Liberty Global Ltd (LBTYA) 2010 Q4 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 under the Investor Relations section of Liberty Global's website at www.lgi.com. Following today's formal presentation, instructions will be given for a question-and-answer session. As a reminder, this conference call is being recorded on this date, February 25, 2011.

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

Thank you. Good morning, everybody, or good afternoon.Let me just take a second to tell you who's on the call with us, and who you may hear from today in Q&A. We have our two co-CFOs, Bernie Dvorak and Charlie Bracken, of course; Diederik Karsten, our new MD for European Broadband Operations is on the call; Balan Nair, our CTO; Shane O'Neill; our Chief Strategy Officer and head of Chello; Mauricio Ramos, who runs Chile for us; and of course, Rick Westerman from IR and Communications. We're going to do a quick comment from the operator, and then we'll get going.

Thank you. Page 2 of the slides details the Company's Safe Harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the Company's expectation with respect to its outlook for 2011 and future growth prospects, 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 expectation, or in conditions on which any such statement is based.

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

Thank you. So our year-end calls are usually a bit longer. That's why we're going to get right into it.Our agenda will be similar to prior calls -- I'll kick it off with some highlights, Bernie will run through the numbers, and we'll get to your questions. I'm going to start with a quick recap of 2010 on slide 4. We're obviously proud of many achievements this past year, but as a management team, we're probably most pleased with the continued improvement in operating performance.

I'll dig into the numbers a bit more in a few slides. But for the year, we added nearly 860,000 net new RGUs, 37% of those in the fourth quarter alone.Those numbers are up significantly from 2009, and while they were helped by the addition of Germany, it's important to note that our core western European operations posted their best year since 2006. That momentum fueled rebased revenue and operating cash flow growth of 5% and 6% for the year, respectively, both of which were right in line with our guidance.

CapEx as a percentage of revenue was down again for the fifth straight year to just below 20%, which together with strong operating cash flow growth resulted in a major increase in free cash flow, which we'll show you.

On the M&A front, this was nothing short of a transformational year for us. We exited Japan on very attractive terms. We entered Germany, which is turning out to be an investment that is even better than we expected. Today, over 80% of our revenue comes from Europe, and roughly 60% from four western European markets -- the Netherlands, Belgium, Germany and Switzerland. So we're squarely focused on this region. We also announced an important acquisition in Poland, which continues to be one of our fastest growing markets, and the pipeline continues to be active.

I'm extremely excited about some recent organizational changes that bring new leadership to our European operation with Diederik Karsten running our Broadband Operations there, and Balan Nair directly overseeing our European network, technology and IT areas. These guys, as many of you know, are both terrific executives. And we recently promoted several people into new critical senior roles. So I really think we're hitting on all cylinders as a management team.

Finally, 2010 was another busy year for us on the capital structure. We continued to proactively extend our debt maturities. Today, approximately 85% of our debt is due 2016 or beyond, with an average life of 7 years. And our latest refinancings were completed at rates below our average cost of debt. Leverage still sits within our range of 4 to 5 times. We ended the year with over $5 billion of liquidity, $3 billion of which sits at the Parent Company. Just in case anyone was worried about our commitment to repurchasing our own stock, you will have seen this morning we announced a new $1 billion buyback authorization; that shouldn't surprise anyone.

For those who want to see the numbers on one page, slide 5 provides a good snapshot of our key operational and financial metrics for the year. It's also a pretty good picture in my view. We ended 2010 with 27.8 million RGUs; that's up more than 30% year-over-year. That increase included the acquisition of Germany, of course, as well as the organic net adds I referenced of 860,000, our best year since 2007.

Our reported revenue of $9 billion represents a $1.5 billion increase over 2009. Again, the results of the German acquisition and solid rebased growth. Operating cash flow was $4.1 billion; now that's reflecting our highest operating cash flow margin ever of 45.6%, and I believe demonstrating that our business is still scaling. As I mentioned, CapEx as a percentage of revenue was down below 20% compared to over 22% in 2009, and adjusted free cash flow was $678 million; that's up more than 80% from the prior year, and ahead of our own internal forecast, given a very strong fourth quarter.

Slide 6 is our typical breakout of subscriber growth, showing quarterly net adds across our core products for the last five periods, including our fourth quarter, which is highlighted in green. I think the message here should be pretty clear, we have great momentum in every product category. First of all, if you look at the top-left chart, you can see that we continue to deliver steady growth in Broadband, with a record fourth quarter at just under 200,000 net adds. That uptick was driven by three things -- the addition of Germany, the success of our DOCSIS 3.0 or Fiber Power Bundles, and terrific improvement in markets like the Netherlands. On the top right, you can see that our Fixed Voice business continues to benefit from the halo effect of faster Broadband speeds. We had 157,000 organic adds in the quarter, and 544,000 for the year; that's our best year ever in Voice.

Perhaps even more importantly, our success with these products is helping us retain more Video subs. The bottom-left chart shows our Video losses coming down every quarter last year, and totaling only 37,000 in the fourth quarter. That 37,000 includes Germany, which of course we didn't own in the prior fourth quarter. If you excluded Germany, our net adds would have been down to 25,000; that's the lowest level in three years.

Sticking with the Video theme, slide 7 highlights our success in Digital Television, which is becoming a major driver of revenue growth for us. If you look at the green bar on the far right, you can see that we ended 2010 with about 6.8 million Digital Cable subscribers, up from 4.3 million a year ago, and up from 1.9 million at the beginning of 2008. Which means we've migrated 44% of our analog TV subscribers to a Digital TV service, and in the process, have been roughly doubling the average video ARPU out of these homes. Incidentally, that penetration number was 5% five years ago; so we've come a long way.

