Liberty Global Ltd (LBTYB) 2007 Q2 法說會逐字稿

Welcome to Liberty Global's second quarter 2007 Investor call. This conference call and the associated web cast are the property of Liberty Global Inc. Any redistribution, retransmission or rebroadcast of this call or web cast in any form without the express written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode. 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, August 9, 2007. I would now like to turn the conference over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead,

Thanks. And good morning, or good afternoon. Wherever you may be. Welcome to our call. Let me give you some quick introductions. We've got Charlie Bracken and Bernard Dvorak our Co-CFOs, today. Gene Musselman, who you all know runs the European division, Mauricio Ramos from Santiago, Graham Hollis, Rick Westernman and Liz Markowski. I will turn it back over to the operator for a quick Safe Harbor and we will get right into it.

Thank you, sir. Page two of the slides of the associated web cast details the Company's Safe Harbor statement regarding forward-looking statements. Today's presentation will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including Liberty Global's expectations with respect to its full-year 2007 guidance targets, the timing and impact of digital products and services, completion of announced transactions and borrowing availability, its insight and expectations regarding competition in its markets, the impact of its M&A activity on its operations and financial performance, 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. Factors that may cause Liberty Global's actual results to materially defer from those expressed or implied can be found in the Company's filings with the Securities and Exchange Commission, including its most recently filed form 10-K-A and form 10-Q. I would now like to turn the call back over to Mr. Mike Fries.

Okay. Thanks. We're going to stick with the usual program. I'm going to walk through some highlights and then Gene Musselman will hit a few key topics in Europe, an Charlie will take us through the numbers and we will go right to your questions and we are referring to some slides that you can find on our Web site, and I'm now on Slide 4 and we will start with some headlines. I'm actually pretty pleased with the second quarter on several fronts here. First of all it was a very strong quarter for us financially and particularly at the OCF line. We will walk you through that and as a result we are confirming all of the financial guidance today. Secondly we completed some smart transactions on the M&A front in particular in Japan and Belgium. Third, the timing of both our asset sales and financing activities seem to be pretty darn good. We've got great liquidity, virtually zero exposure to reasonable volatility in the credit markets and lastly we are out there buying the asset we know best, our own stock so we believe the leverage growth strategy we have been deploying is the right one and we are sticking to it.

Slide 5, you'll see some financial and operational highlights, revenue for the second quarter was $2.2 billion and OCF was $861 million. I think the key take away here is we continue to deliver double-digit revenue growth and operating cash flow growth is at the top end of our guidance range. It was 16% on a consolidated basis and 17% if you exclude Telenet We have talked some time about reaching 40% operating cash flow margins. We're ahead of schedule, 39.5% already. That is up 400 basis points from last year. Operationally, we added 623,000 RGUs year-to-date and that is on an organic basis. You no doubt noticed the second quarter was a bit lighter than we expected at 266,000 net adds. A big part of that variance is related to increased churn in Romania and to a lesser extent Hungary, particularly among lower end video subs, so while it is definitely having an RUG impact it is not having much of a financial impact and Gene will take us through a bit more detail on both those markets at the end here as well as how we're doing on digital in Europe. I will just say with respect to digital anyway we're starting to see the benefits from rollouts across the market, in particular, Holland, the Netherlands grew operating cash flow 20% year-over-year, and that was largely a function of ARPU uplift from the digital video launch there.

If you turn to Slide 6, some other highlights, as usual, we've been very active in managing our balance sheet on all fronts really, and Charlie will take us through some numbers but leverage is right where we like, it at 4.6 times. Our cash position continues to build. If you include the expected proceeds from the [J-COM] line and the announced Telenet recap our cash is about 2.6 billion, of which 2 billion or so is available at corporate. We don't believe in saving all your cash for a rainy day, as you know by now, so we continue to put that cash to work. Of course we announced last Friday another $500 million self tender on top of 640 million of stock purchased through June 30, and lastly, we did announce some important transaction on the M&A front including the long-awaited rationalization of our Japanese programming interests. We're certainly very pleased with the outcome there. We exited shop channel at a great multiple. And put the remaining channels into [J-Com] for equity. Those are very tax efficient deals. We also increased our stake in Telenet, 50% and as you should know they have announced a return of capital that should net us about $400 million. So we are happy with where we sit with that investment as well.

Subscribers, you will see Page 7, a snapshot of our customer base at June 30. Over half of our 23 million RUGs today are advanced services or broadband voice or digital and that number is up 50% year-over-year and of course that is a combination of organic growth and acquisitions. We also continue to improve our networks. So we've added over 0.5 million new two-way homes organically in the first half of the year and 2.5 million if you include Telenet. So at June 30, 87% of our footprint is now capable of delivering the triple play. On the right-hand side, you can see that we've made some good progress in driving the bundle. Today, over 30% of our customer base is taking two or more products, that's up from 26% a year ago. And we've with got 2.1 million triple play subs. That's up 54%. Again, that is a function both our organic growth and the Telenet consolidation. So overall, bundling is at 1.44. So the group as a whole is gaining on our more mature markets like Japan and chile, which are 1.7 and 1.9 products per home.

