Liberty Global Ltd (LBTYA) 2008 Q4 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by. Welcome to Liberty Global's investor call. This call, and the associated webcast are the property of Liberty Global and any redistribution, retransmission or rebroadcast of this all call or webcast in any form without the consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.lgi.com. Following today's formal presentation, instructions will be given for a question and answer session. As a reminder, this conference call is being recorded on this date, February 24, 2009. 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. As usual, we have a number of folks on the call, from our side, from all over the place. And those you may hear from are Bernie Dvorak, our co-CFO, Rick Westerman, Investor Relations and three folks from our operations, Gene Musselman from Europe, Pam Hollis, Japan, and Mauricio Ramos in Chile. Before I get started, the operator has one more note to read there. Operator?

Certainly. Page two of the slides details the Company's Safe Harbor Statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, with respect to Liberty Global's 2009 outlook, future growth prospects, its expectations regarding competitive and economics conditions and liquidity and other statements that are not historical facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed from time to time in Liberty Global's filing with the Securities and Exchange Commission, including its most recently filed Form 10-K. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. I would now like to turn the call back over to Mr. Mike Fries.

Thanks. So as the operator mentioned, we're going to be speaking from slides today and the agenda will be pretty much as we've normally done. I'll hit some highlights, Bernie will talk about financial results and we'll get to your questions. I'm on slide four entitled 2008 Highlights and I'd like to begin with a broad generalization which can be helpful at times like this. We believe our business is in pretty good shape. We continue to deliver stable growth. Our balance sheet is solid and our core strategic initiatives are intact. Let's start with our organic growth figures which are still the strongest part of our story. First of all, we added over one million RGUs during 2008, excluding acquisitions and we ended the year with 26.5 million Video, Voice and Data subscriptions and those RGU additions, together with our continued focus on cost discipline and scale efficiencies, helped to deliver operating cash flow growth of 14% for the year. Our OCF margins improved 300 basis points to 43% and we grow our free cash flow, which is a increasing important metric for us and I believe you, by over 80%. I think these results speak for themselves.

On the M&A front, we've often said that while doing deals is in our quote, unquote DNA, we'll always remain smart and disciplined and I think while this was an unusual year with the credit markets largely shutdown, we still completed some very attractive and highly strategic transactions. In total, we had 1.4 million RGUs, completed over 20 deals some big, but most of them pretty small. On the larger side, J:COM acquired over 540,000 RGUs in Japan, increasing our market share and footprint there in core cities and Telenet acquired over 730,000 subs in Belgium which expanded our reach to 100% of Flanders. We also completed, or are in the process of completing, some tactical disposals. These are generally assets that are non-core and can generate tax efficient cash to the Parent Company. Perhaps the best example would be the sale of Mediatti to J:COM which closed in December, and generated $120 million to us, but also enhanced J:COM's strategic and financial position in the Tokyo region. Further along in our pipeline, I think it's fair to say we continue to work on a number of new opportunities both big and small, but the message I'd like to leave you with is that we're going to be continue for clever and patient in this area.

There is also considerable focus these days on balance sheets and liquidity, and that makes sense to us. I have to tell you, from our perspective, it's almost as if we've been anticipating just this sort of environment, proactively pushing out maturities and actively hedging currencies and floating rate exposure for some time now. We'll get into more detail later but we feel very good about our debt and liquidity position. We believe our current leverage is appropriate, given our cash flow profile and as I just said, our debt is generally hedged and long-term. On the liquidity front, we sit today with over $2 billion in cash and debt availability, and remember we're generating free cash flow at all the major credit pools and on a consolidated basis. The last major component of our strategy is well known by all of you, and I'm referring to, of course, our buy-back initiative which to date, has seen us repurchase $6 billion of our equity, including $2.2 billion just last year. Representing a total over 40% of the Company since we started. I'll simply say that we remain committed to this approach and as you'll see, we think we're capitalized to continue down that path.

So with that as an intro, let me jump into our operating results, beginning with subscriber growth on slide five. I think the main takeaway from these charts should be that our growth in RGUs throughout the year has been steady. If you look at total RGU net add on the top left of the slide, you'll see we averaged approximately 260 net adds per quarter and delivered 284,000 in the fourth quarter bringing full year net adds to over one million and again, that excludes acquisitions. Our results continued to be impacted by video subscriber losses, as you can see on the top right. I think, importantly, we did not see acceleration in video losses in the fourth quarter. In fact, the number of 54,000 was essentially flat to our quarterly average. The bottom half of the page shows a picture of a voice and data net adds and it's a pretty good picture. Both of these products rebounded in the fourth quarter compared to the prior two quarters, and exceeded our quarterly average. Voice adds for the year was 635,000, including 170,000 in the four quarter. And telephony, in our opinion, continues to be a growth business, especially in Central and Eastern Europe where we're only 11% penetrated. We also continue to capture meaningful market share from teleco-line losses, in fact, we estimate that the incumbents in our 11 European markets lost around 1.4 million lines on our footprint over the last two years, then that same period, we added over 800,000.

