Liberty Global Ltd (LBTYA) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's third-quarter 2005 investor call. This conference call and the associated webcast are the property of Liberty Global Inc., and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global 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 question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded on this date, November 11, 2005. I would now like to turn the conference call over to Mr. Mike Fries, President and CEO of Liberty Global.

Thanks, operator, and welcome, everybody. As usual, we have assembled key management from around the world. We've got Bernie Dvorak and Charlie Bracken, our co-CFOs; Shane O'Neill, our Chief Strategy Officer; Tony Werner, our Chief Technology Officer; Liz Markowski, General Counsel. Also, from abroad, Gene Musselman, Head of UPC; Miranda Curtis and Graham Hollis, who run our Liberty Global Japan business; Mauricio Ramos from Liberty Global Latin America; and Rick Westerman, who you all know.

Before I go forward, I will let the operator cover a few formalities.

Thank you, sir. Page 2 of Liberty Global's presentation details the Company's Safe Harbor statement regarding forward-looking statements. Except for historical information contained herein, this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including guidance given for 2005. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements.

These risks and uncertainties include the continued use by subscribers and potential subscribers of the Company's services; changes in technology and competition; our ability to achieve expected operational efficiencies and economies of scale; our ability to generate expected revenue and operating cash flow; and continued performance comparable with the period annualized; as well as other factors detailed from time to time in the Company's filings with the Securities and Exchange Commission.

These forward-looking statements speak only as of the date of this release. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any guidance and other forward-looking statement contained herein to reflect any change in the Company's expectations with regards thereto or any change in events, conditions, or circumstances on which any such statement is based.

I would now like to turn the call back to Mr. Fries.

Thank you. You know, we hosted a pretty comprehensive investor day in New York not too long ago, so we decided to keep our prepared remarks today pretty brief. Charlie and I are going to cover some highlights and then we're going to get to your questions. As usual, we are speaking from some slides, which you can get off our webcast. Hopefully you're looking at those. And if you are, I'm on slide 4, which provides some highlights on our operating performance.

If there is one key takeaway from today's call, I think it is our continued acceleration in subscriber growth. We had yet another record quarter, 310,000 organic net additions, and that compares to just under 180,000 for the same period last year. It also exceeds both our first and our second quarter performances in what is typically our slowest period of the year, in the summer. I'll expand on that in just a minute.

We continue to deliver double-digit revenue growth -- 11%, both for the quarter and year-to-date, again on an organic basis. And of course, when you include recent acquisitions, growth was actually 20%. We also had a strong on a sequential basis, with third-quarter revenue up 5% organically over the second quarter and customer ARPUs in all three regions up sequentially in the 1.5 to 3% range, just quarter-over-quarter.

On the product front, VoIP continued to be a key driver, particularly in Europe, where we're now adding over 6000 customers per week and we're just shy of 200,000 net adds for the year there on the VoIP business. So we are on track to launch an additional three markets in Europe, which will bring our total homes ready for service from 4.5 to 7 million, and that should provide a nice kick as we roll into 2006.

A record quarter in high-speed data broadband Internet growth, with 155,000 net adds. That's the fourth consecutive quarter where we have added over 100,000 and we are still picking up steam. In fact, weekly sales in Europe alone are hitting the 20,000 mark today.

The video side, we have officially launched our "digital for all" project in the Netherlands, so we are rolling out boxes there as we speak. And this is on the back of very positive developments you may have seen on the regulatory front, where our recent analog price increases as well as our digital pricing plans were publicly supported by regulators and politicians.

Lastly, J:COM continued to plug away. Nearly 90,000 digital conversions or additions in the quarter, and their penetration is now over 30%, so good results there.

On the next slide, 5, just in case anyone missed my opening remark about this quarter's punch line, we put a slide together that I think illustrates pretty clearly the point of accelerating subscriber growth. It lays out organic net additions for the first three quarters of 2005 compared to the same periods in 2004. And that is also pro forma to J:COM. There's three ways to look at this chart; they each make the same point. If you just focus on the blue bars for a minute, so the core net adds in 2004, you'll see that even last year we had a ninth sequential progression quarter-to-quarter, with net adds increasing 9, 10% every three months. If you then focus on the orange bars -- so that is just our quarterly results for 2005 -- you'll see the same sequential trend only better, with net adds growing plus or minus 20% each period, from 200,000 in the first quarter to 310,000 in the third quarter.

Lastly, if you just look at it year-to-year, so blue against orange, you'll see that in each quarter we continue to stretch the performance compared to last year. So in the first quarter, we were pleased to report a 40% increase in net adds over the prior year. It was 50% in Q2; it was 74% in Q3. There's really three things at work here. The launch of VoIP in Europe has allowed us to double net adds year-over-year in our voice services. But voice is also driving data sales. 50 to 60% of our VoIP installs in Holland and Hungary continue to create triple play customers.

