Liberty Global Ltd (LBTYA) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen. 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 express 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 on the Investor Relations section page 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, August 4, 2010.

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, operator, and welcome, everybody. I appreciate you joining us for our second quarter call. As usual, there are a number of folks on the call with me from management who may chime in during Q&A. So, let me introduce them quickly. You have Charlie Bracken and Bernie Dvorak, our Co-CFO's, Gene Musselman, President and COO of UPC in Europe, Shane O'Neill, who heads Strategy and M&A, as well as Chellomedia. Balan Nair, our Chief Technology Officer, and Mauricio Ramos from Chile, and of course Rick Westerman, who you all know and love. So before we get going, operator, could you please give us the Safe Harbor Statement. Thank you.

Thank you. Page three 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 expectations with respect to their outlook for 2010, and future growth prospects, and other information and statements that are not historical fact. 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 included those detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed forms 10-K and 10-Q. Liberty Global disclaims any obligation to update any of these forward looking statements to reflect any change in its expectations or the conditions on which any such statement is based.

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

Great. So we'll get started. As usual, we are speaking from slides that are available on our website. And I'm going to start with slide four with some operating and financial highlights for the quarter. I think as you will hear throughout this call, we are pretty happy with our results overall, but we are particularly proud of the great progress we've made in our core European markets on the subscriber growth front. Headline number for net adds this quarter was 169,000, that is an 80% increase compared to the same period last year. Certainly some of that growth is attributable to Germany, but overall we saw record Q2 broadband additions compared to prior years, and another strong quarter for digital cable as more and more of our analog TV customers make that inevitable move to HD DVR's, VOD and the digital content on our platform. More on all that in just a moment.

Bernie will cover off the financial results, but you'll see that rebased revenue and operating cash flow were both up 5% for the quarter. For those who have been keeping track, we've now delivered our fourth consecutive quarter of increased rebased revenue growth at UPC Broadband, which means our new products and subscriber activity are paying off, particularly on the top line.

CapEX is another good story this quarter at 19% of revenue for the six months. We were able to improve our adjusted free cash flow to $358 million year to date, that's up nearly threefold from last year. And we'll provide more color on that in a few minutes as well.

And then lastly our balance sheet is extremely strong today. We had substantial consolidated liquidity of $4.8 billion at June 30, including cash and equivalents of $3.5 billion. Our adjusted leverage levels remain within our 4 to 5 range, and our growth profile gives us the option of future deleveraging or continued access to liquidity for buybacks and acquisitions. Our access to the capital markets remains among the best in our sector, with another $1.6 billion of debt extensions completed this year thus far, bringing the average life of our debt to over six years.

And finally, we remain opportunistic on how we manage our capital structure with $660 million spent through the end of June, including $575 million on the purchase of our stock, and a small amount on our UGC convert. So the strategy for equity value creation remains the same for us, a drive, good operating growth through product innovation and cost efficiencies, and then utilize our balance sheet and liquidity to shrink our equity and opportunistically rebalance our footprint.

With that as an overview, I will dive right into our subscriber growth on slide five. The main objective here, I think, is to highlight the strong improvement we have seen in our core European operations year-over-year. In order to get a good apples to apples comparison of underlying growth, we have excluded Germany from this chart since we didn't own it last year, and we have excluded Romania, since as you know it's a small market for us that continues to skew our customer counts.

If you look at the top right, you'll see that net adds for these nine core markets just in the second quarter are up nearly 3.5 times year over year from 36,000 RGU's last year to 121,000 net adds this year. That same trend can be seen on the bottom right, where we show year to date net adds up over 115%, 276,000.

So we've seen improved RGU performance in seven of these nine markets in the second quarter, driven largely by our superior broadband speeds and our digital TV services. We have also seen a reduction in overall video losses in these markets, as digital TV penetration grows.

By far, our most improved operation is the Netherlands, where the launch of DOCSIS 3.0 and our new turboplay bundles have driven tremendous subscriber growth this year. We have added 85,000 new subscribers or new RGU's in the first six months compared to a loss of 27,000 last year. And we expect this type of performance to continue through the second half of the year, and potentially improve, especially as we start to see the benefits of our operating initiatives in Switzerland around customer care, rebranding and fiber power bundles.

Slide six digs a little deeper on our subscriber results beginning with broadband growth on the top. You'll see we reported 152,000 broadband net adds in the quarter, up nearly 60% over last year. Certainly some of that uplift is attributable to Germany. But more importantly, we continue to see the benefits from our DOCSIS 3.0 and fiber power bundles throughout our markets.

Here are just a few stats to help bolster that point. Through June 30 across our UPC markets, so not just in Holland, our fiber power products represented nearly 75% of our broadband data sales, and 60% of our broadband sub base. And half of those RGU's are at 20 megabit or higher. The Netherlands, again, as our first 3.0 rollout continues to lead the pack with over 53,000 data net adds in the first half of this year compared to 11,000 in the same period last year. And in the meantime, KPN, the incumbent telco and our primary competitor, has been losing DSL subs over the last year.