Turning to broadband, total net adds were approximately 630,000 for the year and 168,000 in the quarter. We think we've got good runway for growth here, too, especially with 3.0, which Gene is going to give you a little bit more color on. The brightest spot in our performance continues to be digital TV, which we have isolated on slide six. We've talked for some time, about the importance of this product. In growing ARPUs and reducing video churn, and it's working on both fronts. The chart on the right, shows development of our digital cable business over the last three years and you can see we've taken our digital sub base from 1.3 million to 5.1 million in that period. With growth actually accelerating in the last four quarters, particularly in the fourth quarter, where we added nearly 470,000 new digital subs, by far our best quarter ever. Penetration today is at 36% and we're seeing great take up of DVRs and HD, which are available pretty much in every market now. In fact, we estimate that over 50% of our digital base is taking DVR, HD or dual box from us today. Digital is clearly having a positive impact on video churn and perhaps the best example is Central and Eastern Europe where video losses declined 50% in the fourth quarter compared to our quarterly average through September. ARPU uplift, which typically ranges from 25% to 100%, depending on the market is helping to drive our revenue growth and dropping to the OCF line

So the punch line is, that we're seeing continued, and in the case of digital TV, accelerated growth in our advanced services. The next slide, number seven, illustrates that pretty clearly. You can see in the first three quarters of this year, we averaged around 650,000 advanced service adds per quarter. Now again, that includes digital video plus voice, plus data. And then in the fourth quarter, that number was up 30% to 839,000, a record quarter for us and actually a record quarter for a number of our divisions. Remember, given our relatively low analog TV rates around the world, these are the products that drive higher ARPUs and deliver solid margins and form the basis was our bundles. At year-end nearly 40% of our 16.9 million customers took a bundle from us and Triple Play customers were up 27% year-over-year. So all of our bundling metrics, we think, are looking good and improving. I think we're half-way through the game on this. Of course, bundling reduces churn and drives customer ARPUs and customer ARPUs were up 15% year-over-year to over $45 and while there are some FX in that number, even in local currencies ARPU per customer was up 7% to 9% year-over-year in operations like UPC, Telenet and BTR. That's really the main goal for us, drive the volume of advanced services and continue to increase the ARPU that we're generating out of each home. So before I conclude with some outlook remarks, let me turn over to Gene. He's going to address some four key areas of focus for us in Europe and then I will pick it back up.

Thank you Mike and good morning, everyone. I'll apologize up front. I may sound a bit tinny but I'm on a telephone that I can't change out, and I will hope you can--it's audible for everyone. I'd like to take just a few minutes to acquaint you with the current economic climate, what we're doing with our products, and update regarding the recent EU decision in NL, and provide some insight into a few of our key markets. Looking at the economic situation, so far we've seen limited impact to date, across all of our markets. Gross sales are down modestly in the fourth quarter compared to last year, although net churn remained at similar levels compared to the same period a year ago. In addition, ARPU, for RGU for UPC remained stable in the fourth quarter of 2008 compared to the fourth quarter of 2007, that was primarily driven by strong growth in Western Europe. I should mention that we remain diligent, however, and continue to monitor our markets, including Central and Eastern Europe, where currencies have been volatile and consumer spending is expected to come under pressure. Having said that. it's worth pointing out that most forecast continue to show that five out of our six markets in Central and Eastern Europe will show positive gross national product, GDP for next year.

Shifting to products, I'm happy to say that our product road map is on track. With '08 turning out to be a banner year, especially for digital. Surpassing two million subscribers in November, and posting record digital adds in the fourth quarter and this trend is expected to continue throughout '09 with digital being our key growth driver. In fact, just a few minutes ago, I got a memo from Poland, they just went over the 100,000 mark and they're aiming to double that by year-end, so things are looking pretty good, as Mike mentioned, in the area of digital. For the first time, we begin the year with a digital platform in place across all of our markets, and advanced services are widely available. As Mike mentioned, DVR for all practical purposes, has been launched in all our markets. High-Def, in 12 out of the 15 of the markets, with the number of channels expanding rapidly and VoD will be in five markets by the end of the year, with four launches to take place starting with Austria, to be followed by Kabelcom, Hungary and Poland.

Moving on to Internet, we see Euro DOCSIS as a real game changer. Euro DOCSIS 3.0 was launched regionally in the Netherlands during the fall of '08, under the Fiber Power brand, with speeds of 60 to 120 megabits, the highest in the Netherlands. As such, we've enjoyed very positive reaction following the launch with the press, with the local press calling DSL the new digital dial-up. By rolling out 3.0, it has allowed us to upgrade the speeds of our existing subscribers in the Netherlands to safeguard our current base and sustain our ARPUs and we'll follow a similar approach in our other markets. Further Euro DOCSIS 3.0 is planned to be rolled out across eight markets in Europe, with Austria and Czech in the next few weeks actually. Netherlands, I should add that Netherlands will complete their Euro DOCSIS 3.0 rollout in June, at which time, they'll passing approximately 2.2 million homes that are ready, Euro DOCSIS 3.0 ready for service.

Turning to regulatory, in the Netherlands, many of you have likely seen the recent decision by the EU commission where they essentially granted the Dutch regulator OPTA the right to open up access to our networks to third parties and require us to provide wholesale video services. In our minds, this was a strange and ultimately, a politically motivated decision since the video market in Holland has never been more competitive than it is today. It's worth noting here, that the commission was split on the matter, with the Competition Commissioner expressing deep concerns. Regardless, though, the new rules are expected to become effective in mid-March. At this point, it's too early to comment on what the economic implications might be, but as a practical matter, we don't see any significant impact this year. In the meantime, we will appeal the decision at the national level, and it's important to say that we don't see any further impact or any impact from this decision at this point on our other markets.

Lastly, I'd like to give you a quick update on a few of our key markets starting with the Netherlands and Switzerland. Our two largest markets, both enjoyed solid growth in '08 delivering repeat OCF growth to 15% and 17% respectively. Also, good news, we believe that Romania is poised for significant turn around in '09. Video churn has been reduced by 35% from '07, due to the loyalty programs that we launched last year, the database clean up that we undertook, the deployment of Darby, which enabled better handling of collections and a myriad of other things.

