Liberty Global Ltd (LBTYA) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's investor call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written (technical difficulty) 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, May 7, 2013.

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

Thanks, operator and hello everybody. Good morning or good afternoon, depending on where you are. We have our typical group on the call today, Bernie Dvorak and Charlie Bracken, co-CFOs, and Balan Nair, Chief Technology Officer; Diederik Karsten, EVP of European Operations; Brian Hall, our General Counsel; and of course, Rick Westerman, head of investor relations and communications.

So I am going to let the operator take us through the Safe Harbor statement and then we will get kicked off. Operator?

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 expectations with respect to its outlook 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 include 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/A and 10-Q.

Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.

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

Thanks. So our agenda is going to be typical here. I will do an overview of the results. Bernie will jump into the numbers, and then we will get your questions.

As the operator said, we are working off of slides. And I'm going to start with slide 4, highlights, beginning with our organic growth, our most important value driver.

We did deliver 373,000 net RGU additions in the quarter, representing another strong quarter for us and bringing our total RGU base to over 35 million.

Revenue was $2.8 billion, up 5.8% over the last year rebased. Actually, our best first-quarter in six years. Operating cash flow in the quarter was $1.3 billion, representing rebased growth of 4.1%.

Bernie is going to provide more detail, but OCF growth is below revenue growth due largely to lower margin mobile revenue in Belgium and Chile.

The main update on the M&A front is, of course, that we are on track to close the acquisition of Virgin Media early next month. Our shareholder vote is scheduled for June 3 and Virgin Media's shareholders will vote on the deal one day later on June 4. Obviously, we are excited to complete the deal, and we will be announcing some important decisions around leadership at Virgin Media actually this week.

You may also have noticed that we opportunistically acquired an 18% stake in Ziggo over the last couple of months. And some folks have been quick to jump to conclusions about our intentions here. I think these were really market-driven opportunities for us to own a piece of an asset that we know well, in a market where we are already heavily invested, of course.

We think the Ziggo management team is great. And even without our ownership interest, we were working on several strategic initiatives together.

And then, finally, a couple of quick comments on our balance sheet. At the end of March we had total liquidity of $5 billion, including nearly $3 billion of consolidated cash.

And, as ever, we have been pretty active in the capital markets. Of course, we raised all the necessary capital for Virgin Media.

And we also extend maturities on roughly $5 billion of debt so far this year. As a result, about 90% of our long-term debt is due 2017 and beyond and our average borrowing cost is now below 7%.

So, all three elements of our value creation strategy are clicking, and steady operational and financial growth, progress in our key M&A initiatives to drive scale, and accretive management of our capital structure.

As we do on just about every call, slide 5 provides a breakdown of the net adds by product going back four years. So, starting on the left, you will see we added 233,000 new broadband subs in the quarter versus an average of about 200,000 in the prior three years and 227,000 throughout 2012. So continued, steady growth in our most important and profitable product.

Germany had another strong quarter, as did Belgium, Chile and Switzerland. In fact, at 22,000 broadband adds in Switzerland that was our best quarter in seven years. And that is attributable to, among other things, our Horizon launch, combined with ever faster broadband bundles.

Across our base of 9.5 million broadband subs, speeds and consumption are up 25% to 30% year-over-year to 38 megabits per second and 1.6 gigabytes per sub per day.

Largely mirroring our broadband growth, we added 231,000 voice subs in the first quarter. We now have over 7.5 million voice RGUs, representing 23% voice penetration.

And video losses of 92,000 in the first quarter were broadly consistent with prior years and really not that material in the context of an 18 million sub video base. But, nonetheless, we watched this metric closely, as do you.

We saw improvements in markets like Chile and Central/Eastern Europe and Belgium. But we also experienced some challenges in other core markets like Holland, where we saw strong competition from KPN. And I will talk about that in a minute.

In addition to Horizon, we have recently implemented a number of initiatives intended to improve our video retention, including unencrypting the digital basic tier in six markets.

And then you will see total RGUs on the right, net adds of 373,000, which is higher than our average for the prior three years and essentially consistent with 2012.

Slide 6 provides a regional breakdown of subscriber growth in the quarter. Starting at the top in light blue, you will see that Latin America had net adds, and nearly double last year at 63,000. And that was driven by 50,000 net adds in Chile, really our best result there in nearly two years.

Green bar in the middle shows Europe, excluding Germany, where despite strong growth in Belgium and Central and Eastern Europe, pretty much the entire variance year-over-year of around 50,000 is explained by Holland, and again, I will address that in a minute.

The dark blue bars on the bottom show Germany, which delivered solid growth of 169,000 new RGUs. That is lower than last year. But, remember, at this time last year we were just kicking off our Go-for-Growth initiative. And this year we saw the first roll off of the Annington contract which we lost in December 2011. That was about 10,000 subs lost there.

On a separate note, we have been successful in roughly 65% of the contracts subject to the remedy agreement in Germany. And we are working hard to renew the remaining 35%, which account for roughly 1% of total German revenue.

