Liberty Global Ltd (LBTYA) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the UnitedGlobalCom year-end 2003 investor call. This conference call and associated web cast is the property of UnitedGlobalCom Inc. Any redistribution, retransmission, or rebroadcast of this call or webcast in any form without the express written consent of UnitedGlobalCom Inc. is strictly prohibited. At this time all participants are in a listen-only mode. Following today's formal presentation, instructions will be given for a Q&A session. [Operator Instructions] As a reminder, this conference call is being recorded today, March 15, 2004. I would now like to turn the conference over to Mr. Mike Fries, President and Chief Executive Officer for UnitedGlobalCom.

Thank you and good morning or good afternoon, wherever you might be. On the call with me today are the typical crew -- Gene Schneider, our Chairman; Rick Westerman and Charlie Bracken, who are now co-CFO's, we announced today, of UGC, which we thought made a lot of sense, given the recent combination of our businesses with Europe; Gene Mosseman (ph), the President of our Broadband Division in Amsterdam; and Shane O'Neill, Head of Strategy in London. Before I get into the content of the call, I'm going to turn it over to Rick to make some comments about the Safe Harbor as well as call logistics. Rick?

First, I'd like to point out that the slides that we'll be speaking to can be found on our website at UnitedGlobal.com under the Investor Relations section. On page one of our slides, we have our standard forward-looking statements language. And in the appendix of the presentation, which starts on page 17, we've got definitions and reconciliations for non-GAAP numbers as well as some supplementary financial information that we thought investors would find helpful. I'll turn it back over to Mike.

Thank you. The format for the call today will be somewhat streamlined. I'm going to review the 2003 results, both the numbers and our key operational achievements and challenges. I'll provide a brief update on where we stand with some key initiatives in 2004. I'll lay out our guidance for the year, provide some color on our announcement this morning that we signed up the Noos transaction in France, and then get to your questions hopefully in about 15-plus minutes or so.

Starting perhaps with an organizational update -- I'm on page 3 of the slide presentation. I think it's fair to say that 2003 was a transformational year for UGC, and the Company you see today is extremely healthy from a financial and operational and strategic point of view. Much of that is due to the frenzy of corporate development activity over the last six months, beginning with the completion of our European balance sheet restructuring in September.

Then in December, of course, we acquired the minority interest in Europe resulting from that restructuring. And among other benefits, this has greatly simplified our financial reporting and management structure. In January, Liberty took control of the board of UGC, and later in that month we improved our European credit facility by pushing out EUR1 billion of amortization out of 2009 and enhancing our covenant flexibility. Of course, last month, we raised a billion of equity proceeds through a rights offering which further strengthened our capital position and also provides us with the ability to pursue some strategic opportunities.

I think it goes without saying that Liberty has been a significant supporter of ours throughout all of these transactions, both from a capital and strategic point of view. I think as the chart indicates, they now sit at approximately 55 percent economic ownership and over 90 percent voting control.

I'm sure by now, most of you are aware of their announcement this morning regarding their intention to spin off their international businesses, including their 55 percent ownership position in us to a new company called Liberty Media International. I guess I'd say from a UGC point of view, the transaction in and of itself should have no immediate impact on our management team, our board composition, or our strategic direction, and in fact I think will result in several benefits, not the least of which is a heightened focus on our business by John and Daub (ph) and Liberty shareholders. So we're excited about where Liberty has taken their international businesses. And we certainly look forward to working even closer with them if that's possible, since we certainly work pretty close with them now.

Jumping into the 2003 results, beginning with our subscriber activity for the year on page four -- hopefully the slides will turn for you there. There are a lot of numbers here, so I'll draw your attention to a few key highlights starting with our footprint. We ended the year with 12.7 million homes passed. About 65 percent of those are two-way, or about 7.5 million. I'd also point out that we added over 620,000 two-way homes in 2003, the vast majority of which were in Central and Eastern Europe, where we're still only 30 percent rebuilt, versus nearly 80 percent in western Europe as an example.

We ended the year with 9.2 million total RGUs representing a net gain of 316,000. Just under 50 percent of these customers were added in the fourth quarter. So we are definitely returning to normalized subscriber growth. And I'll talk more about that in a minute.

Over 50 percent of these subscriber adds were high-speed Internet customers, where we're rapidly approaching the 1 million subscriber mark -- pretty big milestone. Total data penetration today across all of our businesses is 12 percent. But that number, as you'd expect, is skewed. It's skewed higher in Western Europe, were we're as high as mid 20s in many markets; lower in Chile, where we sit at mid-teens; and obviously lower in Eastern Europe, and we only recently launched high-speed data, and we're in the high single digits. So you need to take that 12 percent with a grain of salt. I'd also point out that we added just under 90,000 basic video subs in 2003 if you aggregate our analog and DTH customer base. That's just over 1.2 percent growth for the year, which I think is even better when you consider that we went backwards last year in our largest market, Holland, as a result of the new billing platform and the non-paid cleanup activities we spoke so much about last year. That's obviously turned around.

It's the last comment I'd make on this slide -- as you look at our results on a regional basis, you'll see that Chile added 126,000 subs, 85 percent of which were high-speed Internet or voice subscribers. Telephony penetration there now is about 27 percent. And this is the fourth year in a row that we've added over 100,000 subs in Chile. So we're obviously very pleased with those results.

