Liberty Global Ltd (LBTYA) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's First Quarter 2007 investor call. This conference call and the associated Webcast are the property of Liberty Global Inc. any redistribution, retransmission or rebroadcast of this call or Webcast in any form without the express written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen only mode. Following today's formal presentation instructions will be given for a question and answer session. If anyone needs assistance at any time during the conference call, please press the star key followed by 0 for operator assistance. As a reminder this conference call is being recorded on this date, May 11, 2007.

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. I'm joined, as usual, by the vast majority of our management team here, Gene Musselman and Shane O'Neill and Charlie Bracken, in Europe, have got Bernie Drovak in Denver along with Liz Markowski and Graham Hollis and Rick Westerman, Miranda Curtis is also on and Mauricio Ramos. I'm going to turn it back over to the operator for a quick Safe Harbor and then we'll get started.

Thank you, sir. Page two of the slides on the associated Webcast details the Company's Safe Harbor statement regarding forward-looking statements. Today's presentation including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 includes our expectations regarding achieving our full year 2007 guidance targets, the likelihood of success of our more selective marketing strategy in the Netherlands, our strategic outlook, our planned debt refinancing, and other information and statements that are not historical fact. 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 amount of competition we encounter from other service providers, the willingness of subscribers to upgrade to our more advanced offerings, continued growth in services for digital television at reasonable costs, changes in technology and regulation, our ability to achieve expected operational efficiencies and economies of scale, our ability to achieve assumed margins, continued access to the capital and bank markets, as well as other factors detailed from time to time in the Company's filings with the Securities and Exchange Commission including our most recently filed form 10-K and form 10-Q. These forward-looking statements speak only as of the date of today's presentation. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectations with regard there to or any change in events, conditions, or circumstances on which such statement is based.

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

Thank you, and I thought we shortened that but I guess not. We're going to stick to the typical script here. I'm going to go through some highlights and then turn it over to Charlie to walk through the numbers and we'll get to your questions. So I'm on slide four if you're following along on the web site it's titled First Quarter Highlights.

Subscriber growth we did 350,000 net ads and I'll give you a bit more color on that in just a second. Financially, I'm sure you've seen by now, we had great results financially. Revenue growth of 11%. Of course that's rebased for FX and acquisition impacts, and operating cash flow growth of 16%, which as you probably recall, is the high end of our target range for the full year. I'd just remind you that we did consolidate Telenet for the first time in this first quarter. Telenet added about 300 million of revenue and 137 million of cash flow, and I'll just also remind you that, excluding Telenet, our OCF rebased growth was 17% so the high end of that range as well.

Important to point out that our operating margin is inch ing towards that 40% target. We were over 39% at the cash flow line in the first quarter. That's 300 basis points higher than our first quarter last year, and you'll find that that's really happening across all markets. Particularly UPC which was up 300 basis points even before you consolidate Telenet. Charlie is going to walk through the balance sheet. You'll see that our leverage has declined from the fourth quarter and that's a function of two things. The consolidation of Telenet which is levered at about 3.5 times and also obviously our OCF growth. Year-to-date we purchased about $600 million worth of stock, as you're all aware, and we have undertaken a pretty major refinancing in Europe, which I believe Charlie will summarize, but in a nutshel, we've contributed our Swiss operation as well as our Chilean operation into the Pan European Bank facility with a number of very positive benefits there.

I'm on slide five, which is a snapshot of our subscriber statistics at March 31st. You'll see we ended the quarter with 22.8 million RGU's, and that includes approximately a 3 million coming from Telenet, and again, I'll talk about organic growth. We think we're on track to hit our full year guidance of 1.6 million organic RGU ads. The pie chart shows that advanced service RGU's, so voice, data, or digital, now represent 52% of the total and that's up from 42% a year ago, and I'll walk through those products in just a second. And then lastly, our footprint continues to expand. We're now just under 30 million homes passed around the world. Approximately 85% of which are two way, so we're well advanced in our rebuild.