That is the big picture. The next two slides drill down a bit deeper into our four largest markets in Germany, Belgium, Holland and Switzerland. And these four markets account for 57% of net adds, 65% of revenue and 77% operating cash flow in the first quarter.

Collectively they generated rebased revenue of 8% growth and rebased operating cash flow growth of 6% in the first quarter, so they are not only our largest markets, but, also, some of our most productive markets.

Let me start with Germany at the top of slide 7, which reported strong results once again with rebased revenue growth of 10% and operating cash flow growth of 11%. That is the third consecutive quarter of double-digit rebased operating cash flow growth, helped by continued streamlining of our cost structure and integration efforts.

Over the last 12 months we have now added over 700,000 new RGUs in this market, driven by our 50 megabit bundles, which are three times faster than DTs.

And if Q4 is any indication of what Q1 will be, given that not all of our competitors have actually reported yet, we feel like we are still getting most, if not all, of the new marketshare on broadband on our footprint, as cable on a national level has been accounting for about 100% of the market growth compared to DSL.

We are also working hard to strengthen our video product in Germany. We have seen a successful start to our unencrypted basic digital service in the Unity footprint. And we added a further three HD channels to our lineup, which now totals 48 HD channels, including 17 Sky.

So, all in all, we are positioned for great growth in this market. And we are planning to roll out Horizon in Q3, which will further differentiate the platform.

Switching gears to Belgium, most of you know we have welcomed the new CEO, John Porter, who is actually on the call here today. And he has done a terrific job in a relatively short period of time of rebuilding the management team and actually the morale of Telenet.

The Company delivered strong topline performance in the quarter with rebased revenue growth at 12% largely due to mobile, and a more typical OCF growth of 4%, reflecting lower margins on the wireless products in general. While mobile net adds are starting to decline, as we predicted, the Company still brought on 100,000 new mobile subs in the first quarter and now has about 13% of its cable subs subscribing to a Telenet mobile service.

In addition to mobile, triple-play bundles continue to resonate in Belgium with triple-play penetration up to 42% of their base in the last year.

So I'm encouraged by the new leadership in this market and I feel good about the business going forward.

Spend a minute on Holland at the top of slide 8. Certainly over the last few quarters we have been talking about the competitive environment in Holland, and, in particular, KPN's aggressive approach to subscriber growth at the expense of the EBITDA. I believe their EBITDA was down another 20% this last quarter adjusted in their consumer residential business.

As a result, we have been treading water a bit on net adds recently, as we intentionally preserve prices and maintain superior products and services. And that has been the right strategy.

If you look at 2012 as a whole, we added twice the number of broadband subs as KPN on a third of the footprint. And while the second half of last year was tough, we returned to growth this quarter, adding the same number of broadband subs as KPN, again, on a smaller footprint.

And demonstrating, I think, perhaps a return to more rational behavior, KPN just announced a price increase of 2.5% for most of their packages beginning July 1. So we are staying the course. We are driving innovation with higher speeds and improved video products.

We just rolled out a 200 megabit product to around 25% of homes passed, and we are actually in field trials with a 500 megabit product which will launch later this year. Horizon sales continued to do well. We have over 145,000 installed gateways representing about 13% of our digital base, and we continue to improve and evolve the platform.

We added 24 new apps during the first quarter, including Facebook and Twitter. And we will launch faster navigation, a new menu structure and a new remote this summer. The key point here is that we are investing and strengthening our competitive position in Holland, and we feel confident that the market will remain rational and we will return to solid growth there.

I will wrap up in Switzerland, which delivered a solid quarter with rebased revenue growth of 5% and OCF growth of 4%, driven by 175,000 advanced service RGUs added in the last 12 months, and a 3% video price increase that kicked in on January 1.

The Horizon launch continues to go well with over 55,000 gateways installed and supported by new triple-play bundles like the one shown here on the slide. And our most recent and popular product, the Super Combi, which represents more than half of our sales today and includes 150 megabits; Horizon TV in the home, of course, and our online product.

The strategy is working here as well. We are demonstrating pricing power. We're upgrading Internet customers to higher tiers for an attractive price, and then rolling out the market's most advanced video platform.

We had the best quarter of Internet growth since 2006 in Switzerland, and we will also launched a 500 megabit product here before the end of the year.

That is a quick overview of our four big markets, again, representing about two-thirds of our revenue, which is growing roughly 8% in the quarter.

I will end on slide 9 with a quick update on Virgin Media and our rapidly approaching closing of that deal. As expected, we did receive EU regulatory approval in mid-April and the S-4 proxy was cleared by the SEC last week.

Shareholder meetings are scheduled for June 3 and June 4 and we will close the deal shortly thereafter.

Virgin Media reported good Q1 results two weeks ago, which we are not supposed to comment on. But we do show you on the slide, on the right-hand side, combined results in the quarter, which would have totaled $4.4 billion of revenue for us and them, and $1.9 billion of OCF representing roughly 5% growth on both metrics. And that is, of course, taking Virgin Media's result on an FX neutral basis and doing the normal rebasing of our results.