Page five provides a summary of our year-end financial results. We reported 1.9 billion in revenue -- up 25 percent from 2002. Approximately 70 percent of that growth was related to the appreciation of the euro, which means we grew at about 8 percent on a functional currency (ph) or organic basis, and I will show you some more detail on that in a few sides. OpEx was largely flat despite the currency movement. And we generated approximately 630 million of adjusted EBITDA -- an increase of 112 percent. On a functional currency basis -- so excluding the impact of the euro, etc. -- EBITDA growth was still over 80 percent.

Our EBITDA margin reached 33 percent, about a 13 point improvement year on year. And with CapEx largely flat, we generated 59 million in free cash flow after interest and working capital. So that's our first full year of free cash flow, a nearly 700 million improvement in free cash flow over 2002, and a $1.7 billion improvement in free cash flow over 2001.

Page six uses the same format to summarize our fourth-quarter results. And I'm noticing that the slides are a little bit delayed here, so I'll try to give you a heads-up for that. The chart looks very similar to the prior page from a growth point of view. A few key numbers -- revenue for the quarter, 516 million versus 402 million for the same period last year. And EBITDA reached 186 million, which on a run-rate basis equates to $744 million of run-rate EBITDA based on the fourth quarter. And lastly, you can see that our EBITDA margin picked up another 3 points to 36 percent. So the fourth-quarter numbers in and of themselves were very strong.

The next two slides present our revenue and EBITDA results on both a segment basis and a local or functional currency basis. This is an attempt to try to peel the onion for you a little bit. Starting with revenue on page seven, the tables on the left -- when the slide pops up, you'll see -- present revenue results by division in U.S. dollars. You'll see that our UPC Broadband division, or our cable systems in Europe, generated over 80 percent or $1.5 billion of our total revenue, with our European media division and our Chilean operation making up the balance.

You move to the table on the right hand side, you'll see that growth in each division in their local or functional currency. And UPC Broadband generated 8 percent revenue growth in euros for the year, reaching EUR1.35 billion. And our chellomedia division, which contains our Internet access, portal, our media and content investments, as well as our CLEC operation, was flat. And the primary reason it was flat was a decline in CLEC revenue of 10 percent as we exited low-margin businesses. The actual chellomedia business itself minus CLEC was up 18 percent. And you'll see Chile up 23 (ph) percent as well year on year.

Couple of other key observations on the slide. If you aggregate our broadband- or cable-television-only results -- or of NSO (ph) results in Europe and Chile, we generated revenue growth of over 11 percent for the year in local currencies. About a third of that was activity-driven or customer-driven. About two-thirds was ARPU- or price-related. I'd also point out that ARPUs per RGU in Europe now sort of net of VAT or sales tax -- just under EUR14 and as high in EUR16.50, or almost $20, in Western Europe.

And the last point I'd make is we do intend to start reporting customer or household information. I will just give you a flavor for ARPUs per customer or household in January, and you'll see why we think this is an important measure going forward. In The Netherlands, Norway, and Sweden for example, we're generating approximately EUR20 or $25 out of each household. In Austria, where we have over 1.5 RGUs per customer -- so good bundling results there -- we're just under EUR35 or $44 per household. Those are big improvements, and a long way from the single-digit ARPU world we operated in not too long ago.

Page eight presents our EBITDA results in the exact same format. On the left-hand side you'll see EBITDA results by division. Europe generated 573 million or 90 percent of the total EBITDA for the year of 629 million. Broadband division doubled EBITDA. Chellomedia broke through to positive EBITDA -- you'll see those numbers. And Chile generated $70 million of EBITDA, an improvement of 67 percent over 2002.

And on the right hand side presents the same data in local currencies. We'll see that Europe's EBITDA growth was just under 80 percent in euros. Now we exceeded our guidance target with EUR505 million of EBITDA for the year. In the fourth quarter, our EBITDA in Europe was EUR140 million or 560 million on a run-rate basis. And that's before the full impact of 113,000 RGUs added in the fourth quarter and before the impact of the rate increases that are announced and that we're working our way through on the Dutch operations -- and I'll speak to that in a moment. Lastly, you can see that Chile's growth was entirely organic, as the EBITDA increase in pesos was the same as dollars -- about 65 percent year on year.

Slide nine shows you our leverage and liquidity position at the end of the year and on a pro forma basis for several recent events. Starting with the column on the left, you'll see that we ended the year with total debt in U.S. dollars of 4.35 billion and total cash of approximately 340 million. On a full-year basis, our leverage or net-debt-to-EBITDA was 6.4 times. And on a fourth-quarter annualized basis, the figure was 5.4 times. You have to keep in mind that our EBITDA is calculated using the average euro for the year of 1.14, whereas our year-end debt position was converted at the then-current rate of 1.26.

Then the column on the right shows these same figures on a pro forma basis. So taking into consideration the recent restructuring of the balance sheet of our Polish subsidiary, for example, and the repayment of Liberty's loan to us, our debt was $4 billion. Our current cash position is just over 1.3 billion after the rights offering in February and several smaller transactions.

So on a pro forma basis, our net debt is about 2.7 billion, and our net-debt-to-EBITDA at year end was 4.3 times for the full year and 3.6 times on a fourth-quarter annualized basis. This is obviously a dramatic improvement, but even a little lower than our stated target of approximately 4 to 5 times. And as we indicated, we do intend to use a sizable portion of our cash for acquisitions in Europe. I can tell you, though, that everything we're looking at today will be largely neutral to our debt position, given our expectation that we will only be able to leverage acquired cash flow in a 4-plus (ph) range.