On the right side, you see an update on our bundling. As you know, we are triple play, everywhere we operate. Today, 30% of our customers or roughly 4.8 million are are taking two or more products. That's up 49% from the first quarter of last year with obviously a bit of benefit from Telenet, and that number is actually 50% in Japan and Chile, which have been historically our best bundled markets. On a consolidated basis our RGU per customer statistic is now 1.43 with VTR and J:COM continuing to lead the pack for us at 1.7 or 1.8, and I'll just throw another anecdotal statistic at you. 1/3 of VTR's customers are now triple play, so we're making great progress on that front.

On slide six you can see our product highlights. Internet continues to be our number one product. It's succeeding our own internal forecasts. This is sounding repetitive because we make the same statement on almost every call but it continues to be the case. We added 219,000 subscribers in the first quarter and that nearly matched our fourth quarter which, as you know, is our strongest period. Great growth out of central and Eastern Europe, especially Hungary and Poland, and Czech Republic where we increased our speeds and saw almost immediate results there. We're now at 4.8 million broadband subscribers globally or just about 20% penetration.

Our reported voice net ads are the best in our history, 172,000. We believe we're benefiting from a number of things, not the least of which is continued expansion of our VoIP footprint which now sits at 18 million. But we're also seeing significant reductions in our churn, globally, our churn in voice for the first quarter was about 14%, which is some of the best numbers we've seen. Our total subbase is now at 3.3 million, roughly 14% penetration, but as you know, that number can be as high as over 30% in markets like Chile. I'm going to dig into digital in just a second on the next slide, but we added 199,000 digital or DTH subs in the first quarter. We now sit at about 20% penetration of digital in the cable platform, and we have about a million DTH subs.

So turning to slide seven, let's talk about digital for a minute. I'll start with by far our best market, and that's Japan. We are now a 55% penetrated in Japan on the digital product. That's up from 40% just a year ago, and we don't see any signs of that slowing. As you may recall, all of our customers in Japan are Hi-Def, and they recently launched the Hi-Def DVR, approximately 35% of all new digital subscribers are taking the DVR and DVR subscribers now sit at 150,000. I'll point out that we're generating approximately $7 a month incremental from that DVR product so it's really having an impact.

In the Netherlands we've talked historically about the transition we're making from push to pull and we had a light quarter of 9,000 net ads, and we expect that to pick up as we rollout to HD and VOD, which are now launched in selected markets so we're heading down that path. I think the good news and more important news that digital ARPU is picking up. We reported a net of discounts, 4 Euros in the fourth quarter. That number is now 5 Euros, so we've had a 25% up lift, sequentially, in our digital ARPU, and that's no doubt having a big impact on our growth in Holland which was back to double digit OCF growth. The other point I'd make is that 60% of our digital subs in that market are now taking a premium product so we think there's a lot of positive momentum.

In Switzerland we're seeing great acceleration of the digital sub base since the beginning of the year. As you may recall we've had three big events or drivers impacting growth. First, we lowered the price, the entry price on that digital product. We have reduced the analog channels, and we'll continue to do so, as agreed with the government, and we're promoting the PDR pretty aggressively, 70% of new ads in Switzerland are taken to PDR. I'll probably point out just quickly that, in both Holland and Switzerland, we're seeing little to no impact from the phone company in Holland, KPN has yet to launch their IP TV product in the Swisscom store remains the same, 25 to 30,000 net ads potentially and difficulty in installations, etc.

Essentially in Europe, we talked about our expectation of rolling out there in '07 and early '08. We continue on that path. I think the best piece of information there is that we'll be using the Dutch technology platform across those markets and saving quite a bit of money. So, all in all, we're picking up steam across digital.

We made it clear in Switzerland at our investor conference the importance of this product to our ARPU story, and if you turn to the next slide you'll see what's happening on ARPU. We are now in the consolidated basis, well over $37 and that's up 12% from the first quarter last year, really driven by a number of things, most importantly the product mix, higher voice and data, higher ARPU voice and data sets, but also the penetration of digital and the ARPU impact I've just described there, as well as analog cable TV price increases and a bit of FX. J:COM still leads the pack on the ARPU side but you'll see VTR and UPC are both up 7% year-over-year in local currency. In Switzerland at the investor conference we gave a target of around 7, 8% a year so we think we're on track there on the ARPU side.