Thirdly, the graph would show that our churn is down year-over-year, considerably -- almost in every product, but in the aggregate -- in particular in data -- but in the aggregate, across all products and markets, which is well under 1% per month. That is a good result. So it's what -- 780,000 net adds year-to-date and our strongest quarter, the fourth quarter, ahead of us. We are pretty confident, of course, with our year-end guidance of 1.1, 1.2 million RGUs.

Page 6, just some highlights on the strategic side. It's been very active quarter on the M&A front in Europe. We closed the Cablecom acquisition and I'll expand on that in just a moment. We completed the purchase of Astral, which makes us the largest operator in Romania. We received regulatory clearance on the acquisition in Ireland, so we expect that to close by year end. These three transactions alone are going add 3.3 million RGUs to our year-end sub base which with acquisitions and growth ought to be approaching 19 million.

In Japan, consolidation is picking up steam. J:COM completed two transactions, Odakyu and Kobe which together added over 0.5 million homes passed to their footprint. As we look ahead, there's a few things in the near to medium-term pipeline but our primary focus right now is in integrating each of these deals and to our existing operations with a same source excess we've had in places like France and Chile.

We do continue to chip away on the content front. Bit by bit we closed that important acquisition we've talked about of Canal+ in Holland and that gives us the key sports and movie rights there to support our digital migration. We completed the merger of our sport service in Japan, creating one common premium sport service with partners and by the way, JPC has had a fantastic year-over-year of cash flow, which we put in our press release yet again.

And then lastly, I'll take the opportunity to comment on mobile initiatives. It seems obviously to be a topic of much discussion lately. We certainly agree with our North American peers on the benefits of a mobile service in a Quad-play offering. In fact, we've already launched one in Holland last August, just this past August, an MB&O product. We now have 10,000 mobile customers in that market and we're focus on doing literally the same thing in other markets and in fact have announced plans to launch a mobile product in Japan in the first quarter of next year.

So whether it's mobile voice, mobile data, or fixed mobile convergence, we have a strong point of view on each and I think we will have plenty to talk about as we roll into 2006.

On the balance sheet with the completion of Cablecom, we have now reached our gross leverage target of 4 to 5 times. Charlie will walk you through that but we are comfortable with our deposition. I think importantly we continue to replenish our cash balances and to monetize noncore assets. You may or may not have noticed that we raised over 400 million in the last quarter primarily through the sale of the SBS (ph) stake at roughly 12 times cash flow. But we have also formally listed our Scandinavian properties and they are in the second round of bids there. If we move forward with that sale it will substantially increase our cash balances.

We did file our shelf registration. Let me just say that that was only to preserve optionality. We have no specific transactions in mind as we sit here and as I think I've indicated or intimated at the outset, we're going to confirm all of our guidance today, which excludes Cablecom. And that is my last point here on slide 7.

We did close that transaction last month. It added roughly 2 million RGUs to our European footprint. I have said it before and others have as well but may bear repeating, this is a deal that is a perfect fit for us in almost every respect. Switzerland is arguably Europe's richest and most attractive communications market; the high video penetration rates in the 90% range and limited to no video competition today from satellite or DTT or telcos. It is also unique among Western European markets in that the local loop has yet to be unbundled. So there is a nice window for us to continue to drive data and voice penetrations.

We did stretch a bit on price but we did fund the acquisition 100% with new debt and existing cash, so leverage just over seven times. That's going to help us drive equity returns there. And you may have noticed we're already knee deep in the integration process where we think synergies are going to (technical difficulty) our estimates. You may have noticed that we announced plans to reduce headcount by around 250 which not only streamlined the organization but contribute roughly 20 million regularly to the cash flow line and we're just really getting started that whole process. So we're pleased with this operation and think it is going to be a great one for us.

So maybe in closing on my piece, I think we purposely put our chins out there a bit during our investor day and when we laid out our strategies and our medium-term targets. So it's fair for you to judge us quarter by quarter on how well we're doing. And when you consider the three key of value creation that I spoke about, organic growth, footprint expansion and content and new services, I think you will agree that we had a pretty good performance in this past quarter.

So I'm going to turn it over to Charlie who will run through some numbers and then we will get to your questions. Charlie?

For those of the following along, I'm on page 9. I might thoroughly underline that this has been a record quarter for us in terms of subscriber growth with the addition of 310,000 RGUs, which is up 74% from the 178,000 that we added at this time last year.

I just want to underline for everyone following that we actually use the single count methodology, which is different to our North American peers. We also have over 20,000 regular (ph) customers as Mike mentioned, but we are excluding those from the RGU count because the economics of those customers is very, very different.