Needless to say, we are excited, really excited to complete this deal and to start affecting the smooth transition and integration. And with that, Bernie, I will turn it over to you.

Great, thanks, Mike, and hello everyone. I am starting on slide 11. So for the first quarter of 2013, our revenue increased 9% or $231 million to $2.77 billion as compared to Q1 of 2012. Similarly, reported OCF expanded to $1.27 billion, which was up 6% over the prior year quarter.

In absolute terms, both revenue and OCF were principally driven by the organic growth generated by our strong volume gains in digital TV, broadband and voice. In particular, we achieved [2.7 million] advanced service organic RGU adds and over 0.5 million mobile subscriptions in just the last 12 months alone.

The positive impacts of acquisitions and foreign currency movements were relatively small this quarter on our reported results.

On our rebased growth basis you can see that we were squarely in our mid-single-digit range on both revenue and OCF metrics. Rebased revenue growth was 6% in the quarter, which was our fifth consecutive quarter with more than 5% year-over-year growth. Rebased OCF growth was 4% in the first quarter of 2013, which was lower than revenue growth for a number of reasons, including the growing contribution of lower margin mobile services in Belgium, the nonrecognition of feed-in fees from German public broadcasters, and the impact of Chilean wireless.

Slide 12 dives into more granularity of our results by region. Our European distribution business generated $2.34 billion or more than 80% of our total revenue, while OCF amounted to $1.17 billion or more than 90% of our consolidated total.

In terms of rebased performance, we generated 6.5% rebased revenue and 4.5% rebased OCF on a year-over-year basis across Europe. Overall, topline expansion in Western Europe was driven by a particularly strong result in Belgium at 12%, underpinned by mobile growth. While Germany, Ireland and Switzerland contributed rebased revenue growth of 10%, 9% and 5% respectively.

In terms of OCF, we delivered roughly 6% rebased OCF in Western Europe. Our fastest growing operations in the quarter were Ireland and Germany at 12% and 11%, followed by Belgium and Switzerland at 4% each.

Telenet had lower OCF growth in the quarter as compared to revenue. This was due to margin compression of over 300 basis points, primarily due to handset subsidies and other subscriber acquisition costs associated with the rapid expansion of their mobile business.

Additionally, our Netherlands business was largely flat year-over-year due mainly to heightened competition from KPN, as Mike just talked about.

Our principal asset beyond Europe, VTR in Chile, delivered revenue of $250 million for the quarter and OCF of $85 million, representing rebased growth of approximately 8% and 10% respectively. VTR's topline was fueled by roughly 125,000 RGU additions and 140,000 mobile subscriptions in the last 12 months.

And with respect to Chilean wireless, our OCF deficit in the quarter with approximately $19 million, which was about $4 million incrementally higher than our OCF deficit in the prior year first quarter. This reduced our LGI rebased OCF growth rate by 30 basis points in the quarter.

Slide 13 shows our capital intensity and breakdown of our spend. On an aggregate basis both are cash CapEx and property and equipment additions declined as a percentage of revenue year-over-year. Our cash CapEx, which is not shown here, but what is reported on our cash flow statement was $504 million or 18% of revenue for the first quarter of 2013, versus $521 million or 21% of revenue for the first quarter of 2012.

The decline in both Quantum and as a percentage of revenue was primarily related to our efforts around working capital efficiency through the use of non-cash vendor financing and capital lease arrangements, benefiting Q1 CapEx by $57 million as compared to last year's first quarter.

It should be noted that these arrangements typically have durations of under with a year and favorable interest rates. We expect to increase our use of these arrangements as long as it continues to align with our finance and procurement strategies.

And looking at the left-hand side, our property and equipment additions amounted to $536 million or 19% of revenue for Q1 2013, which compares to $507 million or 20% of revenue for Q1 2012. Measured as a percentage of revenue, our year-over-year improvement was due in part to lower year-over-year spending Germany, a function of both lower CPE and project timing.

If you move to the right side of the slide, the pie chart summarizes our aggregate spend. CPE and scalable infrastructure, which we think of as success-based, accounted for 59% of our total spend in Q1 2013, up from 57% in Q1 of last year. The increase was due primarily to our Horizon TV rollouts. And rounding out our total spend 27% was attributable to line extensions and upgrade rebuild while 14% was related to support capital.

Slide 14 summarizes the components of our free cash flow and adjusted free cash flow. Our adjusted free cash flow for the quarter was $68 million as compared to $279 million for Q1 2012. Our cash flow from operating activities of our continuing operations was down 26% year-over-year, even though our OCF was higher by about $75 million.

The decrease was largely due to the expected reversal of favorable working capital movements from Q4 2012, and to a lesser extent, higher cash outflow in the quarter relating to cash paid for interest.