The orange part of the bar shows our HD DVR subscribers, which totaled 3 million at the end of 2010, up from 2 million a year ago. Today, over 40% of our Digital Cable subs take an HD DVR or combined service, each of which are contributing to our ARPU lift. Here's the kicker from our perspective -- despite our success, averaging over 1 million Digital Cable adds every year, we still have 8.6 million analog TV homes yet to convert. That's a pretty good pipeline of built-in growth. As you can imagine, we're working very hard to take advantage of that.

Slide 8 provides a bit more color on our Voice and Data growth, and bundling success with our Fiber Power Broadband products. On the left, you can see that Voice and Data net adds were up 31% and 38% last year. At 665,000 net Broadband adds, it was our best Broadband growth year since 2007. Importantly, though, we reduced Internet churn across eight European countries where we had 3.0 launched last year, and we were able to generate significantly higher market shares on our footprint in most of those countries. Voice, of course, is just ramped along with Broadband activity.

On the right-hand side of the slide, you can see how Bundles are driving growth. We ended 2010 with 6.4 million combined Double- and Triple-Play customers; that represents about 36% of our total customer base. That's up from 5.1 million a year ago. I think the important point though is the vast majority of that growth is coming from our Triple-Play offers, which were up 40% last year. Every market we operate in has a knock-out Triple-Play offer supported by the fastest Broadband speeds available. These Triple-Play packages generally represent nearly half of all of our sales, and around 80% of our gross adds; so that's a great trend.

The other real story line here is the resurgence of western European growth, which is illustrated pretty well on slide 9. The chart at the far left breaks down the over 2.5-fold increase in western European net adds in 2010. The orange part of the bar is Germany, which had a fantastic year, but of course, we didn't own in 2009. The green block in the center represents the rest of our core western European markets, excluding Belgium, so that would be Holland, Ireland, Switzerland, Austria which together grew their net add activity 3.5-fold from 80,000 to over 280,000. Certainly the improvement in Video losses was a big factor, but if you look specifically at Voice and Data in the middle of the page, those same markets were up 74%, helping deliver a 2-fold increase in Voice and Data net adds. The same goes for Triple-Play subs on the right.

I think the main point here is that two main engines are fueling our growth -- the addition of Germany, which is our largest and fastest-growing market today, and an acceleration of growth in our other core western European markets. Certainly no market represents that turn-around better than the Netherlands, which is highlighted on slide 10. Since the launch of our Dream Deal Bundles, as we call them, powered by our 3.0 Broadband speeds in the fall of 2010, we've generated five straight quarters of improved net-add growth versus prior periods. The chart on the left shows how that improvement has been realized in all of our product areas. So Broadband, Voice and Digital Cable, which together were up 67% in 2010 to 357,000 organic net adds.

Broadband, which is the yellow part of the bar, accelerated from 60,000 to over 100,000 last year; and remember, this is just in our one-third of the country. KPN, our primary national competitor, had flat net adds in Data over the entire marketplace, implying a pretty massive market share shift to us. Holland had their best Digital TV growth year since 2006. That was the year we actually mailed out boxes to everyone to kick-start the rollout, with 143,000 net adds and over 60% of Digital subs taking in HD and DVR or both. While we don't show it here, analog sub losses in Holland improved as well, declining by 36%. All of this subscriber activity helped drive very strong financial performance in Holland, as the chart on the right shows. Rebased revenue growth jumped from 2% to 7% for the full year, and OCF growth increased from 4% to 7%, generating margins of 58%. So we're keenly focused on trying to duplicate this type of success in other core European markets, and we're starting to see very encouraging results.

I'll end my section here with a quick review of what we think are five key value drivers for us in 2011, many of which I've touched on already, like for example, our emphasis on Digital TV, subscriber and revenue growth, which to us means continuing to convert a sizable number of our 8.6 million analog homes to our Digital platform. 70% of those homes are in four big markets -- Germany, Switzerland, Belgium and Holland. With HD picking up steam, the benefits of DVR is becoming universally appreciated. And our new multi-media home gateway, around the corner, we feel very positive about the upside in this business.

Second driver is, of course, pushing our current Broadband speed advantage over telcos with our Fiber Power Bundles. Each of our major telco competitors have announced slow and, I would describe them as, cautious Fiber rollout plans, leaving a large pool of DSL subs to pick up. Naturally, our marketing campaigns are increasingly focused on speed comparisons versus DSL, and demonstrating our superiority with core products in the 25- to 50-megabit range, and then of course, flagship products at 100 to 128 megabit. We've proven the model in Holland, and we're starting to see similar results in Germany, Poland, and other markets.

Our wireless initiatives will pick up steam this year, particularly in Chile, where we'll launch our hybrid MNO MVNO mobile platform in about 12 months. We've talked about the strategic rationale for this investment. Essentially leveraging four key things -- our significant scale in Chile, our nationwide footprint, our brand, and our number one market-share position in Video, Voice and Data. Even though we've paid very little for the spectrum, and have negotiated very favorable tower, vendor and financing deals, the project will impact our reported results initially at the CapEx and OCF level. But the returns look very high, at really conservative penetration assumptions. We believe the business will be meaningfully accretive to our existing Triple-Play opportunity.

Beyond Chile, we're moving ahead with a more capital-light approach in Europe, working towards creating MVNOs where it makes sense. Very little activity to date; we'll keep you posted, of course, but we are getting very attractive proposals from a number of mobile players in our key markets. So, we do not anticipate duplicating a Chile-like investment in Europe, taking a much more situational and capital-light approach.

One of our core strengths, we believe, is operational discipline, especially on the cost and CapEx sides of our business. You can expect more of that in 2011. Our steady state Triple-Play CapEx will be flat to down next year, while reported figures will be somewhat impacted again by the 4G rollout in Chile and certain other strategic initiatives, which will keep total CapEx flat to 2010.