Finally a quick update on Hungary and Austria, both of these markets I'd like to characterize as a work in progress. Hungary delivered rebate OCF rolls of 11% in the fourth quarter, and that's a positive sign. On the other hand, the Hungarian economy bears watching going forward. In Austria, we continue to see strong competition, although leveraging our Euro DOCSIS 2.0 infrastructure and the rollout of 3.0 is very encouraging. Q4 also marked Austria's first growth quarter for Internet in the last five quarters and this was largely due to the success of--enjoyed by mobile data here in four. With this, I'd like to turn back to Mike.

Okay. Thank you. Nice job and there's a lot of information there and I think most of it is pretty darn good for us. Before I pass it over to Bernie to run through financials, I'm going to provide some quick color on 2009 Operating Outlook on slide nine here. Let me start with the economy. I think Gene hit the high points in Europe pretty well. It's probably worth pointing that we believe we benefit from geographic diversity on our operating platform at times like this. So to make one key additional point, it probably bears repeating, if you have to go through cycles like this, we think it sure helps to be selling connectivity to three of the most important devices in peoples' lives, their TV, PC and telephone. When people stay home, they consume more of what we've got. And importantly, what we've got is get getting better with 100 megabit broadband speeds and killer apps for digital and competitive bundles. Nobody's entirely immune from the macro environment. We're watching things closely as Gene said and we'll continue to grow in 2009. We are providing guidance today of 5% to 7% operating cash flow growth for the year, that might sound conservative it's still best in class and, we believe, achievable. We also expect continued margin expansion and free cash flow growth of 25%. So our current FX rates that will be well over $900 million of free cash flow this year as CapEx continues to decline as a percentage of revenue. Timely on capital allocation, over $2 billion liquidity and significant cash at the Parent Company, we will continue to generate and utilize capital for buybacks and acquisitions if they arise. We're not being specific on quantity it up today for stock purchases our money has gone a lot further for these prices than you may know and I think you can expect that we'll remain opportunistic on that front. So let me turn it over to Bernie, to run through financials and then we'll get to your questions. Bernie.

Thanks, Mike. I start on page 11. Where you see the highlights for revenue and OCF growth over the last three years. Reported 2008 revenue reached $10.6 billion while reported OCF hit $4.5 billion. Reflecting two years CAGRs of 28% and 39%, respectively, we've been successfully driving OCF margin expansion through cost discipline dropping over 60% of our reported incremental revenue to the OCF line in 2008. 2008 had already from acquisitions in Japan and Belgium as well as from favorable foreign exchange movements.

Turn to page 12, it shows the full year revenue by segment. Consolidated revenue for the fourth quarter was $2.6 billion reflecting reported growth of 4%. If you adjust that for FX, it results in 8% growth. Revenue for the year was $10.6 billion, reflecting reported growth of 17%. However, adjusting for FX, growth is 8% as well. So as you can see, FX was a head wind for us on a reported basis in the fourth quarter, but worked in our favor for the full year. So if you adjust for FX and acquisitions, our rebates growth was 6% for both the quarter and the full year. And UPC revenue reached $1 billion for the fourth quarter and $4.5 billion for year, reflecting a 3% rebates growth rate for both periods. Telenet and J:COM each posted rebates revenue growth 6% for the full year 2008. And VTR led our segments with 12% rebates growth on full year basis.

In addition to VTR, Poland and Australia were also double digit revenue growers in 2008. Turning to slide 13, shows segment break out of OCF, we achieved OCF of $1.1 billion and $4.5 billion for the fourth quarter and full year reflected reported growth of 15% and 27%. Rebates OCF was 14% for both the quarter and the year and in line with full year guidance. On a rebates basis, VTR and UPC lead with 18% and 16% growth in the fourth quarter and 18% and 14% for the full year. Specifically, UPC generated nearly $490 million of OCF in the fourth quarter and $2.1 billion for 2008. For the fourth quarter, Western Europe delivered 17% rebates growth and Western and Central Europe which continues to be affected by Romania, posted 6% growth. The Netherlands and Switzerland as Gene representing the UPC's two largest markets, had their best OCF growth quarters of the year in the fourth quarter. Telenet and J:COM had solid quarters of OCF $1.75 million and $342 million for Q4 reflecting rebates growth of 12% and 10%. Full year basis, these operations generated $727 million, and $1.2 billion of OCF each achieving rebates growth of 11%.

Go to slide 14, it lays out rebates growth by country for all 15 of our markets. This chart shows a well diversifying of niche of faster growth markets a few that faces some challenges in 2008. As we have discussed, we believe diversification is a key differentiating factor of our story, compared to single country MSO. Additionally, as apparent by the rebates growth rates, each of our markets, with the exception of Romania, experienced OCF margin improvement in 2008, as compared to 2007 rebates basis. Romania, Hungary and Austria were our three weakest markets in 2008. Excluding those three markets, rebates growth was over 7% for revenue and over 16% for OCF.

If your turn to slide 15, this shows our margin for 2006 to 2008 on a consolidated basis as well as OCF margin improvement by segment. Over the last two years, we've increased consolidated OCF margins from 36% in 2006 to 42.9% in 2008, a 690 basis point improvement. In the fourth quarter of 2008, we realized OCF margins of 43.2% versus 39.2% in 2007, reflecting our strongest quarter of the year. Finally, we expect continued OCF margin expansion in 2009, albeit at a slower pace than the last several quarters. Turn to page 16, it shows our 2008 capital spend in a little more detail. In 2008, our CapEx was $2.4 billion for the full year, and $696 million for the fourth quarter. As a percentage of revenue, our full year CapEx was 22%, down slightly compared to 2007. In the fourth quarter, however, our CapEx as a percentage of revenue was 27% versus 24% in the year ago quarter. This increase was due to a combination of factors including bringing forward CapEx into 2008, that we would have otherwise incurred in 2009, as a result of negotiating favorable vendor discounts. Additionally, we incurred incremental spend as compared to 2007, relating to the expansion and success of digital cable, as well as our 3.0 rollouts.