These factors were somewhat offset by a $22 million net positive impact on free cash flow from vendor financing and capital lease arrangements as compared to Q1 2012. The vendor financing impact consists of the $57 million benefit on CapEx, which I mentioned on the prior slide, offset in part by $35 million of incremental principal payments as you can see in the table.

If you look ahead, we expect to see higher levels of free cash flow for the balance of the year. And similar to prior years, we expect our adjusted free cash flow will be substantially weighted towards the fourth quarter. And, furthermore, and as we said publicly a few times, we remain confident in our ability to deliver combined mid-teens free cash flow growth over the medium term.

Slide 15 recaps our leverage and liquidity position. The pie chart illustrates our consolidated liquidity of $5.1 billion at March 31, consisting of $1.6 billion of cash at the parent, which is the green slice; $1.3 billion of cash at the operating subsidiaries which is the purple piece, which $1.2 billion of that resided at Telenet. And in May we will receive from Telenet about EUR525 million or $675 million, which is our share of their EUR900 million disbursement.

In addition to our $2.9 billion consolidated cash position, we had $2.2 billion of maximum borrowing capacity under our revolving lines. This total excludes $3.5 billion of restricted cash on our balance sheet, which is intended to be used to fund the significant portion of the cash requirements of the Virgin Media deal. This cash resulted from debt that we raised on the Virgin Media credit at a pre-swap blended rate of about 6%, and which will be pushed down to Virgin Media post close.

And, as Mike mentioned, we made an investment in Ziggo, which was funded post close of Q1. And total investment today amounts to roughly $1.2 billion for 18.2% of Ziggo, and we are finding it through a combination of margin loans with an initial loan to value ratio of 65% and cash on hand.

And moving to the right side of the chart, our aggregate debt totaled $30.7 billion at Q1, including the Virgin Media related debt that I just mentioned. The capital markets have been very accommodating year-to-date as we have been able to refinance about $5 billion of our debt at UPC Holding and Unitymedia Kabel BW.

As a result of this activity both our maturity schedule and cost of capital have improved since the fourth quarter. Now about 90% of our debt is due in 2017 and beyond, and our fully swapped cost of debt capital is down under 7%.

Our adjusted leverage, which excludes the Sumitomo debt and the impacts of the earlier mentioned Virgin Media debt was 5.1 times on a gross basis and 4.6 times on a net basis, with both ratios reflecting a modest decline from our fourth-quarter levels.

Slide 16, in conclusion, our business is performing well with strong revenue growth over the last few quarters, driven by our German and Belgian operations. From an M&A perspective the Virgin Media transaction will be transformational in terms of incremental scale it brings. And we look forward to gaining shareholder approvals in early June, as Mike mentioned, so that we can close the transaction about a month from now, around 7 June.

At the same time, we remain committed to shareholder value creation and we look forward to ramping up our stock repurchase program targeting $3.5 billion of stock buybacks over the two-year period following completion of the transaction.

This completes our prepared remarks today, and, operator, please begin the Q&A.

(Operator Instructions). Ben Swinburne, Morgan Stanley.

I wanted to ask about the German business and also about your moves to go to unencrypted basic digital across a lot of your footprint; maybe for Mike.

In Germany the OCF growth was really strong this quarter despite the $8 million hit from the broadcaster revs. Can you just comment a bit on where we are in synergies on KBW from a timing perspective? Are those still meaningful, and ahead of us? Or are we now seeing that in the results?

And then, I'm just curious. What is the benefit operationally, competitively, to rolling out unencrypted basic across your footprint?

Sure, I will hit the unencryption point and then I will let Diederik address the synergy point. That point is, on the synergies, though, is they're starting to kick in, I think, in the full spectrum here at this point.

On the unencryption side, we lose, what, 80,000, 90,000 subs a quarter on a relatively large video base, but we'd just as soon keep those subs. And in instances where we are losing those subs, it is often due to lower-priced alternatives. And our view is to migrate people more rapidly into the digital environment, if you will, to the extent we can make that a simpler decision by unencrypting 40 to 50 channels, half a dozen HD channels, we think it is a smart marketing move.

It has also, in the case of Switzerland, for example, allowed us to justify video price increases across our total base. So it is a commitment that I think regulators like, to the extent that we are viewing them as an audience for these sorts of moves. And it is a change that consumers like, because it introduces them to the benefits of digital.

Now, those benefits don't necessarily involve a guide and a gateway and all the things that we are providing in terms of the platforms that we offer, but it does get them thinking about digital as a product and makes that migration that much easier. It also helps us on the churn and retention of our core basic video sub base, which are highly MPV positive subscribers.

That is the strategy. I think it is working. We have got six markets rolled out at this point. And we haven't seen much in the way of dislocation. And I think it is, in the end, going to prove to be a valuable strategy and a popular one among consumers and regulators.

On the synergy point, Diederik, do you want to address that?

Yes, thank you, Mike. Conclusion at this stage is that they are on track. There is more to come as well. And, as a result, you do see some reflected in the results. That is correct.

Thank you.

But we are not necessarily accelerating them all.

Thanks.

