Liberty Global Ltd (LBTYB) 2011 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 5, 2011.

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

Good morning, everybody. Thanks-- or, good afternoon. Thanks for joining us.

Let me just introduce who we have on the phone with us today, and folks that you might hear from. We have our co-CFOs, Charlie Bracken and Bernie Dvorak; Diederik Karsten, our Managing Director of European Broadband Operations; Balan Nair, our Chief Technology Officer; Shane O'Neill, our Chief Strategy Officer and head of Telemedia; Mauricio Ramos from Santiago, CEO of VTR; and Rick Westerman, who you know and love. So that's the basic group this morning. I'm going to let the operator read the Safe Harbor, and we'll get started straight away.

Thank you. Page 2 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 expectation with respect to its outlook for 2011 and future growth prospects, and other information and statements that are not historical fact. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-K/A and Form 10-Q. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in it expectations or in the conditions on any which statement is based.

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

Thanks. So, our agenda will look like our previous calls. We have some slides on the website, which we hope you can access. We'll make some brief remarks and get right your questions.

I'm going to start on slide 4, if you have it, as I usually do, with some key highlights. And for those that have been following us for a while, you'll know that we keep coming back to the same three tools to help us drive value creation here. The first is our ability to continue generating solid growth in our subscriber base, in our core financial metrics, and in our margins. With 251,000 net ads in the first quarter, up 23% from the prior year, we were able to ride this momentum of our best fourth quarter since 2007, and deliver strong RGU growth. I'll drill down into that number in just a second, but I can tell you that all three products, Broadband, Voice and Digital TV, performed well. It's been our best growth engine for the past five quarters. Charlie will walk through our financials, but the headlines are 4% rebased revenue growth, a 7% operating cash flow growth, another uptick in our operating cash flow margins to 46.1%, and solid free cash flow. And perhaps not surprisingly, we're confirming all of our 2001 guidance targets today.

The second main driver for us is our unique opportunity to consolidate, rationalize, and build scale, through acquisitions and rebalancing, especially in Europe. The best example of this is Germany, where Unitymedia continues to outperform expectations, and generated over 40% of our net add this past quarter. That certainly gives us great confidence in our recent decision to acquire KBW, third largest cable company in Germany. The combination of Unity and KBW will make is a leading operator in Europe's largest and fastest-growing cable market, and that's a nice position to be in. It's also great news for German consumers, and perhaps not such great news for Deutsche Telecom, who quite frankly has dropped the ball on next-generation broadband services in this market. We expect to close the transaction sometime in the second half of the year.

With respect to the pipeline, there has been some market speculation around the possible sale of AUSTAR, and rationalization of our operations in Romania. I'll just say that we remain busy, opportunistic, disciplined, and focused on building scale and enhancing the value of our business. And if and when there's something to announce on things of this nature, you can rest assured we will do so.

And then of course, the third piece of the puzzle for us is our balance sheet and capital structure management. We ended the quarter within our target range of 4 to 5 times leverage, and we continue to have terrific access to the capital markets, with UPC and Telenet completing $2.5 billion in refinancings this year already. We ended the quarter with $4 billion of liquidity, including $2.8 billion of cash and equivalents. In addition to those amounts, we also had $1.6 billion of restricted cash set aside for the purchase of KBW. And we continue to dedicate our excess capital and free cash flow to buying our own stock, which remains in our view undervalued, especially compared to our European peers. Through April, we've purchased around $300 million, putting us on track to buyback $1 billion this year, as previously reported.

Slide 5 slows our typical breakout of subscriber growth by product for the first quarter in green, and the previous four quarters in blue. And I'll run through these quickly. On the top left, you'll see our Broadband net ads, which totaled 190,000 in the quarter, up 13% from last year, and well above our recent average. As you might expect, we continue to take advantage of our superior broadband speeds across our markets. At this point, approximately two-thirds of our sales across Europe, and 55% of our current broadband base, are 20 Megabits or higher. DOCSIS 3.0 has definitely delivered for us, but here's the thing - - if you mapped our 6.6 million broadband subscribers against our 20 million marketable 3.0 homes, you'd see that we still have over 13 million homes that have not yet upgraded to our fiber power services or have not yet switched from DSL to our networks. That's a very large fishing pond.

