Liberty Global Ltd (LBTYA) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's year-end 2005 investor call. Today's call is being recorded. 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 expressed 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, March 14, 2006.

I would now like to turn the conference call over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

Thanks and welcome, everybody. Thanks for joining us on our call. We're very excited to get this call underway. We have a lot of good things to top about. Let me do some quick introductions. We're joined today by Bernie Dvorak and Charlie Bracken, our Co-CFOs; Rick Westerman, Head of Investor Relations; Gene Musselman, Managing Director of UPC, or President of UPC; Shane O'Neill, who runs our strategy and M&A and programming businesses in Europe. We have Miranda Curtis and Graham Hollis in Tokyo, who obviously oversee our Japanese businesses; Mauricio Ramos, who oversees Latin America; Liz Markowski, our General Counsel; and Tony Werner, our CTO.

I'm going to turn it right back over to the operator to get our Safe Harbor done and we will start the call after that.

Thank you, sir. Page two of Liberty Global's presentation details the Company's Safe Harbor statement regarding forward-looking statements. Liberty Global's presentation today will include forward-looking statements within meaning of the Private Securities Litigation Reform Act of 1995, including guidance for 2006 and longer-term targets; components of Liberty Global's capital expenditure program and anticipated returns from that program; an analysis of Liberty Global's anticipated prescriber return on investment; insights and expectations regarding competition in Liberty Global's markets; the impact of Liberty Global's M&A activity on its operations and financial performance; and other information and statements that are not historical fact.

These forward-looking statements involve certain risks and uncertainties that could cause Liberty Global's 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 Liberty Global services; changes in technology, regulation and competition; Liberty Global's ability to achieve expected operational efficiencies and economies of scale; the long-term success of Liberty Global's digital migration project in the Netherlands; Liberty Global's ability to generate expected revenue and operating cash flow; and achieve assumed margins including to the extent annualized figures imply forward-looking projections; continued performance comparable with the period annualized; as well as other risks and uncertainties identified under the caption "risk factors" in part one of Liberty's annual report on Form 10-K for its fiscal year ended December 31, 2005, which was filed with the Securities and Exchange Commission earlier today. These forward-looking statements speak only as of the date of this presentation. Liberty Global expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Global's expectations with regard thereto or any change in events, conditions, or circumstances on which any statement is based.

Today's presentation will also include non-GAAP financial measures within the meaning of the SEC's regulation G. A reconciliation of those measures to the most directly comparable financial measures calculated in accordance with GAAP can be found in the Investor Relations section of the Liberty Global website, www.lgi.com.

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

After that if you're still willing to stay on the call, we are on slide three. As you know typically we post our presentations to our website, so you are welcome to go to that, hoping you will go to that because we're going to speak to those slides today. You can see the agenda on slide three. It should look pretty familiar to you. I'm going to walk through some highlights. Charlie is going to dig into our financials and Rick is going to spend a minute or two on our guidance and outlook. I think the difference this morning is that we're going to spend quite a bit of time talking here, so bear with us. We think we've got a lot of things to say, a lot of good things to say. And specifically we're going to try to address head on some of the key issues that we believe are impacting the market's perception of our sector, our business, and more importantly our stock.

So if you turn to slide four in the first set of highlight slides here, I'm sure as most of you have realized by now we had a very strong fourth quarter. We added just under 500,000 RGUs excluding acquisitions, which puts us in the same league as Comcast and Time Warner, companies that are bigger than us. For the full year we had 1.25 million RGUs and that is a 50% increase over 2004 with strong growth coming out of all three core products. We think our focus on customer bundling and economics is paying off here. Nearly one-quarter of our 14.8 million customers are double or triple play and I will add that in Chile and Japan that number is 40% to 50% where we have smaller legacy video sub bases. And you'll see this reflected in our customer ARPUs or the amount of money we're generating out of each home, which has increased pretty nicely over the period.

Financial results were right on target from our perspective. Full year revenue came in at $5.2 billion. That's up nearly 30% on a pro forma reported basis and that reflects double-digit organic growth. Operating cash flow was $1.77 billion, which is just slightly below the guidance range but as we foreshadowed several times throughout the year, nearly all of that variance is attributable to better-than-expected subscriber growth in the fourth quarter which is obviously very good news for 2006.

CapEx was essentially on target at 26% of revenue and we'll spend a fair bit of time today talking about the components of that CapEx as well as the rates of return and how we see that CapEx. Lastly our pro forma leverage stands at 4.7. As we stated that's kind of a sweet spot for us on a leverage curve and together with our liquidity position really drives equity returns.

If we turn to slide five, as you know we had a very active year on the M&A front. We not only expanded our footprint by 30%, but we also rebalanced it, getting out of markets where we are subscale but at what we think are attractive prices and getting bigger in existing markets or getting into new markets that fit our operating model. You might see more of that this year.

Our content initiatives went largely unnoticed, but we actually made some very significant progress and we relaunched our premium sports and movie services in Holland, which are obviously underpinning that digital rollout. We increased our investment in thematic channels with Zone Vision and a controlling interest in extreme sports and our IPS platform in Spain. Of course as usual our 18 Channel Japanese programming platform generated just under $150 million in cash, so that's up 80% year-over-year. I guess what I would say on the programming side is watch this space in 2006.

We think we are pacing ourselves appropriately on the new services like wireless. Today wireless for us means voice. As we've talked, over 50% of Europeans are interested in wireless bundle and so we have launched MVNOs in several markets and have actually 100,000 mobile customers today. This is not only a great platform for us to drive revenue, but it is also a great way to drive us into fixed and mobile convergence which we think is going to be an important opportunity.

Rick is going to walk through guidance but the headlines we hear we expect continued acceleration of subscriber growth, double-digit revenue increases on an actual and organic basis and OCF growth in the mid teens. And that is even after the impact of Holland, which we will talk a little bit about today, that digital plan.

Lastly, we have been a net buyer of our stock. That shouldn't surprise anyone given current valuations. We're nearly done with the $200 million authorization. A little bit to go, $40 million to go or so and we have authorized an additional $250 million, which I think is good news.

I'm on slide six here. I'm going to spend the next three or four slides, whatever the number is, talking about investor concerns that really revolve around four key topics, competition, complexity, capital spending, and cash flow. I'm going to expand on each of these points in a minute or so, but here's the punch line from our point of view. We have been talking and dealing with competition in our business for a long time, certainly before it became headline news here in the states. I think we have earned some credibility on this subject.

The bottom line for us is competition is real. We have always acknowledged that, but its impact on our business today and tomorrow is simply overstated. We will dig into that point in a minute.

The factors underlying the concern around complexity in our company namely our geographic diversity and capital structure are actually strengths, not weaknesses. When you step back and think about it, I'll build on the point in a minute.