The chart on the left depicts the components of our CapEx. Over 55% is related to CPE and scalable infrastructure, which we would classify as success-based, as we grow our advanced RGUs. Adding network spend to this would put CapEx that is intended to drive revenues over 80%. In terms of our network, over 90% of our cable network is two-way at year-end as we added over one million organic two-way homes in 2008. As Mike indicated earlier, we expect to drive down CapEx as a percentage of revenue in 2009 and expect UPC to be a major driver to this improvement.

Turning to page 17, we meaningfully increased both our free cash flow and free cash flow conversion ratio in 2008 as compared to 2007. Free cash flow for 2008 was $763 million versus $419 million in 2007 representing a 80% plus increase. Our 2008 free cash flow growth was derived from a 28% increase or approximately $685 million from cash flow operations versus a 17% increase or approximately $340 million year-over-year increase in CapEx. Another metric we look at is free cash flow conversion, which is free cash flow as a function of operating cash flow or how much of our OCF drops to free cash flow. In 2008, this increased 500 basis points to 17% from 12% in the year ago period. As we think about free cash flow growth in 2009, we would expect to continue to see meaningful growth out of our key credit group UPC, as well as on consolidated basis as our guidance highlighted earlier.

Turning to slide 18, shows total debt of the fourth quarter increased approximately $1.2 billion from the third quarter in 2008 to $20.5 billion. The increase is primarily due to new borrowings in J:COM and UPC and as well as the FX translation impact of yen strengthening to the dollar in the fourth quarter. The weighted cost remains low at year-end at approximately 4.6%. If you factor in the impact of our derivatives, our cost of debt is closer to the 5.5% to 6% range. Additionally, we've hedged over 90% of our floating rate debt.

At year-end, our cash position was $1.4 billion, if you include restricted cash, it was $1.8 billion. At year-end 2008, our leverage was 4.6 times gross 4.2 times net, which was similar to year-end 2007, but an increase compared to the third quarter of '08. The increased to Q3 was largely due to three factors, the first being new borrowings as discussed previously. The second was the impact of FX as the variance of the spot rate at year-end, which translates to the balance sheet and average rate used for OCF worked against us and three, OCF from J:COM acquisition of Mediatti is not included in the quarter since it was consolidated right at year-end.

We are comfortable with our current leverage level. If credit markets remain challenging, we expect our leverage levels may start to head to four times or below. We are very aggressive in managing balance sheet risk, including repayment risk. In terms of amortizations of our debt, approximately 90% is due 2012 or after. In the next two years, through 2010, approximately 6% are due, however, most of that is related to J:COM. We have also hedged our currency mismatch with our debt, especially in the Central and Eastern European markets.

If you turn to slide 19, it shows an overview of our liquidity. As of December 31st, we had roughly $2 billion of liquidity consisting of $817 million of cash at the parent, $557 million of cash at our operating subsidiaries and $871million of undrawn borrowing capacity through our subs. We expect we could borrow all of this capacity upon reporting our fourth quarter results. The chart on the right depicts the impact of our buyback and our shares outstanding. Since year-end 2007, we've expended approximately $2.3 billion and that's a current number through February, or the middle of February, and reducing our shares outstanding by over 20%. We, as Mike said, we remain committed to our repurchase strategy but will be prudent in how we approach it. We think our equity is extremely attractive today and we will look forward to capitalize on it.

If you turn to slide 20, in conclusion, the global economic environment will certainly impact our business, however, we think we are well diversified, well positioned in our markets and believe we will deliver growth in the face of difficult conditions. The story for us in 2009, as we talked about earlier, is advanced digital services and we are excited about our product offering and rollout schedule. In 2008, consumers were very accepting of our digital product, particularly DVR. HD and VoD, we will expect, will pick up steam during the course of this year. Also this year, we expect to expand our reach of 3.0 in the Netherlands and will launch in many of our European markets during the year. We are excited about offering our customers next gen broadband products which will be true differentiators in our market. We feel confident about our balance sheet and access to liquidity, our amortization schedule has been pushed out and we'll certainly look to any favorable market windows to be proactive in further turning out our maturities. Our hedging of the balance sheet has worked and provided some comfort to us as certain currencies in markets that we operate have weakened. We are matching our debt to OCF and we'll look forward to continue to hedge our risk as these businesses grow. We expect strong free cash flow growth as we've highlighted a few times as evidence by our guidance which combined with our cash position and borrowing capacity, puts us in a position to not only weather the storm, but take advantage of it as well. So with that, Operator, I think we're ready for Q&A.

The question and answer session will be conducted electronically. (Operator Instructions) Our first question is from Alan Gould with Natixis.

Yes, I have a few questions. Bernie, first, the free cash flow grow growth that you're projecting for '09, you said that you brought forward some CapEx in '08 and that alone should give you some free cash flow growth in '09. How much did you bring forward and will there be good free cash flow growth x-ing out that buying forward of CapEx?

The answer is yes, if you look at UPC, it was roughly 50 million EUR, a little bit higher than that, and the reason we did that, Alan, was for a number of reasons, our cash position at year-end allowed us to negotiate with vendors and achieved about a 10% discount on some of those purchases. So it will help the CapEx and the free cash flow growth story in '09.

And, Gene, when you say you have to open up the digital platform in the Netherlands based on this EU decision, I'm assuming KPN doesn't get access to your digital platform, but what exactly does this mean? Resellers can buy it, how do you set the rates for it? You said there's no impact in '09, but are you worried there's an impact in future years?

