Liberty Global Ltd (LBTYB) 2006 Q4 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Liberty Global's fourth quarter and year-end 2006 investor call. This conference call and the associated webcast are the property of Liberty Global Incorporated and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. At this time all participants in a listen-only mode. Following today's formal presentation instructions will be given for a question and answer session. [OPERATOR INSTRUCTIONS] As a reminder this conference call is being recorded on this date, March 1, 2007.

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

Thank you and thanks for being patient this morning; we were trying to get everybody dialed in. We're here in Denver, I've got Charlie Bracken, Bernie Dvorak, of course, our co-CFO's, Liz Markowski, our General Counsel, Shane O'Neill is on the phone as well as Gene Musselman who runs Europe, for us, the UPC, Miranda Curtis and Graham Hollis, who oversee Japan, [Leo Stegmann] our Controller, and then Rick Westerman, of course, you all know Rick. I'm going to turn it back over to the operator for the Safe Harbor statement, then we'll get right into the call.

Thank you, sir. Page two of Liberty Global's presentation details the Company's Safe Harbor statement regarding forward-looking statements. This presentation may contain forward-looking statements within the meaning of the of the Private Securities Litigation Reform Act of 1995 including statements about Liberty Global's anticipated launch of modified Dutch auction tender offers, its plans to upgrade analog customers to advance digital services, to increase the downstream speeds of its broadband internet access services across most of its markets, and to increase its aggregated telephony penetration. Liberty Global's insight and expectations regarding competition in its markets, the impact of Liberty Global's M&A activity on its operations and financial performance, its expectations about 2007, and other information and statements that are not historical fact.

These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. Please refer to the publicly filed documents of Liberty Global, including its most recent Form 10-K filed with the SEC for information about the risks and uncertainties related to Liberty Global's business which may affect the forward-looking statements made in this presentation. The forward-looking statements in this presentation speak only as of the date hereof. Liberty Global expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements made in today's presentation to reflect any change in Liberty Global's expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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

Thank you. It's normal we have slides on our website, so if you haven't gone to those, please feel free to do so. If you have, on the agenda slide here, we're going to stick our normal outline. I'm going to walk through some highlights and then Charlie will review the numbers. I think as most of you know we have an investor conference coming up in a couple weeks in Zurich, so we're going to save a lot of the firepower, if you will, for that call. Let the numbers here do the talking, get right to your questions.

So, I'm on slide 4, and I'm going to hit some headlines here. Hopefully you're getting used to the three core drivers of value creation: Growth, M&A, and Capital Structure for us. It's more than just a nice graphic, actually. Just about everything we do falls into one of these buckets and we believe in 2006 all three are really clicking here. First of all we pride ourselves on achieving Best In Class Organic Growth, we did that last year. We exceeded all of our full year guidance targets for net subscriber additions: Revenue, CapEx, and Operating Cash Flow. OCF grew 18% organically in Q4 and 16% in the full year and of course both of those numbers are rebased for FX and M&A activity.

On the M&A front we set out to rebalance our operating business exiting subscale markets and expanding into existing or new markets that had greater growth potential for us. I think as most of you know we sold out of France, Norway and Sweden at what we believe were premium multiples. We generated 2.5 billion of cash proceeds, most of it tax sheltered, and we consolidated our position in markets like Romania, and the Czech Republic, Switzerland, and Japan all of which have proven to be fantastic markets for us operationally, financially and strategically.

On the capital structure side we continue to manage aggressively to drive equity returns. We stayed right within our leverage target of four to five times with recaps and refis in Europe and Chile and Australia. But of course we put 2 billion to work in our own stock and we shrunk the equity by 17%. If you have seen our release this morning we just an announced another $500 million tender.

So I think while most cable companies can and do talk to you at their quarterly calls about growth, I think few are able to support and enhance that story with what we think are fantastic M&A opportunities and I think just as importantly a capital structure that's really suited to drive equity returns.

Turn to slide 5, this is a snapshot of subscriber statistics at December 31st. We ended the year with 19.4 million RGUs, we added 2.5 million RGUs in the year, about a third of those through acquisitions. I think more importantly, though, if you look it at the pie chart, 50% of our RGU base at year-end, or just under 10 million, were high ARPU advance services like digital and broadband and voice, and that's up a little over 4 million just two years ago. Like our peers, the bundle is a big part of that growth. Triple play customers last year were up 45%. In markets like Chile and Japan, one out of every two customers has actually taken a bundle today.