On the top right, you'll see that our Voice services continue benefiting from the halo effect of our Triple Play bundle, something I'll touch on in a second. 155,000 telephony ads in the first quarter were 14% above our average for the previous four quarters. The bottom left chart shows our Video losses for the quarter of 93,000, which is an improvement over the prior year, and reflects lower sub losses in most of our European markets. And then finally, the bottom right just totals these three categories to arrive at our 251,000 net ads, which is our best first quarter in four years.

What these charts don't show is our digital cable business, since we don't double count TV subscribers, like the US cable guys. During the first three months, we've connected nearly 290,000 digital cable customers, and over 1.1 million in the last 12 months, bringing our penetration to 46%. This is a major source of revenue growth, with almost half of our 7 million digital homes taking in HD or a DVR service. Demand in HD in particular has been ramping, as we continue to add HD channels, including free-to-air broadcast networks. We've actually gone from 18% to 30% HD penetration in just the last 12 months.

Certainly one of the key reasons we are experiencing strong growth in Digital, and in our Broadband and Voice services, is our focus on Triple Play bundles. In fact, I think it's safe to say that today the bundle for us is the product. Slide 6 just gives you a visual depiction of some of our Triple Play offers in four European countries, and how we are leveraging our network and product superiority to drive sales, reduced churn, and gain share from our incumbent telco competitors. In all four of these countries, Germany, the Netherlands, Switzerland and Ireland, you'll find that our Triple Play bundles generally offer faster broadband speeds, more compelling digital TV packages, and better deals on voice than our competitors, and generally for less money. And customers are rapidly figuring that out.

Take Germany, for example, on the top left. Our core Triple Play offer, anchored by our 32 megabit tier, currently represents 75% of our Triple Play sales, and offers twice the speed of Deutsche Telecom's comparable 16 megabit bundle. This DSL switcher campaign, as we call it, which uses a popular German Formula One driver, helped Unity achieve its fourth straight quarter of improved RGU growth since we've owned it, and its second-best ever, with net ads up 18% on a same-store basis. In the last 12 months, Unity has accounted for 70% of net broadband additions on its footprint, with plenty of upside remaining. In fact today, we estimate that there are at least 2.3 million households in Unity's serviceable market that are still on dial-up or have no internet access at all. And then there's another 3.5 million who are stuck with DSL today.

In the Netherlands, our Dream Deal bundle really got it all started for us over 18 months ago. We've talked a lot about our success there, relative to KPN. With cable essentially grabbing 100% of net ads and market share in the last year, and 80% of our subs now at 25 megabits or higher. And KPN has certainly responded, but our 25 megabit bundle is still three times faster than their comparable KPN product, and we continue to add value to our digital offers.

Switzerland is definitely showing signs of a sustainable turnaround, driven largely by our roll-out of Fiber Power bundles last summer. The sweet spot in this market is 50 megabits, and our Triple Play bundle is actually five times faster than Cablecom's comparably priced bundle. Not surprisingly, over the last 12 months, as we've rolled out these new services and bundles, Switzerland has more than tripled its share of broadband net ads, and doubled its share of digital TV net ads in the market. So we feel good about Switzerland. The networks are stable, products are rapidly evolving, sales are up and churn is down.

And then Ireland, which was one of our last markets to roll out 3.0, is on fire. Of course, this has been one of our fastest growing markets over the last several years, and we've supercharged that growth with quote-unquote the fastest broadband in Ireland campaign, nearly three times faster than the incumbent telco, with a much better digital TV and voice offer. As a result, we estimate that we are grabbing the vast majority of digital TV net ads, 90% of broadband net ads, and 100% of fixed voice ads in this country, which certainly is one of the key drivers behind our 12% revenue growth and 22% operating cash flow growth this past quarter.

These four countries represent nearly 70% of all our Triple Play subscriber growth in the last 12 months which, as you can see on the next slide, has been steadily rising. You'll see that we have, on slide seven, we have 3.9 million Triple Play and 2.7 million Double Play subscribers, which means that almost four out of every 10 customers takes a bundle today. While we are pleased with this growth , I think it is worth pointing out that we're just getting started. We still have 11 million homes that only subscribe to one product from us, which represents a target rich market for bundles, and one you can expect us to continue to penetrate every quarter.

