Liberty Global Ltd (LBTYB) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's investor call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode. Today's formal presentation materials can be found under the investor relations section of Liberty Global's website at www.lgi.com. Following today's formal presentation instructions will be given for a question-and-answer session. As a reminder this conference call is being recorded on this date, May 7, 2010.

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

Thanks, and good morning, or good afternoon, wherever you might be. I appreciate you joining us here for our first quarter call. Before we get rolling I'll just introduce the folks you might hear from today. Of course, Charlie Bracken and Bernie Dvorak, our co-CFOs, Gene Musselman, President and COO of UPC; Shane O'Neill, Senior Vice President of strategy and M&A and also runs Cello; Balan Nair, our CTO is on; Mauricio Ramos, who runs VTR; and of course, Rick Westerman. Before we go further, though, we'll need to read a Safe Harbor statement so operator, can you help with us that?

Certainly, thank you. Page two of the slides details the Company's Safe Harbor statements regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the Company's expectations with respect to their outlook for 2010 on future growth prospects and other information and statements that are not historical fact. These are forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed from time to time with Liberty Global's filings within the Securities and Exchange Commission, including its most recently filed Form 10-K and 10-Q. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.

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

Thanks. So I think you're familiar with the outline of our calls generally. I'll going to start with some operational highlights and then I'll turn it over to Bernie for the financial overview and I will end with your questions. Just a reminder, we are going to be speaking from some slides today and we hope you can access those on our website now or while we're speaking. So I'll start off slide four with the highlights. Perhaps the biggest takeaway from this quarter is the continued improvement in our organic growth, particularly in Western Europe. We've been talking for some time about our expectations for improved operating performance in these markets as a result of our investment in DOCSIS 3.0 and digital TV and we're clearly seeing those benefits. For the quarter we add 204,000 organic RGUs, an increase of 34% over last year, and driven principally by our Fiber Power broadband products and bundled voice services in Europe. In fact, this was a record quarter for European broadband and voice additions.

Revenue and operating cash flow were up 4% and 5% respectively after rebasing for foreign exchange movements in M&A, and we're helped again by Western Europe. We delivered our fourth straight quarter of improved growth. Our capital expenditures were the lowest in a long time, coming in at 19% in revenue, which helped contribute to a nine-fold increase in free cash flow to $230 million. As Bernie will describe a bit later we will have some one-off adjustments in free cash flow this year, but we're off to a very good start.

COM and the acquisition of Unitymedia in Germany, both of which closed in the first quarter. You'll notice that we only picked up two month of Unitymedia's results this period, which is being reported as part of our UPC broadband division. I'll have more to say in a minute, but operating performance in Germany is right on target and our integration activities are tracking to plan. As you might expect our pipeline of new M&A opportunities is getting fuller, driven in part by our balance sheet position, which has never been stronger. We ended the quarter with consolidated cash of $4.2 billion, including $3.5 billion at the corporate level, and we continue to demonstrate good access to the capital markets with over $1.6 billion of additional debt extensions completed this year alone. At this stage over 75% of our debt matures in 2015 and beyond.

While we expect to remain disciplined and patient on the M&A front, as we have in the past, we are not idle in terms of deploying our cash. Year to date we've already repurchased $220 million of our own stock and we have over $300 million authorized under our current program. So we feel like we're hitting our stride here operationally and strategic exactly. Our investment in 3.0 and digital TV, two of our most important product strategies, is paying off with stronger organic growth. With the sale of Japan and the addition of Europe's largest market to our footprint we've redefined our operating profile and put ourselves in a great position to continue consolidating the region. And we're cash rich, so to speak, not a bad place to be in this environment. We're focused on deploying that capital with one goal in mind and that's creating equity returns for shareholders.