Lastly, we will continue our successful strategy of finding that optimal balance between accretive M&A transactions and share buybacks. We have a pretty good track record, I believe, of rebalancing our footprint from time to time, and we're well capitalized today to evaluate opportunities as they arise. In the meantime, as I said, we've purchased about $1 billion of equity securities last year, and are targeting another $1 billion this year. That's on top of what is now nearly $7.2 billion of total buybacks since mid-2005, representing around 50% of our shares during that time. So we finished 2010 on a very high note, and we have carried that momentum right into 2011. We'll have more to say, of course, when we report our first-quarter numbers, but things are looking very positive. And as always, we appreciate your support, and look forward to your questions.

I'll turn it now over to Bernie.

Great, thanks, Mike. Hello, everyone. Slide 13 shows our fourth-quarter and full-year 2010 results for consolidated revenue and OCF. For Q4 2010, we reported $2.4 billion of revenue, and OCF of $1.1 billion; this equates to reported year-over-year revenue and OCF growth of 18% and 21%, respectively. Similar to the first three quarters of 2010, our reported growth was boosted by the addition of Unity, which generated $329 million of revenue and $188 million of OCF in the quarter.

It's worth noting that OCF in Q4 2010 included approximately $17 million of additional operating expenses as the result of a new revenue tax levied in Hungary that was retroactive to the beginning of 2010. Adjusting for foreign currency, M&A, and the Hungarian tax, our Q4 revenue and OCF results correspond to rebased growth of 5% and 6%. Our reported OCF margin in Q4 was 44.1% as compared to 43% in the fourth quarter of last year. Our fourth-quarter 2010 margin was positively impacted by Unity, but adversely impacted by the Hungarian tax I mentioned a second ago.

Moving to our full-year 2010 results, we increased revenue by 20% or $1.5 billion as compared to 2009, to finish the full year with $9 billion of revenue. Similarly, we grew OCF by 23% or $800 million to $4.1 billion in 2010. As Mike mentioned earlier, these results reflect rebased revenue and OCF growth of 5% and 6%, respectively, and were driven largely by strong performance in western Europe.Our OCF margin of 45.6% in 2010 was an increase of 120 basis points over our 2009 margin of 44.4%, with Germany the main driver of this increase.

If you turn to slide 14, this shows a breakdown of our consolidated results by region. For 2010, our European Cable business generated 5% rebased revenue growth to $7 billion, and 6% rebased OCF growth to $3.6 billion. We'll drill down on a few of the individual markets underlying this performance in a moment, but western Europe in particular was the main driver of our accelerating top line growth.

Our Chilean business, VTR, turned in a solid performance for the year when you consider the earthquake last year and the increasingly competitive marketplace. We generated nearly $800 million of revenue, and $330 million of OCF, which reflects 4% rebased growth on both metrics. Adjusting for both the earthquake and the costs that we incurred in Q4 related to VTRs wireless initiative, OCF growth would have been meaningfully better. Finally, in Australia our DTH business, AUSTAR, generated 5% rebased revenue and OCF growth during the year, with over $650 million in revenue and $225 million of OCF.

Turn to slide 15; this focuses our performance in western Europe. The two bars on the left of each graphic represent rebased results for western Europe for 2009 and 2010, while the three bars on the right highlight our 2010 results for three key markets -- Germany, Belgium, and the Netherlands, which together account for more than half of LGIs overall consolidated OCF. In Germany, Unity Media delivered rebased revenue and OCF growth of 8% and 12% for the 11 months that we consolidated the business last year. This performance was underpinned by over 0.5 million advanced service RGU adds during the year. In Belgium, Telenet produced 7% rebased revenue growth, while rebased OCF rose 11%. Mike already spoke about the Netherlands with 7% rebased top line and OCF growth.

If we move to other markets, our operation in Ireland had a fantastic year. It was actually our highest rebased revenue growth market in 2010 at 11%, while its rebased OCF grew 9%. It's also worth noting that the Triple-Play in this market are seeing real traction. Finally, I'd like to point out improving trends in Switzerland. Although rebased revenue and OCF growth each grew only 1% last year, Cablecom had a strong second half, generating Q4 performance of 2% rebased revenue growth and 6% rebased OCF growth. On the back of Cablecom's fourth-quarter performance, we're optimistic that 2011 will be a better year for us in the Swiss market.

Go to slide 16; this shows our CapEx and free cash flow performance.In terms of our overall capital spend, we had total CapEx of $1.8 billion in 2010, which was approximately 20% of revenue. As you can see from the chart on the left, we've seen a steady reduction from 25% of revenue in 2008 and a 250-basis point improvement from our 2009 results, driven largely by declining capital intensity at our European operations. In particular, our collective European Triple-Play business reduced its CapEx to revenue by 340 basis points to 20.8% from 24.2%, driven in part by lower new build and upgrade costs at UPC Broadband excluding Germany, and lower CPE CapEx at Telenet.

From a product perspective, and excluding Germany, CPE and scalable infrastructure accounted for 60% of our overall spend, as customer equipment and capacity demands reflect this year's strong advanced service RGU additions, the acceleration of HD and DVR subscriptions, and our Pan-European 3.0 rollouts. Our network spend includes new builds, upgrades, and line extensions, which together totaled 20% of CapEx, excluding Unity. We added nearly 700,000 organic new two-way homes passed during 2010, and more importantly, we dramatically ramped our 3.0 deployments across Europe, ending the year with 80% of our European two-way footprint Fiber Power ready.

Our reduction in capital intensity certainly played a role in our adjusted free cash flow growth. As the right-hand chart highlights, we generated $678 million of adjusted free cash flow, which reflects an 80% increase over 2009s adjusted free cash flow of $376 million. As we've been showing all year, our adjusted free cash flow normalizes for, among other items, certain cash outflows associated with our transactions in Japan and Germany. The year-over-year improvement was largely driven by the contribution from Unity Media, and lower CapEx and higher cash provided by operations from our other segments. Our continuing cash provided from operations includes normalized increases of over $500 million in cash, interest, and derivative payments, which reflect a combined impact of our proactive strategy to extend our debt maturities and the debt that we incurred to finance the acquisition of Unity.

