Liberty Global Ltd (LBTYA) 2006 Q3 法說會逐字稿

Thank you for standing by. Welcome to the Liberty Global third quarter 2006 investor call. Today's call and the associated Webcast are the property of Liberty Global Incorporated 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. [OPERATOR INSTRUCTIONS] I would now like to turn the conference call over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

Thank you and welcome, everybody. Let me just take a quick minute to introduce who's on the call from our end. We have pretty much the whole senior management team from various locations, Gene Musselman, who runs UPC; Charlie Bracken and Bernie Dvorak, are Co-CFO's of course; Shane O'Neill, in London; Tony Werner, our CTO; Mauricio Ramos; Liz Markowski; looking over Japan, Miranda Curtis and Graham Hollis; and of course, Rick Westerman. And before we jump into it, we're going to let the operator do the honors of a Safe Harbor statement. So operator, do you want to do 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 the meaning of the Private Securities Litigation Reform Act of 1995. Including the anticipated acquisition of Karneval, the Company's expectation of exceeding 2006 guidance, the Company's expectation with respect to its digital migration project, including the Company's expectations for positive operating cash flow growth in 2007 in the Netherlands, and expectations regarding competition in the Company's markets, the impact of M&A activity on the operations and financial performance and other information and statements that are not historical facts.

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 factors detailed in the Liberty Global press release dated November 8, 2006, and its filings with the Securities and Exchange Commission Commission, including Liberty Global's most recently filed Form 10-K and Form 10-Q. 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 guidance and other forward-looking statement contained hereon to reflect any change in Liberty Global's expectations with regards thereto or any change in events, or circumstances on which any such statement is based. Please refer to the appendix at the end of the Webcast, as well as Liberty Global's press release dated November 8, 2006, and SEC filings for definitions of; operating cash flow, OCF, free cash flow, revenue generating units, RGU's, and average revenue per unit, ARPU as well as GAAP reconciliation. I would now like to turn the call back over to Mr. Mike Fries.

Well, after if all that if you want to stay on the call, welcome. Our agenda is pretty straightforward. We are working off a slide presentation that we have posted to our Website, so hopefully you all have a copy of that. I'm going to run through some quick highlights and Charlie will hit the numbers and then we'll get to your questions as quickly as we can. So, I'm working off slide four which does give some highlights on our third quarter. As most of you, given the summer months, this is one of our seasonally softest periods. But despite that, we added 357,000 RGU's and that's up almost 30% over last year and essentially flat with our second quarter. So, great result on the net adds.

Our revenue was $1.62 billion and our cash flow was about $600 million. And those numbers are up almost 50% year-over-year. But of course, we focused on what we call rebased growth or same-same store growth, and in that case we are up 15% on the cash flow line. And if you excluded Holland, which we do for comparative purposes, almost 19% on the cash flow line.

Now Charlie's going to talk about the balance sheet quite a bit, but our leverage ratio continues in the range of 4 to 5 times. That's allowed us to upstream cash, as you're well aware, and drive equity returns. Our cash position, even after funding recent acquisitions in Japan and the Czech Republic, as well as the $1 billion tender, is about $1.6 billion at the end of September. So, we're still in a great liquidity position. And if you look at our stock repurchases, we've now shrunk the equity base about 15% just in this fiscal year with $1.8 billion in total purchases.

Slide five, we put up every quarter and until we get sick of seeing it, we're going to continue to do that. And it shows our comparative net add growth quarter over quarter the last two years. You can see the 375,000 is up nearly 30% over last year and almost double 2004. Net growth is coming from a couple of things of course, one being our larger footprint, but also and more importantly, organic growth in voice and data, which I'll speak to in just a minute. And I'll also let you in on is the fact that our fourth quarter continues to be pretty strong. That's seasonally our strongest selling period. And in the month of October alone, we added over 150,000 RGU's. So, we're pretty confident we're going to exceed our year-end net add target pretty meaningfully on the RGU side.

Page six walks through the products and you can see the growth in each of Internet, telephony and digital, our core product offerings. On the data side, that continues to be our leading performer. We added 175,000 broad band subs in the quarter. That's up meaningfully over last year, as well as sequentially. And it's the fourth quarter in a row that we added over 150,000 high speed data subs. Importantly, we're now in excess of 2 million RGU's in Europe in the broadband business. And our penetration there averages 20%, but it ranges from a high of 40% in Austria to mid-teens in Central and Eastern Europe where a lot of primary demand in our business still exists. So, we are mature in some markets and taking advantage of less developed markets to drive these sorts of numbers.

Telephony, with the resurgence of VoIP had another good quarter, as well. We are now launched in 12 countries and have nearly 11 million homes serviceable with our VoIP networks. We added over 140,000 subs in the quarter and that's up 40% from last year. And another milestone achieved, we now have over 1 million voice customers in each of Europe and Japan.

And then lastly, digital continues to perform very well for us. We added or converted 230,000 subscribers in the third quarter and that's driven principally by our operations in Japan and Holland. I'll speak about Holland in just a minutes. But Japan has now reached 50% penetration, which I think by any measure is world class in the digital business. And digital continues to drive overall video sub growth for us. So, we added 39,000 video subs in the quarter and over 114,000 video subs year-to-date.

If you look at page seven, that's just a snapshot of our subscriber base at September 30. So on the right hand side, you can see that total RGU's are 18.25 million, and that is up almost 6 million year-over-year from Q3 '05. Now, a quarter of that is organic growth and, of course, you've had the benefit of acquisitions in that number. And the left hand side of the chart shows you how that 18.3 million RGU's break down. 2/3 of our RGU's today are video and 1/3, or almost 6 million are voice and data. And we don't double count digital. So, within the 12.3 million video subs, we've got about 1.8 million digital television, almost 18% penetration of our basic sub base with digital.

