Liberty Global Ltd (LBTYA) 2013 Q3 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 consent of Liberty Global is strictly prohibited.

(Operator Instructions)

Today's formal presentation materials can be found under the investor relations section of Liberty Global's website at www.LibertyGlobal.com.

(Operator Instructions)

As a reminder, this conference call is being recorded on this date November 6, 2013. I would now like to turn the conference call over to Mr. Mike Fries, President and CEO of Liberty Global.

Welcome everybody. As usual, we have a large group with us in various parts of the world. Folks you might hear from today, Charlie Bracken and Bernie Dvorak, our co-CFOs; Diederik Karsten, who runs our European operations; Balan Nair, our CTO; Rick Westerman is on and several others who may have to say a word or two. I'm going to turn it back over to the operator for the Safe Harbor, and we'll get right into it.

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 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 Forms 10-KA and 10-Q. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or the conditions on which any such statement is based. I would now like to turn the call back over to Mr. Mike Fries.

Thanks operator. Our agenda is typical for those who have attended our calls in the past. I will give you some overview of the remarks about the Business in the quarter. Charlie will jump in with the numbers, and then we will hopefully have plenty of time for questions.

We are working off of slides which you can access on the website now, and I will start on slide 4 and talk about operating and financial highlights. I think everyone knows the engine of our business, the foundation of our strategic plan, is organic growth in subscribers, revenue and cash flow. Quarter after quarter, we continue to deliver that growth. We added 314,000 net new RGUs in Q3 and over 870,000 year to date. The opportunity to drive digital television deeper into our video base and capture broadband market share in Europe has never been greater. This is also reflected in our financial results. If you include Virgin Media for the full period, we're right in line with our mid single-digit growth objectives with 4% revenue and 5% OCF growth year to date.

Charlie's going to take you through the details, but in our larger markets like the UK, Switzerland, Belgium and Germany, which represent roughly 70% of our revenue, we are actually north of that average year to date in OCF growth in more of a 6% to 9% range. And of course, free cash flow represents our bottom line if you will, and on a combined and adjusted basis, free cash flow was up 24% year to date to nearly $1 billion, which is good news as we head into our strongest quarter of the year.

Speaking of cash, I am sure by now you are aware of our deal to sell Chellomedia to AMC for a little over $1 billion. This was one of those win-win transactions and a great outcome for Liberty Global. It was a premium price of what was largely a hidden asset. And everyone has their own math on these sorts of things, but we estimate the multiple at around 12 times trailing operating cash flow. More importantly, it frees up resources to take a fresh look at more strategically aligned content needs and opportunities in Europe at a time when we are still the clear market leader in video distribution.

I know everyone is anxious to hear about Virgin Media and how the integration is going, and we will have a slide on that in just a moment. One of the key headlines is our current belief that the synergies could be significantly higher than we originally estimated, as much as double the earlier forecast and closer to $350 million annually. Across the rest of Europe, we continue to push our competitive advantage against telcos. In particular, we substantially increased maximum download speeds to over 200 megabits in most of our markets with our lead bundles now averaging 100 megabits to 150 megabits. More on that in a minute.

I'll wrap this slide up with few couple of comments on our capital structure, which remains very strong and geared to drive equity returns. Pro forma for the sale of Chello, which had happened in Q1, our total liquidity is around $6.5 billion. And consistent with our strategy, we have maintained gross leverage in the 5 times range with our average maturity almost seven years out and our cost of debt fixed at around 6.7%. Importantly, we have now purchased $1 billion of our own stock year to date, and we are on track to complete our two-year target of $3.5 billion by mid 2015. Feels to me and to the team like we're firing all cylinders at this point.

So let's begin some of our operating results beginning on slide 5, which shows our third-quarter net adds by product for the last four years in the third quarter. First of all, looking at our current quarter in green, you'll notice some positive trends. Starting with record Q3 broadband additions of 214,000 on the top left of the chart, helped by the inclusion of Virgin Media. We now serve over 14 million broadband data subs, representing about 31% penetration. And our lowest video subscriber loss, just 53,000 since 2007 on the bottom left of the chart. Our digital penetration stands at around 50%, which means we have an upsell opportunity to around 8 million analog video subscribers still. And on the bottom right, you will see total net adds largely in line with historical performance of 314,000.

Broadband remains our core product and anchors the bundled packages in every market. In Europe, given the unique competitive framework we operate in, our cable networks are redefining what broadband means to consumers. Slide six shows what has happened in the last 12 months in our top five markets. The green bar shows broadband speed in our lead bundle or our most popular package this year and last, and the blue line is the maximum speed offered in the market. If you eyeball the chart, you will see that we have doubled speeds of our lead bundles in Germany, Belgium and the Netherlands and now advertise 100 to 120 megabits as our sweet spot offer in those markets. We have tripled speeds in Switzerland to 150 megabits. And Virgin currently offers 60 megabits per second in its premier bundle but already has about 60% of all super fast broadband subs in the UK, and we certainly plan to solidify that position.

Folks always ask, does anyone need this much speed, and I think based upon the fact that the vast majority of our sales include these types of offers, the answer is apparently yes. In fact, average consumption on our networks has increased tenfold in the last six years from 170 megabytes per day in 2007 to 1.7 gigabytes today. And with more and more tablets, smart phones, smart TVs and laptops in the home along with increased video streaming, it is going nowhere but up, and our networks are ready. We are already launching the 500 megabit product with DOCSIS 3.1 around the corner, we can get to one gig or higher easily and efficiently. If you map out the VDSL or fiber plans of our primary competitors across Europe and you consider the regulatory trends, we should have a huge advantage in broadband for the foreseeable future. And that gives us a lot of comfort with this component of our growth story going forward.

