Liberty Global Ltd (LBTYA) 2009 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 call or webcast in any form without the expressed written consent of Liberty Global is strictly prohibited.

At this time all participants are in a listen-only mode. 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 begin for a question-and-answer session. As a reminder, this conference call is being recorded on this date, February 25th, 2010.

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

Thank you, and welcome everybody. Thanks for joining us. As usual we have a number of folks on the phone with me here, including Charlie Bracken and Bernie Dvorak, our co-CFOs; Gene Musselman in Europe; Miranda Curtis and Graham Hollis in Japan; and Mauricio Ramos in Chile. And then others you might hear from in Q&A -- Shane O'Neill, Balan Nair, and Rick Westerman.

So I'm going to turn it right back over to the operator, and then we will get started.

Page two of the slide 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 the company's expectation with respect to certain of their objectives for 2010 as well as their outlook for 2010, and other information and 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 filings 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 over to back to Mr. Mike Fries.

Thanks everybody. So our agenda is going to look familiar to you, I'm going to run through some highlights of the quarter and the full year and then turn it over to Bernie when it's time for the financial results.

Just a reminder, the slides that will be speaking from are available on our website, so if you haven't, we'd encourage you to try to get a hold of those. We'll be speaking from those today.

And we're going to leave plenty of time for questions (inaudible - microphone inaccessible).

So I'll start on slide four with some highlights for the full year. And to keep it simple, we've organized our headlines into three buckets, if you will. I'm referring of course to the three core value drivers that we believe set us apart from our peer group and drive value creation for us.

First, industry-leading organic growth.

Second, disciplined and opportunistic M&A.

And third, in prudent management of our balance sheet and capital structure.

In our opinion all three of these drivers delivered for shareholders in 2009.

Throughout the year we talked about our ability to grow our business right through the cycle of macroeconomic volatility, both at the subscriber and the financial level. And we did that.

For the full year we added 2.8 million digital TV, voice and broadband subscriptions on an organic basis. That's a record year for us.

Each quarter we delivered steady and consistent revenue growth of 4% -- again, rebased, which is our definition of organic.

For the full year we delivered rebased operating cash flow growth of 7%. It was at the high end of our guidance range.

And we exceeded our expectations on free cash flow, turning in full-year growth of 47% compared to a target of 25%.

We feel good about these results and in particular the momentum we've been able to carry into 2010.

On the M&A front we recently completed two major transactions that demonstrate our willingness and ability to rebalance our business on an accretive basis. Both of these deals will be well known at this point, but just to recap, in January we purchased 100% of Unitymedia, the second-largest cable operator in Germany, on very attractive terms. This deal enhances our scale and strategic position in Europe and is meaningfully accretive operationally and financially.

As Bernie will explain later, we are not going to formally comment on Unitymedia's fourth quarter results today, but I will tell you that we are extremely pleased so far with the local management team, the integration process, and our ability to realize projected synergies. This is going to be a great operating asset for us.

And then of course just last week we closed on the sale of our 38% interest in JCOM at a price which represents a meaningful premium in the implied value of our own stock. The deal generated $4 billion of gross proceeds to LGI and allows us to focus our resources on expanding our footprint in Europe, which now represents 85% of our revenue.

I might just add, perhaps as a large footnote, our investment in Japan was a homerun for shareholders. Our cumulative investment in the market was approximately $850 million, and together with the sale of our [Shock TV] the interest, now we have taken out a total of $5.1 billion.

Then finally, we were extremely active in the capital markets in 2009, raising over $14 billion of capital, including $9 billion of debt extensions and approximate $5 billion to close the German acquisition.

As a result, today the average life of our long-term debt is over six years, and our balance sheet is in great shape.

We are also one of the few companies who stayed committed to stock buybacks, and I'm glad we did. Through the course of 2009 we purchased $400 million of equity at an average price of $17, bringing the total amount of stock repurchased in the last 4.5 years to around 45% of the company.

Following the JCOM sale and the Unity closing, we now have over $3.5 billion of liquidity available at the parent or LGI level. And perhaps to build on an analogy I was using with investors earlier in the year, our cup has been replenished. So as in the past, you should expect that we will dedicate most of that liquidity to M&A opportunities or stock buybacks, beginning today in fact with our announcement to increase our authorized capital for share repurchases to over $500 million.

So it was a strong year for us, but just as importantly, now we believe we are well positioned to push all three of these core value drivers in 2010, which we think is good news for shareholders.

(technical difficulty) to slide five, which will look familiar to you as well. It lays out our quarterly subscriber additions by product and tells a very positive story about our operational momentum.

As I already indicated, despite the economic backdrop and strong competition, we delivered very steady and consistent subscriber growth last year. If you look at the top two charts, you'll see our broadband data and voice net adds by quarter.