Total customer relationships are essentially home subscribing of over 13 million. That's also up meaningfully over last year, of course, related to acquisition, but we did add 430,000 customers organically in the last 12 months. And that's obviously helping us push the ratios of RGU's per customer up, which is as high as 1.8 in Chile and Japan and continues to track upwards across the European marketplace as well.

One more slide on customers for a second, slide eight. You'll see some bundling statistics. I think the key point here is that as of today, 27% of our customers are double or triple play. We are significantly focused on driving that number to be a bigger portion of our customer base. In Japan and Chile, it is 50% of our customer base represented by double and triple play customers. And, of course, in Europe, we have a large analog sub base that we're selling to and that impacts the consolidated figure. 3.5 million bundled subs in the -- at Q3, that's up 50% from last year. If you look at the press release, you'll see we're making good progress in our RPU's across all regions. And for the group as a whole, RPU is up over 5% from last year. So, from our perspective the triple play is working.

Slide 9 is an update on our Dutch digital rollout project. Just going to spend one minute on this. We are approaching the one-year anniversary of that project. We have ended the third quarter with 425,000 digital customers. So in less than a year, we've taken penetration in one of Europe's most mature analog markets from 5% to over 20%. And at this pace, we should end the year with over 500,000 digital customers in Holland. Those are big numbers. And we are proud -- I'm particularly proud of the job that Gene and his team have done in that marketplace.

But I think the important message here, is as we enter the next phase of the rollout there, we feel we're in a great position to now optimize the rollout strategy. There are several reasons for that. Not the least of which is the fact that digital in Holland has reached a very important reflection point. The cat's out of the bag, so to speak. There's now over 1 million digital homes in Holland. Broadcasters are launching new channels right and left. There's a great buzz about the product. We'll be rolling out PVR's, high def, and VoD right around the corner.

So with that momentum, we are looking at refining our sales and marketing approach, as we move into 2007, to ensure that we're really targeting a specific customer group or responding to interested callers who are looking for the product. That's going to be a much more efficient use of acquisition dollars and we think ultimately, the higher return on capital. But we had to get to this point to be able to make that transition. I think the punch line for all of us is that we think we've turned a corner in Holland and we should expect positive operating cash flow growth from Holland next year.

Anticipating some questions we might get, I'll just make a couple remarks on a broader strategic issues on slide 10 here. There's a lot of noise and activity around questions around new products and services, whether it's wireless or over the top, or IPTV, people want to know; What does it mean to us? What are we doing about it? And I think the first thing it's important to understand, is that we're not overreacting. We continue to believe that when it comes to these types of opportunities and challenges, I've said it many times, it's all about pacing. And that things are really not moving as fast as people think they are, certainly not in our customers' world.

So, our efforts have been focused primarily what we would consider proven products and technologies with discernible economics. Can make the Internet faster than our competitors can. So, we're doing that. We've raised our broadband speeds almost 30% in Europe year-over-year. We're now have 25 megabits offered as a top end tier everywhere. The economics of VoIP are great. And the product sells itself, it's lit a fire under broadband data sales. So, we've put a lot of time and resources into VoIP. PVR's and VoD and HD, in our opinion, are killer apps for video. No question about it. We're rolled out in Japan. We'll be there in Holland in the next three months. It's a key part of our product road map everywhere.

On the wireless front, we've rolled out MBNO's in particular, in three of our largest markets, Japan, Switzerland, and Holland. And like the U.S. guys, we're putting one foot before the other a bit here to see what mobile real means to us. We're preparing to roll out Wi-Max in a couple of rural markets and Tony and his team have done a tremendous amount of work on those economics and that technology. But I think the plan is we're playing good offense where we need to be playing good offense. We're pushing our economic advantage with new products and services, and we are pacing ourselves in a very measured fashion on the things that I would consider to be really the noise or next generation type technologies or services.

Part of that approach is based upon the fact that the competitive and regulatory environments we operate in have been largely stable. Clearly IPTV is gearing up or perhaps has launched in many instances. But in our core markets, KPN hasn't launched, Swisscom has just launched. It's unclear what impact these opportunities are going to have. And we think the window is wide open for us to not only penetrate voice and data but also upsell our video customers with good digital product.

So, regulatorily, it's the same situation. Despite the recent flare-up in Holland, I can tell you, the EU the Dutch Regulator, even the Minister of Economic Affairs, nobody supports opening up the cable networks, it's not going to happen. So we do fight little flare-ups, but on balance, the regulatory framework we operate in is still stable.

And then lastly on the M&A side, we are still guided by the same three opportunities that we see in this activity. Number one, consolidating core markets. Number two, expanding into new markets like Switzerland that we think fit the mold. And then rationalizing, as we did in France. So, we'll definitely remain active in this space. We have access to capital, our platforms scale extremely well. We've proven that out. Synergies are achievable and very realizable. But I think we're also going to stay disciplined, as we have.

Which is a good segue to my last slide, slide 11 here, which basically says that we measure M&A opportunities against the opportunity to shrink our equity base and that's a great position to be in. From our perspective, we've demonstrated the discipline we can bring to that equation and we will continue to do. I think secondly that, this particular operating year for the cable industry, I believe, will be remembered as the point in time that the paradigm shifted a bit. And that change in sentiment, that change in perspective has been driven almost entirely by strong operating performance. Not of some big M&A deal or some big strategic investment by an outsider in the industry, it's all about the numbers. And fundamentally, we continue to deliver them.