The other half of our one-two punch in Europe is a rollout of advanced TV platforms which we have updated for you on slide 7. This might be a good opportunity to remind you that when it comes to our video pay-TV business, Europe is very different from the US. OTT services exist in many markets, but they are far less developed and sitting at very low penetration rates. Content rights are highly fragmented by language and territories, through-the-air broadcasters control most of the rights, and linear television still dominates TV viewing. And lastly, subscription video prices are relatively low and inexpensive at around EUR10 to EUR12 per month on an entry level.

Several trends are universal and have emerged in Europe -- in particular increase consumption of OnDemand and OTT video and the attraction to new and elegant user interfaces, what I call the functionality factor. Today we are uniquely positioned to satisfy those two demands with our advanced TV platforms, which have now launched in five countries and serve 2.2 million households including over 365,000 Horizon subs in Holland, Switzerland, Germany and Ireland. We are already at 18% penetration in Switzerland and Holland after 8 to 12 months and 9% in just two-and-a-half months in Ireland. Those numbers mirror Virgin's TV platform, TiVo platform in the UK, which has reached nearly 50% penetration in two-and-a-half years. Just as Comcast has seen with their X1 platform, customers don't want to leave -- they just want a better experience. That is exactly what we have given them -- all the content, all the functionality, all the devices, all the time. And these platforms are not just creating excitement and reducing churn; they're driving revenue, an additional $6 to $10 per month, which is significant when your average RPU per customer is $46.

With that as a basic update, I will run through some highlights from our big five countries as we call them, beginning with Germany on slide 8, where we generated 124,000 net new RGUs in the third quarter and for the 11th straight quarter added more broadband subscribers in our three markets than KDG and all the international DSL operators. With the launch of Horizon in September and our premium bundle featuring 150 megabit product, we're focusing more on customer economics to balance out the tremendous volume we've consistently experienced there. For example, we have three periods for new subs, implemented more activation fees compared to 2012 and improved the sales channel mix. Blended ARPU per customer was up 8% to EUR20.50 as is up 30% over the last three years. With the KBW integration largely complete, we are generating operating capstone margins of 61%.

Finally with all the commotion around Vodafone's purchase of KDG and the recent court ruling on the merger remedies applied to our acquisition of KBW, some people have questioned our commitment to the German market, which of course is absurd. Germany was 40% of our subscriber growth and remains our fastest-growing market financially. We couldn't be happier with our position. Lutz Schuler and the management team are terrific, and our long-term potential in Germany has never looked better.

Moving to Belgium on slide 9, Telenet had record nets adds of 48,000 in the third quarter. Net adds are up 50% year to date. Subscriber growth has been driven by the launch of revamped and simplified triple play bundles in June, which helped add 32,000 new triple play subs, our best result in four years, and reduce video losses to essentially zero in the quarter. At the same time, the mobile business, while slowing down, has been a welcome source of revenue. We doubled the mobile subscriber base in the last 12 months to 713,000, and quad play penetration is currently just 15%, so there is still room for growth. John Porter who moved into the CEO position has done a great job of building morale and focusing the company on positive growth and good industry relationships.

Good news to report in Holland in the quarter on slide number 10, as the business returned to positive subscriber growth. We actually started seeing signs of improvement mid-summer, and we pounced on that with the introduction of the new EUR50 bundle, which includes 120 megabits, more HD channels and an easy upgrade path to Horizon. Broadband growth has been a popular metric in the Dutch market. We added 12,000 new broadband subs in the third quarter, that's up 20% from last year, and 3 times KPN's Q2 result this year. So things have clearly been moving in the right direction for both cable operators. The next step on the product roadmap for Holland is to expand mobile offerings, and we started rolling out Wi-Fi spots across our footprint, almost 3 million homes. We expect to have 500,000 by early 2014. This will be a free service to our broadband subs to help enhance value and improve retention. These developments and the new team led by Baptiest Coopmans make me cautiously optimistic that we can continue to show growth and improvement in Holland next year.

We are really pleased with the continued growth in Switzerland on slide 11. We added 19,000 RGUs in the third quarter and 45,000 year to date, driven mainly by broadband which was up 30% year over year. Swisscom has not reported yet, but we estimate our share of broadband net adds on footprint is approximately 60% for the first half of the year. The 150 megabit broadband product generated 70% of our triple play sales in the quarter, but customers are willing to pay more for the best broadband. We are giving it to them, actually including a 500 megabit service which is up and running and will roll out to selected markets next year. The Horizon TV rollout is progressing well with over 110,000 subscribers to date and an incremental price point of CHF10 per month. My remarks thus far have been largely operational, and Charlie will hit the financials, but it's worth highlighting that we achieved 10% rebased OCF growth in Switzerland this quarter, our best result in five years. Eric Tveter and the team have done a great job getting this large and important market for us back on track.