So in total at September 30, we had over 15 million RGUs, about 60% analog video and the other 40% advanced services RGUs. The regional breakdown is 10.4 million in Europe, 3.2 million in Japan and 1.5 million in Chile and Puerto Rico.

Just a couple of highlights from Q3. In particular Europe had a fantastic quarter with net additions up nearly 300% to 148,000 from 38,000 in last year's Q. On the product side, Internet as Mike said driven in part by the bundle was up 75% to 156,000. So we now have over 2.6 million high-speed data customers. Voice is really driving the acceleration of our telephony ads and we added 118,000 in Q3, 88% up from last year.

And even in video where the story is more one of migrating ARPU upwards because we have pretty good penetration today, we had a net gain of 36,000 RGUs which is made up of 108 increase in digital offset by the 71 loss of analog, many of which migrated to digital. That is a pretty good story and as we look to migrate our analog base to digital, we're very encouraged that we are actually increasing our video penetration.

I should also underline that the summer is a seasonally very soft period in Europe, particularly July and August and these really are outstanding results in our mind particularly given that context.

Just turning to the financials on next page, page 10, we set out on this page the summary of financials as reported so there is no pro forma information here but as a result, the growth figures are a little skew because J:COM was consolidated in 2005 but not in 2004. As I have said, the revenue in Q3 is $1.3 billion and OCF $463 million. The margin, the OCF margin in Q3 is up 30 basis points from last year but it actually represented to 220 basis point increase from Q2 this year, which is a more same store comparison.

That sequential increase has been driven by the higher margins in Western Europe and Japan, where we continue to drive scale economics and as we said many times, still see opportunities there to grow.

CapEx was around $317 million for the quarter, up 145% from last year and that is mainly due to the consolidation of J:COM but also higher variable spend, success based CapEx if you like, to support our faster customer growth. So as a percentage of sales, CapEx in Q3 was in line with our guidance target of around 25% of revenue. CapEx for the nine months year-to-date if you like is $938 million, also around 25% of year-to-date sales. Just for those who are looking to tie this back to what's going on in some of our other reports, we should mention that the capital lease additions which is basically happening in J:COM where we are leasing digital set-top boxes are actually included in CapEx in these figures.

Due to the free cash flow story, it's around $51 million, which is down from $33 million from the 84 we had in last year's quarter and the year-to-date free cash flow is $78 million. And if you add back $75 million related to the CineNova JV with Sony and Disney, which was a one-off that we took this year, the pro forma figure would be over $150 million. Our positive free cash flow remains important to us but we continue to see very attractive opportunities to invest and achieve a return on capital.

Turning to the revenue side on page 11, this slide shows revenue growth pro forma for the J:COM consolidation, i.e. as if we are taking J:COM in the books in Q3 of 2004 and we have also tried to show here the growth rates when you neutralize out foreign exchange movements. But we have left in the impact of acquisitions.

Looking at that basis, in Europe you can see revenue was up 19% on a reported basis to $678 million in Q3. Western Europe was up 15% and Central and Eastern Europe was up 32%. Currency neutral in Western Europe broadly quarter on quarter but in Eastern Europe we see the currency strengthen against the U.S. dollar, as they have been actually for some time. It has been a very positive trend for us. And that has added about five percentage points to the reported growth.

In Japan, J:COM posted a 14% increase to $419 million. And in Chile, VTR increased revenues by nearly 60% to $119 million and that includes a positive FX swing and perhaps more importantly the impact of the Metropolis acquisition. But if you back out the currency, VTR is still up 40% hereunder. So in total, LGI consolidated revenue increased 20% on a reported basis to 1.3 billion. Overall there was not as much foreign exchange impact as currency neutral growth, which makes it 19% year-on-year and as usual, Central and Eastern Europe and VTR continue to be the top performers.

Finally in terms of organic growth, which strips out acquisitions and foreign exchange, we are up 11% year-on-year for the three and nine months, which is consisted with our double-digit topline revenue growth target. Perhaps more impressive was the sequential organic growth, which was up 5% in Q2 or about 20% if you annualize it.

Turn to the OCF on page 12, in Europe OCF increased 13% year-on-year to $256 million. Western Europe was up 10% while Central and Eastern Europe was up 27%. Western Europe was impacted by the new product launches in NL (ph) and I will talk a bit more about that in a minute.

In Japan, J:COM delivered 14% growth excluding currency to around 166 million in Q3, which was much a stronger performance than in Q2 and we were flat year-on-year. And in Chile, VTR delivered 30% growth excluding currency to $38 million, taking advantage of some of the synergies following the Metropolis merger and there's more to come there.