Two quick observations should jump out at you. The first is the relatively consistent growth in both products -- in both products, quarter-to-quarter. And the second is the uptick in our fourth quarter, where we added 350,000 of our 1.2 million new voice and data RGUs. That was driven in large part by the early success of DOCSIS 3.0 rollouts in Europe, which I will speak to in just a minute.

Perhaps even more important is the chart on the lower left, which shows our quarterly video losses. For the full year we lost 260,000 video subscribers, but that number has been improving every quarter, and declined nearly 70% from the first quarter to the last quarter, where we lost only 30,000 video RGUs.

This improvement in our view is attributable to three things. First, our continued success with digital cable. Second, impact of better and faster broadband bundles. And third, in certain markets the fact that as we predicted, cheap and low-end providers are starting to run out of price sensitive customers.

Now, on the bottom right you'll see total net adds for the year of 932,000 broken out by quarter. This is just the sum of the first three charts. But it also shows a steady increase of around 200,000 per quarter in first nine months, jumping to 322,000 in the fourth quarter. And while our fourth quarter is always our strongest, it was actually up 13% from the prior year.

As I said earlier, that momentum has carried into early 2010, and as you've heard us say before, a big part of our success here comes down to two key products -- digital TV and our next-generation broadband services. In fact, digital cable continues to be our fastest growing product. And we've summarize those results on slide six.

For these purposes we've exclude JCOM since we won't be reporting those figures going forward.

I'll start with the chart on the left that shows the number of new digital cable subscribers added in each of the last three years. You'll see that we connected over 1.2 million new homes to a digital TV service in 2009, a record year for us and more than double our net adds in 2007.

There's two key takeaways here. First, even with 4.3 million digital TV subscribers at year-end, we are still only 38% penetrated. That means we have nearly 7 million customers today who have yet to convert from 30 channels of analog television to one of our digital TV services. By the way, that number grows to 10 million potential new digital subs when you add in Unitymedia.

The second point is that we continue to see significant ARPU uplift from each digital customer, on average, a 90% increase. So every new digital subscriber nearly doubles the video revenue that we are taking out of the home.

The chart on the right shows two of the key drivers of digital demand and ARPU increases, enabling high-def HD and DVRs. At year-end, 43% of our digital TV subscribers were using our HD and/or DVR services. Now, DVRs are an easy sell. We all know the value there. But HD has been slower to develop in Europe.

That's beginning to change. In markets like the Netherlands, we now have 14 HD channels, including all the best free to air broadcasters and many of the key thematic cable channels. We believe we've reached the tipping point, both in terms of high-definition TV sets and HD content, like the Olympics and the World Cup this summer. Now, we will see the benefits of this in 2010 and beyond.

Then lastly, we are ramping up our VOD platform with eight markets launched now, and more and more programmers jumping on the bandwagon, again, being led by the key free to air broadcasters and catch-up TV.

Just a quick fact that supports the value of VOD to us, our results show that in Holland customers who use video on demand churn 50% less than those who don't. So there's plenty of runway for incremental digital growth when you look at the raw numbers, and that growth in subscribers and ARPU is accelerating on the back of our advanced services like HD DVRs and VOD.

Now moving to slide seven, I think it goes without saying that our most impactful new product last year was our next-generation broadband service, launched on our DOCSIS 3.0 platform.

You can see on the left, we've taken the first steps to roll out in nine of our 11 European markets, including Belgium and Germany, and can technically reach over 12 million homes today with 100 megabit broadband speeds or better. That's over 50% of our European footprint.

While it is still early days in most of these countries from a marketing point of view, our Fiber Power products, as we call them, are having a very positive impact on sales and market share. By far our best example is Netherlands, where broadband additions in the fourth quarter were up over 200% versus last year. I'll dig a bit deeper to that market in a minute. But it's not an anomaly.

We are also seeing meaningful uplift in other markets where we have been launched for a longer period, like Austria, where Q4 broadband net adds doubled last year's number.

And if you've been following us over the last 12 months, then you know that we've staked a lot on DOCSIS 3.0. We felt that it created an ideal opportunity to redefine broadband in our markets, to reinvigorate broadband sales, to reclaim broadband market share from DSL providers, to stabilize or grow broadband ARPU, and support our other advanced services. So far it is doing all of those things.

Take a look at the Netherlands on slide eight. Holland was the first market in Europe to roll out DOCSIS 3.0, and you can see from the chart on the left that our national launch of Fiber Power actually incurred last summer.