I will close out with an update on Virgin Media on slide 12. I will start by saying we get more and more comfortable with this acquisition as time goes by. No question about it, there have been a couple of surprises, but Tom Mockridge and the entire management team have done an outstanding job of identifying issues, addressing opportunities, and keeping things moving smoothly as we fully integrate the business. Operationally, Virgin is making good progress on the consumer front at a time of increased promotional activity in the UK market. We added 14,000 new customers in the quarter and increased revenue per customer by [3%]. This was obviously driven by continued growth in superfast broadband, which now represent 70% of our Internet base, and continued investment in our video business with another 165,000 TiVo subs added in the quarter, the launch of BT Sports in mid-August, and our announcement about the Netflix deal in September.

Now if you parse through the numbers, you will see the B2B division has underperformed really going all the way back to the January February timeframe, but we are starting to see improvement in the underlying trends. Year-over-year [B-based] revenue was up 2% in the third quarter compared with previous declines, and I am impressed by Peter Kelly who joined us in mid-September from Vodafone. And remember, we only have a 4% market share of the UK broadband BB business and virtually no presence yet in the Soho space. Virgin's making good strides in mobile. We signed a new deal with EE and expect to launch the iPhone later this month.

And then finally, a tremendous amount of time and energy has been devoted to the integration of Virgin, what we call our value creation project. We have activated nearly 100 work streams to identify and implement opportunities, and as I said earlier, we believe we can do considerably better than our earlier estimate of $180 million in OpEx and CapEx synergies and are currently forecasting about twice that number on a run-rate basis by 2016.

So we're only at five months into this business, but we feel really good about the progress. The new management team is firmly in control of the ship, consumer business is doing well, and with synergies greater than expected, we're confidence we can deliver mid-single OCF growth next year and beyond. With that, Charlie, I will hand it over to you.

Thanks Mike. I am on slide 14 now. Quarterly results for Q3 do include Virgin Media for the entire quarter and on a year-to-date basis. Virgin Media is included for all of Q3 and three weeks of Q2. This slide provides a year-to-date view of our re-based revenue and OCF growth and adjusts foreign exchange, acquisitions and specifically as it relates to Virgin, it includes the full nine months. The bottom left highlights our results including Virgin Media, and the second bar shows Virgin Media's performance on a stand-alone basis. And the third bar brings the two numbers together to form our full-period combined growth rates.

Through the nine months, Liberty Global excluding Virgin Media generated 5% topline growth fueled by our Belgian and German operations which posted 12% and 8% growth over the period. The middle green bar shows Virgin which produced 2% rebased revenue growth for the nine months. Underlying results were led by cable subscription revenue at 6%, and that is offset by mobile at 1% and a decline in B2B revenue 1% for the year to date. But as Mike said, Virgin's B2B business did deliver positive year-over-year growth in Q3 as compared to the negative 3% for the first half of 2013. The third bar shows our combined results for the full nine-month period, which reflects 4% rebased revenue growth for the company overall, and the right half of the slide depicts our rebased OCF growth.

Excluding Virgin Media, we delivered 4% growth for the nine months including 3% in Q3, and those results were weighed down by certain non-recurring items including high integration costs due to over $15 million of Virgin [utilization] costs and incurred since the acquisition date, most of which were incurred at the corporate level. On a standalone basis, Virgin Media generated 6% rebased OCF growth for the year-to-date period, including 3% in Q3. So combine the two results, and rebased OCF growth rates are 5% year to date.

Slide 15 highlights our geographic results for the nine-month period, and I'll dive deeply into the European OCF performance on the next slide. Our European business reported $9 billion in revenue and $4.4 billion of OCF year-to-date, reflecting year-over-year rebased growth of 5% and 4%, respectively. And the principal drivers of our year-to-date performance were our Belgian, German, and Swiss businesses offset with continued challenges in the Netherlands. Outside of Europe, our Chilean business produced revenue of $748 million, and OCF of $257 million, and that represents 8% rebased revenue growth and 10% rebased OCF growth as retail and mobile has left with a drag in the year-to-date period compared to 2012. The third row shows our reported results for the nine months including the stub period for Virgin Media following the completion of the acquisition in early June. As you will see, we reported revenue $10.3 billion and OCF of $4.7 billion, reflecting rebased growth of 4% of each metric. Most importantly, the final row shows the combined businesses would have generated $13.1 billion of revenue and $5.8 billion of OCF, and those figures represent 4% rebased revenue growth year to date along with 5% rebased OCF growth.

Slide 16 looks at our key European markets on a quarterly and year-to-date basis in terms of rebased growth. I'm not going to spend too much time on Germany and Belgium because Mike has given you the operational highlights, but those have performed very well in 2013, delivering high single-digit rebased OCF growth in Q3 and year-to-date. And our business in Switzerland had its best quarter in five years, posting 10% rebased growth and 7% on a year-to-date basis, and that is driven by a combination of both volume and price growth along with continued focus on cost containment and favorable phasing of market demand. Virgin Media reported 3% rebased OCF growth in Q3 and 6% year to date, and it is important to know that as we look to Q4, the rebased growth in the UK will face significant headwinds as Virgin had more than GBP15 million of positive non-recurring items in Q4 2012.

Moving to Central and Eastern Europe, our collective Central and Eastern European operations posted rebased OCF declines of 7% for Q3 and 3% for the year-to-date period. While we continue to see impacts of composition in Poland and the Czech Republic, we're starting to see some stabilization in the OCF of our operations in Hungary, Romania and the Slovak Republic which grew modestly on a combined basis in Q3. Finally, in the Netherlands you will see an OCF decline of 5% year to date and 10% in Q3, and that's due to the high level of competition in this market. It's worth pointing that our local currency OCF improved modestly on an absolute basis from second quarter to third quarter, but we still think Q4 will remain financially challenging in this market.