The pace of our capital spending certainly seems to be a cause for some consternation among investors. We know it is largely offensive in nature and focused on high rate of return projects. We will dig into that for you today.

Lastly our operating cash flow growth obviously the key measure for profitability for us we think speaks for itself and unlike some of our peers, remember we are sheltering that cash flow with billions of NOLs which enhances the amount of capital we can reinvest in our business.

So let's break these points down a bit further. I'm on slide seven here staring with competition and that is obviously the primary concern among some and the point goes that the competitive environment we face is impacting our ability to execute our growth plan. That is the basic concern and I think while we respect that point, it simply does not -- it is not supported by the facts especially when you look at our ability to drive subscriber growth quarter after quarter.

Take a look slide eight. We think that story tells it -- that slide tells a story pretty convincingly. We've said it before. The demand for our products our ability to market, install, maintain subscribers continues to accelerate. Not level off like some of our peers, accelerate. If you look at the blue bars in the first three quarters of 2004 we were averaging around 160,000 net adds across our footprint and we have launched VoIP in the fourth quarter of last year of '04, had aggressive bundling take into effect and in the fourth quarter of '04 leading right through 2005 are the orange bars, we had great acceleration. Now a portion of that growth in '05, maybe 10%, came from net adds on acquired properties, but the vast majority of that growth is same store. Everybody is entitled to their opinion, but in a our view this chart tells a very different story than what you have been reading lately about especially the cable business.

There's no magic here for us. This performance is the result of good old-fashioned execution on the sales side and supported by new products and services.

You can see how that breaks down on slide nine. Data, arguably our most competitive product, saw a net add increase nearly 60% year-over-year to 600,000. Our ability to drive speeds upwards of 20 and 30 Mb has helped us reclaim the leadership position in many markets and we are seeing price levels for various tiers stabilize as we launch new features.

We're also benefiting from greenfield markets like Central and Eastern Europe. We've talked about greenfield markets in the past, how important this is to us. We added over 200,000 data subs in Central and Easter Europe. That number was 75,000 in 2004.

Voice net adds have a largest year-over-year increase, 73% to 484,000 The primary driver here of course is VoIP. Launches in Europe have now brought us to over 11 million homes ready for service. The vast majority of those homes still unmarketed. In Netherlands where we launched VoIP first we have added over 114,000 subs last year compared to 24,000 in the prior year and our penetration sits at 12%.

Digital had a breakout year in our view, [530,000, -- 37,000] net adds. That's up nearly 50%. We're going to talk about Holland and the success we are seeing in Holland there in the rollout, but Japan added over 126,000 digital subs and now sits at 37% penetration. That is driven largely by the success of high-definition. We actually think HD is getting set to change the paradigm pretty much everywhere. We announced our plan in Europe to launch an HD box this summer around the World Cup and it has a great feedback.

Next slide, number 10, summarizes a related concern around competition and that is essentially the theory that somehow we're losing ground to so-called disruptive technologies or business models. And don't get me wrong. This is a valid and important question but again the facts don't bear this out. We're seeing virtually no impact on our business from IP-TV mobile, or over the top providers. I'm going to deal with each of those separately. And again while we take them seriously, we think current hype as well as the future hype is probably a bit overblown here. I made that remark at an industry conference a couple weeks ago and it didn't sit well with folks from the other platforms. So I'm going to dig into it a little bit and give you what we see as a positive and negative attribute of at least three of the services that get the most attention starting on slide 11 here.

Beginning with IP-TV which I think we have some experience with. If you step back and think about it most of the large telcos in and around our marketplace have either launched or have decided to launch or are thinking about launching services. They are going to benefit from a number of factors, obviously a large DSL sub base, large balance sheets. We all know that. And they are also benefiting from what I would call very favorable and frequent press, which has helped the subject, not necessarily the product, gain the high ground if you will.

It is our view however that many if not all these providers are going to find it far more challenging to acquire video subs. First of all video is not commodity. Folks are particular, even emotional about their TVs. We know that and customer inertia is going to be hard turn around. If you look at it, nobody has proven me wrong on that point but for the most part in Europe across the vast majority of launches they've achieved customer levels in the tens of thousands in most cases. And even they admit to needing considerable scale to generate meaningful returns. And even more important, IP-TV in our view is at best a me-too product and may very well fall short when you factor in high-definition, multiple video streams and 220 Mb of data all competing for bandwidth.

Let's move to wireless quickly. Everybody agrees that mobility and portability especially for video and data are compelling applications and a great Wi-Max debate, which is largely what it is today is intriguing and we've got our own opportunities in Wi-Max. Of course watching sports clips on your mobile phone is going to be very cool, but these services are creating new revenue streams. They are not cannibalizing our core business and even they are going to face some challenges. If you put standards and interoperability aside, we think mobile platforms could hit natural bandwidth constraints as messaging video compete for spectrum.

Desperate Housewives aside, content providers are still largely on the sidelines here, as are devices that have significant division battery power to drive these cool applications. And then the last indication of Wi-Max, there appear to be in our view very real economic issues around this model. We know this from experience. We are preparing to roll it out in two different markets so we are in the midst of global RFPs, planning, plotting, mapping, and budgeting around it and it is never as easy as it sounds. Trust us.

Lastly, you have over the top providers of video and VoIP like Google and Movie Lake and Skype and Vonage who get a ton of press. Lots of good reasons why these types of services should succeed. Obviously the rapid increase in broadband penetration and speed, probably the biggest and the fact that many of these services revolve around personalized or interactive functionality.

But putting aside for the moment that the vast majority of our [15] million customers are not techno savvy bloggers, these are regular folks, we still think these services are going to find some challenges. The economics of streaming video are tough even before you factor in HD. We can't forget that video is not voice. People are not going to put up with jittery pictures or dropped signals. These are fundamentally single product services or sites because that is what they are, sites, in many cases. They don’t offer the benefit of integration. Then there is a quality of service issue. I'm going to get into the net neutrality debate here except a say that something in our view has to give and despite our best efforts, demand for bandwidth is likely to grow faster than supply and that is not a great recipe for over the top success.

Our fundamental view is that cable is in the best position to deliver services to the digital home as we call it, and we've summarized some of those advantages on slide 12 here. We already have scale and expertise in what we think is the toughest piece of this business, and that is video. Our digital strategies are both pushing and pulling digital boxes into the home and that's going to make it even harder for upstart video competitors who have virtually no product or service advantages.

We have demonstrated that our networks and our data services are superior to DSL competitors and that is before they start using bandwidth for video. VoIP is truly the killer app for us. Once we get customers to cut the copper, as we say, everything starts to click. We're still seeing over 60% of our European VoIP sales generating triple play customers. Plus we're all over the new stuff, if you will, whether it is (indiscernible) WiMax. We're going to school on over the top to see what might or might not work. We're making sure we are implementing data to get our bandwidth management tools wherever we are. So it is our view that this is ours to lose and as far as I can tell, we don't plan on losing it.