You go to Slide 8, you can see the results of that effort if you look at the individual products. Broadband Internet continues to be our most profitable product and fastest growing. We added 378,000 broadband subs in the first six months. Including 130,000 in central nation Europe alone which is ahead of budget on that product. Central Nation Europe now stands at 18% broadband penetration. In fact, all of our central nation Europe markets are now at double-digit penetration, including Romania. It wasn't long ago that we described those as single-digit penetration markets. And of course that compares to roughly 30% penetration in some of our more mature broadband markets like Western Europe and Chile which are still in a growth mode. Telephony grow faster than broadband for the first quarter ever. We added 161,000 RGUs and 333,000 year-to-date and we now stand with 15% penetration in that product. And Gene is going to give us an in more in depth update on digital but we did add 193,000 digital subs in the second quarter. That is up sequentially. Over half of those subs come out of Japan. Which now sits at about 60% digital penetration after 2.5 years. The holy grail for us, no question, is driving more revenue out of each household. We've talked in the past about growing customer ARPUs, primarily as a function of penetrating the higher margin voice and data products and also driving our digital video services.

If you look at Europe, customer ARPUs are up 6% year-over-year, to 21.5 Euros or about $30 per customer and again that is coming from a combination of what I just described, voice and data growth in central nation Europe, as well as digital video growth in Western Europe, and we will talk about the six-year uplift in Holland, for example. Japanese ARPUs have been pretty stable on a consolidated basis, about $61, but that is largely as a result of the Cable West acquisition was dilutive on an ARPU basis. If you exclude that, ARPUs are up 4% in Japan. And if you look at the product by product, broadband ARPU has been very stable in that market, despite the competitive environment. ARPUs in chile are up 4%. That is the equivalent of about $48 today. Voice and data ARPUs have been flat but we continue to drive the bundle. In fact, 35% of homes in Chile today are triple play homes. So overall ARPU is a great story for us. Along with pure penetration rates and volume growth, I think it is the right way to measure our productivity on the operational front. With that, I'm going to turn it over to Gene and he is going to give us a little more information on our European digital services as well as central nation Europe.

Thank you, Mike. I would like to take the next couple of minutes, if you will, to review with everyone our digital progress in Europe. Taking a look at the right-hand side of your page, the chart, you will see that digital ARPUs increased 48% year-on-year. As we added 330,000 digital RGUs across all of our markets in the last 12 months, including 50,000 in the second quarter. Starting with the Netherlands, there has been limited RGU growth during Q1 and Q2. This is largely due to the fact that number one, we've moved from an aggressive push to a pull strategy that we've talked about before. We have pulled back our marketing efforts during Q1 and Q2 in anticipation of the rollout of our digital drivers. That is DVR, HD TV, and VOD, which I'm happy to say at this point all are available in the market in the Netherlands since the late second quarter. Also significant and worth mentioning, we have seen a decided improvement, as Mike had mentioned in the quality of our digital base, with incremental ARPU increasing from Euro 4 to Euro 6, that is a 50% increase since the beginning of the year. Additionally, we've seen a significant take-up of our extra channel pack, which is our basic package, our basic digital package with 60% of the digital subs, choosing to pay an incremental 2 Euros above the digital entry. And new subs, as of July 3, paying an incremental 6 Euros for an improved expanded channel pack. That is up from 42% at the end of year '06. Equally encouraging has been the launch of our VOD in Amsterdam and Rotterdam and we anticipate that the balance of the Netherlands will be rolled out by mid September, so we're tracking very good there. Although it is early days, the initial uptake looks very promising. Currently, we are in the process of finalizing our fall marketing campaigns that will focus on the benefits of course of the digital drivers, VOD, DVR, and HD-TV and those are in the progress as I speak.

Looking to Switzerland, we've seen digital penetration accelerate there, following the relaunch of digital in April. That included the expanding of our existing digital offer. The introduction of a new entry tier, and the lowering of the purchase price of our DVR and set-top box. Also, I should mention that in July, we introduced the D4A platform now which allows us to leverage our suite of set-top boxes across Switzerland and realize the synergies from the cost savings there. And we've expanded our TeleClub offering, including the channels which under the new agreement enables us to offer the channels on our box, where as in the past, we had to actually do it through TeleClub itself. Lastly I would like to mention that the DVR has been also a key driver of digital growth with more than 50% takeup of the new subscribers in Switzerland.

In central and Eastern Europe, we're accelerating our rollouts in Czech and Romania, using the legacy platforms inherited from the Karneval and Austar acquisitions. In Czech, we've already started to form a digital into the UPC. And in Romania, we will expand our digital offering Bucharest, starting in September, followed by launches in the other largest cities, depending upon the success in Bucharest. Lastly, everything is on track for relaunching digital in Austria. Actually we accelerated that time schedule and we will start that rollout in December of this year. And that will be followed then by launches of digital in poland and Hungary in early '08, so by the end of the second quarter, of next year, all of our markets will have a digital product.