Prior to that launch we averaged data net adds of approximately 9,000 per quarter over the last couple of years. And as you can see on the chart, that trend was declining in the first half of last year. But in the third quarter, after we launched we started to see an uptick in all the key broadband metrics, and in the fourth quarter of last year we generated our best broadband results in Holland ever with 34,000 net adds.

The product is working, sales are up, churn is down, acquisition ARPU, or the average revenue from new standalone customers, is up, and we are taking market share from the incumbent. In fact, KPN actually lost [DL] subs in each of the last three quarters for the first time.

Importantly, the performance in broadband is having a halo effect on our other products. If you look on the right, most notably our core video business in Holland. And that chart shows you our Dutch video performance with digital additions in light blue and basic video losses in gray. It's a pretty good looking trend in our view of the last three quarters. Digital net adds are up. In fact the fourth quarter was our best in three years. And total video losses are declining -- in fact 65% from the beginning of the year to the end.

This is just one market. But it's one of our most competitive and mature markets. If we are able to achieve a fraction of those results across the rest of our footprint, that bodes very well for growth in 2010 and beyond -- which is a good transition to my last slide, where we have summarized some of our key objectives for 2010.

Of course I've just addressed the first one, and that is to continue leveraging our Fiber Power or next-generation broadband products across our European footprint. By year-end we expect to have the vast majority of plant 3.0 enabled, and it's worth pointing out that we are still realizing cost savings on both 3.0 upgrades and 3.0 CPE in this business.

I've also talked out our second objective, which is to continue migrating our 10 million analog customers to digital with all the ARPU and bundling benefits that creates.

Third, we'll focus on driving down capital expenditures as a percentage of sales across all markets. In Europe, CapEx as a percentage of sales in 2009 was down 250 basis points from the prior year. And it was down in absolute dollar or euro terms. That thread will continue for us.

If we can achieve these goals, then you should expect improving operating and financial performance in 2010. That's certainly what we are expecting, and Bernie will flesh that out a bit during his remarks.

Then lastly, I think you can rest assured that when it comes to deploying our substantial liquidity, whether into M&A opportunities or our own stock, we're going to bring the same discipline, focus and commitment to driving shareholder value that we've demonstrated over the last years. Bernie?

Thanks Mike, good morning everyone. If you turn to slide 11, the two charts on this page depict our 2009 revenue and OCF performance.

2009 revenue was $11.1 billion, which represents a nearly $600 million, or an approximate 6%, increase year-over-year.

Experience over the last several years, OCF grew at a faster pace than revenue. In 2009 OCF grew approximately 8%, or nearly $400 million over 2008, to $4.9 billion.

As was mentioned earlier, we generated rebased revenue and OCF growth of 4% and 7%, respectively, adjusting for both FX and M&A impacts.

As far as market performance, Poland, Belgium, and Australia were the standout performers for us in 2009, and in addition our OCF growth resulted in part from continued margin expansion, as we benefit from our scale and operational leverage as well as favorable product economics.

Our OCF margin increased 110 basis points year on year to 44% in 2009, from 42.9% in 2008, led by Telenet and UPC. Both operations achieved OCF margins in excess of 49%, with Telenet and UPC experiencing year on year margin improvement of 120 and 100 basis points, respectfully.

If you turn to slide 12, this summaries our rebased revenue and OCF growth by operating segment. Beginning at the top, UPC Broadband reported revenue and OCF of $4.1 billion and $2 billion, reflecting rebased revenue and OCF growth of 1% and 3%.

Over the last several quarters we have seen stabilization and in fact slight improvement in UPC's rebased revenue growth.

In terms of their OCF growth, in addition to Poland, we had solid rebased OCF performance in our two largest markets, the Netherlands and Switzerland, with NL reporting annual rebased growth of 4%, and Switzerland, 5%.

A few of our central and Eastern European markets, particularly Hungary, remained challenged in 2009, as we've talked about in the past.

Telenet had a strong 2009 with 7% rebased revenue and 13% rebased OCF growth.

Telenet also achieved a record year in organic advanced service adds, with over 0.5 million as we capitalized on the Interkabel acquisition and their shakes bundles, and margin improvement there stemmed largely from lower SG&A as a percentage of revenue.

If you look at VTR, they generated 6% revenue and 5% OCF growth, which was a good result in difficult macro and competitive conditions, and specifically VTR continued to penetrate its footprint, adding nearly as many net adds in 2009 as they did in 2008 and improving their bundled customer base by 9% year on year, finishing 2009 with approximately 64% of their customers taking a bundle.

VTR's OCF growth in 2009 was adversely affected by the overall weakening of the Chilean peso against the dollar, as we have US dollar denominated programming costs in Chile. In addition, macro conditions such as rising unemployment forced downgrades and higher bad debt expense, and that all contributed to the lower growth rate.