Another big concern on page 13 which is a bit more unique to our company and argues that our geographic scope and capital structure are simply too complicated. Now we will acknowledge that like every multinational we operate in diverse markets. We're constantly refining our balance sheets but when you break it down, there are good reasons for what we're doing and significant advantages. For starters, unlike single market providers we're naturally hedged from a financial, political and operating point of view. Our recent M&A activity has allowed us to rebalance our footprint tact efficiently so we can move our cash around very efficiently we we're always optimizing NOL positions.

Our balance sheet puts a leverage close, as close as we can come to the operating cash flows and in the same local currencies. We're hedged on interest rates. We have virtually no near-term amortizations. We can access markets quickly and efficiently, all of which in our view are going to help drive equity returns over the long term.

We've also stressed many times that our operating businesses themselves have far more similarities than differences and this is a critical point, one we don't think we can emphasize enough. We have laid out some of those factors on slide 14. Now on each market certainly has some unique characteristics. We are pursuing almost identical product and technology roadmaps across our footprint. Each of our operations have a very long history with triple play, one of the first in their regions to launch triple play. Nearly 100% of our footprint is DOCSIS 2.0, and that has facilitated aggressive tiering of data products and also allows us to lead the market with speeds ranging from 10 to 30 Mb and in Japan we've even trialed 100 Mb services.

We've launched VoIP in each region. We're experiencing the benefits of reduced CPE and greater pricing flexibility. While it is not on here, digital TV factors into the growth plans for all three markets. I think a point also worth making is that our product roadmaps reflect our consumer base. Certainly languages aside these consumers are demanding the same things. They're demanding best-in-class performance, bundled pricing, integrated services and features, and we're delivering those.

In all three markets we are pursuing content investments. In all three markets we are the major consolidator and we expect to continue to be the major consolidator. Operationally all of our businesses are growing revenues at double-digit pace. Our gross margins gravitate around 80%. Our OCF margins are mid to high 30s and our CapEx profile is largely similar. In fact Tony just hosted our annual CTO/CIO conference here in Denver where we get all of our technology executives from all around the world together to debate, define, strategize and I might add save money; in fact, we're probably going to save we think an estimated $50 million this year alone on global vendor contracts from cooperation across the footprint.

Fourth and last major concern on page 15 and that deals with the increase in capital spending, which I think are viewed by some as primarily defensive in nature and of a declining or low rate of return profile. We're going to walk through in some detail in particular three big components of CapEx, CP and volume driven CapEx, network rebuild and new build and special projects like our digital rollout in Holland.

I'm going to steal the punch lines here because they're worth repeating. And I will let Charlie and Rick flesh out the issue. But number one hooking up new customers across all of our products is a fantastic investment and it only gets better when we bundle. Our network spend especially in markets like Central and Eastern Europe is as good a return as you are going to find in the cable business. That is driven by density, labor costs and rapid uptake in new services.

Our investment in the Netherlands, while significant, is essentially scalable and highly accretive to our longer-term OCF in that market. So the bottom line is in our view is that we are a growth company in a growth sector and our results today, our guidance I think make that point abundantly clear. Over 75% of our CapEx is revenue generating, and that is going directly into driving operating cash flow. With respect, we have a hard time understanding people's concerns around that or what's wrong with that model, it has worked well for us and continues to work well for us and it is one that we're going to pursue aggressively.

So now that I've had my say on what I think are some very, very important topics and I look forward to answering any questions about those subjects, I'm going to turn it over to Charlie who is going to walk through our financial results principally.

Thanks a lot, Mike. I'm on page 17. I think Mike has already mentioned our record Q4 and year for subscriber growth. So what I want to try and do is give you an overall view on where we stand today for RGUs and after the dust has settled on our M&A activity, we ended a year with 19.2 million RGUs. Of those, 60% were analog video customers, all of which we have the opportunity over some period of time to start selling new services. The other 40% we've already started doing that and we have already sold digital, voice and high-speed data services. These have really been the key growth drivers for us and we hope will be the drivers of that 60% going forward.

Organic ads were 1.25 million RGUs, up 50% for last year and we ended the year with a bundling ratio of 1.3 products per customer. We're very focused on driving that metric higher. Mike mentioned the importance of VoIP in stealing the triple play space. Mike has already given the highlights by product, so I'm going to turn to the next page, page 18, and just talk about some of the numbers. In terms of the numbers, consolidated revenue was up 28% on a pro forma basis to $5.15 billion, and that includes J:COM's results in 2004 when making the comparison.

I'm going to show you the organic numbers by the business in just a second, but consolidated OCF was up 24% on a pro forma basis to $1.77 billion. I know we are belaboring this point, but we had such an outstanding performance in net ads in Q4 that increased our marketing costs in Q4, which meant that we have a slightly higher spend than we had expected. And that almost entirely explains the variance to guidance. Rick will explain that in more detail.

If you go to page 19, breaking down revenue by division, the broadband division in Europe was up 10% organically to 2.7 billion, but within that there's some very interesting stories. Very strong revenue growth in Central and Eastern Europe at 20%, and 6% growth in the more mature Western European markets. Japan had organic revenue growth of 11% to $1.66 billion, and Chile was up over 18% at $440 million. So total LGI was up 11 percent for the year, which (technical difficulty).

This is the operator. Mr. Bracken's line has disconnected. Please stand by.

Okay. I think I will just pick it up for him here on slide number 19. I think he was about to say that total Liberty Global revenue was up 11% for the year, which is consistent with our double-digit growth target. In terms of breaking down that 11% into volume and price effects, approximately 9% was due to volume or subscriber growth, and the balance, or about 2%, was due to price or ARPU increases.

Turning to slide 20 on our OCF breakdown, European operating cash flow was up 8 percent organically to $1 billion. Once again, Central and Eastern Europe very strong here with 24% growth led by markets like Hungary, which was up nearly 30% year-over-year. In Western Europe we were up only 3%, again primarily due to costs associated with our digital migration in Holland. But if you exclude the results from Netherlands, the rest of Western Europe would have been up 15% year-over-year.

In Japan, organic OCF growth was 9% to $636 million, slightly below forecast due to higher marketing expenses and some one-off costs. Chile another very solid year, up 20% to $151 million, and we are beginning to see the synergies from the merger in that market. So total Liberty Global operating cash flow up organically 11% for the year, and again those results were tempered by the costs associated with our D4A project in Holland. Excluding the impact of that project, total company operating cash flow would have been up 16%, which is much more consistent with our long-term expectations for OCF growth.