On the right hand side you will see organic net additions, excluding M&A, so we added 1.63 million RGUs in 2006, that's 200,000 better than our guidance for the year, and up 45% from last year. Just a couple key points here. I think first since we don't double count digital as do some of our U.S. peers, 80% of that growth came from voice and data. But that means the other 20% came from video. We added 260,000 video customers -- net new video customers last year. Second, as in past years, Europe has always than been the bulk of our growth. Central and eastern Europe represent the vast majority or over 55% of the growth in Europe this year. We always talk to you about the importance of harvesting the rebuild activity in Central and Eastern Europe. We added 1.7 million two way homes last year. I think the numbers are starting to prove that out.

Slide 6 is the tale of the tape, if you will, on key products starting with internet which once again exceeded both our internal and external expectations. Happy to say that. We added 220,000 internet subs in the fourth quarter and 750,000 for the full year. I guess the punch line here is we're experiencing increased volume in our most profitable product, that's really the key take away there. Especially in markets where penetration is still pretty low, in the low to mid teens, we have a lot of primary growth ahead of us. We ended the year with 3.8 million broadband subs, that's just---that's up from over 2 million just over 2 million two years ago. We added 600,000 telephony RGUs for the year, that's up 46% from last year net adds driven, of course, by VoIP which is now launched in every cable market and represents about 13 million of our 20 million voice homes ready for service.

Digital may be the biggest story here; we ended with 3.2 million digital cable, or DTH subs, that's up five-fold from where we were just a couple years ago and includes 0.5 million subs in Holland where nearly one in four homes now take digital, that's an important milestone, certainly from our perspective. We surpassed the 50% penetration mark in Japan.

Slide 7 is a snapshot of the financials. Charlie's going to dig in the numbers a bit more. Revenue for the year was 6.5 billion, operating cash flow of 2.34 billion, both of those numbers are up about 45% on a reported basis, because we're layering in acquisitions. But if you rebase those numbers, as we do, to net out M&A and FX movements, revenue was up 11% for the year and operating capital was up 16%, and that's about 2 percentage points above our guidance for 2006.

There are several things at work here from my perspective. First of all, as the RGU numbers indicate we're accelerating subscriber growth in our high ARPU high margin products like voice and data and that's obviously trickling down to the OCF line. Secondly bundling is driving more and more revenue out of each home. You can see ARPUs per customer are up generally 5% to 10% across the regions. Third, we're clearly starting to scale at the OCF line, especially in Central and Eastern Europe and Chile where OCF margins are up about 150 basis points.

As indicated earlier all of that momentum is carried into 2007. I'm going to close my remarks off with slide 8 here and just talk a little bit about where we are on our three core drivers this year. Definitely we have high expectations for organic growth. Rick says we're going to give much more color on guidance in Zurich in two weeks at the investor conference, but I think you can expect to hear us say that we plan on maintaining or increasing that pace. I'll make two additional operating points on the organic growth side of things.

First of all our digital TV plans around the world are accelerating and that's a good thing. The next phase of our digital rollout in Holland for example is going to help push double digit OCF growth in that market whereas we were flat last year. We're starting to export the Dutch hardware and technology platform to save money and improve the speed of market in other digital rollouts. Killer applications like PVRs and High Def and VOD are either launched or ready for prime time. I think it's fair to say that our competitors are still either perfecting their IPTV services or they haven't yet rolled out. We believe the window is fairly wide open here for digital. Second point, and we believe that absent a large acquisition Cap Ex is trending down for us, especially as a percentage of revenue. There's three drivers impacting that number.

To begin with, scale continues to benefit our cost of capital on the technology front. CEP prices, prices for equipment alone this year are expected to decline between 7% and 15%. Integration of one time Cap Ex from acquisitions is going to slow down as well as we continue to rebuild those markets. Then the rebuild activity in Central and Eastern Europe is going to trail off, as it should, since we're nearing a fair amount of the two way home build activity being completed there.

On the M&A front, I'll simply say that activity and interest is picking up a bit really in all core regions of the world for us. I'm happy to take questions on that, but the punch line from our perspective is that we will remain disciplined on the buy side, and we will remain opportunistic on the sale side. You look at the capital structure I think it's fair to say our access to capital markets remains almost unprecedented here. We continue to refinance at lower rates and on better terms. In fact, we're in the market right now with a UPC transaction. Should we need an acquisition financing, it's readily available. And as we de-lever through growth we continue to recap subsidiaries, and dividend that capital upstairs at the parent, so while we're in the reliant on these markets for liquidity I think it's important to point out that they add leverage to our growth strategies and they're more than available to us today.

Lastly we are net buyers of our stock, that's obvious. As we look at 2007, as we look at --- soon, 2008 which we think are the right valuation metrics for our business we're always looking to put our cash to work in the most strategic and high return equity that we can and at this point that's our own. With that I will turn it over to Charlie to walk through the numbers, then we will get to your questions.