Turning to page 11, just a pickup date on the competitive situation in Romania, I think first, try to put things in perspective, we can see from the pie chart that Romania only represents 10% of our European subbase, and contributes only 5% of our OCF, since Romanian video ARPUs are the lowest of all of our countries. And some places in Romania, they're less than six years old. And also as a result of the RGU losses to date, it has not had a major impact on Romania's financial performance. Re-based revenue is up 10% in Q2. And OCF is up 15%. So pretty solid results through Q2. You can also see, looking at the bar charts that Romania is really an emerging market for us, with a bundling ratio of 1.15 and ARPU per customer of only 9 Euros and you heard from Mike a few minutes ago, the higher bundling statistics that we're realizing across the other countries, also our ARPU average throughout Europe is closer to 25 Euros. Adding to the challenges of the emerging market, we've also seen the emergence of unsustainable low end competition in the video space. As I've indicated to you in the past, there are 5 different satellite providers [vying] for the business in the marketplace. That is in a market that is less than one-tenth the size of the United States. And with only 8 million homes. Two operators in particular. DIGI-TV, owned by the number two cable operator in Romania, and DOLCY, which is owned by Rome Telecom, the Romanian Telephone incumbent who entered the market in December, have been particularly aggressive in their channel offering, as well as their retail price points. Coming in as much as 50% below us with a comparable package, and then even in some cases offering 6 to 12 months free service on top of that. So very, very aggressive.

In order to avoid over reacting, and to understand this strategy, we kind of took our foot off the pedal during the first half, and at this point, we have either just launched or we're in the process of launching a number of measured actions to reinvigorate the growth, and I will just enumerate a couple. Beginning with the acceleration of a digital rollout in Bucharest which I just mentioned along with the introduction of an additional entry package there to take advantage of our first mover advantage. At this point, there isn't any other fixed operator offering a digital service in Romania. Plans also includes accelerating the operative two-way plant included selected and mid-sized cities that have been heavily targeted by both DOLCY and DIGI-TV, since those plants are not upgraded, and they have pretty soft underbellies. Our plans are to have about 80% of the total plant two-way by the end of this year.

So coming out of '08, we should be in pretty good shape to compete on a triple play level. Also we're looking at the extensions of customer royalty discounts for our NDUs who agree to sign one or two-year contracts. And as I said, we're just in the process of either rolling these out, or have started in recent weeks, and it appears at this point that our actions are starting to produce some positive results, despite the seasonality. Usually, you don't sell that heavily during the second and third quarter. The bulk of the sales come in the first and the last. But in the last six weeks we've seen a big improvement in CA-TV sales. They've increased by almost 50% and at this point are above budget for the first time in year. And DT8 sales remain strong, increasing by almost 40% in the last six weeks. So those are encouraging signs. I think the combination of improved sales and some vigorous retention activities that we're also putting in place are very encouraging.

On the other hand, should we continue to erode going forward, on video, as we have, then this is going to put our year guidance target of 1.6 million net additions at risk. While we're not changing our guidance, I think as Mike indicated at the beginning, I think it is worth noting that there is risk in this particular forecast. With that said, Charlie, I will turn it over to you.

Thanks, Gene. For those following along, I'm on Page 13 now. The financial results are very strong. We continue to build upon the Q1 results. And consistently we're still achieving our double-digit organic revenue growth, or rebase revenue growth in mid to high teens OCF growth. The revenue was 2.18 billion, and that increase of 37% from Q2 of '06. And that was positively impacted by acquisitions, including the consolidation of Telenet and the acquisitions of INODE, Karneval and Cable West. And we are still getting a big bounce out of the dollar which continues to weaken against our basket. Now, re-based revenue growth at 10% is in line with guidance. OCF was $861 million. That's an increase of 52% over Q2 '06. or 16% rebase. With the same factors as with revenue, but it is also worth pointing out that the margins is up 380 basis points for a big part of the increase.

On Page 14, we are showing you the revenue breakdown. The punch line is of rebase growth is very consistent across the markets around 8 to 11%. UPC did 961 million in Q2, and which is up 8%, and that was 8% in Western Europe, and 11% in central and Eastern Europe, and that is very consistent, Western Europe is more mature but generating a lot of cash where central and Eastern Europe shows pretty good top line growth despite the competition in Romania. [J-COM] and Tele did very well, double-digit rebase of 10 or 11%, BTL was 9%. So overall, LGI was at 10% rebase growth at Q2 and year-to-date we're at 10.2. And as always, we're really driving this growth through volume, rather than price. ie.., more subscribers to our advanced services. But the real story is on Page 15. And that's the strong organic OCF performance growth across all of our markets. And that's just not driven by revenue growth but by the significant margin expansion. And I want to talk about that a little bit more in the next slide and let me give you the numbers, broadband generated 407 million of OCF for Q2. That was 30% up, or 18 on a rebase basis. And Western Europe, had substantial growth after some slower years in Holland, and 15%, and central and eastern Europe was 20%. And Holland has 20% rebase growth and much more reflective of the targeted digital strategy and also the the investment we made last year paying off. Telenet and [J-COM] was slightly below the LGI average to 11 to 13% respectively And champion VTR which had 23% rebase growth which is building on the 21% in Q1. And in fact since we did the Metropolis acquisition in early 2005, VTR has averaged over 20% rebase OCF growth in the last 9 quarter which is a very impressive performance. And LGI overall, 16% OCF growth, at the high-end of our 14 to 16% target range for rebase growth and excluding Telenet it was 17% which is similar to Q1.