Turning to capital expenditures on slide 21, you'll see in 2005 we came in at $1.35 billion or about 26% of sales, and that CapEx result includes capital lease additions. The vast majority of our spend, over 75%, we see as being revenue-generating CapEx. Approximately $750 million or 55% relates to CPE and scalable infrastructure. We are seeing continued unit cost reductions on data and voice modems and on digital boxes, and I will just give you one example. We anticipate the price of EMTAs for VoIP service will be broadly coming down in price this year by about 20% by the end of the year, as compared to our pricing last year.

Network upgrade and new build represents another 20% or $260 million. We added over 1.5 million new two-way homes on our pre-existing footprint last year, and together with new network acquired from M&A activity, we ended the year with 21.6 million total two-way homes that support our advanced services. As I will show you in a few minutes with our high home density, this is very high return spend.

Before I leave this slide, I'd just point out a point that Charlie likes to make, which is that you can make a pretty credible argument that well over 80% and, in fact, nearly arguably nearly all of our spend is variable, since a very big chunk of our IT investment is being spent to support our high-growth business model.

Turning to free cash flow on slide 22, we had a pretty good result here even though we're not prioritizing free cash flow generation at this point. Cash flow from operations was up 115% on reported basis to over $1.5 billion. Subtracting CapEx yields nearly $331 million of free cash flow from continuing operations, which was a 50% improvement from our 2004 results. We have added back the free cash flow generated in Norway prior to our disposal of that business, and we've broken it out separately here for visibility, but we believe it is appropriate to include it in our free cash flow because we actually have the cash in the bank.

Then we subtract capital lease additions, which are not truly cash but we believe represents a conservative picture of our free cash flow. And on that basis, our free cash flow for 2005 was $207 million, and it would have been approximately $75 million higher except for the MovieCo settlement we made back in the beginning of the year with Sony and Disney. If you add that back, our free cash flow would have been over $280 million, which would have been a pro forma increase of about 20% from 2004.

Turning to the balance sheet, total debt at December 31 was $10.1 billion, and our cash position was $1.2 billion, so net debt of $8.9 billion at year-end. Our gross leverage on a reported basis was 5.4 times on a last quarter annualized basis. However, we include all of the debt from Switzerland and from Australia on our balance sheet at December 31, but we only have two months of Swiss operating cash flow in Q4 and nothing from Austar. So if you adjust for a full quarter of OCF, our gross leverage falls below 5 times to 4.7, which as Mike said is really right in the sweet spot of our 4 to 5 times range.

You'll also see our debt balance on a pro forma basis here, approximately $200 million lower, and our cash is up over $300 million. Both of those movements primarily relate to our sale of our Norwegian operation. I'm just going to spend a quick minute on our UPC Holding balance sheet for the benefit of our European bond and bank investors. You'll see we had total debt of EUR4.7 billion at December 31 -- EUR4.27, cash of EUR58 million resulting in a senior debt leverage of 3.8 times and total leverage of 4.8 times.

I would also point out that we will be issuing a UPC Holding press release very soon and you will be able to find that on our website in addition to the wires.

Shifting to the final section, our guidance and outlook section, I will pick up on slide 26, where we present a quick recap of our 2005 results versus our guidance targets for last year and the results here are pretty consistent with our targets across the board. Before going through these numbers I should mention that these are adjusted results to be consistent with our original guidance assumptions. So for example we subtract out the results from Cablecom, which wasn't contemplated when we issued the guidance and make the other appropriate adjustments. On that basis, total adjusted RGU additions were 1.26 million, above the high-end of our guidance range. Adjusted revenue $5.16 billion, pretty much right in the middle of our 5.1 to $5.2 billion range. Operating cash flow of $1.78 billion was approximately $20 million below the low-end of the range and again that is mainly due to higher marketing costs.

We have tried to emphasize over the last couple of months that if we exceeded on RGUs it would depress OCF and in fact it did, as we ended up betting over 100,000 RGUs more than the midpoint of our guidance range plus we added another 60,000 mobile customers and those mobile RGUs aren't included in our subscriber totals, but there are obviously marketing costs associated with all of those extra additions which while they depress cash flow in '05 will certainly pay dividends for us this year.

Capital expenditures came in at 26% of revenues consistent with our 25% guidance target which brings us to our 2006 guidance which we've laid out here on slide 27. We think we've set aggressive but achievable targets and here are the numbers. We are expecting RGU growth to increase to 1.6 million net adds this year. This is up 28% from last year's 1.25 million net additions. Our revenue target for 2006 is $6.8 billion. That is up 32% on a reported basis and we'll show you organic growth versus a rebased 2005 in just a minute.

For fiscal 2006, we are looking for operating cash flow to increase 36% to $2.4 billion for the full year and CapEx is expected to come in around 27% of sales to and I'll give you a breakdown on that spend in just a second. Of course our revenue and operating cash flow targets are based on certain foreign exchange assumptions. Those are detailed in the footnote on the slide and so we will adjust our reported numbers up or down as appropriate to conform with those FX assumptions.

We should warn you that the same caveat applies for 2006 as it did last year. If we exceed on RGU growth, it will lower operating cash flow due to the incremental marketing and subscriber acquisition costs and I'm happy to report that we are off to a fantastic start in 2006 as it relates to RGU growth carrying the strong momentum that we had in the fourth quarter over into the early part of this year.

Turning now to slide 28, here we have rebased our 2005 results for a full year of all the acquisitions that we completed in the 2005. We understand that there has been a lot of M&A activity and it is not easy to follow the impact from all of these transactions, so we wanted to get everyone the same page to start the year. What we have done is we have estimated what our revenue and operating cash flow would have been in 2005 if we had made all of those acquisitions on January 1 of last year. The punch line here is that rebased revenue in 2005 was approximately $6.1 billion and operating cash flow on a rebased basis was approximately $2.1 billion. So organic growth for 2006 for revenue and operating cash flow is up 11% and 14% respectively based on the guidance targets that I've just laid out.

Again the Netherlands impact dampens operating cash flow growth. We estimate approximately 2.5%; so excluding the Netherlands, our pro forma operating cash flow growth would be up over 16% and again much more consistent with our long-term OCF growth target of 15 plus%. And in fact the revenue and operating cash flow guidance that we just laid out here for 2006 is 100% consistent with the three-year targets that we presented at our investor conference back last fall in New York City.

Turning to slide 29, not too many companies show this kind of detail, but since we are pursuing a higher growth, high CapEx business model and CapEx is such a focus for investors these days, we have decided to give you a breakdown of our capital spend for 2006. We have rounded the percentages here, but it presents an accurate big picture in terms of the buckets of spend and some key takeaways.