In the end, our main goal is to win a greater share of customers' loyalty and importantly, a greater share of their monthly spend on communications and entertainment services. And the numbers on the right-hand side of this chart show that we are succeeding. In the last two years, we have increased our revenue per household, or customer ARPU, by 13% in our historical European markets. In the markets like Germany, Holland and Ireland, we've grown ARPU per customer 8% to 13% in just the last year. As we've described again and again, our operating momentum and bundling success can be largely attributed to our investment in next-generation broadband networks. This is the kind of innovation that our consumers, that regulators, have come to expect from us, and we are not stopping with DOCSIS 3.0.

Slide 8 provides a quick update on three key product initiatives that will further set us apart from our competition, and in the first two instances, satisfy the quiet of a growing demand for next-generation video services in Europe. As some of you may have heard me say before, I think we do three things well, as a cable industry. We aggregate the best content available, we provide super fast connectivity and, with the help of our market-leading bundles, we've got a relatively large and stable customer base. There are three things we don't do well today. We don't connect that great content to other devices in the home, we don't make it easy to integrate other content onto your digital TV platform or TV set, and our user interface is rapidly aging.

With the launch of Horizon, sort of the code name for our multimedia home gateway, we're going to solve all three of these problems. We've completely redesigned the set-top box. It will distribute content wirelessly throughout the home to multiple DLNA compatible IP devices that will seamlessly integrate all of your linear, on-demand, and locally-stored DVR content, together with web-based widgets, apps and selected web content. And it's the slickest GUI, you've seen on the TV screen, with an Intel PC chip, Samsung integration, and Nagra software. We're on track to launch in the Netherlands in the fourth quarter, followed shortly thereafter by Switzerland.

Like our peers in the US, we are also working on rolling out an extremely robust online video platform, which we currently call Orion. And our plan is to launch this service in Holland late summer, fully stocked with dozens of linear channels streamed and thousands of hours of on-demand content. This will complement our Horizon Gateway, and put us in a position to lead our customers into the online video space, which is still very small across most of our markets.

And then lastly, just a quick update on our 4G wireless roll-out in Chile, which is on track for fourth quarter 2012 launch. In addition to the normal blocking and tackling, we've recently completed two key agreement that will help us optimize capital and maximize returns. First is a deal with American Towers, we will build and finance the towers and lease them back to us, reducing our up-front spend. And the second is a roaming deal with Telefonica, which is the largest mobile operator in Chile. The deal allows us concentrate our network build in the Santiago region, which represents 70% of the country's traffic, and use Telefonica's network for the balance of the country, where densities and traffic are lower. It's an ideal hybrid approach that leaves us flexibility down the road.

Some wrapping up my part, I'm really pleased with our progress across a whole host of fronts. We've maintained momentum on the operating and financial side of our business. We continue to drive innovation in our broadband and video products at a rapid pace. Our recent management changes, particularly in the European operating group, have unleashed all sorts of new energy and efficiencies. Our geographic rebalancing is paying significant dividend, as Germany leads the pack in growth and future upside for us. We've been able to stay way ahead of the financing curve by regularly pushing out maturities further and de-risking the balance sheet. And we remain committed to buying our stock, that much you certainly know by now.

So, thank you for your continued support. It certainly means a lot to us. And let me now turn it over to Charlie for the financial slides.

Great. Thanks, Mike. And hello, everybody.

Slide 10, where we are now, and that highlights our first quarter 2011 reported results. And as you can see from this, our revenue increased by 12%, to around $257 million to $2.43 billion, and the [OCF] grew by 15%, or $147 million to $1.12 billion. And that's all compared to last year's first quarter. Now key factors in this were the inclusion of our German operation for a full quarter in 2011 as compared to approximately two months in Q1 2010. You may recall, we bought at the end of January. And it's also grown very strongly since we bought it, as Mike's referenced. And that accounts for about 50% of our US dollar increase, year-over-year. The remaining increase was driven largely by a combination of organic revenue growth and to a lesser extent, foreign exchange. As Mike mentioned earlier, these results reflect rebased revenue and OCF growth of 4% and 7%, respectively, and were driven largely by strong performances in Western Europe and Chile.