With that as an introduction I'll take a moment on slide five to run through some subscriber results. We've experience good growth overall despite challenges in certain Central and Eastern European markets. The chart on the top left shows that total net adds for the last five quarters had averaged about 150,000. Our net adds of 204,000 in the first quarter are up 34% compared to last year and include two months of Germany, which added 65,000 RGUs in the period. Having picked up a full quarter for Unitymedia our net adds would have exceeded 230,000. We now sit at 27 million total RGUs. On the top right you can see our broadband additions for the quarter of 168,000, up 37% on the year. Again, that figure includes two months of Germany, but even excluding Unitymedia our broadband net adds were up almost 10% year over year, and today we have 5.9 million broadband subscribers in total.

On the bottom left you'll see our voice net adds of 152,000, a 24% improvement year over year. This product continues to outperform our expectations, driven largely by bundles, which combine voice with our Fiber Power broadband services, and today we serve over 4.2 million voice subscribers. And then on the bottom right, video losses were modestly higher this quarter at 116,000. It's worth mentioning here that as in prior periods, you can attribute a good portion, actually 25% of this loss, to Romania, a country representing less than 2% of our revenue, where we continue to confront heavy competition from low-cost satellite providers. On the bright side digital TV remained our fastest growing product in the quarter, just as it has for the last 10 quarters, which is a good segue to the next slide, number six, highlighting the composition of our video base and our progress over the last year in terms of digital growth, focusing specificly on our cable business.

You can see on the left side that we ended the quarter with 15.7 million total cable subscribers, of which six million subscribe to our digital services. That's up from 3.5 million a year ago and represents a 38% penetration rate today of digital. Over half of that increase comes from the addition of Unitymedia, which adds 1.4 million digital subscribers to our base out of a total of 4.5 million video subs, and the balance came the 1.1 million of organic growth. The main point of this chart is to illustrate the huge revenue opportunity we still have to convert analog cable subs to digital. Nearly 10 million of our cable subs are still watching 30-to-40 channels and have yet to experience crystal-clear pictures, DVRs, HD and VOD, and make no mistake about it, these advanced services are driving digital demand. At the end of the first quarter, 35% of our digital customers were paying for us an HD and/or a DVR box. That's a 63% increase in HD and/or DVR customers in 12 months.

In markets hike Belgium, Holland and Poland we've reached DVR/HD penetrations of between 50% and 80%. HD is really beginning traction, as the number of HD feeds available are steadily increasing, in particular from free-to-air broadcasters. In The Netherlands alone, for example, we now offer 16 channels in HD format, including most of the key broadcast networks. We're really pushing the innovation curve with multiple 3D events hosted around the Master's golf tournament last month and a number of promotions launched in anticipation of the World Cup tournament that starts next month. We also plan to announce some positive news about our next generation digital platform next week, including our technology partners, who help us launch, by far, the coolest in-home device the cable industry has ever seen, so stay tuned for that.

I mentioned at the beginning of the call that we're definitely seeing the sort of growth we anticipated out of Western Europe, which slide seven highlights. The chart at the top right shows net adds in Western Europe, excluding Germany, which I'll talk about that in a minute. You can see that subscriber additions up 70% on a same-store basis driven by three key factors. First of all, we continue to deliver great results in the Netherlands off the back of our 3.0 or Fiber Power bundles. In fact, the Netherlands just delivered it's best first quarter of net add ever, helped by 30,000 broadband additions, up from 7,000 a year ago. We're grabbing market share every day from KPN and the DSL operators. As you'd expect we continue to roll out 3.0 everywhere. We launched Belgium earlier this year and currently have a total 3.0 marketable footprint of over 12 million homes, or 50% of our 2A network. We're launching Ireland this summer and by year end we expect to be roughly 80% upgraded to 3.0.

Second, we've seen our Fiber Power bundles have a halo effect on our voice business where organic adds were up 60% over last year in Western European markets where we've launched 3.0. The Netherlands, for example, had its highest growth quarter for voice since 2007. By the way, some of you may have seen that we recently won a mobile license in that market through a JV that we formed with Ziggo, the other large cable operator in the Netherlands. Combining forces with Ziggo was critical since together we cover over 90% of Dutch households. It's way too soon to go into our plans, but the JV did get the licence for 40 MHz of spectrum in the 2.6 GHz range for only EUR1 million, which will provide great strategic value over time.