And we look at our guidance targets for the year, it's pretty clear that they're conservative. And while we're not giving specific guidance targets here, we are saying we expect to achieve those targets pretty much across the board. So, A great quarter for us on all fronts; operationally, strategically, and financially. And as we fine tune the '07 budgeting process, which we're all very focused on as we speak, we are extremely bullish about our business looking forward. Those are my remarks. I'll turn it over to Charlie to walk through the numbers. And then we'll get to your questions. Charlie?

We're on page 13 now. What this does is hopefully give you a snapshot of our Q3 financial results. And I think as Mike referenced, revenue is up 47% to $1.62 billion and OCF up 50% to just shy of $600 million. Now, both of these growth rates were driven by acquisitions. And in a second I'll show you how those growth rates look if you take out the impact of acquisitions and foreign exchange movements. But let me make a couple of comments about the OCF margin. In this quarter it was 36.5% and that's an 80 basis point improvement from Q3 of last year. And we're up 110 basis or 1.1% points from Q2. And it's really across the board. Europe, Japan and Chile are all getting operational leverage and improving their margins.

Now if you turn to page 14, that gives you the quarterly OCF progression since the beginning of the year. And again, some of this is impacted by the depreciating dollar versus the euro and the currencies go on and some of it is due to acquisitions. But overall, the trend is very favorable. You can see here that there's a 6% quarter on quarter growth and that's up from 5% quarter on quarter growth between Q2 and Q1. Now, as you extrapolate out to Q4, as some of you may be doing, just be aware that Q4 historically is our biggest quarter for customer growth. And I think Mike just signaled that we're having a very strong Q4. And because of that, you get much higher marketing costs. So, it doesn't always follow that Q4 is higher than Q3, but if it isn't, it's usually a sign of very strong customer acquisitions, particularly on the marketing side.

Let me turn to page 15. This is really the revenue broken out by division and it also gives you the rebased growth figures. Now, for rebased, what we mean is adjusting last year Q3 2005 to include acquisitions that weren't fully included in that period. And also, we're trying to take out the affect of foreign exchange. So if you look at UPC broadband in Europe, it's up 63% on a reported basis to $230 million of revenue. Now, that's a rebased growth of 11%. So, consistent with our low double digit target. And if you try and further analyze that, you can see that Western Europe is at 9% and that Central and Eastern Europe continue to grow very strongly in the mid-teens at 15%.

Japan was up 12% on a reported basis to $470 million and 10% on a rebased basis. And Chile had another strong quarter, up 15% on a reported basis and 12% on a rebased basis. And if you look at LGI as a whole, the revenue of $1.62 billion was up 10% on a rebased basis. And, as I said, that is consistent with our double digit topline growth target.

Slide 16 shows our rebased growth rates for OCF. In Europe, the broadband group was up 73% in OCF to $340 million and on a rebased basis, that's 19% versus Q3 2005. Western Europe was up 14%. And that was largely driven by what we've done in cable Cablecom, which is turning out to be a very good acquisition for us. OCF growth of 25% year on year there, which justifies the move we made last year. And Central and Eastern Europe has had also very strong growth at 24%.

J-Com increased its OCF 11% on a rebased basis to $187 million. And in Chile, BTR had a very strong performance of 26% on a rebased basis to $50 million for the quarter. So overall, LGI had rebased operating cash flow growth of 15% to $599 million. And if you take out the Netherlands, which as I think as Mike made the point it's been going through a transition year with the digital for all launch, rebased OCF growth would, in fact, have been 19%. And we think that's a very strong performance either with or without Holland and very much consistent with the mid-teens EBITDA growth target we set ourselves.

Let me just turn quickly to the balance sheet on page 17. We've got total debt at September 30 of $11.3 billion and that's up around $500 million from our June debt balance. And during the quarter, we've come some refinancings in a number of our operations, taking advantage of strong credit markets, particularly in Chile and also in Austar in Australia. We've also raised some debt at J-Com in Japan, which helped fund the Cable West acquisition.

We've also just completed a refinancing at the Cablecom level in Switzerland, which is consistent with our long-term target. And I'll talk about that a bit more in a minute. And as you know, we've designed our balance sheet to provide the maximum flexibility, in particular the ability to move money upstairs to the parent and avoid trapped cash. At the same time, the credit markets have been very strong for us, so we've been able to lock in our cost of debt at around 6% and virtually entirely hedge ourselves against rising interest rates and also currency exposures.

We've also been able to push out all our maturities, so broadly speaking all our amortizations now are six to seven years out and in bullet form. So in terms of cash, we've got $1.6 billion of cash at September 30, that includes a little bit of cash, $286 million, which is being restricted as we look to complete the sale of France and maximize the equity proceeds. Another LGI parent, the holding company, we had $900 million of cash. So, we've got very significant liquidity for acquisitions or continued stock purchases. We also have some very significant undrawn credit lines in Europe and in Japan that can be used for acquisitions.

So on a reported basis, our gross leverage was 4.7 times, this is towards the high end of our 4 to 5 times target range. But to be fair, we are including debt from the Karneval and Cable West acquisitions, but none of the cash flow that was associated with it. So if you adjust for those, you would be at a pro forma number probably in the 4.5 times range.