So overall, Liberty Global consolidated OCF was up 15% to 463 million in Q3. On an organic basis, OCF was up 11% -- 10%, I beg your pardon. As most of you know, we've had several new product initiatives underway in the Netherlands and as a result we've seen higher operating and customer care costs there, particularly as it relates to our digital-for-all project. As a result, our Dutch OCF is down about 12% year-on-year. So if you back out the Netherlands results, our total consolidated organic OCF growth will be up 17% year-on-year. I think the digitization project in Holland with a couple of years, this may be a recurring message that you hear from us over the next couple of quarters.

Finally, let me turn to leverage and liquidity. Total debt was 7.3 billion at September 30 and cash and cash equivalents were 2.5 billion, so net debt as reported was 4.9 billion, up around $350 million from June 30. Now on that basis, gross leverage was four times at September 30 and net was 2.7 times OCF. However we've had a very busy time in the fall with financings principally around the Cablecom acquisition and our cash balance has changed quite a bit through December 30.

Unfortunately we cannot show pro forma numbers as we're still converting Swiss GAAP into U.S. GAAP, but if we estimate today's pro forma gross leverage as between 4.5 and 5 times and we have around about just under $10 billion of debt and $1 million of cash, that is adjusted for not just the Cablecom acquisition but also the closing of Astral in Romania, the step up of our ownership in Telemets (ph) and also from the receipt of proceeds from the SBS sale.

In addition to cash at September 30 we had significant liquidity with all the capacity in our bank facilities and also of the nonstrategic investments that we've been focused on monetizing. The revolver capacity was $531 million at September 30 and other investments were valued at over $1.1 billion. As Mike said, we have been actively monetizing investments. We received funds from the cull we did on the (technical difficulty) as well as disposal of SBS. The total liquidity including cash was around $4 billion at September 30.

Let me just conclude on page 14 by underlining Mike's message, the continued to operational excellence. A very strong quarter in our minds. We are delivering on the strategic initiatives and are well on the way to try and drive those scale economics and synergies and we feel very well-positioned for a strong Q4. And on the back of that, we are very happy to confirm our 2005 guidance.

Operator, I think we're ready for questions.

(OPERATOR INSTRUCTIONS) Jeff Wlodarczak, Wachovia Securities.

I will limit my questions to four. When you were talking about reconfirming operating cash flow guidance, is that in despite the fact the dollar strengthening more than expected?

I think when we looked at our guidance, it was taken into consideration a full year of FX rates and I think we feel comfortable that despite the strengthening of the dollar and the flat little bit in the year, we are fine. (multiple speakers)

Our guidance is actually at those specific FX rates and when you look at for example the dollar/euro year-to-date, it's at 1.26 so it's actually still a little bit above even though it is obviously much lower today.

Our guidance is at 1.23 or 1.24 for the year, right, Rick for the year?

1.25.

For the full year, yes.

Realizing it is early; can you provide more color on how the Netherlands are going that the digital conversion? It 25 the right number that hits operating cash flow this quarter on expenses related to that?

I will tell you and then I will let Gene expand on it a little bit. We are in the early stages of rolling out boxes to customer bases there. First would be our existing digital customers of which there are roughly 50,000 and to whom we have had really a seamless transition. The box arrives, they hook it up, and in almost every case and platform is stable and everything is working fine. We have also started rolling out devices of nondigital customers. And I think we're finding that in that case most of the boxes are making it through the door and it is early days but about 80% of them are out so -- are getting installed overtime.

I think we feel reasonably good. We're taking our time on this. Between now and year-end have very conservative assumptions about what we'll achieve, making sure all the systems and processes are working fine and that the platform is stable. So nothing to report there other than just its going well based on what we expected to accomplish this year.

In terms of the increase in OpEx, it is principally coming out of customer care and marketing of (technical difficulty) and it is our view that you will have a period of time as Charlie indicated where that incremental expense will not be offset by revenue but with boxes going out as quickly as we expect them go out in 2006, that revenue is going to come in reasonably quickly.

You may have seen our pricing announcement. We do expect almost a EUR2.5 increase from customers who do hook the box up after a six-month trial period. So as those boxes roll out in greater quantities, you're going to see revenue start to pick up and that will obviously in our mind over time more than offset the incremental cost. This is a highly positive MVP (ph) project when you look at it at the scope of the project over a couple year period.

Then Cablecom, I know you're talking about 15% job cuts by 2008. There's been some noise about potential strikes. It there any risk there?

Do you want to handle that? Gene?