Thanks Mike. For those following along, I'm now on page 10. This slide shows the revenue broken down by division. It also highlights the rebased growth figures for Q4 as well as the full year 2006 as compared to the same periods in 2005. Just to remind you all again rebasing means adjusting all 2005 periods to include acquisitions on a comparative basis with the 2006 actuals and it also adjusts out any FX differences. So you can see from this slide UBC broadband in Europe had revenue growth of 11% for Q4 and the full year was at 3.3 billion. 9% of that revenue growth came in Western Europe and 16% in Central and Eastern Europe. Japan saw 13% growth in Q4 to $544 million and 12% for the full year to 1.9 billion and Chile had a great year, 14% to $559 million. So overall LGI revenue was up 12% in Q4 and 11% for the full year to 6.49 billion. That's consistent with our goal of generating double digit revenue growth.

Turning to page 11, this shows rebased OCF growth. UBC Broadband in Europe, OCF was up 22% for Q4 to 355 $million and 18% for the full year 2006 to $1.3 billion. In terms of the split between Western and Central and Eastern Europe, Western Europe was up 13% for the full year and Central and Eastern Europe up 22%. Good margin expansion in Central and Eastern Europe, up 1.8% year over year. Japan, J:COM had a very solid year, up 14% for Q4 and 13% for the full year to $739 million. Chile grew faster than Central and Eastern Europe. OCF was up 23% for the full year to $200 million. Five years ago VTR was less than $50 million of OCF, that's up four years in a row.

Overall LGI was up 18% in Q4 and 16% for the full year to $2.34 billion. That's consistent with our goal of mid teens OCF growth. I'm now going to turn it over to Rick to take us through free cash flow, then we will go to questions.

Okay. Free cash flow was $117 million in Q4 and $10 million more or 127 million for the full year 2006. And the overall increase for the full year was driven primarily by a $540 million increase in cash flow from continuing operations as compared to 2005. Now, as many of you know, we're not really prioritizing free cash flow generation given the abundance of high return investment opportunities that we have, but we do strive to be at least break-even to positive on a consolidated basis at our key funding pools. CapEx in the fourth quarter was $458 million, and it was $1.5 billion for the full year. Add in and Capital Lease additions of $150 million for the full year, which is primarily J:COM financing and CPE. Total CapEx and Capital Lease additions were 25.6% of revenue. And that's about 150 basis points below our full year guidance of 27% of sales and despite the fact that we added over 200,000 more subscribers in our guidance following a very strong Q4.

Moving on to slide 13 to give you a little more detail on CapEx, you will see that over 80% of our spend in 2006 was revenue generating. This category includes CapEx related to subscriber growth, which is CPE and scalable infrastructure. It also includes network spend which is primarily upgrade and new build. So 59% of our total spend or approximately $1 billion was related to subscriber growth. And that's all generally variable success driven spend. 22% of our spend was on network CapEx. We upgraded over 1.7 million new two way homes in 2006 including about 1 million new homes in Central and Eastern Europe, most of those were in Poland and Romania as we upgraded over 300,000 homes in each country. All of that is very high spend. We're looking for cash on cash pay backs on new build in that region. Generally less than three years. The balance of our capital expenditures or about 19% was support capital and that spend is mostly related to things like information and billing systems. But generally speaking we see CapEx heading down as a percentage of sales going forward.

Moving on to the balance sheet, slide 14, we reported $12.2 billion of total debt and $2.4 billion of cash at December 31st; that cash figure includes about $480 million of restricted cash which has mainly been set aside to defease our high yield bonds at Cablecom and Switzerland, and I think as many of you know we are actually planning to fold Switzerland into our Pan European bank deal as early as mid April. Our gross leverage at December 31st was 4.8 times. I'll walk through the calculation here, but our net debt of $10 billion, if you take our fourth quarter operating cash flow and run rate that gross leverage 4.8 times net leverage about a turn lower at 3.9 times. Then on the right hand side we have got a column that adjusts for the defeasance of those Cablecom bonds that I just mentioned, as well as for assets that we have monetized to back out the debt there. And when you make those adjustments, gross leverage comes down to from 4.8 times to 4.5 times, which is really right in the middle of our--of our range. We do have untapped maximum availability of about $2.7 billion, that's the borrowing capacity at December 31st, and that includes about EUR1.3 billion of untapped bargaining capacity in our key European credit facility.

We did complete several different financings during the year, and as Mike mentioned we're actually out now repricing our UPC bank debt and expect a favorable outcome there. Overall, our cost of debt remains in the 6% range and if you exclude Japan where interest rates are very low that number would be right around 7%. We have hedged our European facility into eastern European currencies, and we have swapped our recent debt in Chile into pesos, so we are very much matched on currencies between debt and cash flow. Our debt is generally termed out beyond 2010, and we continue to extend maturity as we refinance.