CPE and scalable infrastructure are nearly half the spend and we will show you some product paybacks in just a second. Network spend, which is the next biggest category, we are also going to show you some upgrade economics here. On our digital D4A in Holland represents about 5% of our total 2006 spend, and we will give you some detail there as well.

M&A activity is impacting our 2006 capital budget. You'll see 5% of our total spend is on network integration and the majority actually nearer 75% of that category comes at Cablecom in Switzerland. Then the balance of 20% IT and support capital to Charlie's point, a big chunk of that investment is really to support this high-growth model and a big chunk of it certainly could be viewed as being variable in that context.

The next few slides illustrate the returns that we are getting on our capital spend starting with the most important element, our RGU growth, and this slide is meant to help you understand the paybacks associated with our fast subscriber growth. Since the vast majority of our 1.6 million RGU adds in 2006 will be voice and data customers, we thought we would focus on those two products and what this slide shows is the payback in the number of months to break even for voice and for data and then bundles of the two.

Last year the vast majority of our RGU growth came from Europe, where we were up over 100% year-over-year in terms of net additions, so we decided to focus on key markets there starting with the Netherlands, which is our largest European market as I think most of you know; France is highly competitive market that is on investors' minds; Austria is really the gold standard for us in terms of European triple play markets; and then Poland, which is arguably the most competitive of our Central and Eastern European countries. I won't run through all of the markets and figures here, but some key takeaways, data continues to be our highest return product, generally six to twelve-month paybacks and we are averaging about 1.5% churn per month on data, which implies a 5.5-year customer life. So you are looking at 4.5 to 5 years of profit once your investment is paid back.

VoIP economics are improving mainly due to lower CPE costs. Here the paybacks are in the 12 to 18 month range and then the bundled paybacks you'll notice are generally in line with the data paybacks at around six to twelve-month, but the key takeaways here is that the NPV on the bundled customers are much higher because you're getting higher ARPU from those customers and also significantly lower churn.

Moving on to slide 31, we are going to talk a little bit about our network economics and since most of our upgrade is in high-growth Central and Eastern Europe, we thought we would focus there. Over the next three years we plan to add 1.7 million new two-way homes across our footprint in that region. The pie chart on the right shows the percentage breakdown of the 1.7 million homes by market and you'll see that over half of these homes are in Poland and the rest are split proportionately in relation to the size of those other markets with the exception of Hungary, where we are much farther along with our rebuild.

Total upgrade costs over the three years, $150 million, which equates to only $90 per home past, a very low figure compared to U.S. upgrade costs. And I think as many of you know that is attributable to our high densities and also cheap labor costs.

Our long-range plan shows cumulative operating cash flow generation in these markets by 2010 of $175 million and using a range of 6 to 8 times multiples yields 30 to 40% IRRs for the those projects. So high return and in our view relatively low-risk spend given the growth characteristics of these markets.

Which leads me to my last topic, a quick update on our D4A initiative in the Netherlands, where we are rapidly migrating over 2 million analog subscribers to digital. We're pleased to report excellent progress on the rollout with over 240,000 boxes shipped through week nine of this year and over 170,000 subscribers thus far, which is more than double our year-end '05 figure in just the last two months. The levels of acceptance and installation are improving week-to-week and perhaps just as important customers like the product and word-of-mouth is spreading. In fact 40% of our growth is now coming from customers who are calling us for the box. So what began as a push only model has migrated into a more of the balanced push/pull model.

The product itself is getting better. We have relaunched our premium movie and sports services, Film One and Sport One, both of which will have high-definition content available on them. Later this year as Mike mentioned, we will be watching high-definition services as well as PVRs and VOD. Because of the short-term impact this rollout is having on CapEx and OpEx, we often get the question which market is next? What we can tell you is that we have not finalized any plans to duplicate this strategy in any other countries and there are no other D4A markets planned for 2006. But if at some point down the road we do decide to do this in another market, it is very likely to be because we think it will have the same type of long-term IRRs and cash flow growth that we illustrate for you on the next slide, which is really meant to show the big picture economics of our D4A project.

This is slide 33. If you look at the status quo case, which is the purple area on the bottom of the chart, you see that operating cash flow is on a certain trajectory of growth given the dynamics of the Dutch market. The orange line represents the OCF growth profile with the impact of our D4A initiative and you'll see the impact of our upfront investment causes operating cash flow to be relatively flat through 2006 and before it begins to grow in 2007. Operating cash flow growth really ramps in 2008 and beyond since by then we expect we will have converted a majority of our video customer base into paying digital subscribers. Remember there's a six-month free period before a new customer begins paying for the digital service, so there is a built-in lag effect in terms of revenue growth.

The yellow line on this chart represents our ability to upsell bundled voice and data services, which really represents upside to the plan, which was only based on incremental video economics.

Then finally the IRR of this project we see at 35 to 40% based on a seven times terminal multiple, the project is absolutely on track with our plan. All the key operating metrics are trending in the right direction, so we're very excited about it and the long-term impact it will have on our growth.

So finally just to sum up, we think the bear case and the negative sentiment is overdone. Perhaps my favorite slide in the deck was the one Mike showed about our key competitive advantages. It is a simple slide but you might take another look at it because I think it summarizes quite nicely some of our key strengths. We certainly tried to demonstrate some analysis and evidence that support the merits and returns of our high-growth business model and we feel like we're squarely on track with the execution of our business plan, which will ultimately pay off handsomely for shareholders.

With that, operator, I think we're ready to take questions.

(OPERATOR INSTRUCTIONS) Benjamin Swinburne, Morgan Stanley.

I wanted to dive a little bit more into the digital deployment in the Netherlands. You talked about the return characteristics and if you could just give us the details operationally? Do you plan on taking the boxes back post the six months if customers opt out of the digital tier? Or do you plan on keeping the box in the house as sort of a Trojan horse down the road to offer maybe some more basic VOD services?

In the past, Mike, you've talked about using proprietary programming or exclusive programming to drive digital particularly in Western Europe, where you have got that sort of cultural utility mindset on the video side. Any thoughts on the Netherlands or even if you looked at France and Switzerland where you might see opportunities to use programming to drive a digital conversion?

Sure. By the way, everyone, thanks everyone, thanks for putting up with our remarks. We said at the outset they would be long and they were, but we think they were important.

On the box question in Holland, we are actually retrieving the vast majority of those boxes if they are hooking up or if after six months they don't stay on at the customer. So we are getting those boxes retrieved. We're not leaving them in a house.

On the programming point, I would say -- I would not say proprietary programming is key. I would say important programming is key and by that I mean it doesn't necessarily have to be exclusive. It is just more important that we have access to it and if controlling it guarantees access, that's good. I'm not so sure it needs to be "proprietary". We do control for example all the movies and sports that are worthwhile in the Dutch market. We make those available to others on an arm's length basis. But owning and controlling those rights gives us the flexibility to program markets, promote, and push the products the way we choose and having whereas if we didn't have access or control over those products it may not be as simple or as seamless or as integrated.