I can take a crack at that. You want to tack a crack at this Manuel. This is Mike and Manuel Kohnstamm, our Head of Policy, if you can chip in if I miss something but it really, in essence, the reason we say we don't expect an impact in 2009 is it's going to take time for this particular ruling to manifest itself into a practical policy and to practical deliverables, it just takes time. The reason we say the impact in '09 is limited, we don't expect there would be anybody actually on the network in the event we don't prevail in challenging it, this year, if at all. In 2010, it's hard to know what impact it will have. It's likely to mean, with respect to analog, our retail minus approach where we'll get reasonable margin if it does come to that, and it will mean something different for digital, as you say, KPN can't be part of it. And you know it's unclear to us exactly who or how many will be part of it. It's really unchartered territory, to some extent, which we expect to fully comply with, but I do believe creates difficulties in predicting what it means and as you can imagine, we'll do our best to ensure that perhaps even a positive to us at some point. Our main goal is to ensure that we understand as soon as possible the implications, as soon as we do we'll communicate them and secondly, to make sure that this is not something that becomes contagious, if you will, around Europe. We don't think it will, we think it's pretty isolated and unique. Does that answer your question, Alan?

It does, Mike, and one final question, if you could communicate on the Super Media partnerships in the VTR option?

As you referenced, Super Media, our joint venture with Sumitomo that sits above the JCOM asset, it technically expires in February of next year and we are in active dialog with our Japanese partners about a number of potential options to sort that particular fact out I will tell you, I see nothing but positive developments for us given that, that date and that issue. Whatever outcomes arrive at here, we think all look good for us, I have to be vague for obvious reasons. Simply say that we think it's--no matter what we are able to structure or negotiate with our Japanese partners, we think it's going to be a positive for us.

Okay. And the VTR option, given the death of the founder?

Mauricio's on, but the punchline there is the estate intends to, at this stage, keep the interest and all of the assets have been contributed to a philanthropic foundation and we're in close contact with his family and all the folks who run those interests who happen to be the exact same folks we were interfacing with prior.

Okay. Thank you very much.

Our next question comes from Vijay Jayant with Barclays Capital.

A couple questions. First, you're talking about you're digital strategy that's been successful so far but also into '09. Can you get into the unit economics, you know on HD/DVR, what are you seeing in the RPU list? What are you really seeing in churn reduction? I'm bringing this up because some folks suggest that that's going to be a very capital intense a strategy, given that you have to finance more expensive boxes. I really want to understand what the IRRs are on this incremental strategy, and second, your growth rates, you already have growth rates put in print. You are one of the few companies that have done that for '09. Can you talk about how you see about that 5% to 7% EBITDA growth that you talked about across the Eastern, Western Europe, in Chile, in Japan, and some context there? Thanks.

I'm take the second one first, and Gene and I can tag team the digital strategy point. We're not providing guidance by region as you know Vijay. And clearly, when we provide an aggregate number, it is comprised of regional results. I can tell you more directionally that we think markets like Chili, or Australia and some of the historically better performers, should continue that trend. And you can just look to our results for this year and for those markets we break out, which on one slide we did, I think you can expect that for the most part, the markets that have performed well in '08 will perform well in '09. We'll also expect to see, as Gene highlighted, some improvement in markets that historically, or at least in the last year or two, did not perform well like Romania, which we expect to be on a growth curve for the most part this year so I think it's a combination of seeing the market that have historically done well continue to do well, although in this new environment and markets that have perhaps were pulling down our results, turn around a bit and show a better progress. That's really the best I way I think I can characterize it. On the digital strategy side I'll make a general point and Gene can fill in some holes we are not providing our HD or HD DVRs or our DVRs, generally we're not providing those as a retention tool. We're providing those as a revenue generating tool. So, for example, in just about every place we provide HD or DVRs, we are in one way other another, through a box rental fee or monthly charge, receiving revenue, incremental revenue and margin for those boxes. And so today, there is a positive return on those devices. They are certainly helping with churn reduction and creating great buzz and excitement around our digital products but they are not devices that we're handing out for the purpose of retention or in a defensive posture. We're almost entirely handing those out as a way of generating positive economics. I don't know if you have anything to add to that, Gene.

I can just asked a couple things maybe. I think as I mentioned earlier the, the DTV is our primarily revenue growth driver next year, not to mention the fact that it involves the--it's primary responsible for net adds, the uplift that we bunched in '09 coming from, in RPU, coming from digital is about, 1.2 EUR. If you take a look at the RPUs, starting with UPCNL, or UPC overall, RPUs on CATV would run next year somewhere in range of 12 EUR and DTV would contribute another 12 EUR plus, so almost 13 EUR so essentially doubling the RPU on digital.

That's the point I was making earlier, as you well know, generally speaking in Europe, our increases run anywhere from 50% to 100%, so as we roll digital sub out we're either doubling or less than doubling, the takeout per home and that's not just coming from the incremental digital channels, it's also coming from the value added services like HD and DVR which today we are generating positive income from.

Mike, can I have a follow-up? On programming costs, in the US, you're seeing programming costs fairly increase for cable operators nearly double-digits doing due to the trend towards digital as well as the retransmission payments. Can you talk about what your reprogramming increases are?