Slide 17 illustrates our liquidity position and stock buyback activity. At December 31, we had a consolidated liquidity position north of $5 billion. This consisted of $3.8 billion of consolidated cash and equivalents, and the remaining $1.5 billion represents the maximum borrowing capacity under our credit facilities without regard to covenant-compliance calculations. The breakout of our cash position includes $2.6 billion of cash at LGI and our non-operating subsidiaries, and $1.2 billion of cash at our operating subs, including over $850 million at Telenet. We finished 2010 with adjusted gross and net leverage ratios of 5 times and 4.1 times, respectively, which is at the upper end of our 4 times to 5 times target range.

At December 31, we had reported debt and capital lease obligations of $22.5 billion. After excluding the $1.2 billion loan backed by shares we own in Sumitomo Corp, we had an adjusted total of $21.3 billion. For us, a byproduct of running a levered balance sheet is that we prudently manage the risk associated with the strategy, which involves hedging to match our US dollar- and euro-denominated debt, with the underlying cash flows of our operations, fixing our borrowing rates, and proactively addressing debt maturities. Since early 2009, we've extended the maturity of over $15 billion of our debt. At December 31, our all-in borrowing rate, including derivatives, was 7.7%, which compares to 7.3% at year-end 2009.

In terms of our recent financing activity, we completed transactions at Telenet and AUSTAR in the fourth quarter, and earlier this year we completed two bond issuances in the UPC credit pool, and one in the Telenet credit pool with maturities of approximately 10 years and coupons below 7%. The approximate $2.4 billion in proceeds from these bonds were used to refinance debt, which had maturities between 2013 and 2017. As a result, approximately 90% of our total debt and capital lease obligations are now due in 2015 and beyond, with roughly 10% due over the next four years. So we feel very good about where our balance sheet is today.

Moving to the chart on the right of 17, we remain committed to our repurchase strategy. In 2010, we repurchased $890 million of equity, which is more than double our 2009 activity. If you include the $90 million we spent repurchasing our UGC convert during the year, our activity totaled nearly $1 billion for 2010. So over the last three years, we have invested over $3.5 billion in our equity. As the chart illustrates, our basic shares outstanding have fallen approximately 30%, or by over $110 million, during that same time period.

Go to slide 18; this summarizes our 2011 public targets. For the full year, we are targeting rebased revenue and OCF growth in the mid-single-digit range for both metrics. In terms of capital intensity, we expect that our core 2011 CapEx will be flat to down as measured as a percentage of our 2011 revenue. However, we are excluding from that calculation the capital spend associated with our 4G build in Chile; and more on that in a second.The key message here is that we are focused on driving down the CapEx associated with our Triple-Play business over time, despite making significant investments in next generation devices like our home gateway.

From a free cash flow perspective, we are targeting a mid-teens growth rate from our adjusted free cash flow of $678 million in 2010. Similar to what we did last year, we plan to adjust free cash flow for items that are one-off or extraordinary in nature. Last year, we mainly adjusted for the taxes related to the J COM sale, and costs associated with the Unity Media acquisition. This year, we will exclude costs associated with our mobile project in Chile, which is certainly an extraordinary project since we are not contemplating mobile network builds in any of our European markets.

To give you a frame of reference, we expect that the free cash flow impact of the VTR 4G project could be as much as $120 million in 2011, largely consisting of CapEx, and increased operating and administrative costs. As we said earlier, we expected that this will be a high-return project, and obviously we'll keep you posted quarterly as it progresses.

Finally, as Mike said up front, we're announcing today our intention to target $1 billion in buybacks of our equity securities during 2011, which represents approximately 10% of our basic market cap. This amount could fluctuate based on our M&A activity, but as we sit here today with over $3 billion of Parent liquidity, we're comfortable that we can finance the deals that we are looking at, and continue our substantial buyback program.

So with that, operator, we'd like to open it up for questions.

The question and answer session will be conducted electronically. (Operator Instructions) We'll pause to make sure to give everyone an opportunity to signal for questions. Our first question comes from Ethan Lacy, Banc of America Merrill Lynch.

Hi, good morning, guys. I just had a question around, essentially obviously there's a lot of speculation in the market on M&A and obviously as you noted, as a corporation you guys have an impeccable track record of managing the portfolio of assets in terms of acquisitions and divestitures. Given than level of institutional knowledge, how many new acquisitions, and sort of the requisite integration do you think you can manage on a parallel track before you sort of start to risk stretching the system? Is three feasible? Conceding that they're not all the same size.

Yes, that's a good question. I mean, I can tell you that historically we've never bumped into that wall, and we have had busy, busy years. Remember, the acquisitions fall into one of three categories typically. There's small in-fill deals where really local operations are just connecting the dots between market territory. They can be larger market consolidations where the local management team in that country supported by corporate would be looking to achieve synergies and more and broader more sophisticated integration around networks and products and call centers and things of that nature. Then there's sort of new market where we don't have a significant presence, which takes a slightly larger amount of time because you have got to hire people and create and implement the plan. Most of our transactions occur in that middle box. Because we have a long standing experience in this type of integration work and management teams on the ground who are experienced with it and welcoming of it, I don't really see a natural ceiling in what we can achieve. Certainly we've never gotten close to it.

Okay. Thanks. I guess, this is obviously hypothetical, but sort of as a corollary to that, what is your comfort level as far as regulatory conditions that might be required for some of the speculated assets like KBW or ZIGO particularly as it pertains either level 3, level 4 consolidation or maybe, I don't know -- in the Netherlands significant market power issues perhaps.