Lastly, we saw good growth in two of our largest Western European markets, Switzerland and Belgium. After significant changes to the management team, our systems and our marketing strategies, our Swiss operation is starting to turn the corner with positive subscriber growth in the first quarter, compared to RGU losses in four of the five previous quarters. Obviously we expect that growth to translate into better financial results going forward. Telenet continued to meet or exceed expectations, with 9% rebased revenue growth and 12% rebased operating cash flow growth in the first quarter.

Moving on to Central and Eastern Europe at the bottom of the slide, the region continued to be impacted by very competitive environments, in particular in Romania. On the bright side we saw steady or improved subscriber performance in Hungary, the Czech Republican and, of course, Poland, which continues to be our stand-out market, generating double-digit revenue and operating cash flow growth again in the first quarter. In fact, if you strip Romania out, which represents, as I mentioned, 2% of our revenue, you can see on the bottom right that net adds in Central and Eastern Europe were actually up nearly 60% year over year. I should also mention that we are in the process of reorganizing our DTH business in the region, which includes changing to a new satellite provider and repointing approximately 300,000 dishes. There are several operational and financial benefits to this move, which we'll update you on as we realize them and we'll keep you posted on any short-term impact on the business.

Lastly let me close by spending a couple of minutes on Germany and the performance of Unitymedia, which by any measure is meeting or exceeding our expectations. This is a great business. The chart on the top right shows Unity's net RGU adds for digital, date and voice in the first three months of the year totaling about 150,000. As we've indicated all along these products are in the early stage of the growth cycle in Germany. Broadband and voice penetrations are still at the single-digit level compared to 20% to 30% in other European markets, and with over 1.2 million subscribers at March 31st both products were up approximately 50% in the last 12 months. Digital TV is also still picking up steam, with just over 30% penetration today. This was our primary investment thesis and while it's early days it's proving out. Of course, strong subscriber activity is translating into good financial performance. Unity's cable revenue and operating cash flow for the full quarter increased 5% and 10% respectively versus 2009 without the benefit of any synergies. and operating cash flow margins reached over 54%.

With Gene Musselman's focus and attention, integration activities are tracking to plan and we are accelerating 3.0 and HD rollouts across our footprint in Germany. In fact, we'll be launching HD services in late May, ahead of the World Cup next month, and we've accelerated our 3.0 plans to reach an incremental 5.5 million homes, or roughly 80% of Unity's two-way footprint by year end. The last point in Germany is that we're seeing very good developments in the broader macro environment, in particular our relationships with regulators, program providers and even some competitors, all of whom have welcomed our entry into the market. The punch line here is that this business is everything we hoped it would be so far and should continue to contribute great growth to our European business for years to come.

I might just close with a quick comment on recent regulatory developments here in the US and what that might mean Europe, and I'm referring, of course, to the net neutrality debate. Fortunately in this area the EU marches to its own drummer and has already established very clear and appropriate guidelines for operators and content providers. Simply put, they believe that the key to a properly functioning internet market is transparency, not regulation. As long as operators are clear on what they're doing and why they're doing it we do not expect to see any mandated changes to our broadband business model in Europe.

So with that I'll turn it over to Bernie and certainly look forward to your questions at the end of our prepared remarks. Bernie?

Good morning, everyone, or afternoon. Before we walk through the financials I want to make sure that everyone is on the same page with respect to the financial statements and I think Mike touched on both these points. As a result of disposal of our J:COM interest in February of this year we've treated J:COM as a discontinued operation, which means it is not in our financial and operating metrics in Q1 of this year or our historical periods either; we've restated those to exclude J:COM. And then at the end of January we purchased Unitymedia and have consolidated that entity since the 28th of January so we've got a little over two months of their results in our first quarter. We also exclude the arena business, which is a small DTH business in German, from our rebased growth calculations, as it would otherwise distort our underlying performance. In actuality the business is immaterial to current reported results.