Slide 18 just shows our performance in free cash flow. Free cash flow was negative $14 million in Q3, bringing our year-to-date figure to positive $10. As many of you know, we've articulated the break-even free cash flow and we're not prioritizing strong free cash flow generation given the high growth that we have. We've got some very high investment return opportunities and we think we get a better a return on capital by taking advantage of them. But we are continuing to strive to be free cash flow positive on a consolidated basis and also in each of our funding calls and we remain consistent with that objective.

CapEx in the quarter, that was $353 million or 22% of sales. And if you add in the capital lease additions of $18 million largely related to Japan, that would take you up 23% of sales. Year-to-date, our CapEx spend at $1.1 billion, is around 24%. Now, it's a bit below our full-year guidance for 27% of sales. Now we do expect very heavy spending in Q4, that's consistent, if you like, with the strong subscriber adds and the equipment associated with that. But we're not sure that we'll get to the 27%, but we'll give you a further update in the results call next year. In general, we think we're at an inflection point on capital spending and we do think it will be coming down as a percentage of revenue over the next several years.

Let me just turn on slide 19 for a quick update for our bond and bank investors in Europe, the UPC holdings level. For the Q3, the BB -- holdings in BB were up 20% in revenue to EUR508 million, now. And that was driven primarily by acquisitions and subscriber growth. And revenue was 11% on a rebased basis. And on the OCF side, we're up 27% to to EUR 205 million, with rebased OCF growth at about 19%. Now, that's driven by strong results, as usual in Central and Eastern Europe, as well as some recharging on the network between UPC Holdings and Cablecom. Now, we we've pointed out before, you should take account that the affects of our digital for all rollout in Holland have a larger impact on the UPC holding results, given they're a higher proportion of that funding pool.

Page 20, that's just the UPC balance sheet. Total debt now EUR 3.9 billion. Bank debt of EUR 3.1 billion and bond of EUR800 million. And we've given you our covenant calculations according to the definition of that facility. So on a senior debt to annualized EBITDA, we're at 3.9. And total debt is 4.9 times debt to annualized EBITDA. As we make historically, our intention is to bring the Cablecom asset underneath the broader UPC credit group and we've actually designed our capital structure at the Cablecom to facilitate that.

And as the final step in that possible incorporation, in the last couple of weeks, we've completed the refinancing of Cablecom's EUR219 million of senior notes, by placing EUR300 million of 8% notes at Cablecom, which defeat the existing notes and allow us on option to transfer the obligations to UPC Holdings as early as April 15 next year. And we're pleased with the transaction, we thought it was good for holdings -- bondholders and we thought it was an elegant way of converting existing debt across our capital structure.

So, let me just give a couple of conclusions on page 21. As Mike said, we felt great about the Q3 and EBITDA results. We're on track to exceed our full-year guidance targets with our terrific October in terms of subscriber growth. And that should give us very strong momentum as we go into 2007. We've made very good progress in terms of rebalancing our footprint through M&A activity but we have maintained discipline and we've also been able to retire quite a bit of stock at accretive prices.

We plan to have our annual investor day on March 14 and 15 of next year in Zurich and Switzerland and we would love to see as many of you that can make it as possible. So, do go to the Website if you want to register, the Website that lgi.com. So, with that, operator, let me turn it over to Mike and get some questions.

[OPERATOR INSTRUCTIONS] We'll go first to Vijay Jayant with Lehman Brothers.

First, question on better net adds this quarter. Typically, we've seen a hit to margins and we've seen margin expansion. Is that a change that's happened? I know you mentioned in the fourth quarter you may not see the same kind of lift, but anything different this quarter than sort of a year ago?

I'll' let Charlie and perhaps Gene chime in. I think to some extent we're getting the benefit of just reaching scale more quickly and effective than we had perhaps originally anticipated. And that's across all markets. We did have a few markets that were particularly strong performers, Switzerland in particular, where we've had some rate increases and other factors that have driven performance there well above the average. But in principal, I think, it's purely a function of scaling the business and keeping our eye on the ball with respect to costs and product development and the things that are going to move us forward. If Charlie or Gene have any color on that, they're welcome to chime in.

I would just add two things. Back to the point about scale, we are getting -- continuing to get very good savings on global procurement. I think we've articulated that we're on track to make $50 million of savings on that area and we still see further opportunities to expand that going forward. I think the other thing, the acquisitions are paying off for us. There's a lot of acquisition synergies in Switzerland, also in Chile for the Metropolis acquisition that continued to grind through the system. And I would point out that some of these acquisitions can take up to two to three years sometimes to fully synergize. And I think there's still some runway there.

I would just add, that pretty much in-line with what both Charlie and Mike said regarding scale, we continue to expand our two way ready for service footprint considerably and that gives us the ability to launch in the new services. And in fact, during the second quarter, we did launch a number of -- initiated a number of VoIP launches in Austria, Czech, and Slovak. And those countries now are starting to come on and add subs. And I think our bundling strategy as we've refined it, is producing better and better results as we go along. So overall, I just think we've got a very seasoned team. We've all been together for a long time and I think we're just getting better at the execution.

Mike, if I can have a follow-up. Given your minority stake in Telenet and given your general views on consolidation and rationalization, given it's sort of contiguous to your Holland assets, how do you view Belgium as an opportunity to maybe get full control off, or is that not key to your strategy? Thanks.

Well, I think it's -- I don't think we have a firm position on the Belgium market or Telenet as a business or investment for us, as we sit here today. We're in a great position relative to our ownership stake and the options that that ownership stake provides us. Clearly, the Belgium market is a little bit like an old friend. We understand it well, it's close and contiguous to Holland and it looks and feels like certain other mature Western European markets. But as we sit here today, we think the team is doing great. We think the business seems to be performing well. But we're hanging on to the options that we have and we'll see what unfolds. But there's really no -- nothing more I can tell you directionally at this stage.