I think the main point is that this is not an anomaly. This is a significant trend for us, and one that should continue as we reach approximately 80% of our European footprint with DOCSIS 3.0 by year end. If you look at the bottom half of the page, it's also clear that we continue to see a halo effect on our voice business from our new fiber power bundles, with 126,000 net adds in the quarter, up 27%, and obviously this is a big contributor to our growth in triple play subs year-over-year.

If you turn to slide seven, you'll see our video subscriber results, which are actually improving when you adjust for Romania, which accounted for nearly 40% of our total sub losses in the quarter. You can see that in the chart on the top right, including Romania, we saw a modest increase to last year, but excluding Romania we improved our video losses by 20%, and those numbers include sub losses from Germany just in the 2010 period.

These numbers were helped in part, again, by the Netherlands, which in addition to turning the tables on KPN in market share of broadband net gains, just posted its lowest video loss quarter in three years. On the flip side of the video story is our success with digital cable, which continues to be our fastest growing product, adding over 267,000 new subscribers in the second quarter, and 550,000 year to date. We have now crossed the 40% penetration threshold, up from 33% a year ago, and including Germany which is still ramping from very low digital levels.

Despite that growth, we still serve over nine million analog customers, which represent a huge opportunity for continued digital customer and revenue growth. And remember that every digital sub we add generates an RPU uplift north of 80% on our analog video revenue.

You know, we've talked quite a bit about the key drivers for digital growth in our markets, which go beyond just more channels, and increasingly include the functionality and ease of use and great picture quality that comes with a subscription to our HD/DVR services. The second quarter demonstrated that point dramatically, as you can see on slide eight. We saw significant uptick in HD demand compared to previous quarters, adding over 260,000 new HD subscriptions, that is a 60% increase over our strong Q1 performance.

As we have long predicted and often discussed, HD demand is a function of content, content and content. And there are plenty of flat screens. Now we're seeing the supply of quality HD programming fill the void. In markets like Holland and Poland, we are already at or near 20 HD channels, and everywhere we have launched VOD, the library is increasingly being stocked with HD product. We also benefited from a clear committment among free to air broadcasters to broadcast the World Cup in HD, and it didn't hurt that Holland and other European teams did so well. As a result, we now have 2.4 million total HD or DVR subscribers, that's up 60% over last year, and represents a penetration rate approaching 50% when you exclude Germany who is just getting started.

It's important also to point out that in most of our European markets, we are charging a separate subscription fee for HD content, generally in the range of EUR5 to EUR10 per month. Slide nine provides a deep dive on Germany, which continues to perform very well and is essentially right on plan. On the subscriber front, Unity alone added 138,000 RGU's in the five months that we report here, and saw RPU's per customer rise approximately 6%. Those results were certainly helped by the launch of HD in advance of the World Cup, and by our rollout of DOCSIS 3.0 which now reaches approximately 25% of the footprint.

Like in Holland, our most impactful offer here is currently our bundles of digital TV voice and 32 megabit broadband services. And despite great growth, the opportunity to penetrate digital broadband and voice is substantial. With only 8% voice and data penetration to date, that original premise remains as strong as ever.

As expected, Germany has been accretive to our business, with year to date rebates growth of 11% at the operating cash flow line, and our integration process and synergies remain on track. We really couldn't be happier with this business. In fact, in June, I brought the entire Board over to Germany for our annual meeting in the field, if you will, and the enthusiasm for this market and opportunity are very strong.

So I will conclude my remarks with a brief update on some key operational and strategic initiatives, summarized on slide 10. And beginning with one of the most important projects we're undertaking, and that's our multimedia home gateway. We are making great progress with Samsung, Intel and NDS on the development and integration of the hardware and software components here, and we continue to feel very positive about the impact this IP device for the home will have on our digital TV and broadband business. It's also worth pointing out that we have had a good reception from the industry and a number of other European and US operators who are actually interested in what we are doing, and how we are creating this next generation device and user experience.

We've also been making good progress on a number of wireless initiatives. As we have discussed in the past, we're either evaluating or taking advantage of mobile opportunities in a handful of markets, and doing so in a very efficient and prudent manner. Three projects that you should be aware of are good examples of that. Beginning with Belgium, where Telenet has demonstrated very good early success, with its MVNO arrangement taking substantial market share of new mobile customers since the fourth quarter of last year. Telenet is now up to 170,000 post paid subscribers, and is focused on driving higher usage and RPU's supported by a very strong brand, a newly acquired retail presence, and the launch of a mobile data product in the second half of this year.

In Holland, as you know, we have secured 40 megahertz of 3G spectrum from an extremely low price, or for an extremely low price. And in cooperation with the other cable operator in Holland, Ziggo. And our plans here are still developing, but the spectrum is an important asset. It provides us with strategic optionality in this market, which is an important piece for us going forward.

And in Chile, we have decided to move forward on a build strategy which leverages VTR's large geographic footprint and network, extremely strong brand, and market share position in video, voice and broadband. We are not disclosing specific numbers but suffice it to say that this will be an extremely accretive investment, given synergies with our existing business, with a relatively short funding period and a quick pay back.

As usual, our list of M&A opportunities, particularly in Europe, is rich and interesting. There is nothing to highlight today but we do feel like we have really clarified our approach to consolidation and rebalancing, and look forward to continue to execute on that strategy.