Finally we are separately presenting Austar, our pay TV business in Australia, which generated which generated 7% rebased revenue growth and 12% OCF growth.

Overall, excluding JCOM, and obviously before including Unity, we generated $7.5 billion in revenue, representing 3% rebased growth, and $3.3 billion in OCF, reflecting 6% rebased growth over 2008.

Turning to slide 13, this provides a snapshot of our quarterly performance and trends. Key takeaways here include the improving US dollar reported figures during 2009 for revenue and OCF. These increases are a result of a combination of organic growth, generally positive FX trends, and M&A.

We also demonstrated consistent quarterly rebased revenue growth, as Mike had indicated earlier, of 3.5% to 4.0% during each quarter of 2009. Exclude JCOM, and our rebased revenue growth would've been approximately 3%.

And of particular note, UPC has shown modest sequential improvement since the second quarter, and this has been achieved in part by improved performance in Western Europe, particularly in Ireland and Austria.

We achieved consistent quarterly rebased OCF in the 7% to 8% range, as evident in the first three quarters, but as expected, growth was lower in Q4, coming in at 4%. Our key Q4 performance was impacted by higher marketing and customer acquisition costs, and difficult year on year comparisons in certain markets.

Turn to slide 14. It shows a picture of CapEx. Trends are moving in the right direction with capital intensity declining.

For 2009 CapEx was $2.2 billion or twenty point (inaudible - background noise) percent of revenue as compared to '08 CapEx of $2.4 billion or 22.5% of revenue. Overall our CapEx declined by approximately 230 basis points as a percentage of revenue. This reduction in capital intensity was driven in part by UPC and VTR, which had declines of over 300 basis points as measured by percentage of revenue on a year-over-year basis.

As the far right-hand chart illustrates, CPE and scalable infrastructure accounted for 61% of our CapEx, as customer equipment and capacity demands increased with this year's record advanced service RGU adds, acceleration of HD and DVR subscriptions, and pan-European 3.0 rollouts.

Our network spend includes new builds, upgrades, and line extensions, which together totaled 22% of CapEx.

During the year we added over 1 million two-way homes to pass globally to our footprint, of which nearly 600,000 were at UPC. Of UPC's 14 million homes passed at year-end '09, approximately eighty (technical difficulty) are 750 megahertz or greater, with the vast majority at 860 megahertz.

(technical difficulty) 17% was support capital and mostly IT-related expenditures.

As we think about CapEx moving forward, it's important to note that JCOM had low CapEx as a percentage of revenue, so as the second bar chart highlights, excluding JCOM, LGI's CapEx was $1.7 billion or 22.4% of revenue in 2009. This will be our baseline figure, which we will provide our outlook in a few slides.

If you turn to slide 15, it shows a picture of free cash flow, and as Mike mentioned, we generated free cash flow in '09 substantially higher than our 25% growth target. For the full year we generated $1.1 billion, reflecting a (technical difficulty) seven percent increase over 2008. Now, this result was driven largely by a strong Q4 of $444 million, which was up over 100% from the fourth quarter of '08. Now, UPC and VTR were contributors to this performance in Q4.

Our 2009 free cash flow results reflect a year-on-year reduction in CapEx spend by 5%, and a 7% improvement in cash from operations. FX also benefited our free cash flow from a comparison perspective. On a continuing op's basis, excluding JCOM, for both 2008 and 2009 our free cash flow was up approximately 49%.

2010 will be a somewhat of a transitional year for free cash flow, as we are going to have one-off items related to the (technical difficulty) and the acquisition of Unity. Specifically, these items include taxes on the sale of JCOM, and with respect to Unity, transaction costs and cash interest payments on Unity's existing debt as we carry the dual capital structure for a few months for Unity.

So in analyzing free cash flow for 2010, you're going to have to adjust these items in order to get a picture of our free cash flow.

Turn to slide 16. Some observations on our balance sheet and capital structure.

At December 31 on a reported basis we had debt including cap leases of $25.9 billion, and cash including restricted cash related to our debt instruments of $7.4 billion. Both our debt and cash balances increased in Q4 due to the capital raising activities to fund the Unity transaction, as we raised approximately $3.8 billion of senior notes at Unity, $935 million of 4.5 convertible notes at LGI, and we sold approximately 128 million of common stock.

From a housekeeping perspective for our new bondholders at Unity, we expect that we will report year-end results in the next three weeks, and we will also post those to our website. Of course in Q1 we'll start discussing Unity's results.