From a product perspective, Broadband internet was our fastest growing product in the quarter, achieving of a 6% rebased revenue growth Q1. In terms of our OCF margin, we delivered 130 basis point year-on-year increase to finish Q1 with an OCF margin of 46.1. That's compared to 44.8 in Q1 of 2010. Our OCF margin increase results from improvements in both OpEx and SG&A, as measured by a percentage of revenue. And OpEx improved by 100 basis points, and SG&A improved by 30 basis points. And as evident as by our margin improvement, we continue to achieve operating leverage within our business.

If you turn now to slide 11, that summarize a breakdown of our consolidated results by operating region. Now for Q1 in 2011, our European cable business reported 4% rebased revenue growth, to $1.9 billion, and 6% rebased OCF growth, to $973 million. This performance translates into a 90 basis point increase in OCF margin, and was led by our German and Irish operations, both of which realized OCF margin increases in excess of 3%. Similar to our 2010 results, Western Europe was [tied by] our larger markets, and as you will see on the next slide, is largely responsible for our continued growth.

Our Chilean business, which includes both our cable and our development-stage 4G wireless business, delivered a very strong first quarter, with $214 million of revenue and $84 million in OCF. In particular, VTR, which is the Chilean business, generated 9% and 12% rebased revenue and OCF growth, respectively, with our OCF margin improving 90 basis points year-over-year. VTR's results were helped by a favorable comparison, as Q1 2010 was adversely impacted by the Chilean earthquake. The 12% rebased OCF growth actually includes $5 million of costs for VTR's 4G project. And without that, VTR's cable business would have achieved a rebased growth rate of 19%. Finally in Australia, our DTH business reported flat rebased growth and OCF growth in Q1, and our results were impacted by the flooding and the cyclone on that occurred during the quarter.

If we just turn over now to the slide 12. This slide drills down into our key Western European markets of Germany, Netherlands, Switzerland and Belgium. And just to remind you, these four markets accounted for about 70% of our consolidated OCF in Q1. Turning to the two charts that compare our year-over-year revenue and OCF growth rates for Q1 2011 and Q1 2010, for each of these markets. In Germany, we generated a rebased revenue growth of 8%, and rebased OCF growth of 14% in Q1 2011. This business has shown strong momentum since we acquired the operation in late January of last year, benefiting in part from compelling Triple Play offers, as Mike touched upon. In fact, Unitymedia has its second best quarter in company history for subscriber growth, adding 109,000 RGUs in Q1. And in the last year, we added over 400,00 broadband internet and telephony subscribers, which has helped drive financial performance.

Moving to the Netherlands, we continue to reap dividends from our Fiber Power bundles. And in particular, the Dutch business generated 8% rebased OCF growth in Q1, which is significantly higher than the 5% growth rate that our Dutch operation reported a year ago. Our Swiss operation had another quarter of positive RGU growth, and it was our third consecutive quarter of improved rebased revenue growth in that market. We reported 5% rebased OCF growth in Q1, and we recently launched new, attractively-priced bundles in April, which could serve as a catalyst for further growth this year. Finally, our Belgian operation, Telenet, reported 4% rebased revenue growth and 6% rebased OCF growth, driven largely by growth in broadband and mobile services, and the ongoing migration of analog to digital TV.

As you turn to slide 13, this analyzes our CapEx and free cash flow. In terms of capital expenditures, we incurred $510 million for the first quarter, or 21% of revenue, and this compares to $405 million, or 19% of revenue, for Q1 2010. The year-over-year increase in dollars was consistent with our internal expectations, and can be explained by a couple of factors. Firstly, both our German and Belgian operations incurred capital expenditures of 24% of revenue in Q1, as opposed to 16% for Germany and 17% for our Belgian operation in the previous period.

Now with respect to Germany, we only included two months in Q1 of 2010, and their spend in the last year's first quarter was unseasonably low, as the timing of the acquisition slowed down spending. We also had the high quality problem of having to purchase enough CPE to keep up with strong customer demand. With respect to Belgium, they were impacted by the phasing of payments, as they incurred much higher capital spending in cash terms in Q1 2011. While these two businesses accounted for $77 million, or about 73% of our CapEx increase.

Finally, we also incurred capital expenditures in connection with VTR's 4G project of around $6 million in the quarter, and we expect this to increase as we move throughout the year. If we were to exclude our operations in Belgium, Germany, and VTR wireless in both periods, capital expenditures as a percentage of revenue have actually fallen slightly. As you look at the pie chart on the left, we continue to see 85% of our total spend supporting our growth initiatives, with 57% of our spend related to subscriber growth and 27% related to network upgrades and rebuilds.