Slide 10 highlights our first quarter revenue and OCF performance as compared to Q1 of last year. As seen in the two charts we generated revenue of $2.2 billion in the quarter, which was an increase of 28%, or approximately $480 million versus Q1 2009 and realized OCF of $975 million, which reflects an increase of 31% or approximately $230 million over last year. The addition of Germany contributed $217 million in revenue and $120 million in OCF to the year-over-year revenue and OCF improvement. The remaining increase was driven by a combination of organic growth and favorable FX, as our functional currencies were generally stronger to the dollar this quarter as compared to Q1 last year. Adjusting for both the effects of FX and M&A, our first quarter rebased revenue and OCF growth rates were 4% and 5%. This growth was fueled by strong revenue and OCF performance in Poland, Ireland, Belgium, as well as Germany and Australia. And from a product perspective, as Mike mentioned, our organic revenue growth was driven by a combination of growth in subscription revenue led by broadband internet, and in non-subscription revenue driven primarily by programming and to a lesser extent B2B.

If you go to the next slide you'll see a geographic breakdown of our revenue and OCF growth. As mentioned previously we generated 4% consolidated rebased revenue growth, reflecting an improvement over the full-year 2009 rebased revenue growth of 3%. Our European cable business accounted for $1.7 billion of revenue, or nearly 80% of our consolidated total, and grew at a 4% rate. In terms of specific segments this breaks down as follows. UPC Broadband, which includes Germany for two months, generated $1.3 billion of revenue in Q1, which reflects 2% rebased growth, and Telenet continues to perform strongly on the top line, growing rebased revenue at 9% to reach $439 million in the quarter, driven by bundling success as they drove ARPU per customer in excess of 12%. Our Chilean business, VTR, was impacted by a combination of the earthquake, as well as competitive and economic factors; and consequently posted flat rebased growth in Q1. If we adjust for the direct impact of the earthquake, including lost revenue associated with destroyed homes and temporary service outages, we estimate VTR revenue would have grown approximately 2%. Finally, our Australian business,Austar, realized 6% year-over-year rebased revenue growth on a combination of higher RGUs and improved ARPU per customer.

The chart on the right side of the page shows rebased OCF growth on a consolidated basis of 5%. Overall, Europe, UPC and Teledyne on a combined basis delivered 6% rebased OCF growth and this breaks down as follows. UPC generated $635 million in OCF, representing a 4% rebased growth rate and within Western Europe Ireland grew in excess of 10% and Germany at 8% with the Netherlands, which had a particularly strong RGU quarter, recording 4% OCF growth. In addition UPC, Telenet showed impressive results, increasing its OCF by 12% on a rebased basis to $222 million. As we move from Europe Chile had a 3% OCF decline and Australia had a 6% OCF increase. And as we talked about earlier, Chile was impacted by the earthquake and if we adjust for the direct impact we estimate Chile would have grown -- shown growth of approximately 5%. So overall OCF was in line with our expectations.

Slide 12 tells an important story about our Western European business. The slide highlights the rebased revenue performance of our Western European operation, which is two-thirds of our business today. Since Q1 of 2009 our Western Europe growth has been improving modestly by quarter. For example,, the combined rebased growth rate for our operations in the Netherlands, Ireland, Austria and Switzerland increased from a rebased growth rate of close to zero in Q2 2009 to a rebased growth of 3% in Q1 2010. In particular, the Netherlands has shown significant improvement, more than doubling their 2009 rebased growth rate of 2%. And additionally, as you can see by the far-right bar Germany is accretive to the overall growth, as Unity posted 6% rebased growth for the two months. The take-away here is that Western Europe on the back of digital migration and bundling of data to the phone products is beginning to begin momentum on the top line.

If you turn to slide 13 we take a look at CapEx and free cash flow, both of which are a positive story this quarter. First of all, consolidated CapEx declined from $413 million in Q1 2009 to $405 million in Q1 this year, falling from 24% of revenue to 19% of revenue. The largest contributor to this decline was UPC broadband, excluding Unity, which drove CapEx as a percentage of revenue to 20% from 26% a year ago. And Unitymedia's 16% ratio also benefited the consolidated results. The overall reduction in CapEx as a percentage of revenue, excluding Germany, was largely due to lower expenditures in CPE in upgrade and rebuild as compared to last year. However, we expect that CapEx as a percentage of revenue will be higher throughout the remainder of this year as compared to the first quarter, due in part to the timing of projects and phasing.