Well, I mean it's hard to gauge exactly what any buyer of an asset in these sorts of markets would be willing to accept in terms of regulatory conditions. But I can tell you whether it's in Germany or any other market, we had a very, very supportive group of regulators in Europe at the EU level. Whatever sorts of conditions or requirements are made of us, we think they have to filter through those types of gauntlets, if you will. We have a high comfort level with those regulators. So it's hard to speculate on any one individual potential transactions what may or may not be acceptable. But I certainly don't see nor have we seen in the past any sorts of conditions that we would argue are material to the business. So it's difficult to speculate on, except I would tell you that the basic trend and the basic platform and context in which we do this is pretty favorable to us.

Thank you.

Yes.

All right. We'll take our next question from James Ratcliffe with Barclays Capital.

Good morning, folks. Thanks for taking the question. Two if I could. First of all, how do you think about potential roles with over-the-top video providers as a way to expand the offerings you have with the Digital Cable platform at potentially lower costs than a large scale increase in package so that you can provide, instead of 22 or 25, 26, 27-year old kind of range and the material increase in the content available. Because if I remember, your Digital boxes have a modem in them already. So in theory, I guess could you do IP video. Secondly, favorite topic on taxes. Is there anything more to be done on the Jcom taxes in terms of payment in 2011? Also, can you talk through about how we should be thinking about cash taxes going forward given that I understand you consumed a decent chunk of the [unwells] to shield the Jcom transaction.

Okay, I'll let Charlie contemplate the tax question. In the mean time on over-the-top, I mean, as we said many times, and those who would have heard us speak probably know this, the European market is at a much different place right now than the US market in terms of over-the-top activity. That's to be expected. The European market's highly fragmented. A viewer-ship is largely gravitated around broadcast television, not necessarily cable television. Prices are relatively low so that we have -- we are not faced with cord cutting and people wringing their hands about $100 ARPU prices for cable. I think we're in a much more favorable environment in Europe for this type of activity, number one. Number two, we are absolutely getting ahead of it. We will launch, this year our own, I guess for lack of a better word, TV-everywhere product. We're working with a number of the primary vendors in the space. We've already developed our user interface. We have hundreds, maybe thousands of hours of content secured for an online launch in several markets. So we are ready to step into what is today largely a void, a vacuum of good online or over-the-top video services, and it's our view that nobody should be able to do a better job of that than us. We have the content relationships, we have the customer relationships, we have the Broadband connection. We ought to be able to allow people to watch the television they are already paying for on their pc or wherever. That's something that will be a big part of our Digital initiative this year. I guess the third thing I'd say is to date, there just haven't been many successful over-the-top brands. I mean, there's -- I said it many times, there's no Hulu in Hungary. There's no Netflix in the Netherlands. Does that mean there won't be? It depends. We would, in some instances, there may. Others there may not.

But I will tell you, that if they do find the content rights and the sufficient scale to roll out, our new box will allow us to integrate those services into our customer experience very, very easily. Of course we'll have a modem. The whole purpose of our Digital box is to do three things that cable doesn't do today. It's trying to connect the devices that you have in your life to your cable content. It's about integrating more and more of the content whether it be web constant, apps, widgets, whatever onto your television experience. Thirdly, about having a user interface or user experience that is like nothing you've ever seen when you're sitting on the couch. Those three things would be in our view killer apps. Certainly integrating over-the-top providers who we think have good brands and great content is something we can absolutely do and we'll look at. Remember there's no premium television market to speak of in Europe. So movies are to some extent up for grabs. Whether it's us or somebody else, those are things we can easily integrate for our margin in our business plan. Charlie, you want to talk about taxes?

Yes, I was going to say, I think in terms of the cash tax rate on Japan, we don't anticipate any further cash tax payments. With this structure, we do own a slight loss in the US. So, we may even get some money back on the tax we paid in 2010. In terms of our overall tax posture, as you know, like every multi-national we have a number of tax strategies we can use to optimize our tax position. We fill a very, very potential net operating losses. I would anticipate our cash tax this year would be less than $100 million, and I wouldn't want to make too many predictions going forward. But we have a number of devices that could keep it around that level going forward. Predominately our tax exposure going forward is in two key markets. One is Germany, one is Chile. The remaining countries are all broadly speaking very small numbers as we're able to use existing losses.

Operator?

All right. We'll take our next question from Jeff Wlodarczak with Pivotal Research Group.

Hi guys, good morning. Mike, it sounds like you're looking at flat EBITDA margins for 2011 versus year-over-year gains over the last several years. Can you provide any more color there in what you think is a reasonable long term sort of EBITDA margin for the whole Company? Then also, if you could provide any additional color on trends so far in the first quarter that would be helpful. Thanks.

Sure, I'm not going to be able to say much about the first quarter. I can tell you that January was off to a very, very good start. Certainly on subscriber activity. So we were able to carry over from the fourth quarter the sort of, momentum and, I think, energy and success that we saw when we added on nearly 40% of our subs in that fourth quarter. So I do think that's a good sign. But it's a sign and it's too early to say. We've got February and March yet. For the most part, 2011 started off on a very, very good footing. Our margins, we will continue to scale the business. I think some of the margin impact is coming out of places, for example, like Chile where as was indicated this extraordinary investment and I call it extraordinary because we don't view it as a long-term continuing or recurring investment in this 4G platform will impact margins in those markets. There is some small margin impact from early stage work happening around Horizon and Orion. Horizon is our multi-media home gateway. Orion is our TV-everywhere platform. So this is a year of investment for us in some respects. Not things that you will see terrific or immediate benefits from in 2011 but we'll be laying the groundwork for continued acceleration of growth in 2012 and beyond. They will have a minor impact on our margins as we look out.