My last slide, slide nine, presents our virtuous circles, that I've come to call them, which is a three prong strategy that we're using to drive equity returns, organic growth, the M&A side of our business, and of course, our capital structure. On the organic growth side, I'll simply say that we're tracking to achieve the targets we've given you. We're at the high end of our rebased OCF growth, 16% with Telenet, 17% without. That's a combination of top line execution and very focused cost containment. On the M&A side the biggest development in the first quarter has been the consolidation of Telenet. We have appointed a majority of the Board so we are now in firm control of that business. I have talked about Japan in the past. I'll simply say that we remain focused in optimizing shareholder value there.

The Capital Structure, Charlie's going to talk to the balance sheet. We keep improving terms, reducing interest cost and generating more cash to the parent, so nothing but good news, from my point of view, on our balance sheet activity. And then lastly ,with this latest tender, we've now repurchased approximately $2.3 billion of our stock since January of '06, our average price is about $25.5 and from our point of view, as the year progresses here, with greater and greater visibility in '08, we believe our valuation should continue to look attractive to us.

So with that let me turn it over to Charlie to talk about the numbers and then we'll get right to your questions. Charlie?

Thanks, Mike. I'm now on Page 11 and just to continue the themes that Mike talked about, double digit revenue growth and mid to high teens organic OCF growth, this slide illustrates the summary revenue and OCF figures, which just to remind you again are impacted by the consolidation of Telenet in Q1. So revenue is a1 2.1 billion up 41% over Q1 '06 or 11% rebase. OCF was at $825 million, 53% up on Q1 '06 or 16% rebased.

I'm going to go into the organic growth by region in a second, but before I do that on Page 12, I just want to show you our sequential OCF growth over the last four quarters. Really the message here is very strong sequential OCF growth in Q1 even without Telenet, and what we've done here is shown Telenet in orange, so you can see the impact of their results on the figures. So you take Telenet out, 688 million was the figure in Q1 for the original operations versus $631 million in Q4 and that's a 9% quarter on quarter increase. That's come from a combination of lower [impact] in marketing, due to the normal seasonal declines from Q4 which as you know is our highest period of subscriber additions and our advertising spend, but the other key thing here is operating leverage is really coming through and you'll see that later in the presentation when we talk about margin. And if you look back over last four or five quarters, since Q1 of '06 we've had a steady increase in OCF, and that's driven by our midteens organic growth, the impact of the acquisitions and better FX rates as the U.S. dollar has continued to weaken.

The next slide takes you through the revenue. UPC is up 10% in Q1, on organic rebased basis, and that breaks out 9% in Western Europe and 13% in Central and Eastern Europe. In J:COM, Telenet and VTR, all up 11 to 12% so the LGI average of 11 is right in the middle of our 10 to 12% target range.

Page 14 takes you through the OCF. UPC is up 19%, 17% this time in Western Europe and 15% in Central and Eastern Europe. UPC is higher overall, because of relatively flat corporate costs and Western Europe rebounded in terms of growth, and actually beaten central and Eastern Europe for first time in recent memory because of strong performance in Switzerland and also the return of Netherlands back to double digit growth 11% this quarter because of the shift in the digital strategy there. J:COM had a very solid quarter at 16%, Telenet was at 11 and VTR was at 21. So overall, LGI had a 16% rebase growth which is at the high end of our 14 to 16% target range and if you exclude Telenet we're actually over 17%.

Page 15 is a really important story which is the OCF margin. We were fortunate on the OCF margin in the quarter of 39.2% which is the highest in our Company's history and the margin was up 300 basis points over Q1 in 2006. Now, Telenet helped because it has a high margin, 46% OCF, and that's about 100 basis points of the improvement, but there's actually very substantial improvements going on in our other operations, particularly in Europe, especially in Switzerland and the Netherlands which are up nearly 300 basis points and we've also seen good margin expansion in Japan and Chile.

Just turning to the balance sheet on page 16, debt at 14.3 billion is higher when compared to Q4 of 12.2, and clearly the consolidation of Telenet was a big factor here adding 1.9 billion, as well as the impact of the weaker dollar. Cash is over 2 billion, which includes 476 million of restricted cash most of which has been used in Q2 to repay the [defeesed] Cablecom notes, and we finished Q1 with about 1.6 billion of cash which we subsequently used 300 million for the tenders. Now, gross debt is now 4.3 times, which is the low end of our 4 to 5 times range, and one of the key factors here was the lower leverage on Telenet, which we consolidated in the quarter, and of course the fact we keep organically growing at a fast rate.