At the bottom of the chart, you'll see some additional figures representing untapped liquidity beyond our cash position. Two major items here -- our revolver capacity in Europe of 550 million and our two large public holdings, Austar and SBS, now have a market value of 470 million. That brings total cash and other liquidity to 2.3 billion today.

Before jumping into our key initiatives for 2004, I thought it would be useful to lay out quickly a little scorecard of achievements and challenges last year. And you can see them identified here in the boxes.

I'll just speak to where we think we've succeeded here. Certainly, we succeeded in restructuring both our financial and our operational conditions. And that's evidenced by the pretty significant improvement in our leverage and our operating margins.

We simplified our corporate management structure. We made huge strides in harmonizing our cable rates in our largest market -- Netherlands -- and our customer care initiatives are really paying off in particular in the Netherlands, where Gene Mosseman (ph) is spending half his time at least over the last six months improving the cost structure and driving the sales engine. And lastly of course, we hit the numbers on the EBITDA and cash flow front.

So where do we fall short? I guess there's three things I would point out. We did not hit our subscriber growth targets for the year. And there were several factors behind this, not the least of which was a fair amount of distraction on the corporate side of our business, which is behind us. You'll see that we have successfully reignited that flame, though, in the fourth quarter. And it's still burning pretty strong and I'll talk about that.

We were late to launch some important new products, including lower-priced data tiers in many of our Western European markets. And now while we've rectified that, we did lose a little time and some market share to competitors. And our networks and systems, while were classed (ph), were a little stretched. So they have taken up a lot more of our attention in 2004.

The next slide -- when it loads up, you'll see is a good segue. It shows our key initiatives and where we stand on those key initiatives through the year.

Beginning with topline growth, we've said it many times. We think our cost structure is about right and a lot more efficient than our peers. And one of our main opportunities is to continue harvesting our footprint and doing so at a faster clip than the last two years. So we're making progress on three key drivers in that regard.

On the rate increase front, we announced today that we've reached an agreement with the city of Amsterdam which we believe will pave the way for harmonization in the remainder of our Dutch cities. RGU growth was strong in the fourth quarter, and has continued through 2004. All I can say is that we are ahead of budget in nearly every product and every market at this point.

With the Dutch billing situation of last year behind us, we're seeing good churn results. We still operate with an aggregate monthly churn of well below 1 percent.

We're also making headway in the bundling front. We've launched bundle packages in four countries, and we'll have the balance launched this year. Just a little anecdote -- today, currently we're doing about 22 percent of our sales in the Netherlands are bundled sales. That number was close to zero not long ago. So the initiatives are kicking in.

One of the drivers behind this recent growth, though, is obviously the launch of new products and services. I've talked a lot and often about the competitive situation in the European data market. And we've now launched light versions of our high-speed Internet product in 8 of our 10 markets, and continue to refine that offering with both speed increases and adjustable-use policies that allow us to throttle data limits wherever we can. The good news is we're seeing dramatic improvement increases in our sales figures as the dialogue market converts faster than we anticipated.

Launched a VoIP trial in the Netherlands. Plan to be commercial with this packet cable service by late summer, as well as a SIP-based service in Eastern Europe by late summer. So VoIP is working. And lastly, we've made strides in the digital front. We launched a headend-in-the-sky digital service in France that has significantly outsold our expectations in the first couple months of the year. And we are examining, as I've mentioned, the possibilities of bringing our digital platform in Holland to a larger number of homes as box cost and technology costs come down.

We remain squarely focused on improving our network and systems. We're in the midst of a Euro Docsis swap-out across all of Europe, which will see our platform become almost 100 percent Euro-Docsis-compatible. We've mentioned the customer service. And we've got our Derby (ph) billing now in 4.3 million RGUs.

And now with some clear sailing, we also are evaluating -- as I think it's clear, and as John mentioned today -- ways of prudently expanding our foot print and taking advantage of the scale of our operating and network platform. I will speak in a minute about the Noos transaction. We are looking at several other opportunities. And I've characterized all of those as strategically sound, operationally synergistic, and are financially attractive.

The two other means of expanding our footprint, the new build and off-net opportunities -- we are planning some robust new build and upgrade activity this year. You can see the numbers. And with strong brands like chello, we're actually looking at using our expertise to drive sales off our own network where it makes sense.

And then lastly, on the capital structure, we've already achieved the two main objectives, raising the equity proceeds, increasing the float to 350 million shares and stretching out amortization of our bank facilities. So we're obviously making good headway on that.

With that as background, we are announcing our 2004 guidance targets today. On the customer side, we are estimating net gain of 500,000, which includes Europe and Chile. That represents a 60 percent improvement over 2003 and excludes acquisitions. Clearly, Internet will be a key driver of this growth. If we achieve these RGU results, we're forecasting 10 percent revenue growth in the local or functional currencies -- so excluding FX impacts and excluding acquisitions. And then on the EBITDA front, we are forecasting 20-percent-plus growth this year -- again, in the local currencies and excluding acquisitions. So taking that one step further, if you assume an average euro for the year of 1.20 -- which today it's at 1.25 -- and a Chilean peso of 650, we would generate 800 million in EBITDA for 2004, a 27 percent increase in EBITDA over 2003 in U.S. dollars.