And lastly, you can expect us to remain focused on deploying a prudent amount of capital towards stock repurchases. So I will just say before handing it over to Bernie, we feel very good about our operating results, especially in our large European countries, western European countries. Our balance sheet and liquidity position are strong. And we remain confident in our ability to take advantage of strategic growth opportunities, be they M&A or new products and services, in a disciplined and accretive manner.

Bernie?

Thanks, Mike, and good morning, everyone, or afternoon, wherever you are at. If you turn to slide 12, it summarizes our first half 2010 revenue and OCF results as compared to the first half of 2009. We reported year to date revenue in OCF of $4.4 billion and $2 billion increases over the prior year six-month period of 24% and 26%. Our reported growth was helped by the inclusion of Unity in the 2010 period for roughly five months, which contributed $511 million of revenue and $289 million of OCF for that period.

Remaining growth was attributable to a combination of organic growth and a positive impact from foreign exchange movements as a favorable FX comparison in Q1 outweighed the negative comparison in Q2. On a rebased basis after adjusting for both FX and M&A, we generated 4% rebased revenue growth for the year to date period. This growth was driven by continued organic growth from all three of our core products, with broadband growing the fastest. Adjusting for FX and excluding Germany, we experienced RPU per customer growth of approximately 6% for the six months, due in part to higher take-up of our double and triple play bundles. From an OCF perspective, we generated 5% rebased OCF growth for the six months ended June 30, modestly higher than our rebased revenue growth over that same period last year.

Our OCF growth was due largely to the contribution from our three largest markets, Belgium, Germany and the Netherlands. And margins for the six months increased 60 basis points, directly related to the inclusion of Unity Media, which has a system level OCF margin of 56.5% for the period that we've consolidated on.

If you turn to the next slide, this breaks out our results for the three months ended June 30, 2010. In total we generated $2.2 billion of revenue and $985 million of OCF, reflecting 5% rebased growth for both metrics as compared to Q2 2009. Our European distribution business realized revenue in OCF of $1.7 billion and $848 million, respectively, with our European OCF accounting for over 85% of LGI's total consolidated OCF.

In terms of specific operations, Telenet in Belgium posted 8% rebased revenue and OCF growth in Q2, achieving a 51% OCF margin on the continued growth and advanced service RGU's, and a healthy 11% increase in RPU per customer. Meanwhile, our core European operation, UPC Broadband, posted $1.3 billion in revenue and $639 million of OCF, reflecting rebased growth of 3% on revenue and 2% on OCF.

In the quarter, the stand out performance for UCF growth were Germany, Poland and the Netherlands, with our Dutch operation generating 7% OCF growth, its best quarter in a year. This growth was largely offset by our Central and Eastern European operations, which declined 4% in Q2 due largely to our DTH operations, which we are centralizing in Luxembourg, as well as our operations in Hungary and Romania which continue to face significant competition.

In addition, our Swiss operation had negative OCF growth of 3% in the quarter, which dragged down OCF growth for UPC. Chile posted 4% rebased revenue and 7% rebased OCF growth, clearly recovering from the February earthquake. On the other hand, Australia realized 6% revenue growth but flat OCF growth in the quarter due to higher programming fees.

The next two slides detail our improving consolidated and western European rebased revenue growth rates. Slide 15 shows in the first two quarters of 2010 sequentially higher rebased revenue growth compared to the end of last year. Specifically in Western Europe, we posted 4.7% rebased growth in Q2, compared to 4.1% rebased growth in Q1 and 3.1% growth in the fourth quarter of last year. Q2 strengthened sequentially relative to Q1 as a result of a recovering Chile, as well as slightly higher growth at UPC Broadband excluding Germany.

If you go to slide 15, it shows the last five quarters of rebased revenue of our six western European countries. The bar shows western Europe, excluding Belgium and Germany, on the bottom in grey, and then we add the incremental contributions from Belgium in blue and Germany in yellow to complete our overall western European growth rates. To put it in context, our western European cable operations accounted for two-thirds of our Q2 consolidated revenue. So it is our largest regional operation by far.

The two key take-aways from this slide are that UPC, the grey bar, has continued to show improved revenue performance since early 2009, led largely by the Netherlands and Ireland, and Germany and Belgium are each additives to UPC's rebased revenue growth. Overall we feel good about this performance and remain focused on driving top line growth.

If you go to the next slide, the charts depict our CapEX and free cash flow. We incurred CapEX of $434 million and $839 million for the three and the six months ended June 30, 2010. This translates to 20% of revenue in Q2 and 19% of revenue for the year to date period, which compares favorably to our CapEX as a percentage of revenue of 23% and 24% for the three and the six months ended June 30, 2009.

The overall reduction in CapEX as a percentage of revenues is attributable to higher revenue and relatively flat CapEX. Our CapEX remained flat as compared to the corresponding prior year periods, as the increase associated with the inclusion of Unity Media's capital expenditures during the 2010 periods was largely offset by lower CapEX within our customer promise equipment, and upgrade and rebuild categories. On a reporting segment basis, the largest contributor to our reduced CapEX level has been UPC Broadband, with CapEX as a percentage of revenue down from 25% to 21% year to date. In terms of our CapEX as a percentage of revenue for the second half of 2010, we expect it will be higher as compared to our first half results due to phasing of certain projects including the start of our 3G build in Chile.