One key transaction on the balance sheet was the refinancing of our European Bank debt, or the UPC refinancing. Some key highlights here are, we reduced the borrowing cost by 25 basis points and extended our maturity, and to remind everybody, there's a bullet maturity so there's no amortization risk built into the balance sheet. We've also brought Cablecom into the UPC credit group, as we indicated at the time of the acquisition, and as a result we're able to repay the expensive 550 million Euro pick loan that we took out at the LGI Switzerland level when we did that acquisition. And if you look at the debt outstanding at quarter end, this all translates into cash interest savings from an LGI perspective of over $60 million annually.

So it's important to note we're in the process of folding in our 80% Chilean interest into Europe, and that will allow us to take the Chilean leverage up to five times in accordance with our targets up from 2.3 times today, and that should generate $500 million of cash so we can actually off stream to the parent Company and use for investment or stock repurchases. So adjusting for the UPC refinancing, as well as the funding of the April tenders and some other items, our adjusted gross leverage would actually fall to 4.1 times.

Page 17 just gives you a snapshot on free cash flow, and in terms of free cash flow, we continue to maintain our break even cash flow posture, we are around $33 million positive in the quarter. That was down versus Q1 of '06 as a result of higher CapEx as a percentage of revenue, and CapEx at 26% is slightly above our full year target of 23 to 25%, but it's actually in line with what we budgeted for Q1. And the key factor here was a significant amount of equipment which was delivered in Q4, it was actually cash settled in Q1, so as a result we're very comfortable that we're tracking towards our full year guidance.

It's also worth pointing out Telenet has a slightly higher CapEx ratio, (Inaudible) network we billed in that country so that CapEx and cap lease additions were around 29% of revenue. So in terms of break down of the CapEx, CapEx relating to CPE was roughly 50% and for the quarter revenue generating CapEx, as we define it, which includes not just CPE but also network related spend, was actually in excess of 80%, so this is all high return [offensive] CapEx, we're not investing to stand still.

So let me just wrap up, it's been a great quarter from our perspective, both operationally and financially we're very excited about the rest of the year. We're still aggressively managing the balance sheet to try and finance and get the highest return on equity as we can, and also to generate incremental liquidity. We're going to use that incremental liquidity to drive equity returns either through stock repurchases and/or through accretive M&A. And just to remind you what Mike said, we repurchased $600 million of stock year-to-date, which combined with the 1.8 billion we completed in 2006, really shows our committment to this model, and we think this levered equity model is the right way to drive shareholder returns.

With that, Operator, can we open up to questions?

Thank you. Today's question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) We will pause for just a moment to give everyone an opportunity to signal. We will take our first question from David Joyce with Miller Tabak. Please go ahead.

Thank you. Nice RGU ads. We were expecting a little bit more migration to digital in some of your markets including Netherlands, and granted you said you're taking a measured pace and should accelerate somewhat, but do you have sort of a time horizon when you are all digital in some of these markets or how long do you foresee still carrying the analog? Thanks.

Well, I think we said in Switzerland, during our investor conference, that if you looked out three years approximately, we expected roughly 1/2 of our analog sub base to be digital. Now, that varies by market, of course, some will be higher and some will be lower, and I don't know that we're in a position to give you any greater detail there, but it's fair to say that if you are looking out three years, the markets where we are well advanced in digital, markets like Japan and increasingly Holland and Western Europe, we'll be leading the pack and we expect to see pretty meaningful penetration in these countries, in particular, as we get what I believe are the killer aps launched and rolled out across the footprint, namely HD PVR and VOD, so we're bullish, but we're also prudent and by that I mean we're not going to rollout the same model we used in Holland in 2006. We're going to be prudent and demand driven, but we are bullish, and it's clear to us that for really offensive reasons mostly, we need to be advancing our digital product aggressively and I think we're doing that.