Yes, our programming costs generally have been over the last, say, 4 to 5 years not increasing anywhere near US markets printably because our digital sub base is still evolving while we do pay incremental programming cost for digital customers, and roughly small base and we are generating margin on incremental cost secondly we have been able to excerpt fairly large influence over our programming because of our scale and multi-national approach, and few, if any, of our programmers have the benefit of a large market or scale themselves, or are a bit fragmented, so we've been able to take advantage of that and in certain markets we've seen declines in our programming cost, not all markets but certain markets, pretty sizeable declines as we've been able to restructure and renegotiate. We've simply operate in a different programming context than our US operators, we don't have the ESPNs and Disneys and programmers who are able to exert meaningful power in the market because our markets are largely fragmented because we actually end up being able to take advantage of our scale, so I would not expect programming costs to be a major component of cost increases on the analog level and then only incrementally on the digital level for that of course, we're generating positive margins so you should see that.

Thanks.

And our next question comes from Chris King with Stifel Nicolaus.

Hi, guys, this is actually Josh James sitting in for Chris King. Thanks for taking my call. I was hoping you could speak a little more as to when you're seeing economically in Central and Eastern Europe, and how the consumers are holding up in those countries, and also do you have a sense of how you're competitors are holding up in these markets?

Well, on the first point, it's Mike I'll try to take a quick crack at it. It's mixed. I would say with respect to the, more competitive upstarts, the operators in Central, Eastern Europe who have given us fits in the last several years with low cost bundles and low, really low value products, I think perhaps, the best example would be DigiTV who was just, as of toda,y taken their second rate increase across their footprint in the last, I guess couple of months here, which indicates to us, that what we forecasted several months ago that certainly of our competitors would either have to change their business model or go out of business, seems to be the case. That the companies who are not operating in, what we believe are reasonable economic profiles because of where they're priced and what they're providing, may have to change their model and it looks like at least in the case of Digi, they are, in fact, doing that. I think incumbent telcos across our market fully act differently depending on the market. Some may rebalance their rates if they're in different currencies. Others may see this as a great opportunity together with us to reinforce our market position and our ability to set the agenda in terms of products and pricing, it's really a mixed bag. I do believe that the companies that have given us the most trouble, if you will, seem to be having a bit of trouble themselves and their pricing is going up, not down. So that's a positive development. Gene, you want to add anything on the Central/Eastern Europe--

I guess the only thing to add to that is generally speaking, the GDP and Western and Eastern Europe and particularly in Hungary are contracting. Although on the other hand, though, you're still seeing some pretty healthy growth in GDP in your Central and Eastern European countries with the exception of Hungary. Hungary, in particular, is experiencing volatility in the Forint. You've seen a significant devaluation there. They've also increased their VAT from 20% to 23% most recently. Romania has seen a devaluation of the Leu, against the Euro. Poland also has seen a fairly significant contraction in currency. Ireland, is an exception to the Central, or the Western European markets. In Ireland, we're seeing a significant increase in unemployment, but withstanding all that, as I said earlier, we haven't seen a significant impact in our business.

I think it's important to point out, just to cap that off, our products are not priced on the higher end of any particular particular market in Central and Eastern Europe. We've been in such a competitive posture for several years that we've put our bundles and our pricing to a point where hard to argue that we're gouging the consumers. In fact, I'd say it's very much the opposite. So I don't believe that in these particular markets we'll feel the--whatever pain might exist for consumer products the way others might because we've been in such a competitive environment, our products and our pricing, our bundles are darn cheap, and we don't have $120 customers with lots of premium services that might churn off or might walk away. We really have very high quality low-priced products that put us in a very strong position as you go into what might be some economic headwinds in those markets. We'll keep you abreast of it as quarters go on here.

Okay. Thank you.

And our next question is from Matthew Harrigan with Wunderlich Securities.

Good morning. A couple questions, first of all, I know you've got hedges on the emerging European currencies of about 4x or 5x EBITDA. I was a little bit surprised that there wasn't some gain from those hedges in the fourth quarter. I understand the issues on the Yen debt offset by the Euro debt to some extent. I was curious when this was going to flow into your financials because you've seen some pretty significant currency movements as you've noted there is the Forint and then secondly, on the stimulus side, Swisscom and KPN have taken a pretty meandering approach on the fiber roll outs and I know some of that is relating to getting access and all that, but do you see anything happening in terms of policy in Europe that's going to accelerate the roll out of fiber, and then lastly, on Telenet, they posted some pretty encouraging guidance, even with Intercable included at 12% revenue in OCF, I was curious if you can give us a vantage point on that business and how you would compare it to KPN and Swisscom? I'm sorry, the Netherlands and Switzerland.

I'll tell you what, Bernie, why you don't you think about the hedge question. I'll try to address the stimulus issue and then Rick why don't you think about telenet. On the stimulus side, I think the European community is approaching it, not dissimilarly from the US community and by that I mean, when it comes to telecoms or broadband, the first approach is for what I would describe as regional or rural initiatives such that, you know, the money that may be invested into our industry would firstly be invested in underserved markets, and markets that today don't have either competitive or existing networks to provide services so that's point one. And I think we're very attuned to what may or may not be happening in each particular case. It's not to say that there may not be, in some instances, regulatory enthusiasm around fiber bills, and things of that nature. But in principal, I think when push comes to shove, nobody needs to see the government get into our space and start building the networks and including the incumbent telecos are on our side in that regard. I was in Davos with all of my peers in the European telecom sector, and we were all singing from the same hymn book in that we really want to be sure we don't see over-regulation in this space. We want to see appropriate regulation and that's helpful just in the economies but appropriate. I think everyone will be attuned to that and focus the same we are. KPN and Swisscom, I would say, are at this point tip-toeing into fiber. Matt, you've got the facts and figures, you follow them the way we do, both of them have announced, the way I would describe it, as limited fiber initiatives not to say that they won't becomes perhaps more substantial over time but I think Swisscom, for example, has said it will take them six years to build fiber, at a significant cost and it's a bit of a lows me approach to it and I don't know that that's going to be accelerated in this type of environment. KPN has taken a slightly different approach, invested in fiber, a few joint ventures mostly, which could create complexity for them but nonetheless won't allow them to in control their destiny as much as they like in terms of speed and roll out. They're seeing benefits on their fixed-line business principally from low cost DTV television services, and IPTV and fiber don't seem to be as front and center as you expect they would be, especially as we roll out 120 megabit products on our footprint which are have having an impact, I can assure you. We will wait and see how the year unfolds but there are a lot of moving currents there. You want to talk about hedges, Bernie?