Capital expenditures will increase slightly as a result of the increased customer activity, but should still approximate about 20 percent of revenue. And then lastly, we do expect to continue to generate positive free cash flow. That's obviously an important measure to us as it is to you.

To help put our results and our guidance into perspective -- I'm on the next slide now -- we've done some benchmarking with our publicly traded peers in the U.S. and Europe. And when the slide pops up, you'll see that we show here revenue and EBITDA growth for 2003 and 2004 for a group of what we call Tier 1 and Tier 2 operators, which are listed below.

To summarize, I think on the revenue front, you'll see that the average MSO grew 10 percent in 2003, which is largely consistent with our 11 percent growth in our core cable operations last year and our guidance of 10 percent this year. Of course, in dollars, we grew much higher. We were 25 percent in '03, 17 percent in '04.

On the EBITDA growth side, the average ranges from 10 to 24 percent in 2003, compared to our 80 percent in local currency and 112 percent in U.S. dollars -- so clearly in a different league there. 2004 gets more interesting, where the average operator is forecasting between 11 and 15 percent EBITDA growth. We expect to be well north of 20 percent in local currency, and using our expected FX rates (ph), up 27 percent this year in dollars. And the last column shows trailing leverage multiples.

Punchline here is that on a pro forma, trailing-twelve-month basis, we are in the same class as Comcast, Cox, and Cablevision at 4.3 times net-debt-to-EBITDA level.

So these last few slides flesh out the story a little bit on the transaction we announced this morning in France. And for those who did not see it, we have agreed to purchase Noos, France's largest cable operators from Suez, who will retain a 20 percent stake in our combined French operations. The purchase price is set at an enterprise value of 7.25 times run rate 2004 EBITDA at closing.

So if we closed in July, for example -- the end of July, we would take EBITDA results for the seven months and annualize them and multiply that by 7 1/4 to get to the enterprise value. We would also point out that we have a walk-away right if that EBITDA number is less than EUR70 million. And that equates to a EUR508 million price essentially -- floor price. So we can walk away if it's below that. And the price is capped at EUR660 million which equates to just over 90 million of EBITDA. So between 70 and 90 million of EBITDA, we think the number will be somewhere between, but the multiple stays the same. For the purposes of Suez's 20 percent stake, our French business will be valued on the same basis. The transaction will require EU approval prior to closing, which is planned sometime in third quarter.

As I mentioned -- on the next slide -- Noos is the largest cable operator in France. So this slide shows you some key facts of the asset and rationale for the transaction. With over 1.2 million total RGUs, they control roughly 30 percent of the market in France. The company has done a great job, actually, of launching new services. They have over 400,000 digital and 200,000 high speed Internet subscribers today. And one of the most attractive elements of the deal is Noos's footprint in Paris, which represents over two-thirds of their network and 80 percent of their customer base. Unlike many of the smaller markets that we operate in, for example, Paris represents a demographically and geographically attractive cable market. And while we do plan on spending capital to bring the NOOS network to our own technical standards, it is largely today rebuilt for digital and data. Lastly, the company experienced a nice turnaround in 2003 that generated just under EUR300 million in revenue and 56 million of EBITDA. And, again, based on the agreed transaction price, trailing run rate EBITDA at closing will be between 70 and 90 million. And we think it will be somewhere in between that.

The rationale for this deal, I think, is pretty straightforward. I mean, Noos is the premier cable operator in Europe's third largest market. That goes without saying. The company has a strong competitive position vis-a-vis satellite and DSL as compared to other operators by virtue of, among other things, its Paris footprint. Combined with our own French business, we'll have over 1.8 million RGUs, 400 million in revenue, and a very meaningful opportunity to drive operating and network synergies. And I think all things considered, 7-and-a-quarter times EBITDA we think -- trailing EBITDA -- that price is right. And that's before synergies -- which I think, as John alluded to on the Liberty call this morning, we expect that to drive almost 1.5 multiple points off that acquisition price.

So in conclusion, I'll repeat -- 2003 for us was a transformational year from any angle. I think it's clear we radically improved the stability and the growth potential of the company by substantially reducing our leverage, simplifying our organization financially and operationally, and turning around our cash flow -- 1.7 billion, for example, of last two years in free cash alone -- which with much of the heat and the light generated from the restructuring activity behind us, we are all dedicated 100 percent of our time now to achieving the operational and strategic goals that I've talked about. And this is already paying off. We had a strong fourth quarter on the subscriber front. We're aggressively rolling out new data and digital products. And by the third quarter, we'll be live with VoIP. We've demonstrated a keen ability, I think, over the last couple of years to cut costs and run a lean ship. And that is serving us well as we grow the topline. And that fourth-quarter margin, I think, illustrates that ideally.

And strategically, we are definitely going to expand our footprint where it makes sense in a prudent and disciplined way. While we're not very far into the new year, I'll tell you, we're hitting on all cylinders. Momentum from the fourth quarter has carried over on the sales side, so that's good news. And we're making strides in all the key initiatives that I walked through.