And separate product type in a couple markets like Australia, Japan, you've got mobile or MVN, those, at what point, those aren't really material right now, but at what point do you start breaking those out or adding those to the RGU counts?

Well that's a good question. We have, I think, approximately 200,000 plus mobile customers, but as you may know, in an MVNO relationship, the economics of those customers vary, and are not really comparable to your cable or voice or data customers, so I think it's prudent not to put those numbers in as equivalent subs, but at the same time, I'll tell you that we do have as you pointed out a number of mobile products launched. I think we are very much in the toe dipping stage. We realize that mobile is a very competitive product, one that at least in Europe and Japan and other markets is highly penetrated, and we need to be prudent, and by that I mean we need to be in the business to understand the benefits and opportunities and challenges, but we also need to stay focused on the products that drive cash flow, and it's to be determined I suppose, and I think most of the industry shares this view, to be determined exactly the impact this quad play product will have long term.

All right. Thank you, Mike.

Yes.

We will take our next question from Gregory Kolb with Janco Partners. Please go ahead.

Hi, guys. Thanks for taking the question. Good quarter. I was wondering if maybe you could quickly walk us through how either we should think about or you guys think about Romania and Hungary on the competition going on there maybe over the balance of the year and 2008?

Well, that's a good question. I'll make a couple of comments and then I'll ask Gene to add to that. I mean, clearly, those are the two markets where we experienced the greatest impact on our analog subbase in this past quarter, and driven primarily by the competition coming out of some DTH platforms. And it's our view that in most cases, the subscriber losses were coming from areas within the country where we were perhaps a bit more vulnerable, either because we hadn't upgraded our network or didn't have all of the full products available. And to me that's a good news story because it means that obviously, we have a rebuild effort under way and expect to be fully rebuilt here , and it's not coming out of the portion of your subbase for whom you're offering comparable products. So I don't want to imply that it's a one off, but I do want to imply it's something we understand well, we're focused on, and we think it's containable. Gene, do you want to add to

Yes, Mike. I guess a couple of things. I was in Romania yesterday, and we spent the better part of the day discussing the situation, and I'll come back to that in a moment, but I think I'll start off with a couple comments about Hungary. There, we've seen competition enter the market, although in a limited way. Most of that competition is coming into what we call our converter cities, and that's where we have in the past launched an EBT service, and we've got higher pricing in those cities than we do elsewhere in the country. And that's been the focus of the competition since the beginning of January.

We looked yesterday at the churn in Hungary, and to be honest with you, the churn is about .76%. In other words, we're churning at less than 1% per month, which is very integral churn when you look at markets such as the United States that churn anywhere ,particularly in the urban markets, 2.5 to 3%. So one of the problems that we've got in Hungary is that we are too conservative on our churn estimates. In other words, what we put into the budget. On the other hand, we're working as a team to take a look at what we need to do to address the churn and be more competitive in those markets. I think we'll have a new plan in place in the next couple weeks and I'm confident at this point that we'll stem any serious erosion in that market and that we'll be able to hit our targets rather comfortably in Hungary.

In Romania, the competition is a bit more fierce. We have two competitors, primarily. One that entered the market in January, which is [Dolcy], which is really Roman Telecom and they launched the 5th DTH platform in the market and they put millions of Euros into their initial marketing effort. Of course, it's a defensive action, as you know the Telecom, Roman Telecom has been losing lines very rapidly in the market and then that's what's driven them to launch this platform. In the case of Dolcy, I would expect that after coming out of the first quarter that they will back off with some of that heavy spending, and I think they will be less competitive going forward. I can't see where they've got much margin in their product at all.

In terms of, we also have a second competitor there, who primarily-- that competes on two levels, fixed line, as well as a DTH platform. He's been responsible for more of our churn in Dolcy, but on the other hand, we spent yesterday, like I said, the better part of a half a day and we put together a task force that's looking at our various market segments. We're analyzing where the competition is. We're looking at their product and how we can differentiate or compete with what's being put into the market, and I'm reasonably comfortable that in Romania that we'll be able to stem this erosion and continue to grow our subscriber base very aggressively. We're only experiencing this churn on the CA TV side, if you take a look at our new services telephony and data, they continue to perform very well in both markets.