It's a difficult question, as you know, our situation is pretty complex. For the year and I'm not going to address the quarter, but for the year we have losses in every one of our markets with respect to interest rates, and our derivatives. We had gains associated with the decrease in the, in the value of the Polish Zloty and the Romanian Leu, relative to the Euro. We had gains associated with the decrease in the value of the Chilean Peso. We have losses associated with the increase in the value of the Swiss Franc, so it's a pretty complex issue that may be better taken off line. If that's okay.

That's fine. Thank you.

Okay.

And what was your question on telenet?

Yes, what was the driver of that, I've heard it from their vantage point. I'd like to get your vantage point in terms of how the Belgium market is divergent from Switzerland or Holland in terms of competitive overlay. I think even as you included Intercable, it looks like they gave some pretty healthy guidance.

Maybe I can take that Rick. I think the principle difference in that is that for the most part Belgium looks more like a duopoly environment and a very competitive and healthy environment than perhaps Holland, in particular. And I think from that point of view any competitive developments are really in the context these two primarily operators and telenet has a very strong position in their marketplace both from the point of view of obviously digital television but also broadband. Our views are a bit higher in these markets today which is a positive it means that we have more revenue and margin to deal with both in terms o being competitive and bundling and launching new products, and (inaudible) has taken ADSL 2+ or DSL approach in IPTV and I don't know if they've made specific announcements about fiber but I suspect as we push telenet to launch more broadband speeds, you'll see that occurring, so they have a very healthy B business in that marketplace that's been had--had a good couple of years and we think there's a big part of their growth profile. It's just a good strong business. I don't know if you want to add anything to that Rick.

Thanks for the guidance guys.

No, I would just say, they also benefit from their ability to market across 100% of the Flanders footprint. In the Netherlands, we have roughly 35% market share and in Switzerland, we have about 50% market share, so that's just one other differentiator,

That's a good point. Thank you.

And our next question is from Murray Arenson with Yonko Partners

Thank you, good morning. I have a couple questions, one, I just wonder if you can provide some additional color on the 3.0 rollout plans,if you expect that to roll evenly through the year or if it gets more aggressive later in the year and what the difference is between the entering the market and fully penetrating the market there. And secondly, I want to get your thoughts--I know you have a couple given WiMax initiatives going on and I wanted to hear about those and what you're views were on WiMax and some key markets where maybe that's an issue?

Sure. I'll take the WiMax point. And then Gene, you think about the 3.0 and I can provide some color to that. I think we continued to maintain a similar posture to what we've communicated in the past on WiMax, and by that I mean, we are skeptical, in most instances, of both the economics and performance of that product. Particularly when you're in a 3.5 gig environment, like we are generally where we have spectrum, as opposed to lower spectrum ranges where it's a bit more productive and fruitful. The economics haven't changed materially in terms of CTE or other network gear. We have rolled a neck work out in Chili, we do have some practical experience with this technology and we're in the midst of some trials and things of that nature. I think the biggest challenge that we will face, in particular in this market in the US, is that it is not going to be ubiquitous. It will take time to be ubiquitous and we'll compete with ever-increasing and sophisticated mobile networks which are ubiquitous. So I say we remain cautious on WiMax and where we have spectrum, we're more or less in a stable posture. On 3.0, Gene, I don't know if you have stuff in front of you, the plan in Europe is to get 3.0 rolled out principally in almost every market by the end of this year, but that time frame varies by country depending on the market and the situation, and the main challenges of 3.0 are first of all, getting it rolled out, main opportunities as much as anything, so get it out as effectively as possible. I will say that we have got a number of procurement initiatives that are bringing our cost of 3.0 down meaningfully, from even what we said it was at $20 a home, we think we're coming below that at some point, with some very innovative procurement initiatives that we can't speak anything more about that. The second major opportunity for us, is layering in the pricing and the speed increases and that's an art, it's not a science, and the art varies by market in terms of you know what speed to roll out where, how we price it, how we upgrade people, how we migrate people, and what competitive reaction we expect. So I think what you'll find is through the course of the year, we'll be very aggressively rolling it out and very aggressively building it out and that market launches will vary and look slightly it different depending on the country.

Great. Thanks very much.

And our next question is from David Kestenbaum with Morgan Joseph.

Okay. Thanks. You talked about margin improvement next year, can you just talk about where you will expect that? That from VTR, JCOM is there anything that prevent their margin there which are slightly lower from UPC, from rising to UPC levels and secondly, have you thought about buying back any of your bonds in the market?