And on Page 16, let me just talk about the margin. We've been promising for some time the benefit of scale, when driving up our margin solidly. Q2 was a new high 39.5% OCF margin, which is up 380 basis points over Q2 '06. And even up over Q1 by 30 basis points. What is driving it? We're still realizing the benefits of scale that we talked about for so long, and will is more to come. And our model has operational leverage. Particularly as we can control some of the fixed costs, like corporate. Also, as subscribers drop in certain area, you see a lower second marketing costs which shows variability and the high return on capital of our models. We're also getting great synergies in cost savings out of those markets where we had great acquisitions particularly in Chile and Switzerland. Both looking great acquisitions there. Those who know in the regional bullets, all the major segments, UPC, J-COM, VTR, all up over last year and Telenet continues to do very well, contributing about 111 basis points to the pickup. We're on track to hit the 40% margin and at this stage we think we're ahead of schedule.

We just turned to CapEx, page 17, CapEx including company additions to the percentage of revenue, with 22.3% for Q2, against 27.5% in the comparable period last year. Now, as usual, the majority of the spend is associated with subscriber growth. We look at CPE, and what we call scalable infrastructure, IE, investing in the network in response to more demand, has been variable with RGU additions. And these categories together were over 50% of the total spend year-to-date. We also spend other variable CapEx in Q2 on upgrade and new build, and success-based investments which we think have good returns. We add 330,000 new two way homes past in the second quarter. Most of the activity occurred in central and Eastern Europe, particularly in Poland, and Romania . Year-to-date CapEx as a percentage of revenue, was 24.3%, which is flat year-over-year, but we expect will be in the 23 to 25% guidance range for the full year. We will hammer home the point we feel most of our CapEx around 80% is revenue generating. The subscriber related or network related, thus making money and return on capital, and if we don't have a return on capital, we don't have to spend it. Overall, the CapEx is moving in the right direction which is down as a percentage of revenue, as the Company starts generating more and more free cash flow.

Let me just turn to the balance sheet on Page 18, we ended the quarter with 15.8 billion of total debt. That was an increase of 1.4 billion over Q1. The increase was driven by financing that we completed in the quarter, just before the credit crunch, and we have got a few too many shares in the restructuring of our short channel interests and we did a zero cost per share collar transaction which is essentially a form of margin loan without any down side risk to us borrowed around $760 million against them. We also did a final refinancing of the UPC facility which both increased the borrowings and brought CabelCo and VTR into the credit. The key benefits of that, where we extended the maturity and lowered the margin by 25 basis points and by putting VTR into the UPC credit pool we albe to get that business indirectly to 5 times. We also raised the new loan of the UPC holding BV of 250 Euros and $250 million revolver at LGI. So cash slightly over 3 billion, which includes 492 million of restricted cash, and about 1.9 billion in corporate cash.

Since Q2, we exercised the Telenet options and closed the settlement with (Inaudible) liter, but we also have been investing and getting more cash in from J-COM, which we hope to come in, at almost 400 million per ton at recap, which we offset by a (Inaudible)4 million tender. So adjusting for everything, 2.6 billion in cash, with 2 billion for corporate, and adjusted multiple of 4.7.

In terms liquidity, the key take away from this slide is that we're protected from the current credit crunch and any worsening conditions. Limited the maturity, with a majority of our debt maturing beyond 2012. We also look at all our interest rate and currencies matched. So we should be in the position to have sufficient liquidity to conduct our business, including acquisitions and buybacks, in both of these credit markets, and also well positioned to take advantage of any opportunities that come up if private equity gets into trouble.

The final conclusion, we're delivering industry leading OCF growth. Was confident in our ability to drive RGUs in the second half, Romania looks like a nice (Inaudible) addition to the portfolio is working well for us, and forecasting pretty strong Q4 in terms of subscriber additions. We're on target to achieve our 2007 financial guidance targets but the is some downside risk because of this Romania price war to our RGU target but we're still looking that we are going to hit 1.6 million net end for the year. We have terrific cash balance and substantial liquidity. We remain very focused on delivering value for our shareholders and we think our leverage to equity growth model is doing just that. With that, I will turn it over to Mike and the operator for

Okay. Thanks, Charlie. Operator, we're ready.

(OPERATOR INSTRUCTIONS). Thank you. We will take our first question from Jeff Wlodarczak, Wachovia.

Good morning, guys. Two questions. Mike, can you provide more color on the RGU outlook? Using your analogy from the analyst day, is 1.6 MUTUMBO taking a three or Allen Iverson taking a three? And there is significant tightening in the credit markets. Can you talk about if your target leverage ratio 4 to 5 times gross leverage has changed as a result? Thanks.

Sure. That's an interesting way to put the RGU question. I think what we've said, what Charlie and Gene said is sort of what we're going to stick to here, we have put out 1.6 million as our guidance and we aren't necessarily changing that guidance, we are encouraged by the activity that Gene Musselman described, in the primary affected markets in central Asian Europe and we are also bullish on the fourth quarter which for us is anywhere from 35 to 40% of our net adds so it is really hard in advance of that fourth quarter to take our eye off the ball or adjust your thinking for the full year. Whether it is MUTUMBO or Allen Iverson, that is too tough.