Thank you.

We'll go next to Alan Gould with Bleichroeder.

Yes, thank you. I've got three questions, if I could. First of all, I guess either for Miranda or Graham or maybe to Mike. The numbers in most of the markets look terrific. The two exceptions seem to be the Netherlands, where we understand what's happening, and Japan, which is a less -- is really pulling down the whole group. Given the low penetration in Japan, how come we're seeing much lower RGU, revenue, and OCF growth in Japan than the rest of the countries? I'll start with that one.

Well, I think in principal -- I'll let Miranda or Graham want to chime in and then I'll follow up with it, or --?

Sure. I think one of the things you need to focus on in Japan is that there seems to be very little growth in the video market overall. We're seeing slow but steady growth within the J-Com footprint. What we are seeing though is focusing management on the business on what is turning out to be an extraordinarily rapid transition to digital and to DVR's, as Mike mentioned, I think, in his early opening comments. you're looking at almost 50% digital penetration in less than 24 months. And if you look at the DVR sales in Japan, they've sold pretty much 70,000 HD DVR's in eight months, so you're seeing a focus on high end transition at this point, rather than a focus on increasing penetration.

The Cable West acquisition allow us also -- increases the footprint and allows J-Com management to roll out some new strategies in the Kanto region, which has been one of the more difficult operating areas. But we see no reason why growth shouldn't continue going forward. And I think the point to keep in mind is that on the video side, cable is not losing video subscribers to any competitors. DTA is actually losing subscribers net this year and we're seeing practically no growth in IPTV on the video side. Graham, I don't know if you want to add anything?

Well, I would say on a nine months to nine months basis, the rebased growth is a little under 13%. As I look at the business over a three to five-year period, I view it as an operation that should be able to achieve the kind of growth we expect from other parts of the region. While it might in these particular periods appear to be an aberration or an outlier, as we look at the three to five-year time frame, we think it's a business, an operation, and a market that will look very much like the rest of our footprint when it comes to growth opportunities.

I think Miranda raised a point about acquisitions. Acquisitions in Japan usually have negative synergies associated with them up-front. And my experience with the business planning process is there's a fair amount of work that has to be put into upgrading and improving the marketing infrastructure and things of that nature. And I think as she mentioned, there are going to be periods of time when they have to be responsive to the competitive environment either through marketing or additional HD content and things that are going to have an impact. But all in all, can I tell you they're performing well to budget and as we look out, we don't see J-Com as an aberration at all.

Okay my next question, is in Holland, can you give a little more color from the comments that were in the 10-Q regarding what's happening after the promotional period is expiring on the new digital subs?

Well, I think what we've said -- I believe we said this publicly, I'm not sure, what we're experiencing is over 90% plus of customers are just hanging in there, and that's a good number. So, we are not seeing a material drop-off whatsoever, not even a small drop-off, really, in customers who are billed after the six months free period, which is exactly what we would hope to see. And I think is a function of the fact that the product is growing in awareness and value to customers and that EUR2, quite frankly, isn't a lot of money. But I'll let, Gene, do you want to provide any more color on that?

No, I think you've said it well. We've had very little roll off billing the subscribers after they end their promotional period. I think it's less than 5% churn at this point.

Okay. And the last question to you, Mike, there's a new executive performance plan, which looks like it aligns your interests with the shareholders, could you give a little explanation? Was it -- you need at least 12% OCF growth, if I'm correct, to hit a bonus and it increases as you work up to 17%?

Yes, we did file an 8-K on that, we really had three objectives when we put this together. The first objective, as you point out was to get the management team squarely focused on superior operating performance and, in fact, the target is 17% operating cash flow growth. That's the high end target we're striving for over the next two-year period. It's almost an attempt to supplement what is a relatively small equity position by senior management today and retain what I think is the management team in the business.

So, it's a five-year plan that has a couple of years of performance driven measurement period and then a payout periods that's three years long. So, it's a great plan to supplement what is an existing equity stock-focused compensation scheme. And then put in place a very performance-driven scheme that's going to have us shooting for that 17% number, which if we achieve that, as I think everybody on this call realizes, should generate significant value for everyone on the phone. It's a big, big number but we believe we can do it. We can do it without jeopardizing the business and by, in fact, improving the platform that we operate on today. So we're encouraged by it, I'm excited to have it announced. And I think it's a great motivating tool and a great retention tool for me.

Okay. Thank you very much.

Yes.

We'll go next to David Joyce with Miller Tabak.

The financial performance is better than expected in our model for Netherlands and Austria, for example, with RGU's coming in roughly as expected. So barring the currency movements and some of the post six month free period retention, is there anything else of import going on in those markets?

Specifically Holland and Austria?

Yes, those were two of the countries where the financial performance looked better than expected.

I think the only way to characterize Holland is, we had a stressful year on the OpEx front, but I think the team actually performed much more efficiently through this digital roll out than we expected. So, we had aggressive revenue targets and aggressive subscriber targets in digital, but more importantly, we expected that the cost of achieving that, along with running the overall business would be a bit higher. So, I think it's basically just better performance as much as anything on the OpEx side. In Austria, we may be looking at numbers that bake in INODE. But, do Charlie or Rick, do you want to address that?