So, just in conclusion I think we feel great about our 2006 performance and even better about 2007. I think we look forward to seeing many of you in Zurich in just a couple weeks time. If you haven't registered, we would encourage you to go to our website and do that. Space at the event is fairly limited. So we would encourage you to sign up quickly to make sure you don't get shut out. And I think we're going to have a pretty exciting program for you capped off at the end of the day with a keynote at dinner by John Malone, our Chairman. So with that I think Operator we're ready to take questions.

Thank you. [OPERATOR INSTRUCTIONS] We will take our first question from Jeff Wlodarczak with Wachovia.

Hi, good morning guys, congratulations on a good quarter.

Thanks.

Mike, can you give us the latest on the J:COM rationalization? Is mid '07 still a reasonable timeframe? Then maybe not getting into specifics obviously, but can you talk about general options you have for that asset? And then one more quick one, more color on operating margin expansion. You're seeing acceleration in some of your higher margin RGU's, is 40% still a reasonable level over the next couple years in operating margins, thanks?

Sure. On Japan I will repeat what I said because I feel I need to do that every time I get asked the question. We're happy with the businesses we own, J:COM has been a great performer for us, it's a very strong operating business. We have been very successful with our investment to date in Japan, and we have a very strong relationship with our partner Sumitomo. We have, as I mentioned also in the past been, looking at ways of creating value or getting greater value recognition for the assets in that region of the world. And we remain very busy and active on a few different ideas. I'm hesitant to give you any more than that except to say that we're very busy on some ideas. They could involve any of the assets there and there are two big ones, J:COM and our interest in the programming assets.

The reason I'm reluctant is every time I do make a comment on partners, show me the transcript and I want to make sure they understand and you understand we're happy in the market, we have great partners, but we're always looking at ways and it's our obligation to look at ways to make sure we're getting the best possible value recognition in that market for us--in any market. Those are the kind of things we're doing. Our timeframe is to try to --- this year we hope to have a couple interesting projects underway and we will keep you posted as we get there.

On the operating margin front, no doubt in my mind that 40% is an attainable number in these businesses. When you roll out the model, you can certainly achieve those types of margins. Remember we're generating on average about a third of what Comcast generates out of every home, and yet we have comparable EBITDA margins to Comcast. So, while we're generating two-thirds less out of each home because of the nature of our video business primarily, we have comparable ARPUs on voice and data, we're still generating 36% margins, so as we drive that revenue per home from an average of say $35 across our footprint to $50 or $60, which you have already achieved in markets like Chile and Japan, you're going to see a bunch of that drop to the bottom line. It also tells you that we run a very efficient Company here. If we can achieve comparable EBITDA margins on less revenue out of each home because of our video ARPUs I think that tells you we run an efficient business to begin with, so we're pretty confident. I'm not going to give you a timeframe; we will provide more color on that in Zurich. But, I'll tell you that's an achievable number.

Thank you.

Our next question today comes from Vijay Jayant with Lehman Brothers.

Thanks. Mike, a couple questions. First, any update on what KPN and Swisscomm are doing on IPTV? There's been some press releases recently, are you seeing them in the marketplace at all? Second, on again press release coming out that you guys may be interested in wireless assets especially in the Netherlands, is owning wireless assets key to--- do you need quad play generally? Thanks.

I'll hit the high points on KPN and Swisscomm, and then I'll let---as well as your wireless question, then I'll let Gene chime in to give you more color from the ground level. But the punch line on KPN is they have yet to roll out an effective product and I think that's not unusual. We're seeing many of our telephone competitors struggle to either integrate or launch a product that they can argue is a replacement service for cable. Swisscomm has launched and they have a reported 30,000 customers, unclear whether those are actually installed, whether those are---whether they gave it away, what the promotional element is there. I would say they're also experiencing similar difficulties with the platform that they have chosen.

Let me address your wireless question, then I'll ask Gene to give you a little more color on those IPTV rollouts. We have said in the past that we don't feel there's a need to spend a considerable amount of time and resources right now on mobile or cellular services. We do have MVNOs launched in several markets, many markets, and we are experimenting with and marketing a quad play bundle. Owning a wireless business is a very different capital decision and a very different strategic decision, and we have yet to see one that made tremendous sense, primarily because the wireless assets for sale are either third or fourth in the market share ladder and were in markets that are already 100% penetrated. So having said that, in instances where you can participate with and potentially join a consortium of other like minded operators you might find a way to benefit from owning an infrastructure, but to do that on our own in NL for example where Orange is for sale? Unlikely. And Gene, do you want to comment any more on KPN or Swisscomm?