Moving to slide 17, to view our combined property and equipment additions as well as our combined adjusted free cash flow results for the year-to-date-period. Our combined property and equipment additions fell slightly year-over-year to 21.6% of revenue or $2.8 billion for the nine-month period of 2013, and that's compared to 21.8% of revenue or $2.7 billion for the same period last year. In terms of breakdown by category, roughly 57% was related to CPE and scalable infrastructure, 24% was attributable to network investment, and the majority of the balance was support capital. Over 80% of our year-to-date CapEx was revenue focused, return driven spend. On the right hand side of the page, you will see that we generated combined free cash flow adjusted of $968 million for the first nine months, up 24% year-over-year. And as we look to Q4, we expect to deliver best free cash flow quarter of the year, substantially higher than our Q3 adjusted free cash flow of $280 million.

Slide 18 recaps our leveraged liquidity and repurchase program. We finished Q3 with $44 billion of debt, which includes roughly $2 billion sequentially from Q2, which is mostly to do with FX movements and an incremental loan of EUR680 million written to our Ziggo investment. Including the loans [of back on] interest in Sumitomo and Ziggo, we had gros and net leverage of 5.3 and 5 times, respectively, which were consistent with our Q2 levels. We ended Q2 with a fully-swapped borrowing cost of 6.7%, which was down 80 basis points compared to Q3 of last year. And moving across the page, the middle pie chart depicts our adjusted consolidated liquidity, which now stands at $5.5 billion before factoring the expected $1 billion of proceeds from the sale of Chellomedia.

At September 30, we had total cash of $3.2 billion including $1.2 billion at the parent. And in addition to cash, we had $3.3 billion of maximum borrowing capacity under our revolving line at the end of Q3, of which we would expect to be able to borrow $2.4 billion upon completion of our Q3 reporting requirements. Finally, on the right-hand part of the slide, we continue to be consistent buyers of our equity. From mid-June through September 30, we purchased approximately $700 million, about 20% of our two-year $3.5 billion share repurchase target, and as Mike pointed out earlier on, we are continuing to buy our stock and were active buyers in October.

So turning to slide 19, in closing, our Q3 and year-to-date performance remains steady, subscriber growth in Q3 and what we have seen through October should provide us with good momentum in Q4 and into 2014. We have made some good progress with Virgin Media; there is lots to do. We are pleased with our progress, particularly with the synergy upside. And our capital performance strategy is in high gear. We have $1 billion of equity repurchase through October, and we're on track to complete the two-year target of $2.5 billion of buybacks by the middle of 2015. With that, our prepared remarks are complete, so operator, can we open up the call to questions please?

(Operator Instructions)

Jeff Woldarczak, Pivotal Research Group.

I wanted to focus on Virgin, can you provide more color on the timing of when you expect the VMED synergies to benefit your results? You touched on it in your prepared comments, but can you help size out the VMED synergies actually in the third quarter and what you expect in the fourth quarter? I have one follow up.

Jeff, it is Mike. I don't know if Tom was on the phone or not, so I'll maybe let him chime in. We said in the remarks I think is what we'll stick to, which is run rate synergies ought to be in full swing by 2016. Perhaps as we move to that day, we are implementing, obviously, a greater and greater percentage of those. I don't think we are giving any interim estimates of those synergies, at least not on this call.

What I would say, Jeff, is that in Q3 of this year, we first bought the company, there's a series of integration costs that were incurred. As Mike said, it's fair to assume that the synergies are going to kick in next year. There's limited impact this year.

Definitely positive next year through even after integration costs and substantial, but on this call we're not prepared to give you those numbers today.

By the Way, Mike, when you said mid-single digits earlier you were talking specifically about the UK, right?

I said it a couple times, but it relates to all markets and the UK as well.

Fair enough. In the UK, at least temporarily, it seemed to get somewhat more competitive around the launch of BT Sports, but you all seemed to weather that just fine. When should we expect RGUs to begin re-accelerating in the UK?

Obviously, we have -- we're putting our budgets together now, and we do expect next year, positive RGU growth in the UK market. Fourth quarter is hard to predict, but certainly next year our budget is for positive RGU growth and customer growth.

Great thank you.

Ben Swinburne, Morgan Stanley.

Mike, could you spend a couple more minutes just on your comments around content? I think the sale of Chello, obviously, brings in a lot of new cash, but it sounds like you are still interested in owning content, or at least looking at exploring those options. Can you just spend a little more time on what might be interesting? If vertical integration or greater level of vertical integration is interesting to you longer term for the Company?

Sure, let me spend a second explaining to those who may not know what the logic or rationale was for exiting the Chellomedia business. It's a great business but it's geographically a diverse in 138 countries and just wasn't an important strategic element of our core distribution business. We were relatively a small percentage of their revenue. We felt that we could take those resources and allocate them into strategic content investments or other opportunities that would drive our core business. That was the main objective, to get more geographic focus and more focus around content that we know is going to move the needle. Now, we're not prepared to tell you exactly what those things might be, except that you can imagine or expect that we are investing considerably more in online rights today. We are investing in our [S-Von] tier as we prepare to preempt over-the-top type competition. We have a couple of premium sports and movies channels that we're looking at, perhaps rationalizing.

It is too soon to tell you exactly what it will look like. It will be things that we know over the next 5 years really drive the core distribution business as opposed to what Chellomedia was, which was a amazing entrepreneurial journey and the creation of $1 billion company from scratch, but wasn't really aligned with our core distribution business.