I think it's just across the market, data continues to perform very strongly. We haven't reached at the end of the broadband kind of curve and there's still a lot of adoption of data across all our markets. And I think, as Mike said, we continue to be able to squeeze costs out of the structure not least as we -- by the synergies in Austria, that was obviously INODE, which is an acquisition made at the beginning of the year, which has another chance to take costs down.

Great. And on Australia, do you have any update on new product development there?

Well, they're still in the midst of converting customers to the -- a restructured packaging approach where sports is pulled out and they've taken a rate increase. So, in terms of the overall DTH product offering, they're refining and retooling that product offering, but nothing -- no significant or material changes. They just keep hitting their customer numbers and growing the basic subscriber count in a pretty steady fashion.

The only thing that was perhaps a little bit outside the circle is a look -- is that we are looking at a WiMax rollout more broadly across our rural and regional Australian markets, since we own all of the 3.5 gig and 2+ gig spectrum. So there is a possibility that we will pace -- I would say appropriately consider a rollout of wireless data in those markets where we are a satellite operator only and where the broadband connectivity is quite weak. Because Telstra hasn't really pushed their rebuilds out into those markets.

But for most part, the core DTH business, since it's essentially a -- the only operator in town, if you will, is doing just fine. And I think generates significant ARPU off the home, AUD$68 of Australian dollars out of every home. So, it's starting to perform quite well and I think every point of penetration on that business means significant EBITDA growth given where they are on their margins. So, it's performing quite well, I think.

Okay. And just finally on Australia, with the change in media ownership rules, do you find them beneficial, perhaps?

I think it's a net neutral for us. We're not in the -- we're not cross-media owners and I'm not so sure it's going to attract or impact the paid TV segment of the business in any material way.

Okay, thanks.

We'll go next to David Kestenbaum with Morgan Joseph.

Okay, thanks. Miranda, you've had a lot of personnel changes in Japan the last quarter to two quarters. Can you just comment on them and what you hope to achieve?

Are you talking about the J-Com management?

Yes, the J-Com management.

There's really only been one significant change, which has been the very desirable appointment of Fukuda san as Chief Operating Officer, he comes out of Kadokawa and has a lot of expertise in recruit and in classified advertising sales. He's already been very effective for the Company in day to day review of operations and working with Assistants Presidents on refining operating strategies and preparing them for this year's budget. And indeed been instrumental in working with the partnership with [inaudible] and the Cable West acquisition. So we see a steady process of reinforcement at the operating level.

We've seen one change on the finance side, which again, I think will bring new talent into the Company. I think it's just a function of the Company maturing and become increasingly independent and self-sufficient. So we're confident that the Company is now able to attract strong talent from the market and from outside the industry and to build a good management team. We're very happy with it.

Thanks. And Mike, I understand you're undergoing a strategic review on your role and involvement in Japan. Can you just comment on that, the whole process?

Well, yes, those are strong words. I'll repeat what I've said publicly, which is the underlying businesses in Japan are performing extremely well. We love the operations at J-Com. We think Shop and the thematic channel business is a winner. So I think when we step back and consider at the ground level how businesses are performing, we're very, very pleased.

All I have said publicly is that compared to Europe, compared to Chile, compared to other markets, we own Japan differently. And so we are, as we should be and as you would want us to be, continually evaluating that ownership structure, that organizational structure. Are there ways that we can more efficiently, more profitably, more appropriately own or manage or organize these businesses. And that's not a question we can answer on our own. We have a very solid and long-standing partner with Sumitomo and transactions or ideas of this nature take quite a while to socialize.

But I think it's fair to say that Miranda and Graham and myself and John are squarely focused on looking at new and creative ways of realizing value, recognizing value and trying to get the most out of, if you will, what we know are great operating assets. And that's a lot of words but I can't be very any more specific than that.

Okay. And then final question is, if you look at the guidance you presented last year at the analysts meeting, you had impressive growth but still lower than that. So are you -- can we assume that growth is going to ramp up in '07 and '08?

Well, the guidance you referred to was 16% to 18% OCF. But that guidance had built into it, because back then we weren't rebasing, that guidance had built into it some impact of acquisitions, Rick, I believe I'm right about that.

That's right.

I think we've always kind of said mid-teens is where we believe the business can be and should be. But as I look out, you can expect that we don't see a slowdown anywhere soon. And we're incented with this new pump plan to try to generate continued growth in our markets and I think we're feeling very good about our ability to do that.

We'll go next to Jeff Wlodarczak with Wachovia.

Two questions. Mike, you made some comments about 150,000+ RGU's in October. Is there any reason, other than the holidays at the end of December, that that number shouldn't at least continue at the same pace? Any reason why that should accelerate? And then second question is, this is an extension of Vijay's question, CapEx is running a decent amount lower than expected. Is that scale related, conservative forecasts? And is it too early to talk about CapEx as a percentage of revenue? I think directionally, you're saying it's down for next year.

I think on the CapEx point, if you go back over the last several years, you'll find that we always get on this particular call and show you a nine month figure that looks lower than guidance. And almost just as consistently, we end up in the fourth quarter spending a fair amount of capital either on CPE or rebuilds and new build and usually end up about on budget. So I wouldn't get too excited about the fact that CapEx year-to-date looks lower than guidance. I think that's not atypical for us. And on the RGU count, we had to fight long and hard with the lawyers to even give you the 150,000 number, so, I'm afraid, they're not going to let me say anymore than that.

Thanks.

We'll go next to Matthew Harrigan with Janco Partners.