Having said that, I don't believe we've reached the point where there's any ceiling yet on what we can achieve in our margins. I mean, our operating subsidiaries continue to drive margins to 60%. We are getting more efficient at the corporate level doing the things that we need to do to reorganize our management teams, focus on the priority projects. So I'd say there may even be more room there at the corporate level. It's really these very specific unique strategic projects that I think for a Company of our size are critical and for a Company in this industry are critical. I will tell you, whatever those projects might include, we are spending a fraction of what our peers spend which is why our margins are 5 to 10 points higher than our peers. Having said that, I think there will be some of that occurring in 2011. Bernie or Charlie or Rick you want to add to that at all?

I would say that we're still getting quite a bit of upside in our procurement effort in bonds working very closely on and improving our procurement process. We see there's quite a bit of upside on driving the margins up through that. After what Mike said, I still think that there's some upside on where we are today. Although we are impacted by these one offs.

Fair enough, if I could ask one follow-up, what is the $79 million, the commercial deployment of VTR actually get you and how much additional spend are you going to have ex the operating expense, just the CapEx in 2012 and 2013. What's the build-out timeframe of the 4G network?

Jeff, I think we're going to be careful on that number. I don't know to what extent Bernie broke that number down that you gave. The vast majority of that spend is on building essentially a platform for launching both a mobile network and a MVNO type relationship with one of the large operators there. I think we've been very careful to minimize and optimize capital by looking at what I described as a hybrid rollout so that you would use your network in certain core areas to maximize the Broadband and mobile Broadband opportunity and roam on someone else's network in other area where building towers doesn't make a lot of sense. So we've got, as I said, good vendor relationships, good tower relationships. Everything is falling into place. The vast majority of that CapEx is spent really on building the platform. We won't actually have any customers we don't expect this year. So there's no phone subsidies in there. None of that. It's all about getting prepared for launch in this marketplace.

Thank you very much.

All right. We'll take our next question from Hugh McCaffrey with Goldman Sachs.

Good afternoon, guys. I've got a question just on the German market. Clearly another very solid quarter for you there, but there appears to be some price based competition from bundlers in the market and do you expect to see any impact of that in 2011 or do you expect to see that continuing in 2011? I know it would be just great to get, Joe, a perspective on the long-term growth picture in Germany as well.

Sure. I mean, I think we're pretty confident that this market has a ton of growth left in it. It still sits today with less than 70% penetration of Broadband. If you look at our Broadband penetration rates of 10% compared to 30% and 40% just on our footprint in our other markets, and you look at the market share we're getting today with our superior 3.0 Bundles, we're pretty confident that there's a fair amount of growth left in Germany. I mean, the market is getting more competitive, you have Deutsche Telekom out there with their own look-alike TV product trying to break into housing authorities you've got Sky pursuing a very premium product approach. But I think in the end it comes down to several things. It comes down to who's got the better network. There's no question that with 80% of our home in Germany, 3.0, we have the better network and the faster Broadband speeds for seeable future, I believe. Secondly, it comes down to who has the relationships. Our housing authority relationships are long and deep, wide and have contracts and very, very difficult to disrupt. It comes down to who's got the pricing in the bundles. Our bundles are priced generally better with faster products.

So if you're selling a better service for less, and again, remember our ARPUs in this market are very low, right? I mean, $12, $13, $14 Euro type ARPUs. We're not working our way down from $30 or $40. We're working or way up from $10. It isn't as if price competition, you have to put that in context in a market like Germany. If you are competing with what you believe are the best products at the lowest price, generally you're going to do okay. I think Vodafone has struggled historically in the fixed business. Whether or not this latest effort of a 2-Play product at 30-year will have an impact, I don't know. It's always going to be I think, inferior from the point of view of having robust video with all of the applications people want and having 50MB to 100MB Broadband capability which is clearly what people want and a bundled price that makes sense. So I'm pretty confident about this market.Diederik, you want to add anything to that?

No Mike, I think you're right, -- Triple-Play, the newly introduced HD DVR books are scoring well with the low penetrational swing in the pay TV market, we still say there's plenty of room for us with superior products. So from that point of view also a positive outlook for next year.

That's really clear. Thank you.

All right. We'll take our next question from Nicolas Cote-Colisson with HSBC.

Hello, thank you. I've got a question on regulation. Do you expect the Dutch regulator to come back with some kind of -- actually another set of regulation? Apart from Belgium, where do you see some risks from regulations -- to open your TV and-or Broadband networks.

Well, let's put it in context. The question I'm sure you're asking most directly is where are we on this latest announcement from the Belgian regulator about opening up networks in Holland, I'm sorry, in Belgium. I'll tell that you from our perspective, we've seen this movie before, okay? And this movie stars usually local politicians operating in a political vacuum seeking to get populist attention around the very common target. The point I'm trying to make is, we had this same experience in Holland. It evolved in a somewhat similar way. In the end, even though we were willing to finally actually open our analog TV network. It got thrown out in the courts. I'm not suggesting that's what'll happen here. There is certainly, I would say, more challenges to this particular type of legislation, this sort of skirmish that we will always have to deal with because one, it doesn't have popular political support having met myself directly with several of the most senior Flemish and Belgian politicians and government officials I can tell you there is some head scratching going on by all parties about where, why, when, and what for. And so we sit back and run the course and manage it as we can at both the Belgian and EU level. But it'll take anyway, it'll take before mid-2012 before we even know what it looks like. I'll tell you that also if there were some kind of TV resale obligation as we managed it in Holland, it was NPV positive to us though it never even came about.

On the Broadband side of things, the idea that somehow a Company like Telenet would have to open its Broadband network to a government owned telco, I think the probability that is zero. To us, it's kind of much ado about nothing. But we do always take these things seriously as we will this and let it run its course. I do not see personally that there will be similar initiatives in other markets. We have good relationships with all of our local regulators, most of whom fall right in line with the EU because it suits them to do that. As I said at the outset, the EU and -- are squarely behind the cable business. They need us. We are the only operators investing billions and billions in our networks and putting out 100MB Broadband speeds. So cable is it. We are the only solution to the European question mark around Broadband and preparedness, readiness, speed, et cetera. Therefore, I think we are understandably and appropriately in a very strong position on issues like this. We'll see how it unfolds. We don't see any other markets where it could pop up.