In Holland or France and other markets, or in Switzerland or France, we certainly have in the past and continue to look at acquiring certain rights, sports or otherwise. And I think the important point to make there is that acquisition of those rights, say for example what the German cable market has done, cable operators have done in that market, really has to be synced up with your digital plans. It doesn't mean you won't get out of in front of yourself a bit to ensure access to content, but in Austria for example we have access to sports rights through Premier. But I think you have to take it a mark-to-market approach and balance it against access in the future versus no access and make sure you are synching it up appropriately or pacing yourself appropriately with your digital plans in that specific market.

Mike, if I could add -- this is Gene Musselman -- since mid-February we have added more than 20 new channels in the Netherlands market, three on the entry pack, 13 on the basic, plus several premium packages. And as Mike said, I don't think all of this has to be proprietary. This is just good programming that will drive digital penetration.

And if I could ask one follow-up and then I will yield the floor here, on the margin front next year or '06 and beyond, Mike, if you look at the France and Switzerland markets where you have done deals recently and we should be -- are you seeing the synergies roll through? Should we look at the margin outlook in those particular systems that you're going to start to see between headcount reductions and scale economics on the CapEx front that margins will be expanding in those markets? Should we assume that that is baked into your '06?

Yes. Remember in most cases when you acquire an asset, there's a period of negative synergies but for the most part the synergies we're realizing and continue to realize in France and we believe we will realize in Switzerland will certainly be accretive to the cash flow margin. If you look at what we have done in Chile for example where we far exceeded our expectation on synergies, those margins even after baking in the low margin acquisition of [Natropoli] are on the rise. So I think that is a fair assumption.

Do you think that on the wireless MVNO front that you're going to able to use the IP platform to move traffic onto your own network when people use cellphones in the homes so that becomes sort of a better business than some of the other MVNO economics we've seen in other markets long-term?

As I said, we think that is definitely one of the reasons to get into the mobile business. But Tony, do you want to address that? He might be on mute. The answer I think is yes. We certainly think that all the technology developing around fixed to mobile convergence is going to be ready for primetime here in the medium-term. And we think that having this mobile customer is step one. Otherwise you go to the mobile guy and say I would really like to carry some of your traffic, can you let me back off some? They will say excuse me, why? Unless they are just in dire need of offloading traffic which we think they might very well be if they succeed in their own video plans. So having a mobile customer and having access to a platform we think is an important first step. And I will tell you that we look at mobile and wireless and are looking at mobile and wireless generally across our entire footprints have a very thorough review under way now and I think as you have seen us roll out in the last 6 to 12 months, we will continue to be aggressive where we can on mobile.

It is a low entry cost in an MVNO context, low CapEx, reasonably good margins depending on the model you deploy, but a great product and a great tool to drive a bundle.

Just add to that, Mike, we are doing trials right now or are in just the process of trials with Nokia and we do think that the technology is coming along well for FMC as the right business opportunities open up.

Thanks, guys.

By the way, we're going to keep questions open for a while, everyone. Since we spoke so long, we are going to leave the Q&A session going for a bit.

Vijay Jayant, Lehman Brothers.

Can you talk about when you really think the trough in Holland happened on a courtly basis? Is it second quarter '06? And where we can start the acceleration because you really started this November. The second questions I really wanted to understand is Liberty has had a treasurer of figuring a very complicated tax structures. Is there any chance you can use the Cablecom NOLs? Thanks.

I'm back on again if you want me to answer any of that.

Thanks. Good, Charlie. The question about Holland was when do we expect to hit a trough there in terms of the impact on video cash flow. I think we aren't being specific. We are flat in '06. We are very clear about that year-over-year. And 2007, we will give you greater clarity around that 2007 period as we closer to it. What I will tell you is that the roll itself will be continuing into 2007 and the pace may speed up, may slow down, but I think for the most part it is going to and should start ramping in that 2007 timeframe. But I don't want to be more specific than that.

I think the charge is illustrative. You can derive some sense of -- the chart would show you flat OCF growth in '07 as well if you just take a look at it on an illustrative basis and I think that when we get closer to that time period we will be more specific. That has a lot to do with the pace of the rollout and if the rollout goes faster, it will look different. If the rollout goes slower, it will look even different from that. We just have to give you more clarity. We will try to give you a great sense of that as we roll out, but we will try to give you more information as the project unfolds.

And my second question?

Yes, do you want to speak Charlie, to --?

On the tax I think rather than go into detail but we do feel that the 10 billion of NOLs that we have which I think if you look in our 10-K in the tax affected value of just under $3 billion we think it was a real opportunity to realize that synergy over some period of time and I think that includes Cablecom.

Good. Thank you.

Jeff Wlodarczak, Wachovia.

I guess I will stick with the Netherlands as well. Can you provide any more color on the I guess 40 to $60 million in losses in the Netherlands in the second half of '05? Specifically it's free programming, marketing truck rolls, what are you spending that on? Can you also talk about the 12,000 subscriber loss in Netherlands in the fourth quarter?

Gene, do you want to address generally the sort of things that we're doing on the operating platform there to prepare for and continue the rollout?

Can you repeat the question?

The question was talking about the sort of things that we're doing in Holland around the operating platform from a customer service marketing network point of view that are contributing to the OpEx increases.

I think D4A is probably driving the bulk of those costs. We are putting into the field right now about 10,000 boxes per week, give or take 1000 on either side. Sales themselves last week were up in the neighborhood of 15,000. So when you're building those kinds of volumes and there are certain costs associated with that, for example the commissions on the sales of the digital to the new customers; the commissions on up sale; the increased costs in terms of customer care.

The good news is that we had anticipated about 2.4 to 2.8 calls per digital box installed going into our call center operations. That is closer to 0.8 at this point. So actually what we are seeing is a much reduced cost than what we anticipated that we might experience in terms of rolling out the digital platform. I can elaborate more, but it is increased customer care. It is commissions. It is increased truck rolls. All the things that you have to do to support a major rollout of this type and in addition to that the monies that are expended on further development and functionality of the IT platform again to support the rollout and the new products and services that we're introducing.

The sub loss question really relates to -- remember we single count -- we don't double count digital and analog. So video sub is video sub. We had a slight loss of overall video subs, but we chalk that up to fourth quarter activity for competitors and that is not unusual to see in a market like Holland perhaps some small fall off. But as we roll digital subs out and connect homes to our digital service, we expect that number to obviously continue to be very small or not there at all.

Thanks.

Alan Gould, Bleichroeder.