A couple questions. It looks like you're getting pretty good traction in emerging Europe on the nascent offerings, on the advanced services. Can you talk about the upgrade requirements in that market? I know it's pretty favorable civils cost and all that. And whether you intend to go through a full triple play pretty across the region? And competitive-wise, do you see the growth actually accelerating in '07 and '08 because you are earlier in the curve on the service introductions? And then in Switzerland, just to talk about the needs to upgrade the plant from 600 meg. It looks like you've got a nicer pricing umbrella than you have say in the Netherlands on voice and data, relative to Swisscom. And that market seems to be a bit of a sweet spot for you in Western Europe.

Yes. Well, on Central and Eastern Europe, which I think was your first question we've, I think, been fairly open with folks about the benefits of rebuilding those markets. The fact that with high densities and low labor costs and declining technology costs, we're able to rebuild at very, very low prices per home path. And as a result of the triple play, amortize that expense over three revenue streams that are generating the kind of growth that you see. The answer is that the triple play road map throughout Central and Eastern Europe is intact. It's a huge part of our growth story. It's one that we will continue to implement. And it's one we've benefited from meaningfully when you go back and look at the organic growth rates we're achieving in those markets. I don't want to speak about '07 and '08 because we're still in the budgeting process. But we're certainly going to be focusing as much energy and capital on those market that as we can. And when we slice and dice the CapEx, clearly the highest rates of return, the highest return on capital we generate almost anywhere in the world is in those markets, when you look at new builds and rebuilds in particular. So, we're going to continue to focus capital there, as you'd expect us to. And on Switzerland, I'll let Gene comment, although I would agree with your sentiment, it is nice, at this stage duopoly marketplace, where rates have held reasonably firm. And we and the phone company are doing a bang up job of serving the customer. So, we'll do the best we can to retain that. But do you want to comment, Gene?

Just quickly on Switzerland. As you know -- as you mentioned, it's a 606 megahertz plat that we feel at this point -- that we're reasonably comfortable that we can continue to provide the enhanced services without any significant upgrades in the near term. Although, we are looking forward to the deployment of 3.0, but we don't expect that to be in the marketplace probably before late 2007, maybe 2008. There are a significant number one-way homes in Czech -- or I mean in Switzerland that we're focusing on at the present time to upgrade. In the past, they have not been economical but we've looked at the models and we've been able to refine them to an extent that I think we're going to be able to upgrade a significant number those probably in '07. So to sum it up, I don't see any significant issues in terms of delivering our business plans without significant capital investment in Cablecom in the near term.

And lastly for Miranda, when you look at JTV, all the attached -- and all economics are in Shop Channel right now, but it seems like you've got an incubator for new channels like Party TV that you talked about in Tokyo last summer. Can you talk about that business, not so much the financials, but whether you really see anything akin to the old Liberty Media with its ability to act as an engine to create new content?

Sure, Matt. We continue to be very pleased with the way that JTV is performing. And I think Matt you'll remember Mark [Lewis] from [FlexTek] is now out there as Chief Operating Officer. And he's working very well with the rest of the team and I think is helping them raise their game. We now have the portfolio of 16 different channels, most of them already profitable, most of them are fully distributed. We are, without doubt, the leading operator of thematic channels in the market.

Shop Channel, as you say, has completely different metrics and is an astonishing success and is just going from strength to strength and beating all the competition hands down. JTV itself is an extremely strong, good position to acquire new channels, when they become available. And most importantly now, is really focusing very hard on how it maximizes distribution across all available platforms, not just cable and satellite, but also IPTV and the increasingly mobile market. So it's a solid business, it's not yet huge, but it's extremely well placed to grow and to support growth in any section of channel distribution in the market.

Thanks for your answers and congratulations on the quarter.

We'll go next to Benjamin Swinburne with Morgan Stanley.

Thanks and good morning. I have a couple of questions. Maybe first on Japan, Mike, as you think about the strategic ops, can you remind us what the tax basis is on your J-Com position? And then more of a strategic technology question for the whole team and Tony in particular. As you guys see broadband mature in some of your Western European markets, do you expect to see people -- the willingness to pay for higher speeds start to translate into better pricing power, better mix? And if you do, what does that mean on the capacity and backbone provision inside? I know you guys have been interconnecting more and more systems as you consolidate Europe. So, I would imagine that creates a lot of scale benefits. But I'm curious, we've heard other operators comment that the demand for capacity is increasing significantly, just curious on your thoughts there? And maybe what that might mean for the options with WiMax? Tony, do you think WiMax could every really provide a primary downstream pipe that can satisfy what consumers are looking for?

I'll let Tony get to the second one. On the first one, one of the side effects of having a very successful investment like we do in Japan, is that we're sitting on billions and billions of dollars of value. But having either taken most of our money or spend very little getting there, which is why -- and John was right, it is one the best markets you're going to see. But I don't know whether we've been public or not. Our basis, obviously, in our program assets is quite low, since those businesses are being grown largely on an organic basis. Our base is in the J-Com is, my recollection, is 6 or 700 million. Graham you can probably --?

650, Mike.

That's right. Mike.

And so that is an asset we do have some basis in. But you can bet that as we would with any business, at any point in time we might consider strategic transactions, be putting Charlie and the best tax brains we have on earth looking to optimize or efficiently resolve that. And then, Tony, do you want to address -- Tony are you on? Tony was on, we may have lost Tony. Well, I can tell you that -- As I recollect your question, you're interested principally in how we see speed playing into both the broadband business from a marketing point of view and a competitive point of view? I can tell you from our perspective, we believe, and this is almost a global trend, that speeds are way ahead of the curve in general outside the U.S.