Got it. That's helpful. On an unrelated topic going back to the Virgin and the B2B business. This was a business that we thought had a decent backlog of large contracts coming into the back half. I know you've shifted how the reporting works, but just give us a sense for what the backlog looks like? I know there's some government contracts in that business, maybe there is some cyclicality or something tied to government spending. Any more color on the B2B outlook would also be helpful.

The good news is that we had positive rebase growth in the quarter. There's a new management team, who I think we all feel very comfortable with, is going to do good things. Diederik, you might want to chime in here. There have been a few wins. They've got a nice business in the public sector, which is a big chunk of the growth in that market. There have been some recent backhaul wins at Telefonica and Sky and Vodafone. We're enhancing the products across the footprint where we operate. I'm confident the team has the issues understood and the products and marketing mindset to get the business back on track. As I said in my remarks, we are only 4% of the B2B market in the UK and there are virtually no SOHO revenue streams to speak of in our Business. There is plenty of opportunity. Diederik, you may want to add to that, but I think it is about blocking and tackling in the core business first and foremost.

Right and maybe to add to that, Mike, an additional opportunity might be an area of strength, which we are developing in continental Europe, which is to SOHO from a transactional point of view different segment, but that is virtually also non existing in our portfolio that might be a truly new opportunity in the UK. From that point of view. The key win you mentioned, by the way, is called Vue Cinemas, on top of the backhaul. It's not only adding new customers, it's also controlling the churn. From that we hope to indeed reverse the trend. First signs are there, but it is still a journey like you said.

Got it. Thank you very much.

Michael Bishop, Barclays.

Just a quick question on the progress on mobile across the group. We clearly saw another good quarter from Telenet and some new initiatives there in the fourth quarter. You mentioned pushing mobile and Wi-Fi in the Netherlands. Could you talk a little bit more around the timing going forward in the key markets please? Thanks.

Sure. Diederik, do you want to hit that?

Yes. In the Netherlands, as we speak, go through the national rollout of what is called the homespot expansion, like Ziggo has been doing. By the way, both of us calling the product Wi-Fi hotspots, which will make the awareness of this product, cable versus telco more prominent. It's exactly the same in other countries. Belgium is already ahead of us, they have a combination of homespots as well as hotspots, which are more the public spots. Within 6 to 8 weeks we are also planning to add in the homespots based on the Euro DOCSIS 3.0 EMTA in four more countries. We did not announce it all those countries, so I'd say for competitive reasons I'm not elaborating too much on that.

As you know, and I have said publicly, we have had 4 million mobile subs. They would have been up in the quarter except for the fact that we recharacterized the Chilean mobile subscriber definitions and lost subscribers there, at least from an accounting point of view or a reporting point of view. The plan remains the same as I've articulated in the past. We have a central MVNO platform that'll service up to eight markets, seven markets for sure on the continent. We have MVNOs in all of the core markets where we're going to be launching. We have, today already, 83% of our subscribers can buy a quad-play product today. We are up and running, and 90% of the sales that we're making today are going to our existing video subscribers.

The quad play for us is going to be an important piece of our revenue growth over the next 3 to 5 years. It's certainly something we have invested time and effort into. We also, as you may have seen, took Graeme Oxby, who was running the mobile business for Virgin and put him in a European wide mobile position. So, he is running all of our mobile businesses across Europe, as of few weeks ago. That shows the commitment we have to rolling this product out, and, again, rolling it out in a capital light variable cost manner, which means we won't be buying spectrum and investing heavily in network. We're really using the full MVNO model and in many instances SIM cards. I think being very shrewd and clever about how we attack the market to retain our core customers, but also drive our revenue streams.

Thanks guys.

Jason Bazinet, Citi.

I was wondering if you could provide a bit more color on the declines in the B2B market in the UK? I ask only because when I think about the dynamics in the US, it seems there is a price umbrella of the attackers go in and take share? So, if you could provide a little color in terms of the competitive dynamics that are going on there? That would be great.

Sure. Died, do you want to tackle that?

The dynamics of the decline is basically, I'd say, a competitive, by the traditional voice market in some of the medium-sized segments, where a lot of contract renewals are now up for tendering procedures. As we just spoke about, against those declines there is plenty of opportunities of offsetting in other segments. Pricing, also across continental Europe, particularly on voice, has been under pressure already for years. That's nothing new, and we see the same trend in the UK. Since it's almost 14%, 15% of the total revenue, it's obviously a chunk which we've tried to defend, but the pricing erosion, as such, is not a new phenomenon. It's a known trend. It's also the declining voice usage, which we also see in the residential, which puts the volume under pressure. I wouldn't say that is something particularly dramatic for the UK.

Is your sense that your go-to-market process, or the sales people that you have going after this segment is sufficiently ramped up? Is it where you want it to be in terms of getting new account wins to offset whatever pricing declines are going on?

I'd say, also I haven't talked to [Peter Kelling], and that the management team, we'd say that we are obviously revisiting the approaches of the different sales channels, the new as well as the current sales channels, and in that process we will further sharpen our approaches also from a headcount and competence point of view.

Okay. All right, Thank you very much.

I think the main thrust, though, is to make sure we're staying relevant in the large-medium business and small-medium business, and so in sectors where in the large public sector we've got pretty good market share, about 14%, but if you look at the small-medium business or SOHO, we're 0% to 3%, 3% to 0%. It's also about refocusing the sales effort on business that we know we can achieve a greater share in.