Jeff Wlodarczak, Pivotal Research Group.

I will also stick with Germany as well. I guess the first one for Mike. Has anything changed recently that will lead you to believe that the regulator is more amenable to further consolidation in cable in Germany? And is there any benefit potentially to rolling out a national Wi-Fi platform with the regulator? And then I have a follow-up.

Well, no, I would say there has been no demonstrable change in position of the regulator in Germany on the issue of cable consolidation. I don't -- and we don't have any intentions at this stage to force the issue or to get them to reconsider that issue. There is no transaction or event necessary at this point or in the future.

So I don't believe there has been any substantive change in their position. I do believe, however, over time they will see the benefits of infrastructure-based competition. And they will see the advantages of a consolidated cable platform, and both to consumers and to the overall competitive environment there.

But until we have a transaction or any reason to ask that question, I don't know that we are going to get any clarity around it.

The Tele Columbus KDG deal was a different set of circumstances. And I'm not sure you can draw any conclusions from their position on that particular transaction, since it is a very different set of circumstances. But I remain hopeful, I will put it that way, that at some point regulators will see the benefits of consolidation, but at this stage no immediate change.

We haven't pursued a lot of consolidated German-wide opportunities with KDG. They have been pretty busy; we have been pretty busy. We do cooperate on a number of levels and a number of areas, but a national Wi-Fi rollout at this stage I don't believe is one of them.

I think Deutsche Telekom's transaction with Fon, the Wi-Fi sharing platform, is something we can duplicate pretty easily. Most of the modems we put out today have dual SSID chips in them, so we can easily effectuate a comparable platform to Fon should we choose to. I'm not sure it is the most beneficial use of our time and energy today in that market.

We are still doing 100,000 broadband adds a quarter. I think Deutsche Telekom did 3000 nationwide, I believe, in the fourth quarter. So the real opportunity for us is to continue to push our broadband platform, continue to get Horizon rolled out and continue to grow double-digit revenue and EBITDA there.

Thanks. And then on German housing contracts, it seems like after that one big win a while ago from DT it has been very quiet. Is that a function of the fact that there just aren't big contracts coming up for renewal? Or are they in there competing aggressively and you're just winning? Thanks.

I think it is the latter. I will let Diederik add any color to that he might want to. But I think we are competing and we're winning, because -- and by the way, the housing association is winning too, because generally when we compete we end up having improved terms and it is a win-win.

So, for the most part, we are competing aggressively for these contracts and demonstrating the advantages of our platform and our approach to the infrastructure equation for them. And it is working. Diederik, do you have anything to add to that?

Thanks, Mike. No, you are absolutely right. It is also good to remember that there are still a number of contracts which are on that original list, which I would say terminable. And the fact that it is not happening is indeed a statement of effectiveness of our sales force.

But it is not like everybody has gone through their special termination rights still this year. A few contracts do go through that cycle (multiple speakers).

Well we've got 35% -- 35% representing, I think, a few hundred thousand homes and 1% of our revenue (multiple speakers).

Yes, only 1%, that's true. Right, right.

Thank you.

Vijay Jayant, ISI Group.

This is David Joyce for Vijay; a question on the various wireless strategies. If you could talk about your rationale in Chile, why you -- at this point you would be looking for some strategic alternatives with the network there. Is that something that could possibly help -- if you go to an MVNO relationship, could that help the path to profitability there?

And in your European MVNO efforts, granted, it is helping revenue but at lower margins. Are there those going to be the run rates for that product? Thank you.

Well, our European MVNO platform, which we have only launched really the lite MVNO versions thus far in those core markets. But we will be launching the full MVNO products shortly on that centralized platform that we are developing.

And the margins, actually, are pretty good on those products and services over time. It is not a zero margin business. It is actually a positive contribution to, we believe, to revenue and EBITDA over the next 3 to 5 years.

But Chile is a slightly different equation. And the move to an MVNO in Chile, which we have put in the queue, would be really an attempt to maintain the momentum that we've experienced on the product side, which is very, very good. We have got 140,000-plus customers in a year with very little marketing, really.

But I think to improve the economics, as we have disclosed, the network economics there aren't exactly what we had hoped they would be. We have got lots of things we are doing to improve that. But an MVNO is invisible to the consumer. So as you would expect us to do, we want to try to find a way to keep the momentum positive and encouraging for consumers, while improving our own economics.

It certainly would be an improvement over the long run or we wouldn't do it, I think is the way to think about it.

Thanks, and on the Horizon rollouts, are those coming with upfront operating costs that might be causing a little near-term margin pressure? Or is that -- are there other effects in the markets where that has been rolling out?

I will let Diederik and Balan address that, but these are largely self-installs, so there is no real truck rolls or operating costs. We get call volumes, of course, but I would say that we are getting very good at these rollouts. And it is relatively seamless and simple for consumers to connect, but, I don't know, and Diederik or Balan, do you want to address that?