I have got a number of questions. First, Mike, can you give us an update on the Swedish assets?

I don't know what we are saying publicly about that. My General Counsel is staring me down here. You know where we sat during the fourth quarter we certainly were in discussions with several buyers and two in particular and this Norwegian asset sold quickly and we continue to be opportunistic about exiting the Swedish market. That is all I can say.

We have not pulled the process per se and we are still focused on the possibility of exiting that market and as soon as we have information to disclose, we will do that.

Okay. Second, should 2006 be the peak year of CapEx as a percentage of revenue?

Hard to say. I think you can model it -- if it is not the peak year, it certainly is not far off. So if you remember our guidance over the longer-term showed CapEx certainly trailing down over a three- to five-year period. If it is not 2006, then 2007 should not be meaningfully different from a CapEx perspective. It has a lot to do with the projects that we see in front of us. But I don't know if we can be that specific about 2006. Do you want to add some to that?

But it is enormously true, Mike, to say that we're only investing with CapEx because of high returns and if we did not get the high returns then we would drop the CapEx, but we're lucky enough today to have very attractive projects.

(multiple speakers) That rule of thumb applies to every dollar we spend. So sure, that is the case.

As we said, CapEx will be -- as long as we stay free cash flow positive we will always look at what we can invest to get a higher return if we can do it.

Okay. Then on two specific countries, the Netherlands, is there any regulatory update? And in France, it seems like it was particularly challenging in the fourth quarter. Is that DTT competition? I see most of the phone customers aren't cable customers. If you can just give a little bit on those two things?

Sure. In Holland we continue to fight small skirmishes as they arise with our friend Mr. Brinkhorst, who we think fundamentally supports what we're doing. We met many times and perhaps politics of the situation demand actions that might be misinterpreted. We remain confident that the discussions between the EU and OPTA have resulted in a victory for us and our ability to continue to manage our business as we have done in the past will be waiting for additional information around some of the markets that they are defining, but for the most part we don't think there's any meaningful update there. It continues to be as we have described it.

We do expect to get an update as it relates to the wholesale market obligation, which is what they call market 18, some time within the next week or so and we don't expect any surprises. We expect it to be very consistent with the draft language that we saw coming out late last fall. So --.

In France what I will tell you is the fourth quarter may have been as you describe it -- I will tell you that year-over-year though the market as a whole had a fantastic result for us. Operating cash flow on an organic basis was up nearly 30% and so no matter how you slice or dice it, we probably exceeded our expectations on driving the cash flow of that marketplace as you say a competitive marketplace and as we sit here today we are pleased with the historical results in the French market. And there will always be volatility quarter-to-quarter but I think you need to take the full year in measure. And if you look at the numbers for 2005 in France, they are pretty darn good.

Am I reading the K right that most of your phone customers are not cable customers?

I'm not -- Gene, do you want to comment on that?

That would not be true.

I must be read misreading that.

A percentage of our subscribers would be phone only. If that's the case it would be a mistake I think.

Okay, thank you.

David Joyce, Miller Tabak.

Kind of a follow-on on the France question. Could you explain the overhead allocation, the pressure to the margins there in the fourth quarter and what we can expect on that country going forward? Secondly I was wondering with $1.5 billion in cash and maybe you'll get some more after Sweden, why do you have only a $250 million buyback program authorized at this point?

I will deal with the second question and I will let others deal with the overhead allocation question in France, although I would say in France any overhead allocation is essentially an accounting allocation. It is not necessarily in some respects an actual allocation, but we do allocate the overhead across those markets just for accounting purposes.

On the buyback, we felt that the first $200 million was a good amount based on the kind of free cash flow we're generating and our cash position and we felt that renewing that will (technical difficulty) was also an appropriate thing to do. You need to remember that we have purchased including the $200 million just under a $1 billion of equity in the last 12 months or so, 18 months or so. The merger itself -- sorry, last six or seven months or so. The merger itself in June of last year we did repurchase about $700 million worth of stock together with the $200 million is $900 million and we got another $250 million on top about. Putting that in perspective, it will be closer to $1.15 billion of stock we repurchase depending on when we complete the $250 million over a reasonably short period of time.

On our capital structure and our share base and given our volume and our liquidity, we think that's actually a pretty significant number. And we also want to make sure we retain sufficient capital to be opportunistic as we rebalance markets or look at other opportunities. So I think there's usually not science behind these decisions, but we just felt that that seemed like a good number in the context of our historical spend.

And on the France question I think Mike was right that you need to look at it over a longer period of time. Year-to-year, but specifically we did have a onetime charge in Q4 of this year that actually played against a onetime credit in Q4 of last year, so we would be happy to take you through that detail off-line.

That's right. The fourth quarter looks unusual for that very reason. There were accounting, charges or credits in both those fourth quarters that went the opposite direction. But the full year I think is an important measure there and cash flow was up a nearly 30%.

That's helpful. Thank you.

Matt Harrigan, Janco Partners. Hearing no response, we will go next to Frank Knowles with New Street Research.

I wonder if you could talk a bit about your strategy in the Austrian market which you haven't talked about yet with the Inode acquisition. I am presuming the main thrust of that is to fill out the areas where you don't have network coverage. But if you could talk a bit about what your product plans are there? Is it a double play that you're going to plan to use DSL for or a triple play? And whether that strategy is one you'd look at in other markets where you don't have full coverage of the country, for example France.

Yes, that's a good question. For those of you who may not be familiar, we did acquire a DSL reseller in Austria called Inode and the reasons that we did it are you have hit on one of them which was it does extend our footprint in Austria which is largely Vienna for us by about one million homes, two-thirds of which we think will never have cable. It's a great way we felt of extending our reach into an important market for us we've got a great brand and great margins and great bundling results.

The product as we sit here today is largely a double play product. Data principally, but voice as well and over time we will evaluate the opportunity of making it a triple play product including video. But today it is mostly a double play product. It also enhances what for us is becoming a very interesting market proposition in every country and that is the B2B or commercial business. And we have in Austria, Holland, and in Switzerland a pretty sizable commercial business. In fact if you aggregate all of our European commercial B2B business, it's over EUR200 million. So we've got a pretty big commercial or CLEC operation in Europe as a whole and Inode is really fantastic in that space, a great brand and an operation we can learn something from as we try to exploit what we think is an untapped opportunity in the B2B market. Do you want expand on that, Gene? Gene, are you still on?

Mike, I'm here. No, I think you covered it quite well. We are looking of course at the triple play. It would not take a great deal of incremental capital to put us in a position for offering that triple play and we will probably do so based upon the competitiveness of the marketplace and so we will continue to look at that opportunity.

In terms of other markets, we'll explore where else it might make sense. There's certainly nothing on the radar screen today.