Okay, that's very good. Thank you.

All right. Our next question comes from Matthew Harrigan with Wunderlich Securities.

Good morning. Two questions. First of all, [Cable Deutschland] bonded eight or more channels, first a full GB, then 1-3GB obviously it's trivial for to you do that as well. But I think part of the mess is, to Berlin was in the look the municipalities, the German government don't need to subsidize any sort of fiber build. I mean, you've had some situations, I think in the Netherlands too where the government -- municipality of Amsterdam has gotten involved. Do you think that message is getting across clearly. Do you think you're going to see some government efforts to meddle and subsidize there. Secondly, regarding your remarks in [dabos] Mike, it was with respect to over-the-top and your comments earlier, is there anything that could happen on that really interlaces with the situation of content costs over in Europe relative to the states? The states, people are paying $20 or $28 or $30 in programming costs, and in Europe and the economic jumplet for these versal MSOs might be very different and some of the content companies might try to game -- gum things up a little bit in terms of the programming costs there for a longer period of time.

Let me start with the over-the-top question and then Balan can think a bit about the fiber situation as well. As I said before, in a fragmented market it's difficult for any one operator to demonstrate significant market power. In our markets, the primary content comes from the broadcasters. So -- and today, either we're paying them very little or they're paying us. So the idea that somehow gaining access to that content over a new platform will cost us a tremendous amount of money, I think is not likely. It isn't as if there is a killer sports channel or a killer movie channel or somebody else that's got European-wide rights who's lording it over the rest of us. It just doesn't work that way. Our content costs, we estimated are $3 a month. While they're growing, they're growing primarily because we're adding more and more Digital TV subscribers with a very positive net margin, and they're growing because we are slowly starting to stake our claim, if you will, to rights, certain rights on new platforms. So we are in Holland going out and actively and proactively getting online rights for certain content and assembling a platform of programming that we think will be robust and attractive to our customers. But we're doing it in a thoughtful, very methodical and appropriate way. We aren't running ahead of ourselves. It isn't costing us much. People don't know quite frankly how to value it so these are short-term type of relationships.

I think the kind of pressure you've seen in the US is not going to happen in Europe. We are doing everything in our power to manage those costs. I think we've had good success at it more recently. Then on the fiber builds, I don't see local governments meddling in fiber build activity. If anything, the pressure's reduced. Local governments get involved when nobody's doing anything, when there isn't any choice. They generally don't get involved when there's one good choice and a second okay choice. So the vacuum that saw communities getting active in Holland was a pre 3.0 vacuum. With our rapid rollout of 100MB Broadband speeds, there's a lot more head scratching around why we should be in this business. I think the bigger issue is telcos themselves figuring out when they want to be in this business and how aggressively. As I've said, there have been maybe 10% to 20% market estimates of penetration for fiber from most telcos in our markets over two to five years. So they aren't necessarily ready to spend the EUR200 billion it will take to build fiber, and in some cases it will be more aggressive than others. I like our window here.

Great number in the video losses. Congratulations.

Thanks.

All right. We'll take our next question from Matthew -- I'm sorry, Vijay Singh with Janco Partners.Please go ahead.

Thanks. Mike, question on Poland. We're hearing Cyfrowy Polsat numbers are looking pretty strong in Poland and they also appear to be interested in buying Cyfra+, how does this DTH consolidation affect your competitive position in Poland if you can talk about that a little bit?

Well, I'll let Diederik chime in on this. Poland has just historically been a tremendous growth engine for us. Partially because we've been in a rapid rebuild mode for the last three or four years where we have been rolling out new products regularly across rebuilt homes. There's also a huge demand for our Triple-Play services there. So not to say that DTH operators don't have competitive advantage in some instances, they have greater reach across the country, in some cases exclusive content. But Poland is probably one of our best Triple-Play markets and one of the most active consumers of HD and DVRs, HD content itself, fast Broadband speeds. It's almost as if anything that's working in the big four, Netherlands or Germany, works just perfectly in Poland as well, so we never -- we always take seriously competitive consolidation but at the same time with this acquisition of Aster rationalizing existing overbuild footprint and extending our footprint. I think it's got great potential.Diederik, you want to add to that?

Yes, that's right. Also with regards to HD content, so I think, it was one of the best [two-parts] growth markets last year. So I think it's a real boost market. But interesting also in terms of the size within central Europe. That's also why we constantly see new competitive initiatives popping up. With our experienced management team there, we know how to kind of be successful in that market. We don't see that change in the near term.

Okay, great. Thank you.

All right. We'll take our next question from David Gober with Morgan Stanley.

Good morning, guys. Thanks for taking the question. Just digging into Switzerland a little bit more. Clearly the trends have improved quarter over quarter for the last few, and it seems like on the top line, you're seeing steady improvement. It seems like Broadband and Voice really had a great RGU quarter. Just curious where we are in the re-branding and what's going on in terms of repackaging. On the margins there, it seemed like another great quarter as well. Any color on kind of what's going on there and where we are in terms of the turn around with Switzerland in terms of --?

Yes, sure. A couple things, I'll let Diederik flesh it out. Switzerland for us is a key piece of the puzzle, as you know it's one of the big four markets. It has had tepid growth. Although the fourth quarter was a better picture financially with I think close to 5.5% rebased growth compared to essentially flat to down the last four quarters. It is right at that inflection point. I was just there last month, actually this, whatever, last three or four weeks. All of the indicators that I see in that market are looking positive, whether it's sales, whether it's churn, whether it's new product launches with 3.0 and a revamped Digital service with more HD and DVR functionality. We just launched Bundles last year in terms of morale, in terms of the stability of the network and the IT systems. I think it's ready to really achieve terrific results this year. We forecast growth and a pickup in 2010 -- I mean, 2011, but I have a feeling we're going to exceed our own expectations despite a very competitive marketplace. It's really ripe for continued momentum in the right direction. You want to add to that Diederik?