So all in all, we're pleased with the results. I might just close -- take a minute to recognize what I have regarded -- the strong talent and leadership of our senior management team, many of whom are on the call here. I'm not sure we could have a more capable or dedicated or motivated group of executives. Whatever success we've achieved, and certainly our ability to take advantage of the opportunities in front of us, will be due in large measure to their dedication and talent. I just want to take this opportunity to acknowledge them for the great work they've done.

So that concludes the prepared remarks, and we're happy at this point, operator, to take questions.

+++ q-and-a.

[Operator Instructions] Frank Knowles, New Street.

Two questions -- one, could you expand a little bit of the impacts on ARPUs of the new lite product in [technical difficulty] Europe -- how you [technical difficulty] -- if you think the volume increase is going to offset the reduction in ARPUs there over time?

And secondly, if you could expand a bit on further consolidation opportunities in France -- obviously, there's a few other systems around there with [indiscernible], who would be quite keen to sell, by the look of it -- what your plans would be there?

Sure, on the ARPU question -- clearly, if you looked at our pricing today, historically, our ARPUs for our basic or classic product were in the EUR40 range -- again, net of VAT and others. We now have a range of products in Holland, for example, five different tiers of service that goes as low as 14.95 on what we call our starter package which we're bundling with voice and have launched for a limited period of time.

There's no doubt that we will see as time goes by and that the mix of customers evolve, we will see a reduction in our ARPU. But I'll tell you that if you look at our five-year plan, whereas before, maybe we thought ARPUs were going to have -- looked like a 35. They may still have a three in front of them, because the vast majority of our customers today are still basic classic customers. And even though we're selling in a greater proportion of lite and entry-level customers today, we are upgrading some of those. We expect to upgrade some of those over time. And they fit within a (ph) relatively small mix of the overall pie. I'd also point out that we measure a number we call sort of classic EBU data customers. And what we mean by that is -- and it's similar to the cable business, where you take a EBU statistic, we're now looking at sort of dating EBUs and taking total customers and dividing them by classic revenue. And we are still gaining ground -- significant ground. So the message there is despite the reduction in ARPUs in some of those lighter products, we are certainly overcompensated -- that's being overcompensated by the growth in volume. So we're on the upward trend, no matter how you look at it.

In terms of consolidation opportunities in France -- I mean, my view is one step at a time. This is our first big deal out of the box. It's I think a good one -- as I said, appropriately priced, good upside. And we're going to digest this business. We're going to look at ensuring that we get the synergies as quickly as we can get them. But we would obviously look at opportunities to grow that footprint, if it made sense. But I wouldn't raise any hopes on that -- it's certainly a complicated marketplace with the players. And we're just glad that we have this transaction signed up and looking forward to getting it integrated.

Matthew Harrigan, Janco Partners.

Two questions. One, the 7.25 multiple is a great multiple for Noos, particularly given the high advanced service penetrations. But it does beg the question that despite the difficulties in the French market, someone is willing to sell at that price. I mean, Suez is perceived as a willing seller, but they're still retaining 20 percent. It looks like the growth rate -- you know, 56 last year, maybe 80-ish this year -- it's a higher growth rate probably than what you're getting in the other Western European markets. Can you give us your thinking on the transaction price? And is there any sort of earnout for Suez at some point in time?

And then secondly -- you knew I was going to ask this -- in the data side, your pacings you said were 28,000 monthly in October and November. And it looks like Europe was a little bit light of that on the data side notwithstanding the tiering. Can you give us a little bit more granularity on that?

I'll start with the second question. I don't know that we provided any monthly pacing rates at all in October or November. You can look at the quarterly numbers and draw conclusions. What I'll tell you -- I'll just tell you that we set a very robust budget for data adds in 2004, both on the sales and the net gain side in particular. And we are exceeding those expectations. That's really all I can say on that, Matt.

On the multiple -- clearly, Suez is a willing seller. I mean, that's -- and has been attempting to sell the asset for some period of time. And maybe that had an impact. I think from their point of view, they felt they were getting two things. One was the ability to get some benefit from the '04 run rate achievements -- as you point out, a nice bump between '03 and '04. But secondly, they are retaining a 20 percent stake. And their view is that perhaps there is upside on that asset, on that stake, which we certainly believe there is. So I think they were happy with the transaction.

Congratulations on the numbers.

Ned Zachar, Weisel.

Mike, Could you give us a little bit more color as far as the litigation that's going on in Holland [indiscernible] for the city of Amsterdam. Give us a little bit of your perspective there on how that might flow through to the other cities. That would be the first question.

Yes. We announced early on that we had taken a rate increase across the other 50 percent of our cable systems in Holland that had yet to receive the rate increase that we took in '03. We did -- as of January 1, there was a reaction by many of the cities -- since most of these were still under a contract, whereas last year's rate increases or harmonization activities were not in contract.

What I will say is, and I think we announced it today, that we have reached agreement with the city of Amsterdam, which we view as an important milestone and we are certainly in very similar conversations with all of the other municipalities who are part of this million-plus cable subscriber base. And we expect to reach comparable arrangements with them essentially ensuring that by end of the year, we will be at our stated objective of EUR12.77 (ph) net of VAT and sales tax -- EUR12.77 (ph) by end of the year across our entire footprint. The only difference between what we hoped to achieve and what we did achieve, we think we will ultimately achieve, is a phasing of those increases that will have an impact on what we might have otherwise budgeted, but are clearly in our guidance targets. And from our point of view, I think -- I don't know whether we made this public or not -- but these rate increases alone on this half of that Dutch sub-base represent somewhere in the order of EUR44 million on an annualized basis to the EBITDA line. So to some extent, we're willing to be cooperative with the cities to phase in those increases for the obvious benefits of having a significant improvement in our annualized results.