Yes, you're absolutely right. It is more than 95% self-installs. And we also charge an activation fee, plus it is an incremental ARPU associated with the product. So all in all I think it is a good news story here.

Great, thank you very much.

Tim Boddy, Goldman Sachs.

I just wanted to ask a bit more about Ziggo and your comment about being a market driven decision and some strategic initiatives in view. Is there anything more you can say on that? I get the message that we shouldn't jump to conclusions.

And then, secondly, just more broadly on the Netherlands, what conditions do you think are needed for growth to resume, given that at least so far KPN don't seem to be lessening their commercial aggression albeit, as you point out, they have taken some price as they did a year ago. Thank you.

On Ziggo, they were opportunistic purchases. With the volumes in that stock you would need, obviously, the sort of transactions that were occurring with respect to the private equity shareholders for anybody to accumulate a position in that stock.

So they were market driven. It wasn't something that we plotted or planned; it was something we reacted to.

And the reason we reacted to it is what I described, which is we are invested in that market. We like the market despite its -- a couple of quarters of volatility here. We like the market in the long run.

And, obviously, we are in the business of building scale. And to the extent that we can build scale with a company like Ziggo, we want to do that. No question about it.

And without a merger, of course, there are other ways of achieving that, and cooperation on mobile would be one of them. As you know, we do have a joint venture that owns the spectrum. And we are looking at ways of working together as an industry, I would say, to have a more competitive product.

And I think that -- I will let Diederik answer it more fully, but I think you are seeing a return to growth in the market. We did do 10,000, 11,000 -- actually almost 12,000 broadband adds in the quarter which, for us, was I think a pretty good number. And if you look at what has happened to KPN they have obviously declined a bit from their prior to quarters.

And part of that is just we're responding. As you can imagine, we are responding with 200 and 500 megabit speeds in the fiber build areas. We are responding with an improvement store customer service centers. We are responding with improvements to the Horizon platform.

And -- but what we are not responding with is a price war, because we don't think that is appropriate or necessary in that market when you have superior products. And it appears that KPN feels the same way with price increases.

So a lot of their activity has been marketing and acquisition cost driven, which is why you will see their consumer business declining in profitability. But in the end, I think they will be rational players, as will we, and I think you're going to see this market be just fine over the long run. Diederik, do you have anything to add to that?

No. And if indeed it is true that they are going to raise prices, their list prices, that would be one good step, although we will not wait for that. Like you said, we have got parts already in place in terms of the innovation to higher speeds to 200. You mentioned the 500. Change the triple-play offers.

And there is even more to come. So we are not going to wait for them. We are not going to be reactive, but we will try to avoid a price war.

Yes, watch this market closely. We are going to demonstrate cable's ability here to compete with fiber; no problem. We will get to 500 megs without any major change or upgrade to our networks. We can get to 1 gig, 1.5 gig with a little bit of investment.

And so it will be interesting. I think it is going to be fun to watch. I am -- we are not concerned in the least, really. And I think cable's superior network and efficient capability of increasing speeds from an economic point of view will certainly be demonstrated in this market.

Thank you.

Jason Bazinet, Citi.

I just had a high-level question. Given the offer you have made for V Med, and the investment in Ziggo and the stepped-up stake in telling that, is there a macroeconomic overlay that is influencing your decision to deploy this capital? In other words, do you see inflation coming down the pike? Or do we just view these as opportunistic one-offs that each in isolation made sense and there is no overarching narrative? Thank you.

Oh, I think there is absolutely an overarching narrative, Jason, and it is the same one we have been articulating for six years straight, which is our business thrives on scale. In Europe we have got 12 largely contiguous markets where we have built substantial scale. And every opportunity we have to increase that scale is going to be looked at seriously.

I would also tell you that it is my view you will see increased consolidation across the European telecom sector, both within the mobile space and the thick space. That consolidation will be supported, if not encouraged, by the regulators. Because I think you have witnessed over the last decade a very competitive and a very dynamic telecom sector in Europe, largely benefiting consumers in the end with faster speeds, lower prices, lower roaming rates, et cetera.

While that is all good, I do think regulators see that telcos and cable operators and wireless operators have had -- in some cases -- mostly telcos and wireless operators -- have had a rough ride. And if they want to see competition and infrastructure investment and all the benefits that come with that, in particular growth in jobs and revenues, then consolidation may be the right way to achieve that.

When you have 100-plus mobile operators in a region the size of the US, and thousands of telcos, if you will, and multiple thousands of cable operators, is that really the best solution to a regional economic area? And I think the answer is no. I think they think it is no, and I do think that we will continue to lead the charge in consolidation where and when we can -- subject to, of course, achieving our main objectives of accretive transaction structures and accretive growth and all that.

So there is absolutely an overarching narrative. I wouldn't say it is quote, unquote macroeconomic in that regard, because we feel good about Europe as a whole. And we think Europe will be just fine, especially the fact -- considering the fact that 80% of our revenue comes from five countries, all of which are doing pretty well in consideration, or in comparison to the rest of the region. It is really more strategic in that regard.