No, you are absolutely right. Without giving away to much competitive sensitive information, I'd say if we talk about the rebranding that started kind of last year we'll be finalized first half with new graphics and so forth. We're also looking to further opportunities to strengthen the portfolio versus Swisscom. We do believe that the, with what Mike said, the opportunities of the bundle and the superior Broadband, we may find some interesting and attractive propositions. Again, Swisscom, but we're not going to reveal that.

Yes, in the market today, our Triple-Play offers are usually twice. Our Triple-Play offers have broadband speeds that are twice their broadband speeds. It's going to ultimately have the same impact, we believe that we've seen in other markets.

Yes.

I guess when you think about M&A and Mike, you talked a lot about the focus on western Europe and the core markets there, there's also press reports today about UPC Romania being up for sale. Should we think about the portfolio looking more and more focused on western Europe? Obviously, I'm sure you guys would like to fill-in in the current markets. Is it -- would you also be interested in getting into some of the other big western European markets? And is that how the Company -- is it long-term foresee a goal to look more like a western European cable company?

I think today that's where we largely are. Central and eastern Europe is only about 11% of our revenue, I think -- or 11%, 12% of our revenue and EBITDA. So as I mentioned, 80% plus of our revenue's coming from Europe. 60% of it's coming from four countries. So, I think by definition we are increasingly exhibiting a greater sense of gravity around western Europe and that's by design. I think very positive for us. That's where the resurgence in growth is occurring as we had hoped and planned. Having said that, if you look at the rest of the western European markets we're not in, do I see us investing in France? Unlikely. UK, haven't studied it. Spain, lots of work to do down there, I believe. Italy doesn't have a cable business. Our footprint, if you mapped it out, is a nice contiguous footprint. We don't have any holes in our footprint other than Ireland on the island. But from the Netherlands all the way to Romania, we are contiguous across the 11 countries, the 10 Continental countries we operate in. Moving South, which would be, one geographic direction to where we are not has, to me, is less compelling than consolidating within the markets we're in. I think our first goal is always to get greater scale in the markets that we have invested time, money and resources and where we think there's great opportunity. That'll always be our first option. We'll see what opportunities there are to do that coming up.

Okay. That's very helpful. Just a quick one on Romania. I noticed there's a big tickup in the satellite business in Romania. Just curious, what was going on there and was that a new offer in the market and I guess how closely are the cable and satellite businesses aligned there? I mean, for instance, if you sold some of your eastern European cable assets would the DTH subs go along with that or is that something you can continue to operate as a stand-alone business?

They operate on different platforms generally across central and eastern Europe. We have the Luxembourg based DTH platform that markets the DTH services into those central and eastern European countries. There is alignment in terms of -- to the extent they can be sales and installation and fulfillment. But for the most part, they are separate customers, separate billing systems, separate platforms. That is by design. There are several benefits of structuring it that way to us, and if you did exit a particular market, it doesn't necessarily mean you are exiting that satellite opportunity.

And any change in the offer in Romania that drove the sub adds?

The whole DTH platform spent most of 2010 rebuilding itself, re-pointing dishes, changing over to a new satellite platform, relocating. It wasn't, I think really until the fourth quarter that they started marketing more aggressively. Diederik, do you want to add to that?

It's great. That's great.

So it really was the fourth quarter was the first quarter that we actually got going again in terms of sales and connections. The vast majority of last year was spent re-pointing dishes, swapping to new transponders and setting up shop.

Okay. Great. Thanks.

We'll take our next question from Jason Bazinet with Citi.

I just had a question on the guidance for 2011. The adjusted free cash flow of $678 million, you guided to mid teens, so nominally sort of $775 million, something like that. In terms of the actual free cash, the two adjustments you're excluding, I guess were the Chilean wireless and then the derivative, and I guess my question is on the Chilean wireless, is $120 million the right number that you're excluding from that and is there any way to quantify the derivative at this point or is it still too early?

No to the derivative. Then I think we said $120 million for the wireless. But I think on derivative, it relates to a swap that existed when we bought Unitymedia that we didn't close out at the time because it had a year to run. So that will be a swap because obviously the amount of the out-of-the-money or in-the-money will be dependent on what interest rates are doing at the time. Because it was an interest rate swap. But it's not a big number. I can't really give you specific guidance today but it's in the tens of millions as opposed to anything larger. It could be zero depending on what happens to interest rates.

Okay. Thank you very much.

We have time for one more final question before concluding the question-and-answer session. We'll take our final question from David Joyce with Miller Tabak.

Thank you. If you could just please provide some more color on the multi-media home gateway in terms of what markets you're going to be rolling out first. Is it going to be everywhere, Fiber Power is this year which is the bulk of your footprint and how it's being sold and bundled? Thanks.

Balan, you want to start with that --?

Sure. On the multi-media gateway, we'll certainly start with the Netherlands and Switzerland, followed by some of the other western European countries. That's the plan right now.

I think it's too early to talk about pricing and packaging.

That's all being developed as we speak. I was asking -- the key questions that any investor should have is how are we doing in developing this device? Where are we on the road map? Certainly, I'm on it from time to time. Balan and Diederik are living it day in and day out. I will tell you that things look very, very positive. So the user interface, the box itself, the board, the chips, it's all coming together. So we're pretty encouraged.

Great. Thank you.

Okay. Thanks, everybody. Appreciate you joining the call, and we look forward to talking to you about our first quarter results and seeing you at the next investor conference. Have a great day.

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 web site at www.lgi.com. There you can also find a copy of today's presentation materials. Thank you. You may now disconnect.