All right, thanks, Gene.

Thank you, guys. Again, thanks.

We will take our next question from Vijay Jayant with Lehman Brothers. Please go ahead.

Hello, it's James Rockwell for Vijay. Good morning. I'm wondering, first, can you give us an update on Australia and your thoughts on the place that [All Star] has in your asset portfolio? And second, about a year ago there was a lot of discussion about the potential for municipal or government network deployment, fiber network deployment in Western Europe, particularly in the Netherlands. We haven't heard much about that in awhile. Could you update us on where those plans are and where their legal status is? Thanks.

Sure. On Australia, there was a press report, I can't remember how long ago, that we had received two unsolicited approaches from strategic buyers. We confirmed that report. I'll tell you that the process is undetermined, that we remain happy with the All Star asset. This is a Company that sits in one of the last monopoly positions I'm aware of in the pay TV and marketplace, where management is incented to grow cash flow by 20% over the next couple three years, and which we've consolidated and control today, so we're not anxious sellers. We're not particularly motivated sellers. Now, having said that, the market could consolidate and there could be a price at which we would be interested but at this point, there's not much more to say except that whatever happens, I would just remind you that this is one of our fastest growing assets and the management team has proven it can deliver, so we're happy where we sit.

On the fiber to the home side, we've talked in the past about that. I believe that almost every time something has evolved on fiber to the home, we've been able to stem that development through regulatory and legal means and the EU remains very supportive. The only [skirt] issues is we continue to have are in Holland, in and around Amsterdam and other markets but to date, nothing meaningful. There is no Verizon in our future, and we feel pretty confident that most phone companies who are struggling with the DSL based IP TV product will be reticent and unlikely to migrate to anymore expensive fiber rollout, especially given the quality and density of their networks today.

Great. Thanks.

Yes.

We will take our next question from Jeff Wlodarczak with Wachovia Securities. Please, go ahead.

Hello. Just wanted to make sure I understand. You expect Q1 to be the low watermark for video losses in Hungary and Romania or is that still work in progress?

I don't know that we're forecasting. I think we're say ing as we understand the issue, we're focused on those two areas as Gene described in a fair amount of detail, and we don't give quarterly guidance. I'd just say that it's an issue we understand. We're focused on, and seems resolvable. That's the most we can tell you and we won't break it down anymore.

Fair enough and Mike, you noted you have a solid M&A pipeline. Are there any transforming large transactions out there or is it mostly small and medium sized transactions? And then, what are your latest thoughts on Germany? And are you happy with your stake in Telenet and where it's at? Thanks.

Sure. I would describe the pipeline as active, but evolutionary, not revolutionary, and by that I mean there are no massive transactions that are imminent, but we do remain focused on all sorts of potential deals, and you mentioned a couple of them and there's other things as well so we're still opportunistic. We're not fixated. We're being prudent, and perhaps a bit plotting in some instances, but if there's a transaction that comes about, we'll make it clear why and when and how but at this point there's not much more to say on either of those. Shane and his team do a great job. We're constantly looking at everything and anything, as we should, and as you should want us to, but we look at it with sort of eye and the sort of discipline that you should also want us to have. So, I don't think there's anything more to say on those two acquisitions or opportunities.

And then just one more quick one. On your Japanese assets you mentioned in the release that you're still sort of working towards a strategic transaction. Are you still comfortable with that kind of mid-year target in getting that done?

Well, I mean, I don't know that we're being that specific about timing. I believe that we have a number of interesting opportunities to optimize and rationalize our interest there and we'll continue to look at those opportunities. Timing, if anything were to happen, it would certainly be this year and I would say closer to mid this year, if at all. But again, I don't want anyone to leave the call thinking that something is too imminent, and every time I open my mouth our Japanese partners seem to wonder what I'm saying, so let me just leave it at that.

All right, thank you.

We will take our next question from Alan Gould with Bleichroeder. Please go ahead.

Thank you. I've got a few questions. First, Switzerland, I thought there was no price increase this year, the big price increase was next year, so I was wondering, how the numbers were so good in Switzerland? Second one is for Gene. I was wondering if there's anyway to accelerate the HD VOD and DVR rollouts. Is it a technology issue? Is it more marketing? Is there box supply? Are you doing self-installs? And then third one, on JPC, for the first time I see the OCF was down this quarter there, I was wondering if any change occurred there?