I think it is implied in both Mike's and Gene's comments that one of the main reasons we decided to do it in Austria is that we became a little bit of a victim of our own success in driving penetration of the triple play. We have got high 20% penetration of Internet, strong penetration of voice, and we've been beginning to see our revenue growth tail off. In fact if you look year-over-year, our organic revenue growth in Austria was 5%. So this is a way to reinvigorate growth in a market and get it up back toward our double-digit growth target.

That is very helpful. If I could just check, are you planning to rebrand everything under the EPC brand? I noticed you've just launched the Voice over IP service as well, presumably with the idea of reinvigorating voice growth.

Yes. We have not finalized those plans yet. We're still working on it.

Thanks.

Matthew Harrigan, Janco Partners.

Sorry about that earlier. Two core areas. One, I know you're doing some things in concert with Philips in the Netherlands for the World Cup in HDTV, as you elaborated. Are you also extending that to some of the other big markets with some digital penetration like Austria, Switzerland and France, given that the singularity of the World Cup coming up every four years?

Also second question, is it fair to assume that maybe for every 100,000 or so that you beat on the RGU guidance that it probably hits OCF in the 25 to $30 million in terms of your expense affect? Or is it somewhat outside that call? I know it could be a little bit higher for the Japanese RGUs.

I think the challenge you have around the RGU number, Matt, is that it really depends on when you exceed those RGU numbers. So if you exceed the first quarter but are on target the rest of the year, you're going to get the vast majority of the benefit through the following nine months of the year. If you exceed them in the fourth quarter or Novembers/December, as we did, then you don't get the benefit of that growth or cash flow in the full year. So I think it is a timing issue. I'll let Rick or Charlie address the 25 to $30 million number, though I suspect that's a little bit high depending on the marketplace.

The HD question, Gene, do you want to talk about what we're doing this summer at HD in the Netherlands and elsewhere?

Well, yes, we placed an order with Philips to supply us with a high-definition TV box and we have entered into an exclusive marketing arrangement with them in terms of rolling the box out in time for the World Cup. We are also taking a look at a second market that you indicated, which is France, where we have not made specific plans at this point. We're still looking at the viability of doing that.

Then as we would continue to look at our other markets for rolling out, not only high-definition television but DVR and VOD as well in the coming months. So by the end of July we should have all of those key drivers of digital into the marketplace and then with our enhanced programming and content propositions, I think we're really going to be in a terrific position to start moving the digital platform here in the Netherlands and hopefully it will be something that we can cookie cutter across the other properties.

Miranda, since you're on graciously at 2:00 in the morning, do you want to add anything about how we're doing in Japan with HD, which is really driving our digital strategy there?

Thanks, Mike. High-definition continues to be a very, very significant driver in combination with -- with a high-definition digital rollout continues to be a major driver of the take up. I think as Mike mentioned in his comments we're at 37% digital penetration. The majority of that is HD, J:COM is the only platform in the market to have launched Fox and Discovery HD. Those have been very well received in an environment where HD is central and where digital TV is now preparing to launch HD versions of a whole range of their services.

I think that is -- the nascent point that I made in my remarks is HD we think is one of those paradigm shifting developments for us that plays right into cable strength and wherever we have the capability and the demand, we're going to try to make sense of it.

Operator, we have time for a couple more questions I think.

David Kestenbaum, Morgan Joseph.

Can you just talk about the competitive landscape in France, how that changes with the two satellite operators merging? Also, Mike, can you talk about your commitment to that market, the French market? And then you alluded to that you are struggling to develop a content play in Latin American to VTR. Can you just comment on that?

Sure. I think the French question is what is our posture in the context of the merger of the two satellite platforms, which quite frankly we did expect. It didn't come as a surprise to us. From our point of view the French market is clearly a challenging and competitive and complicated one, yet we continue to deliver great results. It won't surprise us if you see continued consolidation among other remaining platforms, perhaps cable, perhaps DSL in the face of what is shaping up to be an even more competitive marketplace.

So I think the French environment is -- the changes there around the satellite platform are not new, not unexpected let me say it that way. I think we are positioned to deal with them today. We will see how it unfolds. For us the primary concern is ensuring continued access to the canal plus and TPS content, which we do carry today and we expect to continue to carry tomorrow. So other than the synergies they will realize around platform consolidation and perhaps just having larger scale, we wanted to make sure first and foremost that we had to get access to content in that market and it is shaping up that we probably will. Our commitment to the market we're not prepared to provide any information around how that commitment has changed or not changed. Great results in 2005. We expect similar very strong results in 2006 out of France. We're executing on the plan that we delivered into the marketplace and that we said we would execute on. And we are sitting on rebasing for the acquisition but sitting on a very sizable we think return on investment as we sit here today.

With VTR the programming challenge there is really one of just single market issues. We do have some assets in Latin America, namely Pramer which is a sizable platform and important platform for content throughout the region, mostly Argentina, but not really impacting us in Chile. So I think in Chile per se we have a couple of small opportunities around content and development, but we aren't as we are in Europe or Japan squarely invested in the content opportunity there, at least not today.

Fred Kooij, Credit Suisse.

Actually all of my questions have been answered. Thank you.

A follow-up from Benjamin Swinburne, Morgan Stanley.

Thanks for squeezing one more in there. On the network upgrades that you guys have talked about, both in the past and going forward, it looks like there is still about 400,000 homes in Western Europe that are not two way, although there's a difference between homes serviceable for data and two-way homes, which I'm not sure what the difference in that definition is. It seems like you were just talking about upgrading Eastern Europe going forward. Is that the right way to think about it?

I think the vast majority of our upgrade will be coming out of Central and Eastern Europe because of the economics we've laid out for you. There are couple of instances where Western Europe is not fully rebuilt to [QA] and in places like France there's a possibility we may not rebuild some of those because a lot of those markets are very rural and we're servicing them with a head in the sky solution for digital. And of course in Ireland, we will be expanding some of the two-way homes, but that is a longer-term priority. So other than Ireland I think it is safe to say that Western Europe for us is largely rebuilt and then Central and Eastern Europe presents we think the best rate of return for us in that region.

The difference between two-way homes past and home serviceable for Internet is really a function of whether or not we have the CMTSs deployed to be able to immediately deploy the data service.

And soft switches?

And soft switches for VoIP, yes.

Great. I'll catch up with you guys off-line.

Ladies and gentlemen, this does conclude our Q&A session. At this time, I would like to turn the conference back over to your hosts for any additional or concluding concert comments.

Listen, I think we've said enough this morning and we do appreciate your patience in letting us rant a bit and hopefully inform you on how we see our business evolving and how we see the industry evolving, because we believe it. We have a lot of conviction and passion about it. Hopefully that came through this morning. We thank you for participating.

Thank you then.