more detailed description of Cox’s exchangeable subordinated debentures, zero-coupon debt and their corresponding embedded derivatives, please refer to Note 7. “Debt” and Note 9. “Derivative Instruments and Hedging Activities” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

      For the year ended December 31, 2003, Cox recorded a $22.6 million pre-tax loss on derivative instruments primarily due to a $4.4 million pre-tax loss resulting from the change in the fair value of Cox’s net settleable warrants and an $18.7 million pre-tax loss resulting from the change in the fair value of certain derivative instruments embedded in Cox’s zero-coupon debt, as described above.

Gain on investments, net

      Net gain on investments for the year ended December 31, 2003 of $165.2 million includes:

	•	$154.5 million pre-tax gain related to the sale of 46.8 million shares of Sprint PCS common stock;
	•	$21.8 million pre-tax gain as a result of the change in market value of Cox’s investment in Sprint PCS common stock classified as trading; partially offset by
	•	$10.5 million pre-tax decline considered to be other than temporary in the fair value of certain investments.

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      In determining whether a decline in the fair value of Cox’s investments is other than temporary, Cox considers the factors prescribed by SEC Staff Accounting Bulletin Topic 5-M, Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities. These factors include the length of time and extent to which the fair market value has been less than cost, the financial condition and near term prospects of the investee and Cox’s intent and ability to retain its investment.

Equity in net losses of affiliated companies

      Equity in net losses decreased 59% to $13.1 million. Generally, these losses are attributable to Cox’s proportionate share of the investee’s income or loss. Although Cox has various levels of ownership and rights with respect to the companies in which it has equity investments, Cox has little, if any, control over the financial position of these companies. Therefore, Cox cannot predict the impact that its equity investments will have on its future operations.

Loss on extinguishment of debt

      During the year ended December 31, 2003, Cox recorded a $450.1 million pre-tax loss on extinguishment of debt consisting of:

	•	$412.8 million pre-tax loss resulting from the purchase of $1.8 billion aggregate principal amount at maturity of the Discount Debentures pursuant to Cox’s offer to purchase any and all Discount Debentures. The pre-tax loss was primarily attributable to the reversal of discounts associated with the embedded derivatives and other costs that were recorded at issuance and were being amortized over the original term of these securities.
	•	$29.5 million pre-tax loss resulting from the termination of Cox’s series of prepaid forward contracts to sell up to 19.5 million shares of Sprint PCS common stock, described above and accounted for as zero-coupon debt;
	•	$10.2 million pre-tax loss resulting from the purchase of $422.7 million aggregate principal amount at maturity of Cox’s convertible senior notes due 2021 pursuant to the holders’ right to require Cox to purchase the convertible notes;
	•	$1.5 million pre-tax loss resulting from the purchase of $250.0 million aggregate principal amount of its 6.15% Reset Put Securities due 2033 (REPS); partially offset by
	•	$3.9 million pre-tax gain resulting from the purchase of $1.3 billion aggregate principal amount of the PRIZES and $274.9 million aggregate principal amount of the Premium PHONES pursuant to Cox’s offer to purchase any and all PRIZES and Premium PHONES.

      Cox’s offers to purchase outstanding Discount Debentures, PRIZES and Premium PHONES expired pursuant to their terms. Nothing in this report should be construed as an offer to buy, or a solicitation of an offer to sell, any debt securities of Cox. Cox reserves the right to purchase additional Discount Debentures, PRIZES or Premium PHONES in the open market, in privately negotiated transactions, through tender offers, exchange offers or otherwise.

Income tax benefit

      Income tax benefit was $73.3 million for the year ended December 31, 2003. The effective tax rate for 2003 was 35.8% compared to 34.6% for 2002. The change in the effective tax rate was primarily due to the impact of varying effective state tax rates across Cox’s operations, along with the effects of current year investing and financing transactions.

Net loss

      Net loss for the year ended December 31, 2003 was $137.8 million compared to net loss of $274.0 million for the comparable period in 2002.

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Table of Contents

      The following table sets forth summarized consolidated financial information for each of the two years in the period ended December 31, 2002.