Well, why don't we work them backwards order. Miranda and Graham, you want to talk about JPC?

Sure.

Okay, Miranda, go ahead.

Yes. As you may also have heard on the Liberty call earlier in the week, the Japanese authorities have, in the last three or four months, applied a slightly tighter interpretation to the regulations for promotion of products on air, and that's had a short-term impact on short-term results. The management team is working with the regulators to make sure that they can smooth that out by looking at the product mix, and we wouldn't necessarily expect that to be a long term issue. It's a short-term function of a blip in the regulatory situation.

Okay.

Gene, do you want to talk about HD, VOD, DVR's and [Paul]?

Yes, I can touch on the other one as well if you wish.

Sure.

We are in fact looking at how we can accelerate the VOD rollout, as you probably know, we launched VOD in the Netherlands on I think it was April 16th, and had a very good experience in that we haven't experienced any serious technical issues at all and we've been able to scale the platform without any serious difficulties. In fact, I think in the first, less than one month, we're seeing almost 20% unique usage and some very good buy rates. On the basis basis of that, we have decided to bring forward the Amsterdam launch which will add about 160,000 digital subscribers of 130, 160 something like that, digital subscribers to the mix. So between the two of them, that represents about 40, 45% of our total digital base, and we're going to roll that out June 11th, and assuming that that's successful as well, and I have no doubt at this point that it will not be, we should have VOD deployed throughout the Netherlands by early fall.

In addition to that, we are, we just approved the rollout of VOD in Cobblecomm. We're in the process, as I speak to you, installing the equipment. We anticipate a late fall soft launch with the full commercial deployment somewhere around the end of the first quarter next year. Additionally, we have just made the decision to introduce VOD into Austria, next year we plan on relaunching VOD on the D4A platform in Austria starting Jan 1, and the way we plan our VOD deployment is about six months after the launch of a digital product, we try to bring VOD in behind it. We try to get the platform embedded in before we launch another sophisticated product on top of digital, and we plan on rolling out three additional digital markets next year, and so you can count that within the first quarter, we'll be looking at adding VOD to those platforms probably in the fall time frame. So, in terms of VOD, we are acting fairly aggressively.

In terms of HD, it's more market driven because, as you know, for example, in the Netherlands, they are just still a small percentage of HD ready sets. There's limited HD programming available in many of our markets, Ireland being an exception for example, and in cases such as Ireland, we will be more aggressive in rolling that platform out to take advantage of the situation.

Especially when you're right about the price increase. It is '08,but I think mostly we're seeing good solid growth across RGU's as well as the impact of synergies from the acquisition and do you want to add anything else to that Gene?

No. It's a combination really of improved digital revenue, including what Mike mentioned, there's about a 70% uptake of DVR on the new sales which is adding incremental revenue, and we're still in the process of integrating the operations from the acquisition and we're realizing significant synergies from that activity, and we'll continue to do so for the balance of this year.

So there's more synergies above and beyond what you were able to take out of that in 2006?

That's correct. Significantly.

Okay, thank you.

Yes.

(OPERATOR INSTRUCTIONS) We will take our next question from [Elisa Lier] with Credit Suisse. Please go ahead.

Thank you. You mentioned that Cablecom and the Chilean operations have been consolidated for purposes of the bank facility. I was just wondering if both of these are part of the restricted group under the bonds and whether there have been any amendments with regards to this and indentures?

There's no amendment to the indentures. Cablecom is in and VTR is about to go into the restricted group. But as you know, we did also amend some of the terms of the bank deal as part of the repricing, so some of the covenants have been talked about loosened up in our favor and the bonds remain unchanged.

Okay, but the Chilean operations in Cablecom is part of the restrictive group now?

Yes. VTR of the Chilean operations are about to be but you can assume broader speaking, yes.

Okay, thank you.

We'll take our next question from David Kestenbaum with Morgan Joseph. Please, go ahead.