Turning to adjusted free cash flow, we generated adjusted free cash flow of roughly $700 million over the last 12 months, including $265 million in the first quarter of 2011. As compared to Q1 in 2010, our adjusted free cash flow decreased from $297 million to $265 million, and this is due to the higher CapEx that I mentioned above, as well as higher interest costs. With respect to our calculation of free cash flow and adjusted free cash flow, you should note that we retroactively reclassified our cash payments withholding taxes which were related to stock incentive awards, and we moved them from operating to financing activities in our cash flow statement. Our Q1 press release contains some additional information regarding these changes and provides the restated amounts, by quarter, for last year. So the net impact of these changes is that adjusted free cash flow for 2010 is $731 million, and we still expect to achieve mid-teens growth on that figure.

If you turn now to slide 14, we just wanted to recap our leverage and liquidity situation, as well as touch upon our stock buyback activity. At March 31, 2011, we had $23.9 billion of total debt and capital lease obligations. And if you back out the $1.1 billion loan, backed by shares we own in the Sumitomo Corp and the $600 million carrying value in the UGC convertible notes, we had adjusted total debt of $22.1 billion. Now the UGC convert no longer exists, as it was converted into approximately 14.6 million shares of LGI common stock during April. Similarly, we had $2.8 billion in cash and cash equivalents, as well as $1.6 billion of cash held in escrow in connection with the pending KBW acquisition. So you put the two together, our total adjusted cash position amounted to $4.4 billion, at March 31. So as a result, we finished Q1 with adjusted gross and net leverage ratios of 4.9 times and 3.9 times, respectively.

Looking at the right-hand pie chart, we had consolidated liquidity position of $4 billion at March 31, which excludes the escrow cash. Of our total cash, $1.2 billion was at LGI and our non-operating subsidiaries, so then it is the blue slice. And $1.6 billion at our operating subsidiaries, which are denoted in green. The remaining $1.2 billion, in yellow, represents the maximum borrowing capacity under our credit facilities, without regard to covenant compliance calculations. Finally, we maintain our commitment to returning value to shareholders through buybacks. Through April, we've repurchased approximately $300 million, which compares to approximate $220 million last year during the same period. And as Mike said, we continue to target $1 billion of stock buybacks this year.

If you just turn to the last slide, which is slide15, in conclusion, our Fiber Power bundles have really been the key to reigniting our growth. As we are refining our bundles in each of our markets to target the sweet spots. On the financial side, we think the figures largely speak for themselves. Our key operations in Western Europe are producing solid results, and our experience in Germany so far bodes very well for our pending acquisition of KBW. Finally, we remain committed to our stock buyback target this year, even taking into account both the pending acquisitions in Poland and in Germany.

That's it from us, and operator, perhaps you could open it up for questions now.

Certainly. (Operator Instructions)

And our first question comes from Jeff Wlodarczak with Pivotal Research Group. Please go ahead, sir.

Hello, guys. Good morning. It's Jeff Wlodarczak.

Your sequential revenue -- rebased revenue slowed a little bit sequentially, and I just want to make sure I understand it. Is that just a reflection of, I guess the difficult comps in Germany, the natural disaster in Australia, and the fact that in the fourth quarter a material portion of your RGUs came out of Eastern Europe DTH subs? And then I had one follow-up.

I'll comment a little bit, and let Charlie or others chime in.

I'll simply say that it's essentially on budget for us, Jeff, that there are some comparable issues year-over-year, but that for the most part, all of our operations are where we expected them to be at this point in time in the year. Essentially in Europe, with the exception of really Poland, continues in what I would describe as its turnaround phase. And Hungary in particular is starting reach a point where we believe it 's through the worst and is actually putting together great RGU quarters and things of that nature. So I think that (inaudible) is a drag on the growth that we've shown you in Western Europe, but I think that's going to turn around. And I'll just repeat that it's not far off from actually our budgets.