Pro forma for the JCOM and Unity transactions at year-end, we had total debt of $23 billion and cash of $4.6 billion. This translates into gross and net debt ratios of 5.2 and 4.2 times, respectfully, after further adjusting for our $1 billion loan backed by the shares we hold [of] (technical difficulty) [Sumitomo], as well as adjusting for the collateralized VTR facility. So you factor all that in, and that puts us to just over our 4 to 5 times gross target range, and we expect our leverage ratio to fall lower over time.

Additionally pro forma for the two transactions, we had over $3.5 billion in liquidity available to the parent, substantial from our perspective.

In terms of our debt profile, we made great strides on the balance sheet last year, capitalizing on improving capital markets in the course of 2009 and demonstrating our consistent access to those markets. In '09 and through early '10 we extended over $9 billion of debt maturities.

Approximately 95% of our overall LGI debt now matures in 2013 and beyond. And in connection with the JCOM transaction, we repaid (technical difficulty) JPY[75] billion, LGJ Holdings' credit facility, or roughly $832 million, which was originally due in 2012.

Over the next three years the only meaningful potential debt obligations in the UGC convert, which is put-able in April of 2011 at par, which has a face amount of approximately EUR400 million.

Of course from a risk perspective we are generally fully hedged in terms of FX and rates. So we feel very good about the state of our capital structure and obviously our liquidity picture.

If you turn to this slide 17, it gives a view of our outlook for 2010. And we are currently targeting rebased revenue growth in excess of what we reported for LGI in 2009, excluding JCOM, (technical difficulty) percent.

In terms of OCF margins, we expect to realize modest expansion. In 2009 we delivered an OCF margin, excluding JCOM, of 44%, and on a consolidated basis in 2010 we expect to beat that.

From a CapEx and FCF perspective, we are committed to reducing our CapEx as a percentage of revenue and driving free cash flow. So with respect to CapEx, our CapEx excluding JCOM equated to approximately 22.4% of revenue in 2009, and we expect to drive CapEx lower in 2010 as a percentage of revenue from this level, with strong improvement expected from UPC.

And specifically at UPC, we expect them to drop its CapEx as a percentage of revenue by at least 200 basis points on a year on year basis, as we are targeting a range of 21% to 23% at UPC, down from 25% in 2009.

(technical difficulty) free cash flow, we would expect to generate significant normalized free cash flow growth in 2010, from an adjusted 2009 free cash flow figure of approximately $375 million, which is our estimate of what we will report after restating 2009 to reclassify JCOM's discontinued operations.

So obviously we are excited about our prospects for 2010 and encouraged, as Mike indicated earlier, by the early subscriber momentum that we are seeing.

So with that operator, I think we are ready for questions.

(Operator Instructions). Jason Bazinet, Citi.

I suspect the main question on investors' minds has less to do with the solid operating results and more around a decision to sort of increase the authorization to about $500 million on the buyback. Is it just a correct inference that the majority of the cash that you raised on the JCOM sale will be used for M&A; is that correct?

No. No, it's not correct. I think the -- if you look at what we have done in the past, we have always approached share buyback in an incremental manner. So we would almost every quarter, if you recall, would be saying something about our authorization level or our buyback activity, and the thinking is that there's -- we can increase that authorization at any point. We are not back in the market yet, we will be obviously when we are out of the blackout period here.

How much stock can we actually buy efficiently on a regular basis will determine what we believe the authorization needs to be ongoing. So no, I would not read into that level that we are necessarily preserving the balance of that capital for M&A, it just means we are taking a measured and opportunistic approach to buybacks, as we have done over the last five years.

Very good, thank you.

Vijay Singh, Janco Partners.

I have one question on Germany, and I just wanted to see if you can give us some color on your strategy for growing the market share in Germany. And then second part of Germany would be on Unitymedia footprint, how much of that footprint is triple play ready?

Well, they are about 90% rebuilt. So they're -- the vast majority of that footprint is ready to roll with the three core products that we're focused on.

What was -- the first question then was --?

It was just the overall strategy for growth in Germany. Without getting into price competition (multiple speakers)

Oh, the overall strategy doesn't look hugely different than certain of our other markets where we have in essence a strong duopoly position. If you look at Switzerland or Belgium where the phone company has a solid operating business in our core products, we are taking a similar approach here.

So what does that mean? It means that we have relatively low digital penetration in the marketplace, and we believe something like eight out of 10 homes still haven't really connected with digital TV, and we believe that creates great opportunity for Unity, in the same way it has for UPC.

I guess the second main point would be that the German market is the fastest growing broadband market in Europe today. It grew 15% last year and hasn't reached the level of maturity that certain of our other markets have reached, which provides a fair amount of raw organic growth opportunity. And today Unitymedia is taking anywhere from 60% to 70% market share on its footprint of new net adds.