No, I'll take it. First of all, the 15% job reductions, they are to take place between the end of November, this November, and June of '06. With respect to activity so far, we have met with the local unions. We have had some very productive conversations. I think their main concern is that we have a good social plan in place. We think we do at this point. They have taken it away. They're studying it and they will come back to us. But at this point, there is every indication that we are going to be resolving any outstanding issues I think in the coming days. And I think if you'll also note in this morning's newspaper, Swisscom announced the cutting I think of 260 jobs.

This is something that we've got a fair amount of experience in. Gene in particular has been on the ground in a number of countries in this very same situation. So if he says we're confident, I am pretty confident.

Fair enough and then just last question. The 60 million in stock option expense was quite a bit higher than we forecast. Is that purely stock price movements or is something else going on there? And then what sort of a reasonable assumption for the fourth quarter?

Bernie?

Yes, it is basically the increase in the stock price -- just marking it up. And the fourth quarter, your guess is as good as mine on that one. Hopefully it is a healthy number as well, but that is exactly what it is.

Okay, thank you.

Alan Gould, Natexis Bleichroeder.

On the M&A front, can you just give us some sense of the sale of Scandinavia, would that likely be for a price valuation that's higher than the company is currently selling for? And do you see many opportunities in Eastern Europe such as Aster (ph) for you guys to be on the buying side?

Yes, I think (indiscernible) won't let us speculate as to sales price. I will till you that we are in the second round bidding process and we certainly have some visibility but you never know what will happen between now and the close of the transaction so I wouldn't want anyone to act on this. We do think that the valuation ranges that we're seeing are certainly at or above and would be accretive to our own valuation multiple, but we will have to see how that pans out.

And in terms of Central and Eastern Europe, there are definitely some opportunities to be evaluated that are in the pipeline as I say after city (ph) -- what you referred to as the overbuild in Poland, we will certainly look at -- it is our view that in an overbuild environment, there is really -- it is unlikely that anybody would be interested in acquiring that asset other than the other overbuilder if you will and since we are larger and have a far more larger platform there, we are a likely buyer, but we will see what happens. It is a transaction we would like to do but we'll just have to see how it unfolds in terms of timing and pricing and it may be year-end deal. We don’t know. It's still kind of on the way.

As a follow up, you will limit yourself to about five times debt to cash flow in Europe?

I think if you look at the debt to cash flow ratio on a consolidated basis, that's certainly how we generally look at our business globally and four to five times on a gross leverage is sort of what was our target. As Charlie indicated, pro forma for Cablecom -- we're largely there. That doesn't mean in certain cases we might not be a little higher, and in other cases a little lower for example as we said we're seven times in Switzerland but we are 2.5 times in Chile. So I think we're going to balance out the debt and the balance sheet itself by looking at it more globally. You might see us a little bit higher in some instances in some parts the world and a little lower in others.

Okay, thank you.

Frank Knowles, NSR.

Just one specific question on one market. In France, you mentioned that the Voice over IP growth in Netherlands and Hungary was having a good effect on Internet growth but in France it actually looks as if Internet adds are falling quarter-on-quarter for the last couple of quarters as voice has actually accelerated. I just wondered if there is anything particularly odd going on in France to explain that? Also if you could just talk about whether yet you've made any decisions about any digital for all programs in any other markets apart from the Netherlands?

I think I will just take those quickly and maybe Gene can follow up a bit on France. In terms of digital for all in other markets we have not yet made decisions about other markets. We will look at them as we said in the past on a case-by-case basis, so no new news there.

In France, the VoIP rollout has gone as well or better than we expected it to go out, but you have to remember that France is a highly competitive market with a number of resellers and triple play providers. I will add though that we are seeing that 75% of our VoIP sales in France are going to new customers so customers that are not either a data or video customer today and that is a great stat as well. In most of markets where we have launched VoIP, we are the dominant video provider or the largest video provider, and so we are seeing a fair amount of upselling. But I think it is encouraging that in France the vast majority of our VoIp sales are going to customers who are not UPC or News (ph) customers today and that is generating long-term value as well. Do you want to add any color on that, Gene?

I guess the only thing I would add is that as you know when we acquired News there was a major upgrade to be completed particularly in the Paris region. We are in the process of doing that. And as we upgrade those areas we're rolling out VoIP. In the meantime however, we're at a competitive disadvantage because as Mike indicated, this is one of the most competitive markets that we operate in and in those nonupgraded areas we're facing triple play competition with offers in the 2990 range and we need to keep pursuing our strategy, and that is upgrading their areas and getting our own triple play in place so we can compete.

That's very helpful. If I could just do one follow up to the question that was asked earlier about M&A. Is the Scandinavian assets going to be definitely sold as one asset or would you consider selling the two countries separately?

We're going to look at all options and see what maximizes the value to us. Our preferences is obviously one buyer but I can to you that we are looking at some single market bids and we will see what ends up generating the most value.