Thank you. Second question is -- I went through the release pretty carefully. I didn't see anything that was one-time in nature. The 186 EBITDA, adjusted EBITDA -- clean (ph) sort of run-rate figure, if you will?

Well, it is obviously affected by the euro, to some extent. And I think the average -- what was the average euro in the fourth quarter, Rick? What was the number there?

1.26?

In the fourth quarter, I think our average -- yes, so our average for the fourth quarter might not have been quite that high. But if it was 1.26, that's a robust number -- assuming that the euro stays where it is, then that obviously is something we will continue to realize.

So except for the currency that is a number that we can --

Yes, that's a good number. Yes.

And as far as -- give us any kind of sense or feeling you have about programming initiatives that you may or may not tackle Eastern and Western Europe generally as a means to drive digital penetration from levels where they're at today?

Yes. I think if you look at the digital, our digital numbers -- you'll see that there are several markets where we've actually done a pretty good job on digital -- particularly in Scandinavia, and places like Norway. And the reason is simple. In addition to having a good environment there for digital, both from an analog rate point of view and otherwise, we have a lot of the key programming elements solved. We have good sports content, good movie content, good thematic general entertainment content.

So from our point of view, moving the needle on digital is a function of two things -- the chicken and egg problem there. And unfortunately, there's two eggs and two chickens, if you will. You've got both the programming situation in places like Benelux, for example, where I think people are well aware of our -- what's been happening there with us on the movie content, and what Canal Plus is considering on doing with all their movie and sports content. So that's one element.

Then you've got the technology costs and suppliers, who I think are more than willing to be accommodating on pricing of technology and digital boxes under the assumption that there will be significant volume. So one of the things that we've looked at and are evaluating, though I can't suggest that it is something that we will definitely do, is we are looking at more of a mass-market opportunity in places like Holland where we will go from being what is today a sell-in model that we are achieving on a relatively slow clip to more of a mass-market model, where we try to get as many of the homes as possible to be digital straightaway. And then open that conduit up for both programming and technology cost to flow through. And that's an equation of -- I describe it as we are evaluating. Part of that puzzle will be the content side of things. And I think there are a dozen initiatives we're working on across the Benelux markets as well as Eastern European markets to help drive both our analog and our digital penetration. And I don't want to take your time and go through each one of them, except to say that we're making good headway. We got the right people focused on them. And if we do get more aggressive on a digital rollout model other than what we've sort of budgeted, we will certainly include as part of that plan a very thorough update on where we see the programming picture evolving. So it may be just a little premature to get into it.

So these are good numbers. So, well done. Thanks for your time.

David Gladstone, Morgan Stanley.

Good set of numbers. Just on the adds for your projections for next year. Can you give us a breakout -- sort of how much of that will be Europe and how much will be sort of the other operations?

Well, we're not providing that kind of granularity. We are saying that we think you should expect that a big chunk of those will be data customers as they were last year. That's one point. I would say you could look at Chile. As I said in my remarks, that market has generated over 100,000 net adds every year over the last four years. You know, that's one data point. I'm not suggesting that that's a -- that you can look at those in a linear fashion. And that's one way to look at it. But we're just not providing that kind of granularity at this point.

And on the -- you mentioned voice over IP. That's being trialed at the moment. Do you plan a commercial launch during -- over next year?

As I said in my remarks [multiple speakers], we are launched on a trial basis in Holland. And the current plan is to be commercial, I'd say, by late summer early fall. And we're also evaluating a SIP trial -- so they're using different technology in the packet cable technology, probably in Eastern Europe on roughly the same timeline. We are in discussions with other network providers and technology -- talking to Net2Phone, talking to Sky (ph).

I mean, voice for us -- the IP voice opportunity for us, we think, is huge. And what I will tell you is that 2004 numbers do not anticipate a meaningful move in that product, because it's really a year of testing and launching. But I will tell you that we think it's going to be a much more significant part of our future over the next three to five years. And every time we engage on it, every time we make a step along that path, we get more comfortable and more confident about its contribution to our business over time.

Thanks. Final question on the revolver facility -- your facility A (ph) [technical difficulty] -- can you tell us what the drawings were at the end of the year in euros -- and any number since then --

Charlie, you want to get that one?

Yes, we've got about 250-plus drawn on it, and then we drew predominantly to meet the January interest payment. We're on six month fixings (ph). We peak (ph) [multiple speakers] about 266. But we're deleveraging because we've got a lot of working capital flows in Q1. And certainly, that's improved since that number so we're about [multiple speakers]

Sorry -- what was the year-end number, Charlie?

266.

Barry Kaplan, Maple Tree Capital.

Do you have any idea about how much capital this is going to require, let's say, in the first 12 months or so? And secondly, do you have any provision in the agreement to -- at some point in the future, to buyout Suez for a formula-based price?

I will start with the second question, and I don't know -- I presume we'll make these documents public. So what I'll say is, on the liquidity side, we certainly have negotiated a range of liquidity arrangements with Suez to begin with -- and Shane (ph), you jump in here if I misstep. To begin with, we do have any time in the first year, postclosing the right to acquire their 20 percent interest at the implied price at closing, plus -- I think it's 8 percent, Shane, isn't it?