COM transaction, such as direct acquisition costs and the costs associated with Unity's pre-acquisition capital structure. For more color on this you can go to the press release where we walk through it in a little more detail.

If you look at free cash flow for the remainder of the year it's important to understand the following; we will incur cash interest payments on the debt raised for Unity in Q2 and Q4, and we expect to make cash tax payments in the US in 2010 as a result of the gain on the J:COM transaction, in the neighborhood of $225 million to $300 million. As a result, and including the phasing of our CapEx, we expect the balance of our free cash flow this year will be heavily weighted toward the fourth quarter.

COM transactions. At quarter end our adjusted leverage ratio stood at five times gross and four times net, after including Germany results for the full quarter and excluding the $1 billion Sumitomo loan, which is a collar on our Sumitomo stock position that is entirely asset backed by the shares we hold.

We have continued our policy of active balance sheet management into the -- 2010 and in Q1 we saw the completion of several transactions, including the push-down of the UPC Germany notes to Unitymedia and the related retirement of Unity's preexisting debt in early March; the issuance of EUR500 million of senior secured notes due 2020 at UPCB Finance Limited; and the extension of approximately $1.6 billion of debt maturities, including $1 billion earlier this week at the UPC broadband holding level. As a result we have very limited near-term debt amortization with only approximately 4% of our total debt due through 2012 and over 75% due 2015 and beyond. As you move to the right-hand graph we have total liquidity of nearly $6 billion, including $4.2 billion of cash, of which $3.5 billion is at corporate, $1.6 billion of unused borrowing capacity as measured by our maximum availability. And as we look to the remainder of the year, we will continue to deploy this capital into our stock buy-back program while maintaining the liquidity to capitalize on M&A opportunities as they develop.

So slide 15 in conclusion, we feel very good with the results that we achieved in the quarter and the transactions that we completed. Western Europe is our largest reason -- region and shown positive trends as revenue growth has continued to improve and we have had very good success with our 3.0 rollouts and our new bundles have been well received in the market. We're tracking with guidance that we set on our 2009 year-end call. And finally, we have ample liquidity and look forward to deploying this capital in accretive ways, as always with objective to drive long-term shareholder returns.

So with that, operator, we will open up to questions.

Thank you. (Operator Instructions). We'll take our first question from Mr. James Ratcliffe with Barclays Capital.

Good morning, guys, thanks for taking the question. Well, two questions. I guess first off, if you can give us an idea -- you mentioned that M&A opportunities seem to be opening up somewhat, what sort things you seeing out there and what sort of things of interest? And related to that, does the current macro situation create opportunities? Not suggesting you guys should go out and aggressively pursue great cable assets; but does this create distressed sellers and the like? And related to that, you've always been happy to exit unattractive markets -- Scandinavia, France and the like -- does there come a point where some of the less successful or more competitive Eastern European markets fall into that category? Thanks.

Hi, James, thanks for those questions. I think, on the M&A side, a couple of things are responsible for opening up, if you will, the market. First of all, at least until the last couple of days there was -- and maybe there still is today a vibrant high-yield market that has given sellers a bit more confidence that they may realize the sort of values they were homing to realize. So whereas before generally conversations were difficult to come by because of concerns around pricing and valuations. There are certainly more conversations to be had today. I can't be more specific than that, but if you look at the general market environment, financing environment, as well as the passage of time, which means for private equity owners a shorter fuse to exit, those things have combined to, I think, create greater conversations. The macro environment, or macro situation as you described it, may create opportunities beyond what we're seeing today. Hard to tell because then it would have the opposite effect than what I just described; sellers [retenting], being concerned about value realization. So I'm not sure that there'd be any additional opportunities as a result of the macro environment.