So the opportunity to transform the TV business from an analog to digital business in the same way we have done in other markets exists. And the opportunity to penetrate raw organic demand on broadband as well as claim the high ground on speed and quality also exists in that marketplace.

Vijay Jayant, Barclays Capital.

A couple of questions. First, on -- you have $3.5 billion of available liquidity, you've put some cash on hand for just working capital needs. You've got some maturities, pretty small maturities in '11 coming up on the convert. So I look at like $2.5 billion of really cash available that has sort of negative carry. How are you going to use the capital in the interim period till you sort of buy back stock or find the next M&A opportunity, not to have that sort of negative arbitrage?

And second, can you sort of talk about obviously the launch of DOCSIS 3.0 as having this lift and a halo effect on the video business? Can you sort of talk in greater detail on how you're changing your market pricing propositions with the launch of that? And what's really working? A little more nitty-gritty on that front please? Thanks.

Sure. And Gene, I'll let you take the second one, so think about that.

On the first one, your raw numbers are generally correct. We like to keep a certain amount of working capital at the parent, even though our businesses are free cash flow positive and have their own cash, we certainly believe there is value in retaining a certain amount of cash at the parent company, and we do have the convert that you mentioned. And so the raw numbers aren't far off.

It has not been our strategy historically to -- quote, unquote -- sit on cash. That doesn't mean to say we are anxious by any stretch -- I think we have shown great discipline and patience, especially on the M&A front, and I think both in terms of the entry into Germany, and quite frankly, the exit out of Japan. So I would -- I think you're going to have to trust us that we are going to put the money to work in an appropriate way that drives shareholder value, but we are not -- we don't feel a sense of anxiousness to do it quickly or to do it in a manner that would be -- or we'll look back and not appreciate.

So yes, I think your numbers are generally right, and your point is a good one, but I -- from this stage, or from this perspective, I think to some extent patience and discipline have to prevail. That's how we will approach it.

On the DOCSIS 3.0 side, Gene can flesh it out a bit, but we have definitely in every market started searching for the sweet spot, if you will. And that sweet spot tends to be in the 20 megabit to 30 megabit range. In fact in Holland I believe 100% of our current data sales are 20 megabit or higher, 90% -- or 60% up all our new net adds are 20 megabit or higher. So there's no question that we are finding that sweet spot in the 20 megabit to 30 megabit range. And then secondly, we are finding that sweet bundle. In Holland it would be a EUR45 type bundle, but it varies market to market.

Gene, do you want to flesh that out a little bit?

Yes. I guess there's a -- I can say a couple of things. First of all, there are different components of our strategy. And one of those is to preserve our high ARPU subscribers who are on legacy speeds. In other words, for example, in Austria we would have subscribers maybe getting 10 megabits or 20 megabits paying at EUR49 [ninety].

And with the EuroDOCSIS product we've tried to accomplish two things. Number one, put the stake in the ground that we're the speed leader in the market, so we introduced 3.0 speeds. Those speeds are everything over 30 megabits, and in most markets we start at 50 megabits or 60 megabits and go up to 120 megabits. And of course we price those products significantly higher than the legacy portfolio.

Secondly, our strategy is then to start moving the legacy of subscribers, those with a lower speed, up to higher speeds to protect those from turning off to the competition. And we generally do that either at the same price, or we allow subscribers to opt in, for example, at an incremental EUR5.

So the overall affect to date has been we've stabilized the ARPU on our existing base, and we are seeing an increase in ARPU as we (technical difficulty) [subscribers] -- if that helps you.

Great, thank you.

(Operator Instructions). Matthew Harrigan, Wunderlich Securities.

I have a couple questions. First of all, periodically there are noises on ZIGO, an M&A event there. I know that's a whale, even by your standards, but to really realize the full potential of the Netherlands and particularly what you're doing now with DOCSIS 3.0 and the cost savings, it looks like even if private equity remained involved that we certainly would want to try to integrate with you. How flexible are you on financial engineering approaches on that?

And then secondly, in your K you said that you have a 16.5% fiber over-build at UPC. I know paradoxically the competition is almost low on -- higher on the low end than the high end. I noticed Slovak -- you said in your K that Slovakia is about 65% over-built with fiber as distinct from a cable over build. Can you talk about why that's happening in some of the emerging European markets, whereas Swisscom and KPN are taking a very graduated approach and kind of almost conceding the high ground to you?

And then thirdly, on your hedging side it looks like you got -- even if you adjust for your swap book and your forwards -- a fair amount of exposure on Swiss franc. You've pretty much hedged everything in Eastern Europe into euros, but it looks like you or John Malone or somebody in your financial group might be a little bit bullish on Swiss if the economy comes off again. If you could comment on that? Thank you.