That's great. Thank you very much.

Ted Henderson, Stifel Nicolaus.

On the mobile services front, the 23,000 adds in less than two months in the Netherlands seems to be pretty strong. Can you share with us any economics on that in terms of ARPUs and contribution? And also in the release you also said that you've been acquiring some low-cost spectrum opportunistically in some other markets. Should we be assuming wireless infrastructure CapEx moving forward? Is there buildout in those markets and are you ready to identify any of those markets?

I'll take the second one and maybe, Gene, you can think through the first one. We have been acquiring some spectrum around the world or have acquired spectrum to the connective (ph) acquisitions around a world. And I can till you we have not spent much on that spectrum on average. We own 3.5 gig spectrum in places like Switzerland and Norway and Austria. And we have the 2.5 gig spectrum obviously that's being used for M&D (ph) in Ireland. We have not made final decisions about when and where to roll anything out but I will tell you and Tony (ph) is on the line here, we are spending a lot of time evaluating the economic and strategic benefits of doing just that. At this stage though I wouldn't be factoring significant CapEx into your models until we give folks a little more transparency and a little more color on where we're headed strategically.

That's fair. Mike, is it the voice opportunity that's driving it or are you guys leaning on this mobile content initiatives that seem to be springing up everywhere? Do you see great opportunities in that just as a general statement or are you kind of cautious on the viability of mobile content on small screen devices?

I'm not so sure mobile content on small screen devices is a competitor. It could be an ancillary revenue source for us if we can brand and package content for our own or others mobile devices. I'd say we look at the mobile wireless business in three or four different contexts. First it's a simple Quad-play opportunity, which you obviously are well familiar with and which we've already launched and are about to launch in other markets. So just adding a fourth leg to the stool is perhaps the most simple approach to a wireless solution and we are doing that where it makes sense. We do think it makes sense.

Wireless broadband is using perhaps some of that 3.5 gig spectrum we have and building infrastructure of a wireless data service, which we see as mostly being either an extension of our footprint in certain areas or a value-added service so that we can provide mobility or portability to our existing broadband customers.

And then thirdly, it is about fixed mobile convergence in the home, where we think our networks are capable of back hauling and managing traffic much more efficiently than mobile networks. And so we will look to find devices and commercial arrangements with mobile providers to try to take advantage of that. And I think that is going to be an increasingly interesting opportunity, especially as mobile content evolves, because bandwidth will become such a premium to those operators themselves (multiple speakers) to take some of the traffic off their hands while they're in the home I think is a great strategic benefit and commercial benefit to both.

On the content side itself, I would say that where possible, we will look to brand and sell our content across the mobile devices, but that there is no immediate initiative in our markets because that is probably a little farther behind than most of places we do business. But it is something that we think we're well prepared to take advantage of if it makes sense. And mobile on the best (ph) launch, Gene?

Yes, if I can just add a couple of things, I guess. As you probably know, this is a prepaid model where the customer actually buys a SIM card and pays for it for up front. And we make our money from a call setup charge, a per-minute charge, and a charge per minutes also on the SMS messages. This is a low-margin business, probably in the range of 30%. The primary driver for doing this is add a fourth leg to the stool to add stickiness to the product to give you more firepower in terms of your marketing and sales messages.

We also initiated a couple years a similar project, although it has some different twists, in Austria, where about 70% of all our telephony customers have both a mobile and fixed package. And I think in the coming weeks, you'll see us probably make a major announcement in Switzerland with respect to tying up with a mobile provider there. So we are looking at opportunities across our markets, particularly as we roll out VoIP product now.

That's great. That's helpful for how it fits into your strategy. I appreciate it. Thanks.

Frederick Kooij, Credit Suisse First Boston.

Just a couple of questions to focus on Europe, naturally. First, on the CapEx, it looks like as a percentage of sales, it's running at about 23% for the first nine months. Does that mean that you're going to have to clip that a little bit going to Q4 to hit your 20 to 22% target?

I'll ask my follow-on straightaway. It looks like outside of Hungary and Eastern Europe, revenues actually fell sequentially. Can you just give us some flavor as to whether or not that has to do with the dollar, whether or not to do with seasonality -- just a bit of an explanation, please. Thank you.

Charlie or Rick?

I would say on the CapEx side, one of the key drivers under U.S. GAAP is the size of your payables positions. So actually, we feel very comfortable with hitting the target we've set out in Europe of CapEx as a percentage of sales but not (indiscernible). Because even though we'll have a lot of CapEx, (indiscernible) prepayment terms will be rolled over into Q1.

Then in Eastern Europe, the business continues to go very strongly. I suspect it has more to do with currency than anything else.