That's right, Mike.

So we have a call on their stake at any time in the first year at essentially the purchase price plus 8 percent in the event that either we or they felt that it was not working or the relationship wasn't a positive one. We think it will be.

And then, secondly, there are put-call arrangements that kick in, I believe, after three years that are more fair market value based with the ability to use cash or stock, things of that nature. I'm not sure, Shane, if there's anything else to add to that.

Yes, at the end of three years, they have the right to put it to us at fair market value. We can use our cash or stock. Or if we don't want to use our cash or stock, we could put the whole -- we could choose, if we wanted to -- unlikely -- to put the whole asset up for sale. And then at the end -- if we haven't sold her at the end of year three, it becomes a hard put --

Right, so there's an interim step [multiple speakers] prior to a hard put kicking in -- on their part to us, there's an interim step whereby we would attempt to, if we didn't want to exercise that hard put or be on the receiving side of it, we would attempt to sell the business.

On the CapEx side, I don't know that we're disclosing that kind of detail today. I did mention in my remarks that while the network is an upgraded network -- and I think it's 100 percent digital ready and 80 percent data ready -- we do feel that to get it up to our standards, it will require some capital. I think it's fair to say that in the first year, the first 12 months of ownership, so to speak, we will be slightly negative on the free cash flow side of things with respect to the CapEx and assuming a modest amount of leverage and interest burden on the asset. But over time, it gets straight back to where it is today on both a very healthy EBITDA and positive free cash flow business. So I don't believe we're -- we're not going to describe in any detail the numbers today. But we will be investing on mostly a front-ended way in the network just to get it right to where we need it to be relative to our own standards. [multiple speakers]

It was worth pointing out that the news of the 20 percent equity ownership -- we will put debt on that business -- I've pulled it (ph) through our bank facility.

Second year, you'd be free cash flow positive.

I don't think we're going to give you that kind of detail at this point.

[Operator Instructions] Stephen Shapiro, Goldentree.

Can you talk a little bit about what you want the capital structure to look like longer-term? And is any of the news coming out of Liberty today in terms of how your structured (ph) impact what the ultimate capital structure is going to look like?

You know, I don't think so -- with respect to their announcement this morning. I think that you can assume that our strategic and financial aspirations are very much in sync with their strategic and financial aspirations. And by that, I mean that we are working very cooperatively and very consistently with John and Daub (ph), and we're coming up with our desired objectives in a common manner.

So our objective of being in the 4 to 5 times kind of net-debt-to-EBITDA range is, I believe, consistent with where they would say they would want to be with this new entity. So I don't see any conflicts there in terms of where we ought -- where our business is today, where we want it to be, and perhaps where their business is, and where they may want to be over time. So I think from that point of view, I don't think there's really any inconsistency (ph). In terms of other elements of our capital structure, Charlie, do you want to address that?

I think that we would predominantly be looking to use the bank facility we have in-place and build on the ability of that facility to add incremental tranches. I think it provides us with quite a good flexibility to integrate acquisitions on a holistic basis.

Okay, so for the near term, you're satisfied with the tranch, the amendment that was put in place recently and that short-term satisfies or addresses your --?

Well, I think it satisfies any amortization pressure that we may have felt. I mean, clearly, we are also looking to improve the pricing of our debt as markets move around. But I think certainly we have no amortization issue or covenant pressure at all. So that's very encouraging.

Is there a philosophy against the bond market at this point? Say you're inclined to stick with the facility you have now. It's not the cheapest facility, obviously. So what are your --

I mean, our average borrowing cost today is 680 or 430 over Euribor. So it may not be the cheapest, but it's a heck of a lot cheaper than the bond market. So I think from our point of view, we're borrowing in the sixes, albeit floating -- I will say that we have capped Euribor at -- I believe, 3 percent this year, 3 percent next year, and 4 percent the year after. So we are capped on about half of our facility in terms of exposure to floating rate.

But the bond market for us is -- you know, you never say never, Steve. But at this point in time, we don't think there's an imminent or immediate need to tap that particular marketplace. I think Charlie has done a fantastic job in both improving upon and creating a very fluid and positive environment with the bank (ph) in Europe. And we think that that is a great source of capital for us to make acquisitions. It also creates or maintains what I would view today as a very simple capital structure whereby we have one bank facility in Europe which we can very easily tack on new tranches to, and certainly where we want to, try to either fix rates or improve amortizations as we move along. So -- you know, you never say never, and we'll be opportunistic where we can. But I wouldn't view it as a near term opportunity --

It's over 100 percent capital '04 -- 50 percent for '05, '06.

Steve Fosset (ph), with Merrill Lynch.

Three questions. Am I correct that your debt leverage and liquidity chart excludes Noos from your pro forma?

Yes.

And could you expand a little bit about your choice for a SIP-based telephone offering as opposed to packet in Eastern Europe? And you said that you're on the same timeline -- but does that mean that you're trialing it today?

Yes, was that all three of them?

Final question. You mentioned that your basic subgrowth was between 2 and 3 percent last year, and would have been higher ex Holland. Is that --?

I said the actual kind of basic cable growth was 1.2 percent -- minus Holland, where we lost customers, because we had a -- we reported pretty regularly on the nonpaid disconnect initiatives in Holland, where we were cleaning up our customers.