If I can just follow up. The consolidation that you are -- that you have referred to, are you thinking about it in pools of wireless assets and pools of cable assets? Or you're talking more even including consolidation across wireless and cable?

I think you'll see a consolidation within mobile, within markets and across markets. I think you will see consolidation among fixed line operators within markets potentially. And certainly -- you have seen that, by the way, within markets, with most resellers going out of business or being bought up, and across markets. And I think you will see cable play a very important role both within markets, across markets, and across sectors.

We have looked at cable -- at mobile assets in the past. We have looked at the Swiss mobile asset. We may or may not look at the Irish mobile asset. There are massive synergies to be achieved in that regard.

We have a better business. No question about it. So, for us, it is that we have to be absolutely convinced that getting into the mobile business in whatever way is accretive, because our core business is absolutely solid.

But I do think you will see activity across the spectrum there.

Thank you.

Matthew Harrigan, Wunderlich Securities.

Firstly, on Ziggo, it looks like they are taking more of a home zone approach on Wi-Fi. Is that something that you would emulate opportunistically?

And then, Mike, you highlighted the flexibility of your network, you know, topology. But there are some things happening -- Apple TV, they are talking about 4K capability. Certainly PS4 -- 4K video signals, even if the game graphics aren't 4K.

Is -- a good chunk of the investment thesis is the CapEx sales coming down. It looks like you are executing on that. Is there anything that gives you pause on that path, over time, on your equivalent of the CCAP migration on the tech side that really ensures that these cash flows are going to continue to keep crawling along?

I will let Balan or Diederik address the Ziggo home zone question. I will tell you that we see a very compelling case for cable infrastructure and the technology roadmap that we are on, both economically and strategically.

And I don't think I'm speaking out of school, but I might be, when I say that certainly Liberty Media's investment in Charter, on some level, I think was driven partially by John's confidence in cable as a technology platform. And his involvement, of course, and knowledge of our business and what we are doing the across 25 million customers and 50 million homes passed would certainly inform that point of view. I will just leave it at that.

Balan or Diederik, do you want to address the Ziggo question?

Yes, with regards to the Wi-Fi flow and home zone, Telenet is already ahead of us. And Ziggo just successfully concluded the tests in the north of the Netherlands, which also made them release news that they would go to a launch date. And although it is partially competitive, it is, I would say, confidential information, due to competitive nature of it, we are also considering this to launch this initiative still this year.

Of course, our footprint in the Netherlands in those areas where we -- I would say where we have enough -- I would say, boxes, also, which operate like that. But we do have -- we did build quite a base already, so just like Ziggo, we can roll that out. Balan, maybe you want to elaborate on the wider context of that.

Sure. And I would say also we wouldn't be very surprised if a customer from Belgium or from the Ziggo territories and from the UPC area would be able to connect as well. So, somebody from Amsterdam can automatically get on the Belgian (technical difficulty) and vice versa.

And on the other stuff that you brought up, like CCAP, we are already deploying CCAP in our network. And as Mike indicated, we have the capacity and we are not terribly [concerned even] with 4K.

Thank you, Mike, Diederik, Balan.

Frank Knowles, New Street Research.

I just wanted to follow up on the comments, earlier comments on mobile. You have obviously had now experience in Belgium and Chile with different types of rollout and I just wondered what you are thinking in terms, not so much the technology and MVNO choice, but the marketing. You saw in Belgium very rapid growth, but also quite a lot of the Russian of the broadband ARPU as result of the bundling discounts.

I just wondered what your overall thoughts are now in terms of how mobile is best positioned for a cable operator in some of the markets where maybe you're going to be launching in the next few years with the MVNO? (technical difficulty)

Diederik, do you want to comment on what we see on the mobile side?

In Europe?

Yes, the question really is how do we find the bundling impact in terms -- we look at the go to market strategy for the rest of our mobile operators, how we are looking at that.

[Although] we believe that -- we call it a completion of the assortment of our portfolio. We do believe that over time we will also see a churn-reducing effect of that. We are almost certain that is also why the incumbents do it, and companies like Virgin as well as Telenet are now also showing, I would say, churn-reducing results for first time.

I think it's also fair to say, Frank, and we discussed this -- but I think we don't see mobile as something -- we see it as complementary, not necessarily [something we are going to take to check]. And we are not looking to launch a price war and create disruption in the market. What we are trying to do here is enhance the value of growing customer base.

So I think the model that has been used, particularly initially in Belgium, [we're fine]. But I am not sure we are going to aggressively grab or at least support grabbing major market share, if that is going to cause disruption in the market and causing some sort of pricing pressure.

By the way, I am back, everybody, sorry. Telecommunications.

You are in a first world country, right (laughter)?

Yes, I am in a first world country, surprisingly. Anyway, sorry about that.

Good. Actually, well, Charlie, [good of you for] (multiple speakers) answering the question. That is great. Thank you.

Bryan Kraft, Evercore Partners.