Very helpful. Thank you.

Tim Boddy, Goldman Sachs.

I wanted to ask about Germany where obviously there is some headwinds from the carriage fee rolloff, but we've seen growth slow from 9.5% in Q1 on the revenue side to 6.5%. I'm including a little bit of a slow down on ARPU growth. It would be helpful to understand is 6% the new normal? Obviously, we saw a profit warning from KDG at the start of October. Is something changing in that market? Any color would be useful. Thanks.

The only thing, and I mentioned this in my remarks and I will let Diederik chime in on it further. We are looking at or trying to ensure that our growth over the long haul is sustainable and is driving the most positive economic result. It's easy to add more and more customers, and we are good at that, but we want to make sure we are not adding customers simply for that purpose. That we're adding customers that are profitable and driving our core financial returns. As I mentioned in my remarks, we're doing things that might have a small impact on volume in the next 12 months, but will drive greater revenue and EBITDA growth.

We're not giving forecast here today, but we believe Germany will be above our average guidance, if you will, when it comes to revenue and EBITDA growth and will continue to be one of our fastest growing markets. I think it's just the fact that it is at an interesting inflection point, where we're taking all the broadband market share, where we're launching new video products. We're seeing good solid volume, and we want to make sure we are maintaining pricing power and that we are being smart about deriving the most revenue out of each customer that we can. There's no fundamental shifts there, it's more tweaking, I would say, of the model. Do you want to add anything to that, Diederik?

I thought that, for instance last year, if you just carve out just for the loss of the feed in, the growth would be higher closer to 8%, which also underpins what you just said. That there is no structural change, but they're still at the higher level.

Just on the pricing power point in Germany, I guess some of the prices that are out there. I think you go 25 year or a double play package at Unity, are quite deflationary to the market. I'll just ask the question a different way. Are you confident that we can see pricing power in that market? Or is it still going to be very share focused until we normalize the copper versus cable balance to the more typical 40/60 50/50 type of balance that you see in other countries? Thanks.

If you look at our core product, which is 100 Mbps and with Horizon on there, we're charging EUR33 in the first year, EUR40 on the second year. Of course, Horizon isn't incremental to that. A DVR is EUR5, there's more movement -- so I think actually our ARPUs in that market a really, good news story. When you can drive RPU up 30% in 3 years, I think that that is positive. We're not -- in many of our markets, ARPU is harder -- the customer is harder to grow because we are already relatively expensive. This is a market where we believe there is nowhere to go but up in terms of the amount of revenue we're generating from each customer. I think our products are competitively priced, and as we continue to distance ourselves from the competition in terms of the quality of our bundles, then you'll see that price improve. We're finding the right mix of price and volume and we're getting both out of this market, which is positive.

Thanks very much.

Bryan Kraft, Evercore.

Just a clarification on the doubling of the synergies. Are you expecting the OpEx and the CapEx components both to approximately double the original estimates? Or is the OpEx piece going to be more than doubling? Can you just elaborate on the benefits you are expecting from the new contract with Everything Everywhere in the UK? Thank you.

I don't know that we are disclosing today. In fact, I'm sure we're not, how that synergy number breaks down, but it's a healthy increase across both components. I'll just say it that way. Diederik, do you want to hit the Everything Everywhere contract or, Balan, if you are on?

Yes. On the EE contract yields, you will see, in our case, a significant -- a pretty good sized drop in the pricing on a per-minute basis and on a per-mbps basis. This is a much better contract for us, and it's tied to the fact that we are also going to launch our core infrastructure in there. So, we will own the core controls, the HLR, et cetera and it will turn from a light MVNO to a full MVNO in the UK.

Thanks, If I could just follow up on that? Where are you guys in terms of shifting from 3G to 4G on the EE's network?

There's a couple of things we need to do on the upgrade intellity to go to 4G, but for the most part we will be reselling 3G and 4G products as well.

Okay thank you.

Will Milner, Arete Research.

I have a couple on Virgin. Firstly, just in the third quarter. The OCF growth looked pretty good given what's going on in the market. I just wondered if you can elaborate on how your sales and marketing expense looked year over year? Obviously, the disclosure around costs has reduced, but it would be quite interesting just to figure out what you guys have done on marketing year over year?

Secondly, at Virgin, as you look into the fourth quarter, you mentioned a tough comp, some nonrecurring items in the fourth quarter of last year. We also need to think about the subsidy impact from selling iPhones for the first time. So, I wonder if you can just talk about, firstly, the subsidy hits we should expect from selling iPhones for the first time? Then, thinking through really, should we be looking at OCF growth year over year in the fourth quarter at Virgin? Thanks.

Sure. Tom, are you on the line? I think someone said you were.

Yes, Mike, good morning.

Terrific, do you want to take a crack at either of those? Everybody, it's Tom Mockridge. I don't think he's been on a call with us yet, but is the CEO of Virgin.

Good morning. Regarding the iPhone question, we will be very targeted in the way that we package the propositions there. We think we can do that within the current envelope of the Virgin mobile business. We're certainly not looking to price down on -- it's a great product, an expensive product, so we're not looking to use price as the primary driver there and we see that as supporting our increased move into quad play. You might just remind me what was the --?

A question about the marketing span, which I think is fair to say has been lower relative to the market in the third quarter, relative to our peers. Because you had BT Sports ramping up, Sky reacting, so and the third quarter would have reflected, I think, this fair, Tom, a less than normal marketing spend for us, at least in comparison to our peers.