I would add just as an anecdote that about a year ago, our bad debt in that marketplace was I think, Charlie, somewhere around 4 percent? Today, we're operating with bad debt in Holland of less than 2 percent.

That's right.

and 8 -- 1.7 (ph) percent. So that -- not only have we put everybody on a brand-spanking-new, triple-play (ph) billing platform with all the benefits of that, but we have, I think, significantly improved the customer base. And I think the bad debt figure is the best example of that. So but let me let you finish your third question.

Well, it was just on that subquestion -- whether or not you would anticipate in your guidance an acceleration of growth in that category?

In the video category, you mean? [multiple speakers] Yes, I would say -- because some of that video -- when I threw the 90,000 number out, that came from both DTH and from analog cable, and from Europe, and from Chile. So I think you should assume that we expect to have a better year in analog cable in Europe this year than last.

On the SIP question -- you know, there is -- I am sure a lot of you are following the market developments around Vonage and these other providers. There are advantages, we think, both in terms of speed-to-market and potentially costs in rolling out a SIP-based standard VoIP product. The disadvantages are that you may not be able to provide a carrier-grade-type service to customers, but you can certainly provide class of service, which we believe is going to be more than adequate for the type of market we're attempting to penetrate, and relative to the competition. If our CTO was on the call, he'd tell you that over time, these two standards are going to get very similar. They're going to merge, or it's going to be pretty comparable. What appeals to me about the SIP-based technology is it was just that -- a speed-to-market opportunity. It's scaling well. There don't seem to be any issues about scaling. We were -- vendor costs, technology costs seem to be where we would want them to be. And that's why we're going to hedge our bets. We're going to look at all the technology solution. We'll probably even test the Net2Phone solution and see how that works, because I think you need to be flexible here.

You need to be -- you don't want to be -- you want to be smart about all these technologies. You want to make sure you're not missing something. At the same time, you don't want to have 17 different flavors. So we certainly won't -- I don't want to give the impression that over the next two or three years, we're going to have four or five different models. These are trials for the most part. A trial is intended to get us as smart as we can be about the best solution. And I think that today, that's where we are. And a SIP-based opportunity trial in Eastern Europe makes a lot of sense to us.

Frank Knowles, New Street.

Couple of extra questions. On your 2004 key initiatives, you listed some off-net possibilities -- chello over DSL and IPTV in (ph) Sweden -- I wonder if you could expand a bit on those? Would you be launching the chello over DSL in some trial markets first, or would that be a broader launch? Would you be working with specific DSL operators? How would that work?

Yes, on the -- let me start with the IPTV one first. We are -- we do expect to launch an [technical difficulty] -- so essentially video over the Internet service in Sweden where we are, in essence, the program provider to an existing network owner who has built fiber to some homes where we don't have network today. So we've taken the opportunity of packaging our content and providing sort of the technical integration of our services with that network. And the provision of that service will be an IP-based video service over the Internet. And for us, it's a first step. But what I'll tell you is that it is definitely a technology that is working, and may very well be as viable as -- it has negatives (ph), it has disadvantages, not the least of which is the inability of using multiple TVs and things of that nature. But it's something we watch closely and believe in to the point where we're going to get smart about it by actually launching it ourselves in a market.

On the chello side, I mean, you know, the obvious point here is take a market like Holland where we have nice market share -- 40 percent of the market or so. But that other 60 percent of the market, our competitors, our DSL competitors are selling across 100 percent of the market. So they are getting advantages of national marketing and national scope and nationwide branding and things of that nature. And we're really stuck in our 40 percent. It seems to us that our ability to be competitive with what is clearly a very strong brand in markets I call (ph), for example, could be enhanced by looking at off-net opportunities.

So I'll tell you, these are early days. And we don't have any immediate initiatives planned. But it is something I would say is on the table to be looked at and evaluated. But it wouldn't look much different than anybody else's offering, except that we have the advantages of our own network, where -- for integration purposes our own bandwidth access, our own backbone, our own billing. We'll have a lot of advantages over somebody just waking up and deciding they want to get into the reseller (ph) business, obviously. So it's those advantages we're looking to leverage in places where we have great market share on net. And we think there's great opportunity off net.

I'm sorry, just following up on the IPTV -- is that something where on a broader scale, you'd need to renegotiate content agreements, or does your existing agreement largely allow you to offer the content you have over --

It varies. But in many cases, we do have IP rights for video content. In other cases, we don't. I believe in this instance, we obviously have the rights. And I don't think it's a complexity. But I think that's -- I don't think we can -- we can't generalize about that today. In some cases, I think we do. In other cases we don't. So you know, to be aggressive on a broader basis, you have to sort that out.

Well, listen, I think that's about an hour. So we appreciate everybody's times and attention. And as usual, you know where to find us if you have follow-up questions. And we look forward to talking to you soon. Thanks.

Thank you, ladies and gentlemen. This concludes the UnitedGlobalCom year-end 2003 investor conference call. If you would like to listen to a replay of today's conference call, please dial either 1-800-642-1687 or 706-645-9291 followed by the pass code, 560-4487. [Operator Instructions] You may also access a replay of today's conference call by visiting the UnitedGlobalCom corporate web site at www.unitedglobal.com. Thank you again for participating. You may now disconnect.