The credit markets, from our perspective, hadn't really impacted us in any meaningful way. We are, as Charlie and his team have been focused on, you really de-risked our balance sheet. Our interest rates are almost 90-plus percent hedged. Our currency is hedged. Any amortizations are pushed out. And we're free cash flow positive. So as we sit here today, I think our balance sheet is perfectly aligned to take advantage of the opportunities if they do arise in the M&A environment or to continue to buy our stock but we don't feel we're pressured or feeling any additional pressure, because of what is happening in these volatile credit markets. We haven't changed our view on 4 to 5 times. We think that is still the right place for us to be. And you know, as John tells us, consistently, we have all been here before. So we just stay patient and keep our eye on the ball.

The other good news is I think that we can still get credit at 4 to 5 albeit it at a different price so it is not at that level of the market is shot. I think where the market is shot is at the highly leveraged pick transactions of private equity buyers and that is to our advantage, because that means we're not competing in any of these acquisitions or options with guys who are opening at very, very cheap with very leveraged money.

Thank you.

We will go next to Vijay Jayant, Lehman Brothers.

Mike, thanks for taking the question. Just wanted to address the fact that there is a press release out every day on your interest in Virgin Media, but any comments on that? But just generally, I think just some comments recently made that private equity may be struggling to compete. Are you seeing better opportunities on the M&A front in general? And has that really impacted the valuation of those assets also.

I really can't add anything to what has already been stated publicly by myself or John on that topic of Virgin, and I think everybody is aware that the company has decided to postpone any process, so there is really not much to add to that. I think if you read our comments, in particular my comments closely, you will know that this is typically something that we're exploring or should explore, but aren't necessarily anywhere on it, and as the process has been postponed, not much to say. It is too soon to know if the volatility in the credit markets will impact specific deals that we're looking at, or private equity interest. I do think you can take as an indicator, anyhow, the situation around Virgin, that the process being stalled as it is, is clearly a function of the expected appetite, given the credit market. So it is not too -- I don't think it is a big stretch to assume that if this continues, there may very well be greater opportunity for us to look at some strategic or accretive deals in central nation Europe, for example, and other markets where historically sellers have been rather aggressive on their valuations. So we have our fingers crossed.

If I can have a follow-up, given that management is compensated on EBITDA growth, and very well compensated at the high end of the range, and you guys have been high on the range is, it something for us to assume that we should just focus on EBITDA growth and not really care too much about RGU because you will balance that, the right mix of profitability and growth?

Well, I'm glad you asked that question. Because I think it is a very fair question and one I would like to address. We're focused -- despite what the management compensation plan might indicate, or reward over the next two years, we're all in this for five years or longer, I mean the point is, that plan pays out over five years so nobody is in any way focused on short term profitability to the -- somehow to the disadvantage of the long-term value creation in this Company. We wouldn't be buying our stock if we felt that the plan we're implementing, the strategies we're implementing aren't for the best interest of this Company in the long-term. I think the growth that we're experiencing in EBITDA is both top line growth, I mean 10% top line growth , is largely what we've been doing historically so there is no massive verification in the top line growth figure. And our EBITDA growth is a function of both that top line impact as well as just being a little bit better on the efficiency side. We're getting synergy benefits from acquisitions. We're scaling in core markets. I think all the things that we had built in two years ago, quite frankly, are now coming to fruition on the operating cash flow line. So look at the top line. I would focus on the cash flow. We have not in any way decided that RGU growth is no longer important. We've always been focused on profitability RGU growth. And I will just repeat what both Gene and I have said. We love Romania RGUs like any other RGU but not all RGUs are created equal and because we operate in so many different markets, I think you have to focus and slice and dice if you will that RGU growth figure, which we will try to do a better job if we're not doing a good one today of helping you

Thank you.

We will go next to Ben Swinburne, Morgan Stanley.

Thanks for taking the questions. A couple of things, first on Western Europe and in Switzerland. Can you talk a little bit about what the incumbent TellCo's are doing with that video platforms, I think KPN rolled some pretty big price cuts through on video. Just interested on how like you and Gene think that product backs up to what you are rolling out on digital. And maybe the same question on it relates to SwissCom who I think has been a little more quiet lately. And then on the CableCom business, I think you will have to raise rates again next year. If you can sort of comment on video, can you comment on that and what it might mean for margins, can this be a 55% margin market? And then lastly, the bank debt, about a billion eight, could you just comment on how much of that floating rate debt has been swapped into fixed and if there is any expirations on those agreements that we should know about?

Sure. Why don't I work backwards and Charlie the bank debt one.

100% swap this year and next year and I don't have the numbers exactly in front of me but drifting down over the next six, seven years to 60, 70% but I think you can assume very little volatility in the interest rates in the bank debt, and highly hedged and most importantly, we're also matched on the eastern European currencies, we've swapped out the (Inaudible) exposures.