If you look at the chart on the right, we realized adjusted free cash flow of $358 million for the six month 2010 period, consisting of $296 million in Q1 and $62 million in Q2. As we did in Q1, we are adjusting our reported free cash flow for extraordinary costs associated with our transactions in Japan and Germany.

The six months are $358 million of adjusted free cash flow reflects a significant improvement over the respective 2009 period. This is a good result considering that we have significantly higher combined cash, interest and derivatives relating to our debt resulting from our acquisition financing of Unity Media, and over $10 billion of debt extensions in the last 18 months. As it pertains to the tax payments stemming from J:COM, we expect that it will still total $225 million to $300 million in 2010, including $126 million paid in the second quarter, as well as second half payments of approximately $100 million to $175 million.

If you turn to the balance sheet at June 30, I'm on slide 17 now, we reported $20.4 billion of gross debt including capital leases. This total reflects a decline of approximately $1.4 billion from March 31, due largely to translation of our non-US dollar denominated borrowings which decreased as a result of the strengthening US dollar during the quarter. Our adjusted leverage ratio stood at 4.9 times gross, and 4 times net, after excluding the roughly $1 billion loan backed by shares we own in Sumitomo.

We continue to extend our debt maturities with over $1.6 billion extended this year, and are currently in the market with a transaction at Telenet to extend maturities. In terms of debt repayment, only 4% is due over the next 2.5 years, and over 75% of our total debt is due in 2015 and beyond. And finally, our weighted average cost to debt capital, including derivatives on our $20 plus billion of debt, is roughly 7.6%.

Our liquidity position as seen on the left hand chart remains strong. At Q2 we had $4.8 billion of total consolidated liquidity consisting of $2.6 billion of corporate cash, $900 million of cash at our operating subs, and $1.3 billion of borrowing capacity under our facilities subject to covenant compliance. The graph on the right details our repurchase activity this year through June as compared to the full year in 2009. A couple things to quickly highlight, our repurchase activity has clearly accelerated as we bought back $577 million of stock this year as compared to $406 million for all of 2009. Through June 30 we repurchased 22 million common shares and we had approximately 210 million of availability at the beginning of July under our authorized program. Since inception in 2005, we have now bought back $7 billion of our equity. In addition to stock repurchases, we've also repurchased approximately 34% of our EUR500 million UGC convert in the last two years, including EUR71 million or $87 million principal amount in Q2.

So, if you go to the last slide, in summary we feel good about our Q2 performance, particularly in our larger markets, as Mike talked about, the Netherlands, Belgium and Germany, and we're seeing good demand for our next generation broadband and digital TV services which has underpinned our improving revenue growth. We continue to be on track to achieve our full year guidance targets set out earlier this year. We remain committed to our equity, and are well capitalized to continue our stock buybacks, and remain opportunistic on the M&A front.

Finally, we feel very good about our Fall campaigns, which include simplified bundles in several markets which should help us drive faster subgrowth in the second half, especially Q4.

So with that, operator, I will open it up for questions.

Thank you. The question and answer session will be conducted electronically. (Operator Instructions) If you would like to ask a question, please do so by pressing the star or asterisk key, followed by the digit one, on your touch tone telephone. In order to accommodate everyone, we request that you ask one question with one follow-up, if needed. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pause for just a moment to give everyone an opportunity to signal for questions. Our first question from Jeff Wlodarczak with Pivotal Research Group.

Good morning, guys. I was hoping to get some more color on Switzerland and Austria. Continue to have choppy results there in those markets. When do you expect to see a turn? Thanks.

Thanks, Jeff. I'll kick it off and let Gene chime in here. I mean, Switzerland for us is -- I think we have spoken in the past -- is clearly in the mode of being turned around. By that, I mean, we have spent a considerable amount of time in the first half of this year and a bit of last year putting in place a new management team, spending a fair amount of time and resources on a customer care platform. We are in the mist of rebranding exercise. We have relaunched the digital TV product, we now, as of May and June, have DOCSIS 3.0 launched in the market place. We have a rate increase that's kicking in the second half of the year.

So we have a number of really positive things that quite frankly just aren't visible in the first half of the year, but we expect to see kick in the second half of the year across all the fronts, Not the least of which is the bundle, which is relatively new for Switzerland and now powered by 3.0 broadband services. So we have high expectations for Switzerland in the second half of this year. You know, we spend a considerable amount of time, as you can imagine internally as a management team, focused on that particular market and feel like we are doing all the things that are necessary and all the things that will ultimately make a difference in that very large country for us.

Austria is a different story. Austria has always been for us a low growth high free cash flow asset in the sense that it has, you know, it's a relatively competitive market on the broadband front. We're relatively mature on video and it is extremely profitable from the point of view of free cash flow and EBITDA. And we are still looking at the benefits of the possibilities of German speaking content and having that in the cluster at this point still makes a great amount of sense. Do you want to add anything to those two things, Gene?