Would that apply year over year, Mike?

What do you mean by that? Will that continue, you mean?

No, in the third quarter was the marketing expense lower than it was in the third quarter of last year?

Ah, a good question. That I don't know, but I know -- Tom, you may know the answer to that.

It was broadly the same. What we saw was our competitors going up very significantly with the sports battle and broadband battle between Sky and BT, as that clearly had an impact on us. We were pleased with the result, that we held our numbers and had some modest growth. We are definitely seeing benefits now on our churn, which we attribute significantly to the acquisition of BT Sport.

Okay. Could I just have one very quick follow up? Obviously in the UK it's been in the press, there's been quite a lot of management redundancies. Just thinking about the fourth quarter, should we expect a restructuring charge in the fourth quarter related to those headcount reduction?

Charlie or Bernie?

We did take a restructuring charge in Q3. I think that will be an ongoing effort as well, so you'll see more in Q4. The other question you asked was a tough comp in Q4, I think we did disclose that there was some nonrecurring one-offs booked at Virgin in Q4 of last year. The number we said was GBP15 million, so that's going to impact the growth rate in Q4 as well.

Okay. Thank you.

Frank Knowles, New Street Research.

I have a couple of follow-up questions on topics that have been discussed a bit. One for Tom. Just in terms of the increased marketing spend from Sky and BT in the UK market, it looks, obviously, TalkTalk have yet to report. It looked to us as if actually there has been an expansion of the market in general. You had a better quarter than the second quarter, as in fact have the other companies to report. I'm just wondered on your thoughts as to whether actually there's been some market expansion as well, rather than just a fight for market share in the broadband section of the UK? Also, I had a question on the Wi-Fi rollout that was talked about earlier. If, I don't know if this is Balan or Diederik, but how many of your modems across Europe are already capable of offering multiple SSIDs? If not, if you give a rough idea of the cost of upgrading those modems to allow that Wi-Fi rollout across the footprint? That would be great, thank you.

Sure. Balan, do you want to take the dual SSID question?

Sure. About two years ago we consciously made the decision that all new DOCSIS 3 EMTA would have the dual SSID Wi-Fi enabled dual SSID. My sense is by middle of next year you will see in the seven-digit numbers of homespots available.

And the incremental cost is not -- all of the EMTAs we are rolling out today have dual SSID in them. That's a good -- that's a point I think you have. And not a meaningful incremental cost, so all new devices have that built in.

The second SSID cost is minimal to nonexistent.

Tom, the question to you was whether our growth, whether the overall market is expanding and what we are seeing.

The observation is completely correct. It's an underrated point in the United Kingdom that people look at it as a mature market with full scale operators. But, relative to other European markets, there is substantial growth here. There is about a quarter of homes or even more that don't have broadband connections. So, there is still significant opportunity to grow the market. As you suggest, clearly, that is one thing that has been acting with the more intense marketing from our competitors. There's also an increasing shift to higher speeds. As BT emphasizes its product and Sky resells it, that is coming into a point of higher-priced points where for more capacity, which is exactly where we are most competitive.

We don't have the numbers, say from TalkTalk, but my assessment is, and I think this is right. The three of us, BT, Sky and VMED added more broadband subs in the third quarter than we did in the third quarter last year, nearly 300,000, something like that. The market would seem to be growing organically.

Okay. That's clearly true for the numbers in the quarter, so it sounds, Tom, as if you think that's a trend which has plenty of room to run over the next year or so? As you say, there is a good chunk of homes with no broadband and the increased promotion could push that up?

Absolutely.

That is great. Thank you.

Vijay Jayant, ISI Group.

I think I am going to move to the strategic side a little. You guys made, allegedly by the press suggesting you made an offer for Ziggo. Any comments on broadly what you're thinking on for the M&A? I think you'll look back on Telenet ends in January. Also on what is happening in Chile related to your network selldown? And is VTR eventually an asset that is potentially for sale?

Vijay, listen we're not going to add anything to the chatter around Ziggo. We're happy with the 28% plus stake. They had a nice quarter. I think they're showing the same sort of trends that we're showing in Holland, namely that cable wins in the end despite a period of irrational competition from an incumbent. Good blocking and tackling and a superior network always win out. That's really all I can say about that.

In Chile, that's a core asset for us in terms of its growth profile and importance to the overall picture, but in the end, we will be creative as you can imagine outside of Europe. How best to evaluate that particular asset? What is the right way to grow in that region if there is an opportunity to grow in that region? I would say it's not quote/unquote for sale. It's not an asset that we view as something we can dispose of or want to, but it does keep us thinking and strategizing about how best to exploit the opportunity, not just in Chile but potentially in that region. We might have more to say about that in the next six months.

Can I just follow up on Germany? Any color on, I think you guys appealed to the federal court on the KBW ruling. Any sense on timing? And, if you want to even guess, how do you see this playing out?

I can say that we will be submitting a request to appeal, have the case appealed in mid December. Then, we will find out after that whether or not the case will be heard. If it is not, then we will find ourselves back in the normal process with the FCO, whereby we will be negotiating with them, in essence, a new remedy package. While I can't tell you what that would look like, I can tell simply tell you that we will be making the argument to them and to anyone who will listen that the German market is meaningfully more competitive and dynamic than when the transaction was first reviewed. That with the acquisition of KDG by Vodafone we now have several national competitors with greater scale and substantial [VO], voice and data businesses who want to compete. We expect that the FCO could decide many things, not the least of which is, hey, you are right, looks like even a better market situation today, so carry on, or we need to tweak this or that in your remedy package. Whatever happens, it will not be material, in my opinion, to the overall business that we operate in Germany and will be a footnote several years down the road when we talk about this market.