Sure. And I will let Gene round it out here, but in Holland, if KPN has, as it appears anyway, focused more of their marketing attention on their DDT (Inaudible) product, into antenna, which is, as far as we can tell, largely capturing second outlets and folks who are not connected in campers or cottages or boats or things of that nature, from our perspective, their product has had limited, if any, results for them to date, and continues to be in a -- I guess in a pre-launch, or soft launch phase. And we're pretty focused in our digital markets to be the service leader and the product leader with HD-DVRs and VOD, and thus far, we haven't seen a meaningful impact from digital antenna, we believe and we're really the only one in our markets offering all of those products and services. No real update on Swiss com or unless Gene have you something to add. They continue to be between 20 and 30,000 depending on which press release or who you listen to but we on the other hand have had great success with our Swiss rollout in particular, I think 60% of our sales, our DVR sales, so that is working extremely well. We're -- where our net adds on digital are up meaningfully from the prior year. And we do have a rate increase next year. We have -- I don't think we've been specific about that number, if we have, Gene, correct me but that ought to have a nice impact, no question, on the operating cash flow line. You want to add anything to that, Gene?

Well, I guess with respect to , I think what you're referring to is the fact that announced that I think in August 2, they would reduce the price of their KPN mine package, which is their interactive package from 19.95 to 9.95. And the issue is are we going to be able to put together competitive offer, and I took a look at that today, and did some comparisons, and one thing you have to keep in mind is that KPN still, you still have to take an ADSL connection with them, and so if you add their lowest cost ADL connection, it would take their price up to 24.95, vis-a-vis ours at 19.04. So you can see that we've got about a 5, 6 Euro price advantage there. In addition to that, at least looking at their Web site, there is an activation fee of $14.95. Plus a cost of 8.95 for sending the box to the subscriber. They also have a purchase model versus our rental market model. So in our case, the box rental is built into the 19 Euro fee. On the other hand, you have to purchase their box, and again, there is a one-off cost right now of 19.95, and I understand that they actually charge you 149.99, and that you get a 50 Euro rebate upon request. So you've got a 150 Euro outlay just to get into the package there. And then their 19.95 price, I further understand, is a first-year promo, and that will increase at the end of the the first year, so from a competitive standpoint, on their package, their IP TV package, I think we're very competitive, and now given the fact that we've got the digital drivers that will be rolling -- that have been rolled out that will be a prominent part of our fall campaign I'm confident that we will be right in there slugging and doing well. And as Mike indicated, the DIGI- package, they reduced it by 50% as well but that is primarily attracting the person who has a summer vacation home or the boat or an RV, and I think they have around 300,000 subscribers. The good news is, if you take a look at our churn, our churn is much less than what we had forecasted, and that simply means that we're not losing subscribers to KPN at the rate that was anticipated. So from that perspective, I think we're in good shape. And with respect to blue wins, I would just agree with what Mike has said, that they haven't seemed to be able to get any traction at this point, and we certainly are coming out of the gate strong with the relaunch of our package, and we're lining up for the fall campaign and we will put significant resources behind. That I would expect that we will have a good

Thanks so much, Gene.

We will go next to Alan Gould with Natexis Bleichroeder

Thank you. Gene, I have two more questions for you if I could. Your costs are really being kept long. A seems a lot of that are marketing costs are low. Is there a timing difference when you're marketing this year, versus when you're marketing next year? Will that impact margins when you start promoting and marketing more in the second half of the year? And my second question is, I understand KPN can't offer high definition TV right now, with their IP TV product, and is HD as big and important in Europe as it is in the U.S.?

I will take HD TV first of all. It depends on market by market, but in the Netherlands, there isn't much HDTV available at the present time, and I don't think it is the key factor. We would like to see it develop as such. And if you watch the market a high percentage of the TV sets that are being sold are HD TV ready. But I think it is going to take a couple of years for it to -- for the HD TV market to develop. Although we're introducing this -- we've already rolled out an HD TV receiver, and this fall, we will be rolling out in the Netherlands an HDDVR as well. But I don't think they're going to be hurt that much by not having an HD-DV product initially. With respect to our marketing costs, I think they're running about the norm. We try to keep our marketing expenses somewhere between 6 to 10% of revenue. Depending upon whether we're launching new products, and the maturity of the market. I think for the most part, that we're spending in that range, depending upon the systems. We are getting better, I think, at segmented marketing. We have put a lot of emphasis on setting up databases and doing what you call database mining, and segmenting and targeting audiences better. And I think that is not only paying dividends in terms of -- well, paying dividends in terms of developing cheaper channels of acquisition.

(Inaudible - background noise) It is also fair to say that there were two real buckets of marketing, above the line and below the line, and the below the line is talk to the salesmen and the like and people on commission, and that is variable and translates -- and you don't spend marketing just to standstill. It is a true success-based investment. And I think what is good about the Q2 results, clearly, we took a little bit of a hit in Romania on subs, but what is encouraging is lower subs did translate through in a lower variance budget at least. And if you're looking at it on a year to year basis, you got to back out -- you know, we've reduced significantly the cost of the marketing and sales expense related to the rollout of D fray in the Netherlands. Let me put a slightly different spin on the HD point, just add to what Gene said. I think what we've experienced and will experience and certainly the U.S. listeners would agree with this, the HD has a water fall effect, and you've got three variables, you got to get the TV set, you got to get the broadcasters in particular and key programmers, and you've got to have the network and the capability, and I think the fact that we are well positioned with HD, and today, with somewhat limited content, but it is available, and we can provide HD to core customers, there is going to be a huge differentiator over the next 12, 18 months, because once the broadcasters go, when you have the Olympics, when you have key sporting events, it is our experience that that is going to be an important marketing message, and we're going to drive the heck out of it. I can promise you.