With respect to Cablecom, I would just reinforce what you have said. I think at this point, we have seen good signs that Cablecom is about to turn the corner. Specifically, we've had strong net RG performance year on year, although weaker than budget. And that was largely due to an aggressive assumption with respect to reduction in churn. We've experienced in terms of our three play net adds the best performance since we've had since going back to Q2 2008. We have also seen a very strong performance in our D TV and telephone growth. That's largely driven by the introduction of new low end telephone products and bundles. In terms of customer satisfaction which has been a problem as you know for some period of time. In Switzerland, we have a metric called a net promoter score. That's simple -- it's simply a metric to gauge customer satisfaction. You simply ask a customer if he would recommend the service to a friend and we've seen 25% improvement there between Q3 '09 and Q1 '10. We have rolled out Euro DOCSIS as Mike has said to a large part of the footprint at this point. We have introduced a full line of Euro DOCSIS 3.0 products that are beginning to sell in at a good rate and I think what's representative of our confidence that the business is changing is that we've restarted rebranding to UPC and we wouldn't do that unless we felt comfortable that the system was tracking properly. I think at this point -- we are at that tipping point and the question is it next month, or is it two or three months from now but I think we are looking forward to a solid fall.

Thanks, Gene.

That's good to hear. If I could ask one follow up, Mike. Your digital cable penetration is 40% or just over 40% right now, what are your thoughts around where that penetration will reasonably get to and do you envision going all digital?

Well we have not, at this point, made a decision about going all digital. I think the analogue product in our market actually has some great value to us in the context of providing an inexpensive, second or third or fourth TV outlet for folks today without requiring a digital box. Now it's only got 25 to 30 channels on it so it's not a huge valuable product. But It does have some benefit to us. In the end, you know, we have spent a fair amount of time in the last few weeks looking at our band width needs and our capacity needs over the next five years. And the punt involved on the line he can address it. The punch line is, because we have such a small analog lineup today in most of our countries, because we are 860 megahertz, that our transition to either all IP or all digital is a much more smooth transition. And that we don't foresee massive CAPEX in order to get to 400 or 800 megabits of bandwidth on the broadband or additional digital or VOD on the digital side of things for some time. And we feel fortunate and we're pretty lucky in that regard, but we're prepared if and when it is required at this stage. No major rebuilds, no significant CAPEX, at least not in the next several years anyway, that you allow us to take advantage of the products and services we're trying to sell. Do you want to add anything to that Balan?

No, that was good, Mike. No need to spend CAPEX now.

Also, there's not a demand for digital in some areas. So you almost have to look at this thing on a market by market basis. Take an example of (inaudible) media in Germany, we have a lot of housing association contracts there. And, in some instances, a number of those housing associations may want to stay with an analogue line up so I think it's more of a market to market approach.

Yes, thanks, Jeff.

Alright, and our next question goes to Jason Bazonet with Citi.

I just have one high level question and one housekeeping item. I think in western Europe, the new Germany asset that you acquired is about 56% of your homes past or so. The data subs in the market are a lot lower, about half that level, maybe a little less and the data trends I think were nominally flat, sort of sequentially. I was wondering if you can elaborate a little bit on that. Do you sort of view that as the single biggest opportunity if you had to isolate one, you know, RGU in a particular country in terms of growth going forward and can you provide a little bit of color in terms of why the penetration rates, at least to date, have been so anemic given how high I would think the disposable income is in that country?

And your second question or is that?

Yes, the second one is just on your buy back in your presentation and in the 10Q it indicated that you did about $577 million of buy backs but in the cash flow statement it was about twenty-some odd million less. I didn't know what the source of the discrepancy was.

Well I'll let Bernie or those guys work on that while we answer the first question. I think, Jason, as you may recall, one of the main reasons for us to be so excited about the German market is the fact that broadband penetration there is so much lower than the rest of western Europe, quite frankly even eastern Europe in some cases. The history of the broadband business in Germany is not that complicated. Telecom has done a good job in the past of keeping the unbundled local loop bundled, if you understand me, just by pricing structures and regulatory challenges for ramping competition. And, to some extent, we are now in the position with our faster broadband speeds than they have and 3.0 roll out to really grab a huge percentage of market share. In fact, we estimate in areas where we're most aggressive and have all the products and services we're getting anywhere from 70% to 100% of net gain in the broadband business.

So at 8% penetration compared to say 30% for the rest of Europe for us, it is obviously a growth opportunity. We did 43,000 net adds in the second quarter just in that one market. And you know, that compares to 34,000 in the first quarter of this year. Is that the right number? It's a pretty good clip. If we continue that sort of pace, you're going to see nice growth in the broadband business. That's really, it's almost as simple as that. You are talking about a market that has huge, raw organic demand. That has the income level to support it and we're out there selling very, very cost effective bundles that are profitable for us and makes sense for them, and they're buying it by the droves. So, for us that is -- was and remains one of the primary reasons that this business opportunity looks so good and numbers seem to bare that out.

Okay, thank you.

Mike, on the second question, it's really settlement date versus trade date. There's accrual accounting, "T" plus three, and you get the difference between what comes in at the quarter and the activity at the end of the quarter, so that's really the difference.