I can't add too much more than what you have said. I think everyone is aware that KPN for example rolled out I think it was late summer of last year and had anticipated being in the market with a full commercial launch by the end of December. Unfortunately, they experienced technical problems and announced that would be delayed until January timeframe and subsequently they have announced or we haven't seen any real activity from them, and it's our belief at this point that you probably won't see them in the market until maybe the second half of this year if then. They're experiencing many of the technical problems that operators do when you're trying to roll out a complex product as the triple play.

In the case of Swisscomm, Mike is correct, the last number I heard was about 30,000 subscribers. On the other hand, they too are having considerable technical issues. There's been a number of articles in the local press commenting on the problems and even one of the executives from Swisscomm was quoted as saying they were experiencing problems in the market and they didn't know when and if they could resolve those issues in the near term. So my guess is we have still got a six to twelve month window and it's our objective to take advantage of that opportunity.

Thanks.

Moving on with our next from HSBC's Jakob Bluestone.

Hi there. Jake Bluestone from HSBC. I was just wondering, first of all, could you just talk a little bit about how you see high definition services involving some of your major markets? Secondly when you say that you're looking for M&A deals to be accretive, is that earnings accretive or cash flow accretive or both? Thanks.

Sure. Let me do the M&A question first. It's accretive on a number of levels. It's accretive ideally from a valuation perspective, by that I mean, when we look out five, seven years owning that asset, it makes our stock more valuable today than not owning that asset. So it's accretive from a valuation point of view. It may or may not be accretive from a direct multiple point of view. To us that's not the only issue and question; you have got to make sure that the forecast and the long range plan you put together for that business supports the transaction you're doing, whether you're a buyer or seller. It's accretive typically from a growth point of view ideally in the sense that owning the business benefits your overall growth profile, in some cases it might, in some cases it might not. If it doesn't, then you have got to find either benefits from scale, efficiencies, consolidation of a market. So there's strategic value there which I would say is the third element of being accretive. It has to be strategically accretive to the broader goals we're trying to achieve in a region or a market.

So for example we might buy a --- we might consolidate a small asset in Czech Republic that on a stand alone basis looks to be perhaps maybe a bit more expensive than other assets yet might still be the hole in the donut if you will for a core region or a core marketplace. So it's really about valuation, operations, and strategic objectives we're trying to achieve in a marketplace.

On HD, I'll turn over to maybe Miranda and Graham to talk a little about Japan where we have the greatest experience with HD. I'll simply say it's our view and I've said this before, that HD is a killer app; that once people experience high definition television on their flat screen, they're not going back and it's a huge advantage for us, relative to telcos and one that you can expect us to push very cost effectively and very aggressively in markets where we have that capability. And maybe Miranda or Graham if they want to talk about Japan where it really is the killer app. for us.

Yes, Mike, I'm happy to do that. I think as some of you are aware, the J:COM transition to digital has been extremely successful, we now have over 52% of subscribers on digital and they're moving steadily towards total conversion. 100% of those digital subscribers are high definition and that's been driven by a very active government support for high definition in broadcast environment. That's allowed us to build a high definition platform and then to layer on the advanced services so that in the last year we have sold over 100,000 high definition PVRs to our subscriber base. And on the JTV side we're gradually transitioning all our channels to high definition; we already have that Discovery and Movie Plus high definition. We're preparing to launch high definition versions of Lala, Golf Network and J Sport in the next 12 months. So high definition is absolutely key and is absolutely fundamental must have to our success in digital in Japan.

So, if I could ask just one follow up. Could you possibly comment on how important HD would be in Europe for you, thanks.

Go ahead Gene.

We plan on rolling out High Def in the Netherlands in the August timeframe. And that same box that we will be deploying in the Netherlands will also be capable of deployment in Cablecom in Ireland. So, one of the things that we have tried to do is standardize our platforms and to take it a step further as we roll out digital in our other markets. Of course those boxes would be deployable and leverage both there as well.

In the Netherlands there still isn't a large number of high definition television set penetration. As a result there's not a significant demand so I think being in the market by August is sufficient. In Ireland, there is more High Def programming available, particularly on the BSkyB platform which may cause us to go faster there than what we anticipated. We do have products ready to roll out particularly in those three markets.

That's very helpful, thank you.

Next we will take a question from David Joyce from Miller Tabak Research.

Thank you. If you can give a little bit more color on CapEx in the quarter. I know it's lighter than expected on greater than expected RGUs. Can you quantify perhaps what portion of expenses related to the RGU growth might have flown through operating expenses? That's the first question.

I think Cap Ex, as you know Q4 is our biggest selling season so a lot of the CapEx in terms of adding subscribers' results in CPE being added. Therefore, in Q4 you would have seen a lot of CPE coming through. We also had a few delays in the summer on some of our buildout projects in Europe. So a lot of those caught up at year-end. We continue to make investments in the I.T. and support platforms. The key impact of adding subscribers is obviously subscriber acquisition costs and apples to apples you should see those increase in Q4 as compared to Q3. So we remain in line with our usual metrics on subscriber acquisition costs and didn't see any particular increases in the cost of client subscriber.