Well, I'll maybe try to hit those quickly, and Bernie or whoever created that number in the 10-K, you can refresh it or reflect on it.

Generally speaking, we don't hedge, we don't speculate on currencies. So if the question was -- if you have insight or strong views about a particular currency, will you switch your cash into that currency to take advantage of what might be positive volatility? And the answer is no. That's not what we are getting paid to do. We are getting paid to essentially eliminate risk and mismatch between currencies and liabilities, and we do that very effectively. And we are getting paid in general to match future obligations or uses with our cash balances. So I don't believe you'll see us playing the market, so to speak, in those currencies for potential upside.

On the ZIGO question, I don't really have much to say about it. It's a good business, but I think unfortunately the owners of that business have a ways to travel before they see sunlight in their own investment. And so I don't think it's a today issued, personally. I don't believe it benefits us or our shareholders to get overly creative in how we structure transactions of that size or scale in order to own it or be part of it.

Then on the fiber to the home question, I think the -- it may very well be definitional, because to some extent in much of Romania for example there are Ethernet-based providers of broadband (multiple speakers) [we] might call fiber, but they are not really what you and I would consider the FiOS type fiber.

In the vast majority of our Western European markets, all of the telcos have made some statement or another about rebuilding their networks, but in general they have made those statements in the context of three- to five-year time frames, with very modest expectations or commitments in the near term here. So we do feel like the window of opportunity with 3.0 exists, is wide open today, and ought to exist for some time.

Then lastly -- I'm sorry to belabor this, I know you're not speculating the currency market. But just as far as the rebranded UPC Switzerland goes, though, you are mostly funding that in euros, even though that's a Swiss asset. Or am I misunderstanding something?

(multiple speakers) [This is] Charlie here. And that's not actually true. We have a very substantial swap book in Swiss francs. What you may be referring to is we were a little under weight on matching the swaps at year-end. And we did a substantial amount of swaps actually in January around the senior secured bond, so I can assure you that we're leveraged actually to 5 times Swiss (inaudible - microphone inaccessible) in Swiss francs in our book, so there is no (multiple speakers)

Oh, and I think if you're referring to the -- I think if you said the rebranding exercise, Switzerland is a free cash flow positive operation. So anything that requires capital rebuild, upgrades, rebrands is being paid out of Swiss free cash flow.

Okay. I just looked at your hedge book at one point in time. I got you. Thank you.

[As we are starting] (inaudible - microphone inaccessible) we put a $400 million equivalent swap on (multiple speakers)

Okay. Because there was a transitory moment there. Thanks Charlie, I appreciate it.

Daniel Morris, JPMorgan.

Firstly I just wanted to understand if you have a strong preference for in-market as opposed to new market consolidation opportunities.

Secondly, I noticed on the Deutsche Telekom conference call that management there are talking about competing more aggressively with cable, if necessary with fiber. Obviously the asset base, [if it's] taking 60% to 70% of the market share [and they have, so it's] very impressive. How concerned are you that they could really compete here and turned that around? Thank you.

Well, I'd tell you in Germany we view Deutsche Telekom with the proper amount of respect that you would expect us to provide when you're looking at a large former monopoly incumbent. So that -- but the good news is we have that in every market we operate in, Swisscom, KPN, Belgacom, you name it, they are all saying and doing the same things, more or less. So I don't believe that Deutsche Telekom necessarily provides any greater risk or threat to the cable opportunity in our markets than any other large telco with wireless assets and nationwide coverage.

You would expect them to react and respond to cable, because we are obviously having an impact. To me that's as much as anything verification or a substantiation of what I am telling you with respect to our business. So --

And then the second -- first question about in-market versus out of market -- I would say it's very situational. Clearly we would prefer in most instances to get bigger in-market; right? Our business thrives on scale, traditionally starting with in-market scale where we can be -- can have greater reach and greater ubiquity within that footprint.

But having said that, it is not always possible or doable, so we will look where it makes sense, as we have in the past, to other out of market opportunities if they fit the mold.

That's helpful, thank you. As a quick follow-up could I just ask, do you know how much the network in Germany is already over built by VDSL?

Oh gosh, I had that number. Maybe we can jump -- does somebody else have that handy? I did have that number. I can't think of it off the top of my head. But I think it's -- I want to say 1/3 -- comes to mind. But if we -- we will follow-up with you on that figure.

Thanks very much.

(Operator Instructions). David Gober, Morgan Stanley.

Just to follow up on Vijay's question on capital allocation given the cash you guys have on hand, could you talk a little bit about how you think about buybacks versus acquisitions? And as kind of a [subset] of buybacks, how you think about tenders versus regular share repurchases?