Thanks Mike.

Matthew Harrigan, Wunderlich Securities.

It really looks like you have done a better job of providing more value to the consumer across the packages on the price per bit or the speed upgrades, on TV as well. Some other people have noted, it hasn't fully flown through on the pricing power yet. Hopefully that gets there over time. If you look at Germany and you look at the revenues per relationship in the bundling ratio, I think you were actually up about 3% on a price per product basis. If you do the analysis in the legacy UPC markets on a rebase basis, I think you were actually down about 2% on a per product basis. I know things like Horizon haven't really kicked in yet on a large-number basis. I think Diederik alluded to the voice uses erosion, and all of that, but what else is going on there? When you do your strategic plans, do you think you'll be able to price up low-single digits at least on a per product basis across all of your markets? Or do you think you are going to be stuck in the mud for a while on account of the competitive situation?

I think, Matt, it's going to very market by market, but the general trend that we forecast and foresee is greater and greater pricing power. That's coming from a number of factors. One, we do take, by the way, normal rate increases or price increases across most of our products in most of our markets related to, let's say, inflation or cost of living and things of that nature. There is a built in pricing impact, just in the ordinary course. The way to look at our Business, as you have already indicated, is around the bundle, not the product. So it's very hard to decipher what our product prices are from our reported results. What you can decipher is what our customer ARPU is and on some level how we will talk about in these calls and other places how we're pricing our overall bundles.

Today we're faster and cheaper. That has been the primary strategic thrust, if you will. Over time, we will be faster and comparable, or in most instances, hopefully, with our competitors in a rational way, driving more value into the market, and as a result driving more revenue from each home. The UK is a good example of that. That's one book end, where every year we invest in new content, new applications, greater functionality and as a result we are able to, with our competitors, drive more revenue out of each household. Germany would be at the other end of that spectrum. It is largely been on volume gain. We're getting all of the broadband net adds in that market, I think in the last 12 months there's been something like 715,000 cable net adds in broadband and the DSL base has declined 225,000, something like that. So we're getting not only all the organic growth in that market, we're getting all of their share too.

That is something that is tempting and we want to make sure we have that base to work with. I can tell you that we're very -- certainly, 2014 will show that there is a point in time in Germany, even in Germany, where we can start driving greater revenue and have more pricing power in that market and still have the volume success that we are having. Again, it's a market-by-market question. I will tell you, though, is the fundamental objective of ours as a management team to make sure every market is in the right place on that curve. We're working on it every day. It is a good question.

I know you are really happy with the stability and consumer receptivitity on Horizon right now. Are you pretty much going to wait for project dawn and all that before you go to some of the less affluent markets? Or are you seeing such residents of the consumer in Switzerland, Netherlands, Germany that you'd be tempted to do things across the board at least on the higher end before too long?

[I want to thank John, for] those I know it refers to our cloud based version of Horizon, which is essentially what Comcast is doing with X1 and X2, and that is basically ready to roll, and we will be putting that into most of our markets going forward. Balan, you might want to expand on that.

Yes, that is true, Mike. The plan is in most of our Eastern European countries, actually we will do it in Belgium, in Chile, where will be rolling out the RDK-based platform.

Great thank you.

Carl Murdock-Smith, JPMorgan.

Two questions please. Firstly, following up on the previous comments on pricing. Is it therefore safe to assume that will communicate your ordinary price increases in the UK in the coming months? Secondly, in terms of securing the iPhone, obviously that was historically something that Virgin failed to agree. I was wondering what's changed there? Is it just a natural development of Virgin's relationship with Apple overtime? Or is ti potentially evidence of the greater bargaining and the commitments that Liberty can bring above what Virgin could have done as a standalone? Thank you.

Tom, do you want to talk about pricing?

In terms of pricing, I think in this market you have already seen a number of our competitors announce moderate price rises, but real increases still to take effect next year. We ourselves took a recent price rise on our broadband Solus product, and that's been rolled, that rise has been rolled out at the moment. It had minimal impact on churn. It's initiated, we are considering again at this moment and in the past you have seen the business take rational price rises in Q1. I think they expect us to do that again.

In terms of the iPhone, really it was a combination of factors, but not the least that as a subsidiary of Liberty Global and focused on our future, it was an opportunity to add the iPhone to the handset suite that we made available. I think under the previous company was maybe just more limited in its growth choices. With the confidence of the leadership of Liberty, that is one of the decisions that we can make positively to go forward.

That's brilliant. Thank you.

Listen everybody, it's 8 o'clock here in Denver. We appreciate you're getting on the call. Good questions and good dialogue. For us anyway, we feel good about the quarter, as I said in my remarks. We think all cylinders are firing here in terms of our growth, in terms of our approach to our balance sheet, in terms of our ability to buyback stock, and the strategic opportunities that we see in front of us. We are heavy into budgets, as you can imagine and looking forward to talk about the fourth quarter and giving you some guidance on 2014 and beyond the next time we talk. Thanks for joining us.

Ladies and gentlemen, this concludes the Liberty Global's third-quarter 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.LibertyGlobal.com. There you can also find a copy of today's presentation materials.