Thanks. I noticed you had really strong ARPU growth on the digital side but revenues kind of stayed where they've been or maybe slightly higher than where they have been in the past. Do you think they can accelerate in the Netherlands and how do you get there? And then also, I thought you had really strong performance in Ireland. What have you been doing differently that the old NTL did not do there to really improve performance?

Well the difference is in Ireland couldn't be more dramatic. I mean, we're rebuilding significant amounts of network, launching all the products aggressively, and putting in place a platform that mirrors, in most ways, all of our other triple play platforms. None of that was being accomplished by the prior owners so it's fundamentally demand driven and network driven growth that we originally anticipated when we made the acquisition. On Holland, I mean as we mentioned the ARPU growth is coming from the two products of voice and data continuing to expand those products as well as a pick up in the ARPU on digital.

When we project double digit growth for the group, that always has a mixture of high single digit and double digit growth in various markets, and we think the kind of growth we're achieving in revenue on the top line in Holland is going to drive pretty significant double digit growth on the OCF line, because of our ability to scale and the size of that operation. So it's really, fundamentally, about continuing to penetrate voice and data which is what we're doing and continuing to do, and driving ARPU across video with the digital rollout and more product and services across that particular footprint, so it's not much different , David, than what we're doing everywhere else. There's no silver bullet. It's really just execution of these core product

Okay.

Mike, maybe I'd add a couple of other things I think that will make, I think, a significant difference. As you know, we started out the trial offering subscribers six months free. Most of those, or a lot of those subscribers now have ended their trial period so they are paying the full amount of the digital fee. In addition to that, starting Jan 1, we reduced the six-month free trial period to three months, and as you know, we just introduced, as Mike said, the new services, HD and DVR. Both of those have an incremental 5.99 Euro incremental revenue,. And in addition to that, we're in the process of introducing a new tier. That will include SVOD and as part of the introduction of that service, that will be priced above the current entry level subscription. So there's a number of things that are going on that should have a very positive effect on revenue going forward.

Okay. So you feel like you can get to double digit type of growth around the revenue side in that market sometime?

Well, I mean, I don't believe that we need to get to double digit revenue growth in that market to drive significant OCF growth, and I mean, we're not providing guidance on any individual one market. I'll repeat what I said. It's usually a-- it's a portfolio of growth across these countries and high single digit growth in Holland translates into double digit OCF growth.

And can you just quantify the CapEx that was related to the 4Q at 2006?

Sorry, what?

Go to 4Q 2006 that you mentioned in your opening comments?

Charlie?

Yes, I think what I'll tell you is that we were actually ahead of budget on an accrued basis. We actually had CapEx, had accrued CapEx and then cash CapEx, we were ahead on the accrued basis for the Q Q1 figures, but because of the cash settlement, so I can't give you the exact number now, but it's tracking absolutely to what we thought it should do. It's just cash settlement carrying over from last year.

Okay, thanks.

We will take our final question from [Suneil Rushglobal] with the Hong Kong Banking Association. Please go ahead.

Hi. I have a couple of questions. Firstly, you've lost a couple of customers in Puerto Rico. Any particular reason? And second question is, the margins are particularly high compared to previous quarters. Is it sustainable in the long run? And thirdly, what kind of depreciation guidance do you give for future orders?

Okay. Mauricio, do you want to take the Puerto Rico question?

Sure, the loss of subscribers in Puerto Rico is associated with a couple of factors. One is, we've implemented a series of very relevant credit policies that we did not have before as well as VOD Management Systems. And there was also in the beginning of the year a value-added tax of 7% to the services rendered there. So this is something that we have budgeted would happen and some of it is policies that we've taken to turn out customers that were not paying.

Okay.

And on the margins, we think they are generally sustainable. I mean, there's no significant one offs or extraordinary items in the results that would indicate that we shouldn't be able to continue more or less along this path and we do not forecast depreciation specifically. It's implicitly on our OCF guidance, but not specifically broken out.

Okay, fine, thank you.

Yes. Well, thanks, everyone. Certainly appreciate you joining us this morning. And, Operator, we'll let you wrap it up.

Thank you. Ladies and gentlemen, this concludes Liberty Global's First Quarter 2007 investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's web site, www.lgi.com. There you can also find a copy of today's presentation materials. Thank you for your participation, you may now disconnect.