Also obviously Liberty's view on tax leakage is well as documented. But would the company ever consider a dividend in I guess more of a recurring return on capital strategy?

Well, the way we look at buybacks versus M&A we've talked about pretty regularly. But I'll just -- I'll recap for you. Generally speaking, and you can look at Germany as an example, is we focus principally on straight economic comparisons for the most part, meaning if we believe our business and our stock ought to yield this sort of appreciation over a certain -- over a fixed period of time and we layer in this acquisition, is that number higher or lower?

I don't want to sound too simplistic about it, but it's almost that simplistic.

And oftentimes we'll bake in not just purely financial aspects but there could be strategic and other major benefits that would perhaps add to that financial analysis, and that was obviously the case in Germany where we felt that looking at the rest of our European footprint and our broader platform, that this was an accretive transaction. So we'll look at it on this basis, after the asset works its way through all the other gauntlet of requirements it has to have for us.

But fundamentally where the rubber meets the road is looking at those two principal comparisons.

We have not discussed, nor do I expect we will discuss anytime soon, a dividend strategy, for all the reasons that you raised.

Was there a third question?

No, but one follow-up (multiple speakers)

You said versus buybacks. But go ahead.

Sorry. What was that?

You asked about tenders versus buybacks in the (multiple speakers)

Right, right, right.

Yes. I think our belief is that if we are in the business of buying efficiently, then historically we've been able to do that best [on] market.

Okay. Also, just quickly on -- and I apologize if you had answered part of that previously. But on VTR -- and again, sorry if you addressed some of this in the prepared remarks. But could you just talk a little bit about what happened there in the fourth quarter?

Sure. Mauricio, do you want to do that?

Yes. I'm here. As Bernie mentioned, we had a very difficult year with (technical difficulty) and macroeconomic challenges. (technical difficulty) GDP, as you know, in Chile has decreased by about [2]%, and we had unemployment reach [about] -- two-digit numbers, something that we hadn't seen over the past 10 to 20 years in Chile.

A lot of what happened was that throughout the year are subscribers remained with VTR, but we actually (inaudible - background noise) a number of downgrades. So we had a number of subscribers come up to us, as you can imagine (inaudible - background noise) price sensitive economy. A number of those subscribers came to us and said, we would like to stay with you, but we need to downgrade, either reduce the [price] or go to a lower tier. [And we implemented] a lot of those throughout the year, and the accumulated effect of that situation, it was felt largely on the fourth quarter.

Similarly, bad debt was significant higher in the fourth quarter of this year than it was the prior year. To give you an example, our bad debt for the fourth quarter was almost [3]%, whereas the fourth quarter of 2008 it about 2.3%.

So those two effects, accumulated downgrades and [bad effects] largely account for the differences in Q4 results in '09 and '08.

And thirdly, the third effect, we took a conscious decision in the fourth quarter of 2009 to continue to sustain our marketing and customer acquisition expense as we saw signs of improving economic conditions in the country. Or said differently, we continued to invest in the brand and the customer base as we saw kind of improvement. And that led to the Q4 versus Q4, '09/'08 results we witnessed.

I hope those three things are clear.

Okay, thanks guys.

David Joyce, Miller Tabak.

(technical difficulty) The net adds were strong in the fourth quarter, presumably due to the step-up in marketing expenses. In thinking about 2010 margins and the more broadly rolled out Fiber Power strategy, should we think about the marketing being at fourth-quarter kind of levels? Or is there something (technical difficulty) more normalized there?

Charlie, do you want to address that?

Yes. Typically, the fourth quarter is our big selling season, historically providing nearly 40% of our net adds. So we did better this year in the fourth quarter. So you should always expect it to spike in Q4. So I think you should see a reduction in the levels of Q4 in Q1 and Q2 and certainly a big reduction in Q3, because that's the summer months when we don't do much marketing in Europe. July and August are pretty slow in Europe.

So pretty typical (multiple speakers) seasonality on that.

Yes. So it's pretty big. So I mean basically the seasonality is Q4, the most; Q3, the least. It's pretty light due to the summer holidays. And then Q1 and 2 are usually about the same.

And can you please remind me the markets you intend to focus on with that increased speed this year? (technical difficulty)

Well we've got it rolled out in nine of our 11 markets. So the only ones we haven't rolled out in yet are Romania and Ireland, which are -- we are still evaluating. But the other nine, you can expect in each of those we have or will this year rebalance the product portfolio in broadband to take advantage of our Fiber Power speeds. (technical difficulty)

Great, thank you.

Well, thank everybody, appreciate you joining us, and we look forward to talking to you in the first quarter with equally good news. Take care.

Ladies and gentlemen, this concludes Liberty Global's 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. There you can also find a copy of today's presentation materials. Thank you.