Thank you.

We will go next to Matthew Harrigan, Ferris Baker Watts.

Good morning. You talked a little bit about the business services opportunity, at B2B, at your Swiss conference and I know it is a somewhat peripheral area and not something you typically address on the earnings call, but I was curious if you could give us an update as to how that was going.

Well, I mean, we said high teens, revenue growth, when we talked about it I think in March. It was and remains one of our highest growth product areas in Europe. And for the most part, we're on track. We reviewed the numbers last week, we're largely on track, in B2B through mid year, and think we have been conservative in our approach to the product, and the service, we're not spending a lot of CapEx. Hardly any incremental CapEx. We're taking the low-hanging fruit. And as I said, at the high teens revenue growth opportunity for us, and it is on track.

Thanks, Mike.

We will go next to Gregory Kolb, Janco Partners.

Thanks for taking my call. I was wondering VTR if we could get a little more color, a strong quarter, bundling ratio was up 9% sequentially, with good margin improvement. I was wondering if we could get more color there?

Is that it?

And maybe if we could get a little update on WiMAX in Australia and Chile.

Okay. Well the Maurice is on and we will have him highlight a few highlights on the VTR front and WiMAX in Australia is very early stages and we have selected vendors, in both instances, Motorola, Nortel (Inaudible) and Austrilia we are in a an exploratory mode and we haven't done anything meaningful yet. But in Chile, we have started to roll out, and for reasons that are required by the license, as much as anything, and we're having good success with Motorola down there. And I will let Maurice fill it in. Are you there? It looks like we might have lost him. Anyway, I think the biggest is the RGUs in that particular market, in the second quarter, we're more or less on budget through the year. And the Company is actually ahead of budget. I believe on all three products. So it has had a good showing both on video voice and data and they've rolled out digital in that marketplace and I think we're plus 20%, plus penetrated which has had a nice impact on video customer growth and total customer growth. And it is a market where I think if you look at the total customers year-over-year growing that is as much as anything a key benefit to us. Because we're almost selling two products per customer, so if we add a home, we're pretty much adding two RGUs, and with triple play penetration 35%, and a third of the case, we're adding three RGUs. So they've been focused primarily on customer growth as much as anything. The competitive environment remains somewhat benign. I mean the telephonic and others have been with DTH and other products trying to duplicate a triple play. The VTR stands alone in that market with significant penetration in broadband, I think 30-plus percent penetration in broadband, and 35 somewhere percent penetration in telephony, and a growing video penetration. And the only provider who can do all three and do it pretty much on a nationwide basis. So we continue to be very pleased with that business, and despite what you might have read around Telmax or others, we've been approached by nobody and are not necessarily entertaining offers. So we're happy with that business.

The only thing I would say, are Mike, they have been terrific job on cost.

23% cash flow growth is about as good as it gets in our business. I wouldn't describe VTR as an early stage business. It is not a mature business but it has been churning out 20% plus cash flow growth for years. And it is nice in this second full year plus of the merger there to still be having that kind of growth. So we're pleased.

Great. Thanks.

We will go next to David Kestenbaum, Morgan Joseph.

Thanks. Since you're doing so well in the Netherlands I was wondering if you were thinking of reintroducing the program since digital net adds have slowed.

No.

Are you doing something like that in Switzerland, too.

No. I think we've been consistent to say that the approach we took in Holland is the right one and if we had to do it all over again I think we would do it a little bit better because the second time do you anything you do a little bit better and we really would do the same thing and we really jump started that business for us and as Gene pointed out a lot of the disconnects were in many cases were returned boxes were from a lot of folks who hadn't really installed it or experienced it and the quality of the customers that we retain are fantastic and the tier and the premium products in the 60, 70% range are what we expected to see. So we're happy with what we did and we're happy with what we're seeing in temps of the ARPU uplift and I don't believe we need to do it in any other market. I think we've learned a ton from the process, and every other market is different. And in Switzerland, we have the benefit of a -- the ability to reduce channels in analog, a very low entry tier price, so I think we've got a different formula there that we believe should continue to work, and has been works if you look at the net adds year-over-year.

And -COM seems to be doing pretty well. Any changes in the competitive environment there in Japan?

Graham are you on?

There is no change in the competitive environment there.

Okay. Thanks.

We will go to our next question, David Joyce of Miller Tabak.