Okay, thank you very much.

(Operator Instructions) And, again, to ask a question you may press the star followed by the digit one. We'll take our next question from Ethan Lacy with Banc of America Merrill Lynch.

Good morning. How you guys doing? I guess one question I had was when we think about buy backs and sort of looking at what you did in the quarter, can you give us a sense of your appetite? Is there any reason to assume that going forward in the second half here, it's not going to be as great as it was in the second quarter and how should we balance that with our relative appetite for M&A?

That's a question we get every quarter and we're going to sound very boring here by giving you the same answer every quarter. We look at it in a relatively dynamic way. Meaning that we are looking -- we look opportunistically acquiring the stock at a price and quantums that work best for shareholders. You can expect that there's a bid in the market everyday, on some level, at some price, but we're doing it in what we believe is an efficient manner and I think that benefits those of us who stick around. It's hard for me to predict amounts and timing. That's not how we do it and I would like to be -- give you more information but I can't. In terms of how we balance it off against M&A, it remains the same. We're pretty religious of how we look at our M&A opportunities, in terms of whether or not they are accretive to the overall return we see in our business, in our stock and how accretive. And whether there are other strategic issues we weigh against those or combine with that analysis. We are very disciplined about that and any transaction we do, of course, has to run through the gauntlet, if you will, how it compares to just doing nothing and continuing down the path of levered equity growth and buy backs. The pipeline, as I mentioned, is always evolving and what you can expect though is we are quite pleased with our ability to concentrate in European and western European regions. We feel like we have cracked the code, if you will, to regaining the growth we've talked about for so long in western Europe. And we'd like to see that continue and, to the extent we can consolidate, we will rebalance or rationalize in and around those areas, we're going to try and do it. But only, as I say, if it makes sense on a returns basis. So, really, it's the same approach we've taken for quite some time.

Okay, fair enough. And, just real quick a follow-up on Chile. As far as the build out in that market are you going to go it on your own or is there any intention to potentially to partner up with a power player?

I'm going to be very cautious here and it is early stage and we don't want to get too far down the road in disclosure. But, what I'll tell you is, all of those options are certainly being considered and you can expect that we will proceed with this type of project in the most capital efficient manner imaginable. So that's maybe a roundabout way of saying you should expect some of that sort of thing.

Thank you.

Maybe that's what I just said. Okay, next question.

Alright, we'll take our next question from James Ratcliffe with Barclays Capital.

Good morning, guys. Couple questions. First of all, can you talk about the CAPEX continues to come down as a percentage of revenue but you are still running above the levels of some of your counterparts in the US. Can you talk about how much of that CAPEX, at this point, is still the unity build out or any remaining eastern European rebuilds and the like, and when we can expect to see those done?

I will let Charlie or Bernie address the specifics of the CAPEX, how it layers in. But one thing, James, I got to remind you of, is that the reason our percentage figure might look higher than our peers, is remember the RPU that we are generating out of each home is less. We are building the same equipment. We are building the same networks and using the same equipment. When you're generating roughly half the RPU, you're going to see a ratio that differs. When we look at it on a per home pass or per subscriber basis we spend anywhere from 25% to 50% less than our US peers. I think we should get some credit for that. Regardless, your point remains the same as a percentage of our revenues it appears to be higher. But, not in every market. Places like Holland, we're down to low teens. We think we will continue over the long haul to turn in that direction. What do you want to talk about Unity versus on rebuild? I think typically the network component of our capital spend has been 20% to 25% of our overall spend and, as we have been focused on pushing the two-way upgrades, particularly in central and eastern Europe on the last couple of years. And as we near the end of that upgrade cycle, we would expect that category to fall as a percentage of sales. For example, here in the second quarter if you look at line extensions and upgrade and rebuild, it was about 16% of our overall capital spend. And, going forward, I think we've got the vast majority -- over 90% of our plant is upgraded. We've got a little bit left to go in Switzerland and Ireland and to a lesser extent, Germany.

Every time we do these CAPEX spends we do look at the return on capital. And we still think it's a very attractive, particularly the upgrades, (Inaudible) in Germany. So, once they're maybe able to increase in Germany, then, we are talking about a high return for the CAPEX.

That's right.

We will take our next question from Hugh McCaffrey with Goldman Sachs.

Good afternoon, guys. I just have two questions. Firstly, you have a clear speed and quality advantage versus your incumbent competitors across Europe. How do you think about pricing versus market share gains in your European markets. And secondly, can you give us some perspective on the RPU increase [stroke-churn] decrease when a subscriber moves to HD? Thanks.

Sure. Gene, on the HD I'm sure you've got some numbers handy on RPU increases and churn decrease. But, I mentioned earlier on that we are generating EURO5 to EURO10 per customer per month on an HD package. So, that's the relative, depending on the market place of course -- that's the relative increase we are seeing on the video RPU, which in our digital homes, on average, is in the $25 to $30 range out of a digital home versus $12 to $15 on an analogue home. So, we are, in general, revenue when we put a digital sub in. And depending on what the penetration of HD is, we are getting, obviously, a fair portion of that from HD and DVR functionality. Clearly, we are seeing less churn the more people buy. Maybe Gene can drum some numbers up here. Off the top of my head, I think it was 50% less churn, especially in the bundle.