We exceeded guidance on the RGU adds for the fourth quarter, that certainly had an impact on Cap Ex being slightly higher than our full year number as a percent of sales. But there's a lot of phasing in the fourth quarter that ended up being spent because it was not spent in the first three quarters. We really focus on the full year. If you're looking at the fourth quarter in particular and concerned about the impact of either that Cap Ex figure I wouldn't be too worried about it.

Okay. And you mentioned how you're pretty fully upgraded for two way capability in Central and Eastern Europe. Are there any markets that you still need some digital upgrade enhancements?

Well, I mean, I think the answer is I'll let Gene speak to it more specifically. We will have, this year, a digital product in all of our markets. The question though is the extent to which we---we roll that out in the entire market. So while we might have a digital product in Czech we haven't necessarily rebuilt every home in Czech. Gene, you want to talk about that.

I guess I would just comment and say as you look at '08, there's still plenty of upgrade opportunity in Poland and Romania. In Romania, we made the major acquisition a year ago of Astral, and so there's a lot of activity going on there in '07 and will continue through '08. The same applies to Ireland, where we acquired NTL. So you can expect a significant amount of upgrade activity to two-way plat in that market and a conversion of MMDS subs over to the cable plant.

And then finally in Switzerland, another M&A activity; we have a fair amount of upgrade potential there as well. In the past there's been homes that have---that the system has been unable to gain access to. And we're working on that---resolving that issue as I speak. And then there are a number of plant kilometers that are 450 and one way or even 600 and one way that we're looking at improving the economics upgrade and hope to have the majority of those completed in '08 and maybe into '09.

If you look at it in a broad sense, there's about 3 million homes in Europe out of our 13 million that are not yet upgraded. 2 million of those are in Central and Eastern Europe and a million are in Western Europe as Gene just described, in Ireland and Switzerland. We're not going to upgrade all 3 million of those homes. We're going to target and focus and prioritize, and I think our budget roughly this year is about 1 million homes in Europe where we're starting to prioritize to rebuild and I don't think you should expect all 3 million of those homes will get rebuilt.

All right, great. And did you have any general guidance for the year on OCF and free cash flow, will CapEx be below 26% of revenue?

We're going to provide that guidance in a couple weeks when we do our presentation in Zurich, so I encourage you to either attend or dial in.

Great, thank you.

Mike, may I add one other thing on the upgrade.

Sure.

You should take note that if you're relating the two way upgrade to the deployment of digital that's not necessarily the case. We have rolled out digital on one way plants and we would continue to do that in some instances. We're not limited in our digital deployment by necessarily two way fully upgraded plants.

Our next question will come from Ben Swinburne with Morgan Stanley.

Hey, good morning guys, thanks for taking the question. One on the operating side, then more a strategic question Mike. First, you made some comments up front about exporting the digital technology then experience from the Netherlands into other markets. But I know you've also talked about shifting from a push to a pull strategy in the Netherlands. Maybe give us a state of the union on digital in Europe, how you see marketing that product, what that means for ARPU and margins. I'm extrapolating from some of the comments you have made in the past that margin expansions is a key part of the long-term story, so I'm just trying to figure how we should think about digital deployments in that vein.

Second on cap structure, you guys have been buying your stock back aggressively now. I actually can't even remember how many tenders you have done, I think four. Being a public company is helpful if you're buying other companies with equity, but you tend to use cash and given the interest rate environment, at some point does it make sense to be public, how do you think about that option, and what it means---the benefits of being a public company versus the headaches associated with it and the opportunity to maybe be private?

I'll take the second one, Gene you start working up the first one. There is no grand scheme here in the sense of the buy backs having the intent of slowly privatizing the Company. We're buying our stock because as we sit each quarter and look at our available equity and the opportunities in front of us, as we get smarter about the '07 and '08 timeframe and growth potential in our business, we draw only one conclusion, which is we should be net buyers of our stock. So at some point obviously if you were to extrapolate this calculus, the idea of creating liquidity through leverage and rebalancing of assets, tax efficiently, and then driving it into your equity, at some point there's not going to be much talk left but that's a long time-out.

I think we're really doing this because we see it as a smart way of deploying our capital in the business we understand best. Being a public company has pros and cons, but they're certainly---the cons aren't certainly significant enough for us to look at a transaction or privatization for that purpose alone. We're hopeful at some point we can use our currency in transactions, you're correct. We've used cash primarily because we don't want to use stock that we think trades at 8 and to buy stuff at 10 if we don't have to. Because cash and Charlie and the team do such a great job of creating capital for us when needed it's easy to make the decision to use cash.