And with respect to exiting unattractive markets, you're right. We have, I think, been very successful at "rebalancing" our operating markets when and where it made sense. I don't see anything imminent in Central and Eastern Europe. I'm sure implicitly you're referring to Romania, whereas I keep mentioning that Romania is a small part of our overall business, both from a revenue and cash flow point of view. We have some strategic value still in the Central and Eastern European region, and we do believe that we be able to turn that situation around as a result of the products that we're launching and the approaches that we're taking. So I don't want to say it's a laboratory, because it's far more important than that, but we don't feel any urge or urgency to exit that market. We really think the things that we're doing over time will have an impact, and did have an impact for a lot of last year. As you might recall, in the third and fourth quarter, in particular, we had strong results in Romania. So it's going to be bumpy, but fortunately it's not a big bump in the overall scheme of our financial results.

Great, thank you.

And our next question comes from Mr. Jeff Wlodarczak with Pivotal Research Group.

Good morning, guys. I wanted to focus on Switzerland, which seems to be turning the corner against relatively low expectations, at least our relatively low expectations. What's driving that turn? Is it euro DOCSIS? How sustainable is it? And then you guys have a rate increase in that market, I just wanted to confirm that this year and what it was? Or who it's going --?

Sure. We did have a rate increase in that market and not as big as we had hoped; but nonetheless a rate increase that was approved, so that's certainly having a benefit in the second half of this year, in particular, but I'll let Gene add some color. I think the primary driver of the turn around is just blocking and tackling. By that, I mean, you know, at the height of our difficulties in that market several things were not going as well as we'd liked; in particular our IT platform, our ability to service phone calls, network stability, launch of new products. So since then, many things have change. New management team, IT system has been stabilized, we've launched bundles for the first time in the marketplace, digital product continued to improve, 3.0 is in the market. All the things that you'd expect to see us the in Western Europe we have now done, so I believe we are starting to see a turnaround there and over time the financial results will reflect it. I have confidence in the management team we have on the ground.

Gene, you have anything to add that?

Yes, I can add a bit of color. With respect to the rate increase, we had budgeted the euro and we actually were able to negotiate $0.70, although we had planned the euro rate increase for later in the year. But as a result the successful negotiations with the regulator, we'll be implementing that rate increase earlier, and I don't think we'll have any issues with that as a result of what you've termed the turnaround. I think there's a number of factors. Mike mentioned a number of them but I think the change in management has been very positive. Erik Tveter was named the new managing director. I think he's done an excellent job in terms of improving our image, particularly amongst the external constituencies, including the press, and that goes a long way in terms of being able to develop your market and sell products.

As Mike indicated we introduced 3.0 but simultaneous with that we increased the speeds of our legacy products. We targeted the sweet spot of the market. We're far more competitive than our competitors with our same offerings. We introduced for the first time, as Mike mentioned, a two-play and three-play bundles which are ow selling very successfully and getting good take-up. We've improved our digital portfolio with additional product offers, including a number of high-definition channels. We launched VOD in the Zurich area and plan to expand it throughout the area -- other areas of Switzer land this year.

We continue to upgrade our plant. As you know when we acquired the plant, much of it was 350, a 400-MHz plant and we're upgrading to 860. Of course, with the more progress that we make with doing that our truck rolls go down, our customer complaints go down, and it really just translates into a more reliable plant and happy customers. So I think all of this plus probably a [miriad] of other things have contributed to what we hope is a turnaround at this point.

And where are you in the 860 upgrade in terms of percent done?

We've upgraded a large part of the German-speaking area.

I think we're about 85% upgraded at this point.

From 350.

I think we added a 100 -- go ahead.

That's a good answer.

Yes. Thanks very much.

(Operator Instructions). And we'll take our next question from Mr. Ben Swinburne with Morgan Stanley.

Morning, guys, it's actually Dave Gober. A couple of questions. First on the M&A environment, you goes sound the most bullish on M&A that you have been in a very long time and I was just curious, given the big cash balance on the balance sheet, what areas are you guys focused on in terms of M&A? Obviously there's a big pipeline, but just curious if you're more focused on consolidating markets that are around your current assets or moving into new markets or driving growth, et cetera; and I was just curious? There's also been some comments, I think Gene made around Germany, in terms of consolidating that market specifically,and I was just wondering if that was primarily related to level four operators, or if there might be more going on there?