I'd echo, we feel pretty comfortable about the guidance we've given you, of mixed single digit revenue growth. And I think it's worth pointing out that the benefit of these -- this was a very strong quarter for net adds, you won't see until later in the year because obviously we add them, on average, during the middle of the quarter. And then you get the benefit, really the revenue growth toward the back end. So I think the signs are very encouraging that we're moving in a very positive direction. And I think in that concept, as Mike said, we feel pretty good about the 4% as indicative of good growth.

Fair enough.

And then in Switzerland, obviously that's a big string market, is it too early to talk about the initial consumer response to those new aggressive data offerings you launched in April?

We are getting the right feedback. I mean, sales are going the right direction, churn is coming down. Everything we're seeing is, we are having a very positive response. Switzerland, if you look at it in let's say the four quarters in 2010, we had pretty anemic growth. So we've added almost, in the first quarter of this year, we've added almost half as many customers as we did in all of 2010. So I think Switzerland is, in my opinion, from all sorts of different perspectives, on the mend. And I'm really encouraged by it, in particular with the launch of these aggressive broadband bundles, the improvement of our digital offer. It's a new day in Switzerland. We've repair branded the company. We've got a much more stable network in IT platforms.

So it all looks to be pointing in the right direction in that country. And if we get that business back on track, so to speak, it's really going to have a positive impact. They did 5% OCF growth in the first quarter. In the first three quarters of last year, it was essentially flat growth. So I think it looks good.

Great. Thanks, guys.

All right. And then we'll take our next question from Jason Bazinet with Citi.

-- in the M&A market, and without commenting on any particular deals, is it fair to say there is an overarching desire to move toward Europe and sort of away from the other markets to sort of simplify the story?

And then, my second question is could you just take -- I appreciated the color on the Gateway that you guys are rolling out. But could you just paint a long-term picture for us in terms of where you see sort of the set-top box and sort of the pay TV market going over the next sort of five years. What's sort of the end game look like to you? Thanks.

Sure. On the M&A front I wouldn't say the main goal is to "simply our business". I think it's to create value and increase the value of the shares for you and us and everyone else. So if it has the benefit of simplifying our business, that's terrific.

The main focus -- the main reason we are focused on Europe is that we believe that, particularly in Western Europe, the growth potential, the consumer demographics, the regulatory framework, the opportunities to achieve scale, are the best that we've seen in a long, long time. So you would expect us to focus our resources on markets that we think can move the needle and create value for all of us. And that's why Europe, at this point in time, really stands out. And it doesn't mean that we are running away from the rest of the world, per se. But it does mean that as opportunities arise in these core Western European markets in particular, we will need to react. And reacting means finding financing and resources to take advantage of these opportunities, if and when they exist. We'll stay disciplined, we'll stay focused, but I do think -- yes, it's by design, but the goal isn't quote unquote to simplify our business, it is really to create value, and I think we're having that effect.

The question about where is TV and pay TV going is a longer question. Maybe not enough time to get into it. But in Europe, I'll remind you that we operate in a highly fragmented marketplace. Where languages, cultures, regulatory and legal barriers, and geographic barriers make it very difficult for any one large over-the-top or content platform, for that matter, to gain traction. And so that fragmentation plays well into our hands, because as we've said many times, there's no Hulu in Hungary, there's no Netflix in the Netherlands.

And more importantly, remember how inexpensive our pay TV product generally are. Our average take on television products from the home is EUR15, EUR17. It's not $60, $70, $100. So we are an inexpensive, and I think at this point in time very positive TV product for our consumers. We're just as aggressive on HD and DVRs, with penetration ranging from 45% to 60% or 70%, depending on the marketplace. We're rapidly growing the HD platform with many markets in the 20 to 25 HD channel today and that many channels that exist today.

And as we've described with these new devices, with the Gateway and with our Orion product, we are going to be essentially leapfrogging, in some respects, the US industry, in terms of the kind of functionality and technology we are putting in our consumers' hands. So we might skip altogether that period of time where online video perhaps does gain some traction in our markets.

It's all going in the same direction, if that's where you are really headed. But the point to remember is in our markets it will take longer, it will be more difficult for entrance, and we have a much better opportunity to pre-empt, co-opt and participate in consumers' desire for more random-access television, for more functionality with the user interface, or for devices that can integrate and share content among each other. A and I think this device puts us -- or the Gateway puts us in a very strong position to take advantage of that. So we are unique in that respect.