Thank you. I apologize. I was late on the call but can you quantify or give us some color on how the churn has improved, and where it has been available, especially in the Netherlands, for digital, and how the ARPU -- how much of the ARPUs have improved from the increase from digital after the retention -- after the promotion? (Inaudible - background noise)

Okay. Well I think you're specifically asking about the Dutch digital experience and I think we did mention, we did mention that ARPUs are up to 6 Euros incremental, and that is about where we had anticipated, and certainly, dropping to the bottom line and having a big impact on operating cash flow growth in that marketplace. The -- I mean the churn reference I made was one to, in the first half of the year, we did see some churn-off from the fourth quarter net adds, but you have to remember, when we identified a digital RGU in Holland, we included in that number folks who accepted the box, and in many cases the box wasn't actually -- we're learning wasn't actually installed or maybe not installed correctly so a lot of the customers that churned off in the first half didn't churn off because they didn't like the product, they thought it was too expensive, many of them didn't get there, if you will. We're seeing a lot of that decline. If you look at churn in the last 10 weeks it is down 50% from the last 20 weeks, something like that. And we're seeing the churn peel off and I think the second half of the year should be more beneficial than the first half of the year in terms of net adds. You cut out a couple of times during your question, David so I'm not sure if we got it all.

Maybe just a little bit more color. And Mike is correct, if our churn has dropped above 50% in the last 10 weeks and there is primarily the result of the fact that we've stopped the six month free promo, that has been reduced to three months now, we've got the expanded channel pack and premium services penetration has grown dramatically, up to over 60% at this point and we've got the -- all of the products that you need to drive digital in the market at this point. In addition to having introduced FSPOT, TVOD, delayed TV, all of these are having a positive impact on churn. Another thing that I should like to point out is the fact that when we churn, if that is the word you want to use, our digital subscribers, they actually don't leave us. They actually downgrade to analog. So if you looked at pure churn, the churn is in a range of about 4.2% annualized. Because between 85 and 90% are going back to the analog product itself, and not spinning out to the competition.

That's a good point, Gene. The other point I would make, I think you asked about the promotional, I think 80% of the digital customers are now off that free trial period. So for the most part, we've got customers who want to stick.

Right. And a couple housekeeping items. I was wondering if there are any working capital swings in free cash flow that will help that metric in the second half? And finally, with acceleration into the business customer market, when you might be bringing up some of those metrics.

I think the big thing on free cash flow relative to ha question is cable com, which is in Switzerland, will have you pay in a year in advance and we do get a very substantial inflow in Q4 of cash there which we provide significant liquidity. Otherwise very broadly, if there is prepayment, it actually occurs in Q1, particularly in the Netherlands, and Austria. Otherwise throughout the year working capital is pretty stability.

What was the second question, David.

The business.

I mentioned that we will -- you know, we will consider putting more metrics out. I won't promise anything. But we checked about it in March, being a high teens grower on the revenue line and thus far it is largely on track, so we're taking a low-hanging fruit approach to it, we're not swinging for the fence, spending a lot of capital, and from that point of view, we're pleased, but we will consider maybe putting some more information in there next time.

123 million Euro of revenue year to date with a 63% gross margin, and cap ex at 10% of sales.

Great. Thanks, guys.

We will take our final question from [Jostine][ Gosla]. (Inaudible)

That excludes, Telenet that revenue.

Go ahead, sorry.

The numbers exclude Telenet (Inaudible) revenue.

Yes -- the mixed numbers exclude tell net revenue. Okay, operator.

And [Jostine] your line is open.

Yes, thank you for taking the call. I have a quick question on Hungary. You mentioned obviously, Mike, earlier a great opportunity in central and Eastern Europe, and also given the latest regulatory changes in that market, the market concentration, maybe you can comment a little bit on that, and then how are you seeing the competition in particular from DIGI-TV in this market.

Well, we were just in Budapest, we had our entire board every there, every summer we take our board somewhere for a board meeting off-site in the field and we were in Hungary this year, and we spent quite a bit of time with regulators and others in that marketplace, and as we normally do. And they have eliminated the rules of the CAP that was on consolidation there in the cable sector, as they should have, quite frankly, and we will see what happens. There are a couple of operators and some opportunity to grow in that market, and you can bet we're evaluating all of that. No question. We addressed the DIGI-TV indirectly by discussing as Gene did in his remarks the Romanian and Hungarian situation particularly Romania, and I'm not sure how much more I can add to that, other than it appears to a unsustainable approach to the low end market. And not that market not that we don't want to serve the low end market with the 3 or 4 or 5 6 Euro subs but I think with the type of services we can sell, we are shooting a bit higher and unfortunately some of our lower end subs particularly in Romania are being impact bid that marketing approach. We wish them all the luck. That's one way to do it. But we don't see it as being particularly sustainable in the long run knowing what we know about his margins and programming costs and other elements of his business plan. But you know, from that point of view, we think we're putting in place all of the right tools to compete in our core segment.

Excellent. Thank you.

Yes. All right, well I think that was our last question. We have gone a little bit over an hour. We appreciate you getting on the call. Hope you enjoy the rest of your summer if you're in the northern hemisphere and we look forward to talking to you in the third quarter. Thanks, everybody.

Thank you, everybody. Ladies and gentlemen this concludes Liberty Global's second quarter 2007 investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's Web site www.LGI .com. And you can also find a copy of today's presentation materials.