Sure on the--I'll take the bond point first. On, people have asked that question a lot, and it's a fair question and my perspective on that is while our bonds clearly are trading at low levels and although they're trading much better recently, it's certainly not as a good return as our stock and we're in the business of deploying capital in the most return efficient and aggressive approach we can. If we were to stop buying our bond, I think it also may signal to people hey we believe we have amortization challenges here we better capture that cheap debt while we can to lower the maturity burden or amortization burden we face down the road. Well we don't feel that, so I don't believe we're sitting in a position where we should be concerned about our ability to repay debt anytime in the near medium or long-term, and so I'm not sure what I'm achieving by allocating capitol to bond re-purchasing that have a lower rate of return that were equity and will make less of an impact in our overall balance sheet, capital structure or in fact our growth initiatives and value creation initiatives and would, will no doubt signal through others, I suppose, loudly that we have some concerns around our amortization position. So that's our posture on bonds today and I think that's the right one. In terms of margin, I don't think that we can provide a whole lot more color than what we did, except to say that generally, all of our operations year-over-year improve in their margins, and you know we don't normally have businesses that grow the top line less than their expenses. And that's the nature of how we operate, so where we have top line growth of x, we have generally have operating expense growth of x minus, as a result we've seen pretty consistent improvement of our operating company markets over our market, and I expect you to see that next year and this year.

Is there anything structure that prevents VTR or JCOM of having the type of margins you see in UPC?

You mean at the end game.

Yes.

No, I mean where they are in their growth curve in some respects. Remember that JCOM has maybe five million plus RGUs but doesn't have a very--an 80% penetrated video business, in some respects there's still some ways to go in VTR and JCOM in terms of number of total homes pass that they service today, and this is a positive thing from a growth point of view, but does mean that there's more scaling to achieve there, the question is how quickly they'll achieve it. I'm not sure of anything that I would raise, David, of a structural nature here that says we're going to reach some natural ceiling on those margins.

Okay. Thanks.

Yep.

I don't know, Rick do we have time for one more question?

Our last question will come from Richard Dineen from HSBC.

Thanks very much for taking the question. We talked on DOCSIS 3.0 just a couple questions ago I wonder if Mike would dig into that a little more. Broadly, what you're expecting really in terms of adoption rates, this is a premium service, it a softening consumer spending environment, what you might be able to achieve in terms of a RPU up lift, whether you're expecting to have to offer a lot of discounts at first, maybe to improve the adoption rates? And I just on the cost sides of things again, if we might just guide a little bit on the incremental CapEx and OpEx trends, you know if you're going to get any CapEx scaling benefits as you billed out into the new geographies and whether you're seeing any customer acquisition expense trending down, whether that's, you know deflating price of modems or whatever and maybe just quickly as sort of a follow-up. If you could just give us an idealistic of realist being average speed for DOCSIS 3.0, the kind of speed you might get on a peak average on a average populated cable motive, I don't know 1,000 homes? That would be fantastic, thanks.

I think on 3.0, and Gene, I will let you fill-in the holes here. On 3.0, what you see is what you get. We don't have what you get with DSL experiences, where it's a function where you sit relative to the central office or other factors. We've been under intense scrutiny in Holland by consumer groups and consumers themselves when we market 60 meg and 120 meg, what you see is what you get in general. You know, are you going to expect exactly 120 meg every moment, no, but your not going to get much less, I mean, the point is, it is what, it is what it advertises itself to be. And you know, I don't know Gene, do you want to fill-in a little bit some of the adoption rates and RPU up lifts we're seeing.

Yes. The initial focus is not so much on the RPU up lift. Even though we have introduced a 60 and 120 meg products and we're getting ready to roll out a 50 meg and 100 meg product in Austria, we don't anticipate that the take up of, of those two products will be significant at first. First of all, they're priced as premium level, and they would be most attractive to a customer that's already subscribing to, you know relatively high RPU product. The initial strategy is to do two things. Number one, leverage our existing 2.0 infrastructure by allowing us to increase the speed to their maximum in the markets where we don't have fiber to home competition, for example. So in markets we're moving our dot speeds up to 30 mega bits and then gradually, and in concert moving all of our lower speeds up, up as well. The 3.0 product allows us to move the end lower products higher and most importantly I think, or as importantly it allows us to reclaim our speed leadership as a marketing tool in all of our markets. And also by increasing the speeds of our lower products, number one, we should get higher up-take. Number two we should reduce churn and in some cases we're able to increase the rates of those products driving some incremental RPU. Does that help?

Balan, why don't you address our procurement initiatives and where we see set-top box and other CP and modem prices going.

Sure on DOCSIS 3.0, both ends of chain CNTF, the site Internet rate and the modem have seen dramatic price reductions as well. On the modem side, it's probably running 10% to 15% ahead of what we thought the numbers were going to be in DOCSIS 3.0 evolutions. On the CNTS side, for the most part, we are upgrading existing CNTS so it's swapping out cards so the incremental cost isn't that significant so in the area where the chassis cannot be upgraded we've selected a very integrated start-up vendor that's delivering some significant cost reductions to us as well. And and one other thing I would add, with DOCSIS 3.0, this next generation cards are significantly more denser than existing DOCSIS 2.0 so on a per point basis, the cost has dropped quite a bit as well.

And then lastly, on set-tops, we've seen a lot evolutions around the world anywhere from 10% plus reduction in set-top pricing reduction every year. So our customer acquisition cost ,clearly the biggest cost in acquiring customer is the equipment, and that piece of the puzzle for us consistently comes down every year, and the variable marketing, depend on the market itself.

Correct. On our next generations boxes with 320 gig drives, it's a lot less than we would have paid, even 12 months ago for a storage a lot less than that.

Okay. Guys. Thanks, thank ever so much, that's very helpful.

Okay. Listen everybody we appreciate you getting on the phone with us this morning, and/or this afternoon, if you're in Europe, and we look forward to keeping you updated on the year as it unfolds for us, we're all very motivated and very excited about it and focused and we will speak to you all soon. Thanks very much, Operator.

Ladies and gentlemen this concludes Liberty Global investor call. As a reminder a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.lgi.com. You can also find a copy of today's presentation materials. Again, the website is www.lgi.com. Thank you again. And have a good day.