And I would just add that the CapEx as a percentage of sales target is actually 25%, which is consistent with the figure for the nine months. It is just a little bit below that.

I thought for Europe it was a little bit lower than that, but (indiscernible).

We are only providing consolidated CapEx guidance.

Adam Steelman (ph), PPN America (ph).

I just want to confirm, when we look on slide 11 and 12, those are not -- you provided FX adjusted growth, but for Europe those are not truly pro forma organic growth numbers, because there are some acquisitions -- is that correct -- in the current quarters that were not in the last year -- France and probably another one?

Yes, that is correct.

We talked about the organic growth (multiple speakers), but those slides are just backing out currency.

I missed it. Can you just repeat what the organic growth in Europe was for the quarter revenue in OCF?

For the quarter for revenue it was 11%, and for the quarter on cash flow it was 10%. But if you back out Holland from the equation, where we have had a number of costs associated with new product launches, the consolidated cash flow growth would have been 17% organically.

Astral was the one you closed. Have you talked recently about as you've closed these deals, you're going to try to put the assets in the restricted group. What is the -- when or have you and when will you put Astral into the lender restricted group?

Astral is already in. When we close it, we (indiscernible) it in the parts.

It's in the account?

Yes.

And then just a final comment. This is a tough story to follow from an analytical perspective. It would be nice to see you guys slow down the acquisitions and we can kind of get a better handle on your organic growth. It wasn't that many years ago that the European cable industry was in disarray and there was a lot of debt financed acquisitions and it was hard to follow. So it seems like it's different this time, but it would be nice to see a little bit of a cleaner organic story going forward.

We take that point, and we certainly have been very busy on the acquisition front, but that was an important objective of ours, to take advantage of opportunities when they arise; and sometimes you can't control the timing of that. But I do agree, and we will, as I said in my remarks, we feel pretty good where we sit. There's a few things in the pipeline, but I think we do our best to make sure people understand what we're doing, why we're doing it, and how it impacts our numbers. We'll make sure we continue to do that.

David Joyce, Miller Tayback & Company.

Could you update us on your off-net strategy, the markets you're in and where you might expand that? And if there could be any product expansions on that as well?

Yes, the only place we have really been aggressive in the alternate strategy is Poland. And I think what we found there is that it takes a while to realize the benefit of national scale, because while you are rolled out, you still don't have a significant customer base. I would say that that project continues, but it has probably proven to be a bit tougher when you look at all the things we're focused on in that marketplace than we initially expected.

There's a couple of other countries where we are looking at DSL providers, both in markets where we operate and even in some cases outside of the markets. Nothing to report or to point you towards, but we do think there are going to be -- there could very well be situations in the future where expanding into that technology may make sense for us, both as an extension of our footprint and perhaps even expanding our operations within footprint. Do you want to add to that at all, Gene or Shane?

The only thing I would mention is that I think there's opportunities that exist perhaps in Cablecom in Switzerland. We're taking a hard look at that. We just finished our first round of budget cuts there.

If you are really going to be successful in this kind of market, I think you have to get more into a greenfield opportunity, where it is not so crowded. When we entered the Netherlands market, there were already 10, 11 major players. We have not given up on the Netherlands market by any sense at this point. I think we are just being more prudent and taking a measured approach.

All right. If I could follow up on the M&A front. There had been talk that you might be interested in Israeli Cable assets, which happen to be some systems that a predecessor, an entity had been invested. Would you look to move in that direction or do you want to stick a little bit more to Continental, Western and Eastern Europe?

I don't know where that report came from. We're not looking at that asset.

Matthew Harrigan, Janco Partners.

I know you have an amicable relationship with the Dutch regulators at this point but there was a story the other day that the EU was looking at the authority of the local authorities to regulate cable. And I know you are not trying to stir this up but does that have any long-term implications for your business and is that something that could even affect your business in other countries if you did have an umbrella framework at some point going forward?

I'll let others comment on it as well, Matt. We feel pretty confident and pretty comfortable with how the EU has approached regulation and certainly in some instances that regulatory environment conflicts with local politicians and local regulators. But in most cases where we have been involved, the EU has prevailed and has been relatively forceful in its implementation. You could see that in the context of the fiber to the home build. I think you can see that in the context of rate regulation and market definition. So I don't see a sea change occurring. I will let Shane or Gene or others comment on it. I think we are in pretty good shape there and the EU has been very supportive when it comes to our store markets.

If I could just add one thing to it, Mike, as you probably know the MMA (ph) just finished their review of the rate increase that we took in '04 and concluded that we did not abuse our market position by charging excessive rates. And what is interesting I think was a week or so ago the European competition commissioner, Neelie Kroes, who actually is from the Netherlands came out publicly and said that she favors a free cable TV market in the Netherlands and so perhaps the momentum is moving for the first time in our favor.