However, clearly we would like to see our stock trade higher. If we continue to buy it, maybe it will at some point, and then perhaps an incremental benefit from that would be the ability to use that as currency. We're not making, there's no 180 degree turns on this. It's an incremental approach to value creation and growth. I think you have correctly pointed out the pros and cons. We're going to play the cards we're dealt with and I think they're pretty good.

Gene, do you want to talk about digital, and particularly the question was, what we're doing about exporting primarily the platform in Holland, not necessarily the business model, and how we sit with digital in Europe.

I can approach it first maybe from a 30,000 foot level and try to come down with a little more detail. As you know in '06, if I were to look back and review what we have done, Monday morning quarterbacking, I would say that '06 was a very successful year in the Netherlands in that we created an installed base of more than 0.5 million digital subscribers using as you said a combination of push and pull strategies, although very heavily reliant on the push strategy and toward the end of the year the acceptance rate at the door we saw a decline and also an erosion of the economics, although we continued with that push strategy throughout the end of the year. I think that strategy was successful, however, and if we were to look at rolling out the Netherlands again I probably wouldn't recommend changing it.

In '07 on the other hand we're going to modify that strategy to some extent and focus more on the pull strategy and building value. Last year we were trying to build a base in which we could scale the operations and make acquisition of the contents [inaudible]. And also this year we will have the digital drivers to roll out in the Netherlands that we did not last year, that is DVR, HDTV, and VOD, all of which we're in the process of putting into the market as I speak. Our next launch is in Cablecom, and we will relaunch them starting April 1. They have 135,000 digital subscribers at the present and we are just in the process of installing the D4A platform there which will allow us then to use the same PE and leverage our costs down in that market. You may not be aware of it, but we have close to 1 million digital subscribers now.

Some of our M&A activity last year we actually acquired digital platforms. For example in the Czech Republic, the Karneval acquisition in December; they have a digital platform and we will continue to use it and rollout through---throughout the UPC Czech areas this year. In Ireland they have a digital platform, and we are just in the process of moving from the NTL platform in the UK and consolidating operations in Dublin and will be rolling out the D4A platform along with DVR there in the next couple months. In Romania, through the acquisition, we acquired a [VG] digital platform, which we will continue to roll out in Bucharest for the balance of the year.

And we're also in the process now of developing business cases for Hungary, Poland and Austria, although Austria we have deployed and we're looking at taking out the Legacy platform and putting the D4A. So we will be making decisions with respect to those three markets in the coming months.

The point I would make, Gene, maybe just add to that a bit is make sure you understand these are being phased properly and paced properly, and that the benefit of using the digital platform in Holland is we get cheaper boxes, better technology, more stable systems. And so the education we received in Holland will certainly benefit us in new markets; and Gene's right, we're taking a more, a pacing, we're approaching the business at a different pace, but the platform itself is really one of the hidden benefits here, because of the pricing we have driven down vendors on with respect to the boxes and the expertise around integrating the systems, that's a huge benefit to us as we roll it out elsewhere.

That's correct. I'll just end by saying in most of those markets we will probably use a combination of push, pull, but--- based upon what we learned in the Netherlands. So if there's anything else I would be happy it to address it.

That's very helpful, thanks a lot guys.

Moving on we will hear from Alan Gould with Natexis Bleichroeder.

Thank you. I've got a couple questions please. First, Miranda I believe J:COM's guidance is that they will have mid teens EBITDA growth, excluding Cable West; I think there were a couple smaller acquisitions in there as well. What would the organic growth be at J:COM? And, second Mike could you address a little bit on the programming asset side, what's happening there?

Yes, but let Graham perhaps address the guidance point on J:COM, then Shane O'Neill, who's on the phone, can talk about content.

On the guidance I don't think the J:COM hasn't been more specific than the number you gave.

But I think the question is that's an organic figure.

Is that organic or wasn't there a couple smaller acquisitions? [multiple speakers] organic be a little bit less than that?

They were very small. It's largely organic.

I don't think it's meaningful difference.

Okay.

And then, on the programming front I'll introduce you, we own programming assets everywhere, and in fairness they don't always make it on the slide show. But they are meaningful and they're starting to get more important strategically and financially for us. We own programming businesses in Australia and obviously Japan where the Shop Channel is quite significant. In Europe, Shane and his team have done a great job of starting to build a programming platform. Shane, you want to take a couple minutes perhaps and update us on that?