On the speed of quality point, it is a tricky one. It is market by market. So, we are definitely not trying to be price leaders. And if anything, if you take Holland as an example, one of the biggest benefits we have seen from our 3.0 rollout there is not just the fact that we are reclaiming market share from DSL, but it's also that we have seen, for the first time, stability in the RPU of our newly acquired subs. Whereas historically, we were generally experiencing 5% to 10% annual declines in RPU out of our broadband base, we now actually are seeing new customers being added at a constant RPU, and perhaps, over time, maybe even a slightly increased RPU as more and more customers gravitate to these fiber power tiers. And so, I wouldn't say that we are forecasting in the long run massive increases in RPU. We don't need to see increases in broadband RPU. Our volume is stable and consistent. Go back and track the last 12, 16 quarters. You will see that we generally add almost the same, within a range, a constant level of broadband subs every quarter. What we need to do is see some RPU stability, and the 3.0 product is absolutely having that impact.

That's very helpful. Thank you.

Our next question from Ben Swinburne with Morgan Stanley.

Good morning guys. It is actually Dave Gober. Just wanted to hit on a couple of our other big markets. Looking at Germany and to circle back a little bit on Switzerland. In Germany, clearly you are seeing synergies from the acquisition there, and subscriber additions continue to plug along particularly on broadband. It seemed like revenue growth was flowing a little bit -- just curious if there's anything there in terms of timing of rate increases or anything. And I'm particularly looking at the Unity cable business. I know there are some noise in the numbers with arena. And on Switzerland, particularly given the rebranding and the launching of DOCSIS 3.0, it seems there, as well, that video sub losses are improving. Just curious in the back half if we can see an improvement in broadband sub ads akin to what you are seeing in Holland?

Gene, you want take those two?

Yes, with respect to Germany, you are right. We are clearly seeing the synergies and sub additions come through as was in the business case. In fact, they're exceeding our expectations at this point. With respect to revenue, there was a rate increase that was budgeted across the CATV base for Germany. But, we were unable to realize a portion of that due to contractual issues with large MDUs. So, that is a one off situation. I wouldn't think that would impact revenues going forward. With respect to Cablecom, -- what was your question on Cablecom, please?

The question was just looking at the deployment of DOCSIS 3.0 and some of the rebranding, I guess are the -- one part would be are the packages similar to what you are deploying in Holland, and could you see a similar improvement in the broadband business, in terms of additions there?

We would anticipate that. Because, as you know, we accelerated the rollout EuroDOCSIS 3.0 across our boundaries, including Cablecom. And as we have done that, we have rolled out bundling for the first time in Cablecom. In the past, products have been sold on a stand-alone basis. And, it wasn't until May or June that we rolled the first bundles out into the market which included the new 3.0 product, which should begin having a positive impact when we launch the fall campaigns in which we will even be more aggressive, at that point, in terms of our fall offers.

To add, on top of the fact that with the CHF0.70 rate increase kicking in from June 1, as I outset at the outset, we do expect the second half of the year to look better. It is not going to be 180-degree turn around, but it ought to be trend back towards where it has been operating for so long. I think the main point here is we have all the issues identified. We think we have taken very constructive and appropriate steps to address every single one of them, and we now believe the [patience] getting up stable.

The dream deal that has been so successful for us in the Netherlands is we are looking at the cookie cuttering that across a number of our properties and Cablecom is one of those that we will rollout something similar in the fall. There we have at the present time the best pricing and the best product in the market. So, I think it is just a matter of time before we start selling in strongly again.

Next question?

Next question comes from Frank Knowles with New Street Research.

I just had a question on Germany. You mentioned in your slides how important you thought HD content was, content, content and content was the drivers. Just wondered where you stand with negotiations with Sky in terms of carriage. I know they have done deals with some of the smaller cable operators and whether you thought that a deal with them is imminent for you, and whether that can be a boost in Germany in the second half?

Well, as you can imagine, we are in active discussions with lots of program suppliers in Germany including Sky. I'm certain that I'm not supposed to be revealing anything confidential about those discussions and I won't. But I can tell you we are -- I'd say we carry about five HD channels in that marketplace. We have only recently rolled the HD box out, but we have been unable to keep demand -- keep supply sufficient to meet demand, I'm told. And that we expect, over the next six to twelve months, to continue to add important HD content to the platform. Certainly, not a capacity issue for us. But with respect to Sky specifically, we are in constructive dialogue with them. We already have, what we view as an acceptable arrangement for distribution of Sky content, both on our box and on our networks. And if we can improve on that for both parties, then we will take advantage of the opportunity to improve on that. But I couldn't handicap it for you. I'll only say that we are working very, very hard.

Okay, so do you think that HD will accelerate in the second half, irrespective of the sky contract in Germany?

I think it is inevitable. Just have we've seen -- if we were on this phone call a year or 18 months ago, we'd have been talking single digit HD channels in Holland and other places, we're now in the 18 to 20 channel range. It is -- a tipping point has been passed. Every broadcaster and all the key programmers are certainly focused on HD content, and we are standing ready with arms open.