And then as a follow-on, I guess a parallel question for Miranda. I think there's been some noise out of Japan with NTT (ph), talking about its business plan and trying to move some things on a regulatory front there and I know you talked about this somewhat at the September 30 conference but it seems like it's a pretty fast-moving target over there. Does Miranda have any additional comments on that?

I think clearly as you say there's a lot of noise about NTT activity, both from restructuring and the venture that they have announced for the second time which is like I say (inaudible). We're seeing a lot of noise and a lot of activity but very little of that is translating into subscriber acquisition. What we're seeing is that for example -- with our TV hat on of course we're in a position to track pretty closely with the rollout of real video broadband subscribers. And there's still fewer than 100,000 FTTH (ph) video subscribers in the market. And although there is a lot of aggression on the broadband Internet side, again what we are seeing in J:COM over the course of the last few months is not only a very stable subscriber base and an increase in ARPU. So what we are seeing is J:COM's subscribers in the midst of all this competitive noise are actually staying with us. We're increasing the bundling ratio, they are increasing the amount that were paid to us that they are prepared to pay us. They are upgrading their services.

That 500,000 digital subscribers J:COM has today are all high-definition 100%. They are migrating pretty steadily toward a 30 megabit (ph) product. We're getting ready to launch or we launched Voice over IP in (inaudible) successfully, getting ready to roll that out across the board. So although there continues to be a lot of noise and a lot of press coverage, we are not seeing it have any impact on our core business. And what we are seeing is that that noise I think is increasing, is changing the climate such that it will precipitate consolidation of the industry as the smaller cable operators begin to worry about competitive pressure. So we track it. We keep an eye on it, but we are not seeing it have any impact on our business at this stage.

Great. Thank you.

(OPERATOR INSTRUCTIONS) Vijay Jayant, Lehman Brothers.

Mike, I'm just -- given the complicated story and in an environment where like today you blow up the unit numbers and for some at least people thought margins were sort of being stressed a little. Can you sort of talk about if the unit numbers are -- what is the variable cost really associated by having one additional RGU? Again is that varied by product type as well as by country? So if you beat your numbers, we can sort of say yes that is partly the reason the margins may not have been better? I'm just trying to get some simplification way of addressing headline numbers when it comes out.

I think you know there is a direct relationship between subscriber growth and sales and your marketing and acquisition costs. So clearly as we -- as you say blow through budgets and expectations on customer growth, which benefits us in the long run or the medium term even, in the short term, in that particular quarter you might see some dislocation in the OpEx figure because it does cost money to install customers.

Everyone of our bundles and individual customers is a positive NPD customer. We're not in any business where we are hooking up customers that don't generate positive returns to us over a reasonable period of time. So it is my view and I think the right view that if the market opportunity presents itself to grow your customer base, you take advantage of that because this is largely a game of market share. And we want to have the biggest, strongest marketshare we can possibly have in every market we operate in so long as those are positive MPV products and services which in this case they are.

So if there is really one key message and I've said it a couple of times already out of this quarter, it's that we are experiencing as we predicted but even in excess of what we predicted, an acceleration of sales and subscriber momentum. And that can't be anything but positive. We will do the best we can to explain to people what impact that has on short-term margins in every instance. If we continue along this path in the fourth quarter we will try to do better job if necessary to make that point clear. But you are right. There could be an immediate impact but that is certainly the right way to be spending you capital and your time.

Just a follow-up. Did you sell some of your MMDS business in Chile it appears on the sub cable (ph)? I'm more confused on that negative subscriber adjustments.

One of the conditions of the merger down there was to get rid of our MMDS business, which we did.

That does conclude today's question-and-answer session. Mr. Fries, I'll turn the conference back over to you for any closing comments.

Sure. I think I appreciate everybody on the call and certainly we feel good about the results and I'll just repeat what I said a moment ago. The most encouraging aspect of this performance in my view is the acceleration of subscriber growth, which we should expect to continue through the fourth quarter, historically our strongest quarter, anywhere from 40 plus% of our annual net adds occurring in the quarter. So I think we are hitting on all cylinders; across markets and across products. And have been very, very busy on the M&A front as a few of you have pointed out and do expect to take a slight breather where we can without missing opportunities to absorb and digest and make sure we integrate appropriately.

So I appreciate all of you joining us this morning and we look forward to talking to you after our year-end results. Thanks.

Ladies and gentlemen, this concludes the Liberty Global second-quarter 2005 investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website, www.lgi.com. There you can also find a copy of today's presentation materials. That does conclude today's teleconference. We appreciate your participation. You may now disconnect.