Okay. Well, I think our -- Dave. I think our approach to M&A is exactly as it has been, meaning that we prioritize opportunities more or less as you described them. We start, first of all, with consolidation. We prefer to get bigger in the markets that we feel scale will advantage us. So number one choice is greater scale and consolidation in existing markets and that's always where we look first. The markets that we would look at are the ones we've talked about in the past. Germany would certainly fit mold, although it's unclear whether we would be successful in further consolidation in that market and I believe we would look at both level four and level three potential opportunities that. In terms of new markets, I would describe our M&A activity or pipeline in new markets as exploratory and more venture driven than perhaps large scale investments. And by that I mean we might be evaluating certain new markets that we could take smaller stakes in to plant a seed or flag to determine whether or not there's longer-term growth or potential for us.

Okay. Just following up on another area of investment, I think that Bernie mentioned that CapEx should be expected to be a little bit higher throughout the rest of the year. Just curious if there's -- I think you mentioned there were some specific projects that you guys were rolling out. Any more clarity there in terms of what that is; if that's further DOCSIS 3.0 rollouts or more upgrades to the video plan, et cetera?

I think it's both, as well as continued volume growth in digital and other products. So generally speaking, our CapEx does phase and it's not always straight line phasing through the course of the year, so I think conservatively we would expect our CapEx as a percent of revenue to be higher than 19%. I think we've given guidance but not necessarily higher than our guidance for the full year.

If I could just add, Mike, that a piece of this is really CPE, which is success driven. It's not so much that we're putting in a higher volume of CPE, but it's the mix. As Mike indicated earlier, I think, in his remarks, we're getting a much higher take-up of HD DVR, for example, and those are higher-priced boxes.

Okay, thank you very much.

All right. And our next question comes from Mr. David Joyce with Miller Tabak.

Thank you. A couple housekeeping clarifications first. You talked in your note about -- in the release about the US taxes being $225 million to 300 million possibly later this year. That's -- did you already pay a portion of the taxes in Japan in the first quarter on the J:COM sale?

Yes.

Okay.

Go ahead, Bernie.

It wasn't in Japan. It's a US tax liability and we made our quarterly payment, which was a portion of the number that we talked earlier.

It's basically four equal payments throughout the year each quarter.

Yes, because you had talked about a potentially higher number in an earlier earnings --

Yes, I think we -- this is Charlie here. I think we continue to look at the numbers and our tax strategies and we might have to work that number down.

Okay, great. Just -- on the RGUs in Germany, the -- is the reporting now on your typical Liberty Global net reporting, meaning you're not double counting analog and digital, correct?

That's correct. There's act -- that's correct, David.

Okay. And on the bigger picture questions, the cable companies in the US have been talking more and more about the cell tower backhaul opportunity, and the business markets -- small business market opportunity. Could you size those for us when -- what you're doing there currently, and what your plans could be going forward?

You want to take a crack at that?

Well, we're looking at the various backhaul opportunities, and in a couple of instances at this point, actually developing business cases to make a decision whether to go forward with it or not. We're putting considerable more focus on B-to B-itself. To give you an example in Germany, Unitymedia, they want to provide a B2B service at this point. We're targeting right now for the launch of B2B in Germany, sometime around the end of July, August timeframe. We've looked at the market sizing there and feel that there's a get opportunity, particularly if you focus on the SOHO and SME marketplace. I don't think we're in position, particularly, to serve the international market at this point; but that's a large base, particularly at the SOHO level. We're looking at some significant opportunities. I spoke with (inaudible) of Ireland today about some government contracts there that we're pursuing. So yes, I think we're cognizant that there is an opportunity there and we're doing our best at this point to pursue those opportunity.

I might add, while there was some -- always are some individual contract implications to every quarter, we did have double=-digit operating cash flow growth the our B2B business in the first quarter. So the management changes that we've made there, as well as strategic changes have, we believe, started to pay off.

Great, thank you very much.

All right. And we'll talk our next question from Matthew Harrigan with Wunderlich Securities.