That's very helpful. Thank you.

Next question comes from Vijay Singh with Janco Partners.

Yes, hi. Good morning. Just a question for you, Mike, I was wondering if you can talk a little more about the mobile side of the business where you are in discussions with incumbent operators in markets that you don't have spectrum. And it's going to be here in the next couple of quarters where we can perhaps see some diffused fragments from MVNO deals, other than Belgium (Inaudible).

Sure, well I'll just reiterate the earlier comment I made and then get more specific on your question. I don't want people to get worried that somehow they are going to wake up and we're going to be a mobile company. That's not what I'm saying, and I want to make sure everyone understands that our approach to this business is very situational and proceeding at a very deliberate and appropriate pace. Meaning that where we have terrific opportunity, like a Belgium, to take opportunity of a strong brand or geographic reach, we will do it in an efficient and high-capital return manner. There are other countries, Vijay, where we are looking at MVNO deals, that we be believe, with very low up front cost, allow us to expand the brand and the product offering. I won't be specific on the phone, except to say that you should expect certain of those to happen in the second half of the year where we will strike or negotiate MVNO relationships with existing operators to jumpstart a very cost efficient and simple approach to mobile. So, that's accurate. That's our first approach, quite frankly. Our first objective in every market is, can we do it on someone else's network. And, the acquisition spectrum in Holland is really strategic optionality there. We are not chomping at the bit to go and spend a bunch of money to build another network in Holland. But, over the long haul, since we are in that arrangement with the other large cable operator, we do control, between the two of us, 95% of the homes. We'll always reserve that option. But I do believe in the end, our preferred approach is an MVNO arrangement that gives us full access to data and broadband services across that mobile network on economic terms that we can be proud to talk about on calls like this.

Might I add, Mike, that in the last six months we have established a separate wireless group within the UPC broadband operation. We brought in a very experienced person with wireless background, and they have been working with the various countries, and in a couple of situations we are very close to striking at least an initial agreement to move forward, in one manner or another, with MVNO. So, we should see something positive, I think, over the coming months.

Thank you.

We will take our final question today from Matthew Harrigan with Wunderlich Securities.

Good morning. Firstly, you could argue that the [back row] in Czech and Poland is actually, probably stronger than in the US in the longer term, as opposed to someplace like Romania. You did the big Karneval acquisition in Czech a few years ago. I know Aster City was in play in with Mid Europa. Cable bought [Invertonburg] in Germany, which you've been pretty open kimono about your interest. Are you looking pretty actively at those two eastern European markets which you have stand-out potential? And then lastly, the multimedia home gateway that you are doing Samsung and Intel, and I think one other company. Is that really sort of a brand differentiator at the high end or is that something that you really see translating into a really concrete opportunity at the end of the day? I know the next-gen TiVo is a little bit different animal, but a couple MSOs have been talking about that pretty actively, and you've been a little bit reticent in talking about the incremental capability and how it could really juice your business up again.

Well, I can tell you, we were very, very, on the multimedia home gateway, we looked very closely at the TiVo solution and viewed that as taking one quarter of a step. This is a full step, maybe two steps. And I'm happy anytime that -- for you to pop in, and Balan, and I and others will sit down and take you through it.

But as we have tried to indicate in the past, this is something our industry has talked about for a very, very long time and to our knowledge nobody has delivered including TiVo. This isn't just a slightly better user interface. It will be an entirely different approach to the user interface and the user experience. But more than that, this is about creating -- putting a device in the home that has all the bells and whistles that your PC is having today, in terms of a very, very fast processor, multiple wi-fi chips, six tuners, and importantly, the ability to communicate with your IP devices. So that while you are sitting in your TV, you can move content to your iPad or to other TVs in your house on an IP basis. So, this is a step change it for our industry. This isn't your father's cable set top box. This is your ten-year-old's set top box. And from that point of view, it is everything we are intending it to be from our perspective and we will have to do a better job of making that clear to the street. But it's certainly well-known in the industry, and because we've got nine to 10 million homes that don't have any boxes in the house, we're uniquely positioned with scale, we believe, to take advantage of this sort of innovation. And, it does stand apart from any other cable operators are spending the vast majority of their time on.

In terms of acquisitions, Poland and Czech have been great performers, 11% and 8% EBITDA growth year to date, and Poland, of course, has just been stand-out for quarter after quarter. In those two markets we're always on the lookout for interesting opportunities. Poland certainly remains a very appropriate and obvious consolidation market where we believe over time, there will be future consolidation among satellite and cable, yet we continue to grow there aggressively. And in Czech, there is some interesting opportunities as well to round out the network and expand our footprint a bit. That would really be it in those two markets. And even if we were successful, those wouldn't be huge transactions. Those would be incremental transactions that I would describe as [infill] transactions that support and strengthen the platform.

Thanks, Mike.

I think that's our last question. We appreciate everybody getting on the call. We hope that everyone of you will do something fun in August, take some time off. And we do look forward to talking to you after our third quarter results, and enjoy the rest of your summer. Thank you very much.

Ladies and gentleman, this concludes Liberty Global's investor call. As a reminder, a replay of the call will 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.