Just two questions. One, just want to ask you about the margin outlook for this year. On a consolidated basis, including wireless and pre-Virgin, do you think you will see a flattish EBITDA margin trend for the full year?

And, also, I don't know how material it is, but was wondering if you had seen or are seeing any impact from KPN's entry into Belgium with SNOW? I don't know if that is significant, but was wondering if you can comment it on it. Thanks.

Yes, our margin outlook is, obviously, to increase our own margins over the next three years. You could see that in the proxy when you look at our projections. Virgin, pro forma, would reduce those margins a couple hundred basis points or more because of where they are. But we also anticipate slight margin improvement from their core business and on a combined basis from our businesses.

So I think we are going to stick to that approach. The synergies at Virgin are substantial, but perhaps even underestimated on some level. So we are encouraged that as we get in there, and we haven't had a chance to really do much, we will find other opportunities to increase profitability across the platform.

John Porter, you want to take your first question on Belgium?

Sure. SNOW has not had a significant impact. They had a slow start up with a fairly high connection fee. Most of their churn to date has come out of Belgacom. And we have actually had our lowest -- some of our lowest television churn over the last two quarters, so we are not seeing a significant impact from SNOW.

We also have a product which we feel matches up quite well with SNOW, so we are very successful at saving, retaining customers who have considering switching.

Nice work.

Thank you.

There is more to come.

Will Milner, Arete.

I just actually had a question on the free cash flow in the quarter. I think it was at $200 million, roughly, less than the quarter a year ago. And working capital looks like it accounts for about $50 million of this. So I just wonder if maybe Charlie can explain a bit more of the drivers on that.

And then just a clarification linked to that, I think the ambition to grow free cash flow mid-teens a combined basis, if you didn't have the -- if you looked at this on a Liberty standalone basis, would you still have to ambition to grow free cash flow mid-teens this year? Thanks.

The second question (multiple speakers) is a yes, but I will let Charlie address the free cash flow question.

I think the answer is yes. But the reason we would get to the mid-teens is we wouldn't have as much leverage as we'd have going into the Virgin transaction, because [we levered up to buy the whole] Telenet and indeed to buy Virgin. So without that leverage it would reduce interest expense.

So that would support a mid-teens target. But as it stands today, if we do close Virgin, then you will see the underlying [few] businesses, Liberty businesses grow a little slower. That will be offset by the growth in Virgin. So we are comfortable mid-teens stand alone or combined.

In terms of the working capital, I think Q4 -- we have been trying very hard to improve our working capital management. We think [we are probably at Everest]. I think in Q4 what you saw was the benefits of that coming through.

There was a big push on in Telenet, I think probably not unrelated to the bid dynamics, and I think a lot of that unwound in Q1. But we still feel very comfortable that as this revised profile of working capital comes through, that you can see us hitting the cash flow targets for the year.

So in terms of Q1 I think it was more of an unwind in Belgium and a little bit of the shifting of the cycles we have been working on. But the overall picture is very strong and you should see some good -- big improvements.

Okay, just one quick follow-up. In Holland, I think just trying to keep track of the pricing changes there, and you mentioned them around triple-play, just looking on the website, it looks like potentially that the cost of the cheapest triple-play offer has been reduced a bit to below EUR40. I'm not sure if that is correct. And if it is, is that designed to cope primarily with the cheaper Telfort in the market? Thanks.

Diederik, want to address that?

Yes, you are looking at UPC Netherlands site, most probably, and indeed we reintroduced a triple-play for EUR39.50 to more effectively compete versus their EUR34.50 pack. It is a less valuable proposition, and hopefully that will give us a somewhat better foundation at the lower end, but again, without starting a price war. Still EUR5 above what KPN is asking for their entry triple-play of Telfort, which is their B-brand, which they use for the more price aggressive fights.

Right, and when were those changes made?

Like I said, this was the adjustment we referred at in April to create a more complete portfolio including also having at least an entry product on the safe side of the lower end of the market. But, again, like I said, at a premium versus KPN not to induce a price war.

Okay, thank you very much.

Be present there. Yes. Okay, thank you.

Certainly, we appreciate everybody's participation in the call. We are -- and I know I speak for John and the whole Board and the management team when I say that we are extremely positive about where we are right now. I am a bit under the weather, so don't take what might appear like a lack of enthusiasm in my voice as anything other than just pure excitement and confidence in what we are doing and how we are doing it.

This transaction we are about to close is transformational in so many ways for us. And I know each of us on this call, as well as the core Virgin management team, are anxious and really excited about putting these two businesses together and showing you guys the benefits of that merger, which I think will be substantial and really, really positive for years to come.

So appreciate your support, as always. And next time we speak we will have completed a deal and look forward to talking about our second-quarter results. Thanks.

Ladies and gentlemen, this concludes Liberty Global's Q1 2013 investor call. As a reminder, a replay of the call will be available in the investor relations section of Liberty Global's website at www.lgi.com. There you can also find a copy of today's presentation materials.

This concludes today's conference call.