Good morning. A couple questions on Germany. Firstly, I know you know Brian Sullivan well from his SKY Italia days, and I think there's a bit of a sentiment that companies can pull in tandem to finally fix the German pay TV market just as you fixed it in the Netherlands. There's an announcement the other day that they're going to be providing some programming with one of your competitors, (inaudible) [referring it to SKY, Deutschland]. Do you see a lot of opportunities to work together there? I know the Unity story right now is primarily broadband; but if there is a way to juice the German pay TV market it would really be a phenomenal story. And then secondly, I know Deutsche Telekom is the big dog over there in terms of who regulators are watching. Their fiber plans probably hinge somewhat on German government's treatment of their network over time, that's kind of been an ongoing saga. Watching that externally, what do you see happening there, how long is it going to take to play out? Because it looks like you're going to have a pretty nice speed pricing incredible about as far as you can see relative to the D2?

Sure. Well, what they've said publicly, Deutsche Telekom, is that they are hoping for about 10% coverage of their networks with fiber by 2012; but as you can imagine in a market as large as Germany the infrastructure challenges there and the economic challenges of rolling out fiber are very real; and I think that they are realistic about those challenges. So there will be continued back and forth with regulators before that gets sorted out, but either way, I think, as with many markets we operate in it's a longer-term plan in that our opportunity has not changed much; and in fact, really is more of a medium, maybe even long-term opportunity given the timing of these fiber build and the cost of these fiber builds.

With respect to SKY, as I mentioned in my remarks, we do believe we have started to establish a very good dialogue with SKY from the very, very top of News Corp straight on down to the operating level, Brian Sullivan, as you recall -- as you mentioned. So we believe there's great opportunity to rebuild that relationship, look for win-win business partnerships in cooperation. Interestingly, of the 70,000 SKY added to their business last year almost 100% of those we added on our footprint through our boxes. So we are an important marketing component, at last year, of SKY's growth and I think they realize that and hopefully we can come up with some very strategic and impactful opportunity around HD and additional channel carriage and the manner in which we deliver their signals through our network. That's really all I can say at this point, Matt.

Thanks, Mike.

(Operator Instructions). We'll take our next question from Daniel Morris with JPMorgan.

Thanks, good morning. A couple of questions. (inaudible). Firstly I wanted to get some clarification about whether you expect to do any kind of major rollout in the Netherlands. I understand that you've recently reduced your (inaudible) activity there and I just want understand if there's a big CapEx requirement there or not. Secondly, I wandered, looking at M&A, would you consider buying full-service mobile operator at all in, for example, some of your Western European markets? And finally, can you just describe how important you think (inaudible) are and whether that's strategically something you're going to need to go for more or not? Thank you.

Well, I think the answer to all of those questions is very situational. I'm not sure I heard the first question in its entirety; but as it relates to a rollout of mobile (inaudible) at this point we have no firm plans to do everything with the spectrum. We're just arranged this to acquire the spectrum and then evaluate our plans. Fortunately, spectrum in the Netherlands was not expensive in the scheme of things, so it does give us some time and the flexibility to evaluate what we might do there. So I do think, in general, mobile for us is a situational evaluation, and we'll look at it market by market, and the quad play might have an impact in some markets, and very little in others. We've talk, for example, in the past about Chile and where we also have spectrum and the potential opportunity that market may provide; but that's a very different market than Holland or Ireland or other markets that we operate in. So it will be case by case; and I would not anticipate, in Europe, any massive strategic change to how we're approaching the business this year. In terms of acquiring full-service mobile operators, that's a big bite, and I think our preference one to look for for strategic entry points that don't require significant capital if we can achieve them.

Okay, that's helpful. Thank you.

And we'll take our final question from Alan Gould with Soleil Securities.

Thank you. My question's already been asked.

All right. At this time, I'll turn the call back over to Mr. Mike Fries for final comments.

Well, thank you, everybody, early start, early finish. We like that. Appreciate you joining us for the call, and certainly look forward to talking to you with our second results soon. So take care, everybody. Thank you.

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