So the fact that we offer 25 megabits in almost every European country and 30 megabits in Japan, it's our opinion that applications today -- there are very few, if any, applications today that would require that kind of speed. Having said that, the rates per market share has pushed us into the position to play to our strengths. And our strengths are our broadband capabilities and to extend to power of our network. So where we need to, we have been pushing speed as a marketing tool with little to no impact on bandwidth. Why is that?

Well, we're 2.0 across our entire footprint, which I think is not necessarily something you can say about all markets. And that is -- and so we've already built a network that's capable of getting from 25 to 30 meg. And the mix is clearly more focused in the center. We do sell 25 to 30 meg. But clearly, we're mostly selling in the classic space in Europe, which would -- classic and light space, which would be probably closer to 4 to 8 meg. I think our average speeds, as I said, are up 40% and I think are probably north of 5 meg on average, but we're not anywhere near to capacity constraints. Remember, we're only using 30 analog channels in Europe.

So, we have tremendous bandwidth on an 860 platform for broadband, for VoIP, for digital and from our perspective -- and Tony, of course, leads the Euro -- or the DOCSIS 3.0 working group at CableLabs. And we're obviously, well advanced on that technology and thinking through with vendors and other operators how we deploy that technology, which obviously takes us to a whole another stratosphere of speed capability. And I think what has to happen though, from our perspective is, we need to see applications and service start to become compelling enough where people will pay us for that kind of speed. That's really -- it's still the same old game where a very small number of customers are using the vast majority of your capacity, and that's largely an aberration.

But Tony, did I hear you get back on? No. He must have dropped off. He was on a mobile. Did that get to your question?

Definitely. Actually, if I could just steal one more in there. You guys have been in the MBNO business in sort of small scale for a while now. There's a lot of chatter in the cable world about adding the fourth -- the wireless play to your bundle. What are your thoughts at this point in terms of economics? And do consumers want this as much as we all think that they do?

Well, I personally think it is something we needed to do that it's the right strategic move. It definitely makes us smarter about the product, the consumer demand for the product, how to market and bundle the product. But the punch line from our point of view, it has had little to no impact on our business. So remember, the mobile business is unbelievably mature, highly competitive, lots of churn, very little product differentiation. We have found where we offer it, that it's a nice add-on. We're typically not making a whole lot of money on it anyway.

We're getting our arms around the marketing proposal and the benefits associated with that. I think it's too soon to tell whether it's a killer app. At this stage, it would certainly not appear to be but we want to stay focused. We want to be in that space. We want to make sure that if it does become critical for people, it's going to be -- it's something we can do.

I think more interestingly, Ben, is going to be, what happens over the next three to five years on fixed mobile convergence? Because we're never going to be a major cellular player unless we buy one or one buys us. But where our advantage, where our opportunity comes in in the mobile space is, I believe, in the fixed mobile convergence. Where as phone companies and cellular operator struggle mightily with bandwidth constraints and spectrum constraints, as video and other applications start becoming more pervasive on those platforms, they're going to need to offload traffic.

And our ability to be in -- to benefit from the growth in new applications across mobile platforms really, I think, resides there. In ensuring that as this substitution from fixed to mobile occurs, we're still in the game because of our ability to backhaul and provide great bandwidth to consumers.

But I'll tell you one thing, there's -- nobody agrees on these things. There is tremendous uncertainty, which in my view brings me back to the main point, focus on our core competency, drive a truck through the opportunity that's right in front of us. But make sure you're balancing these new technologies and new ideas, so you can react quickly and respond quickly. But don't lose focus. And don't lose -- we are not losing focus on our core business opportunity and I think that's the key message we want to deliver.

Great. Thank you.

Yes. I think, Rick, are we wrapping?

We do have one last question from [Justin Gaslaw] with Society [Generale.]

Yes, thank you. Just a quick question on alternative access technology. You're obviously offering DSL products in Austria and DDH in Hungary. What do you see on the interplay with your cable products? And do you have any plans for additional markets on these alternative products?

Well, DTH in Central and Eastern Europe is originally very much a market extender for us. In that, it was giving us access to millions of homes that didn't have any cable and allowed us to provide a higher end TV product to customers who we were unable to service with a high-end product initially. So, it's very complementary, it's managed in a cooperative manner. It's not an internally competitive product or service. DTH works very seamlessly with the core cable operations in Central and Eastern Europe. And DSL in Austria, I'll let let Gene speak to it. But the issue there was, again, as much as anything, network extension and product extension into the CLEC space where we hadn't -- we didn't have great exposure. Gene, do you want to comment on INODE?

Well, The only thing I would add to what you said in particular in Austria, the INODE acquisition really allowed us to extend our footprint nationally. As you may know, in Austria, we principally operate in three cities, Vienna, Klagenfurt, and Graz. And with the acquisition of INODE, I think we cover somewhere between 80% and 90% now of the total Austrian footprint, which is very attractive for us. Looking outside of Austria, I think you've got to weigh each market on its own basis. And at the present, we're looking at other opportunities, but I don't see us doing anything in the near term.

Okay. Thank you.

All right. If that was our last question, operator, we thank you all for joining. And when we hang up we'll be returning this to the job of making this the best quarter we've ever had. So, we're looking forward to reporting on that in the new year. And if we don't see any of you between now and then, have great holidays. And thanks very much. Operator?

Thank you, everyone. Ladies and gentlemen, this concludes the Liberty Global third quarter 2006 investor conference 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. Thank you and you may now disconnect.