Yes. Sure, Mike. The programming business in Europe is called Chellomedia, and it really has four key divisions. We have a--one if you like global or a pan-regional business, then three regional businesses. The global business is called Zone Vision. Its two best known channels are Extreme Sports and Reality. And then we've built three regional businesses; one in the Benelux, one in Central/Eastern Europe, and one in Spain. And those business operate both premium--well, in the Benelux they operate premium movie, premium sports and some thematics. In Central/Eastern Europe, it's basic sports and thematics, and in Spain and Portugal it's predominately thematic content. And all up, those businesses make around 40 million of EBITDA. We've financed a lot of the growth of the business through a debt facility and we think the businesses are poised very well for growth. We think they'll participate and benefit from growth in digital, which is happening right across Europe, growth in multi-channel advertising, and growth from accessing new distributions platforms, including cable, satellite, mobile, and web. So, that's really the strategy in a nutshell as it stands today.

Where was that 40 million a year or two ago?

Zero, to be honest. Two years ago it was around zero.

Thank you.

Our next question will come from New Street Research, Frank Knowles.

Yes, hello. I've got two questions, one specific one. Seemed to be an extremely good quarter--in the fourth quarter in Austria in terms of internet adds and to some extent telephony. I just wondered if there were any special promotions or anything or if that's a sign of an accelerated pace we might be able to expect during 2007. And then the second question, a much more general one on internet trends. We're heard that there's been a dramatic growth in some markets in peer to peer video content and that that's been putting some pressure on network capacity for some operators. I just wonder if that's something you're experiencing and whether you're going to have to spend any significant amounts on CapEx in increasing both upstream and downstream capacity for that. Thank you.

Maybe I'll take the second one, Gene, and you can talk about Austria. I'll tell you, we're not seeing a meaningful impact during the day from any of the online video activities; certainly at night because we have a more robust upstream than our competitors, you could find at night that as much as 90% of your traffic is peer to peer where people are uploading videos or doing what they're doing, but during the day it's maintaining in the around 45% to 50% level, which is what we're used to seeing. I know our recent statistic just the other day that only about 2% of our traffic in Europe is estimated to be YouTube traffic for example. So, those are not the kind of numbers that are going to swing our bandwidth capacity or usage and with our traffic shaping tools and our ability to manage that bandwidth more effectively as time goes on, we're not concerned about it. Gene, do you want to talk about Austria for a second?

Yes, I'll just take a sec---I think it's more of a general statement. I think that the growth that you saw in Austria is more---is simply a function of the Fall campaign and the higher spend in that market. But, on the other hand, I think you would have also seen a significant uptick in data sales and telephony sales in the other markets as well. With respect to looking forward, one of the things that we're in the process of doing is refining our bundling strategy and we've spent a great deal of time on that in the last two months. I've sent some people back to the United States; we visited Time-Warner; we visited Comcast; we've picked up best practices; we've brought our own Pan-European group together; we've done some sharing of best practices there; and we're just getting ready to kick off with a Spring campaign built around the whole refined bundling strategy, so I would hope that that strategy would produce good results throughout all of next year in terms of both our data and our telephony product, across the markets.

That's great. Thank you.

We have time for one more question. Our next question will come from Janco Partners' Gregory Cole.

Hey guys, great quarter. I just wanted to ask one quick question as you were thinking to the Amdocs CRM platform when you switched over in Romania and Switzerland. How do you guys plan on utilizing that platform maybe going forward and expanding it and do you think it's going to allow you to do more cross-selling, more focused marketing effort?

Are you referring to the I.T. platform?

Yes.

Yes, go ahead Gene.

I'm not sure I can give you a good answer, because first of all, we---as you said these are two markets that we're just deploying Amdocs. It's because we have different generations of [Darby] which is our billing platform, and that's kind of the---this---the new deployments really are a mixed generation where we're trying to get to a thinner client, and we have no plans at this point, to my knowledge, to expand Amdocs into markets that we've already deployed. Although, I could be incorrect, and this is something I'd have to go back and talk to our I.T. people as well.

The beauty of --- the beauty of our --- what we call Darby, our I.T. platform in Europe, is that it's more or less plug-and-play best of breed applications. So, that while it's---while in Western Europe in markets like Holland and, used to be in France, and Austria we---and Ireland, we're rolling out a more or less common platform. In Central and Eastern Europe, we've charged the team with coming up with perhaps a just as robust but less expense platform that does the same thing and the beauty of that is you can pull certain applications out and put other ones in, so I don't think it's appropriate for us to say which ones will make it, if that's the purpose of your question here, except to say that we maintain the flexibility of plugging in and pulling out applications that we think aren't going to suit that particular market; that's the beauty of that particular I.T. system for us.

Great. Thank you.

All right. Well, we appreciate you joining us and hopefully look forward to seeing many of you either on the web or online or in Zurich, and take care. Goodbye.

Ladies and gentleman, this concludes Liberty Global's fourth quarter and year end 2006 investor call. As a reminder a replay of the call will be available in the Investor Relations' section of Liberty Global's website: www.lgi.com. There you can also find a copy of today's presentation materials.