Thank you

And we'll take our next question from James Ratcliffe with Barclays Capital.

Good morning, and thanks for taking the question. A couple, if I could.

First of all, just following up on the discussion around online video and Orion. Can you talk about where you are in terms of content rights for the ability to deliver that content to non-traditional TV platforms in the home, online, and if there's anything different from mobile?

And secondly, for the Chilean (inaudible) and Telefonica deals, were those anticipated when you discussed the capital deployments towards the Chilean 4G build last quarter?

And third, talking about looking at video customers, the unbundled customers. Do you have any material number of non-video unbundled customers who take just data or just data and telephony from you, and if so is there a prospect to upsell those guys? Thanks.

I'll work backwards, and then I might ask others to chime in.

On the single product homes, nearly all of those are video-only homes. There is a handful of broadband homes, but the vast majority, if not all of those, are analog video homes that have one product from us. And you can expect that we are upselling those homes everyday. And so I do think, just as with digital television where continually show 9 million analog TV homes that today don't have digital, they may have broadband or something else from us but don't have digital TV, and that represents great outside and opportunity. So does the 11 million Single Play homes. So I think we are really in many ways in the early stages of penetrating these markets. As our products get better, as we get better, as our bundles get stronger, as we become more competitive vis a vis telcos, we're going to penetrate an increasingly large amount of those homes.

Mauricio, you can talk about Telefonica and AMT, but when we first initiated our review and consideration of this product, those transactions were not in the works. So, you want to spend a second on that, Mauricio?

Sure. Indeed, these are things that have evolved, and we have been very, very focused on trying to achieve so that we can have a very cost efficient and capital optimizing way to approach the market.

With regard to the Telefonica, we've been talking to them for a long time and have had conceptual agreement, a and we spent the last couple of months basically trying to ink out all the details of the agreement, in terms of technical amendments. I would like to add to the things that Mike already mentioned, that the deal on Telecom providing us with full coverage at launch, which is evidenced is also allowing us to expedite time to market and allowing us to gain full control of product definition, and therefore product innovation, as we try to come to the market with a fixed mobile convergent offer.

So those are other key operational strategic benefits of the deal.

And then on the Orion point, I'll simply say that we are spending a lot of time and effort putting together a compelling programming package for that service. Maybe the easiest way to describe it is we think we will have, at launch, more content, both on demand and linear streaming content, than say even Xfinity had at its launch, or perhaps even today. So we are having great conversation with all the key cable thematic channels, we are getting most of the broadcasters engaged and supportive of the platform. We are focused primarily on in-home linear and on-demand rights. We are not necessarily, at this stage -- feeling the need to spend the money on out of home rights, or off footprint rights. But we are focused on a very robust online platform with you know dozens, I mean literally dozens, of linear channels that will be streamed and thousands of hours of on-demand content. So I think it will be really, from our perspective, a really important step in Holland where we will launch.

I will also point out that we are using The Platform, which is the name that Comcast has for its existing online video platform, we're using that very same platform, but in many ways have innovated and improved upon the user interface, the search and navigation functionality, the recommendations. So we think personally, it will be the best user interface and experience that's available online today. But that's because we're launching a little later, so we have the benefit of learning from all of the great innovation that is occurring there.

So we're very excited about this, and you know, when the time comes, we'll get folks on it and taking a look at.

Great. Thank you

Let me just clarify real quick on the 4G project in Chile. We are on track to launch that in the first quarter of 2012.

Next question

Certainly. Next question comes from Vijay Jayant with Citadel Securities.

Hello. Good morning. Couple of questions

You know, in the US, Mike, the cable operators starting to show some pricing power on broadband, and you guys, with the roll-out of DOCSIS 3.0, you guys have used it to gain share. Can you talk about pricing power for broadband in Europe in general, and the prospects of raising rates there?

And second, if there is any way you could give us some color on the Chilean project on what is that kind of penetration you need to sort of break even on the investment, or market share, or anything on that front would be helpful thanks.

Sure. On the Chilean project, you can be sure we are not going to give you any specifics on it, but I will tell you that it is a relatively low amount of market share we require, like I believe mid-to high single digit kind of market share to break even on that product. Because we have such significant synergies with our nationwide cable platform and because we, through research and other factors, we feel that there is going to be huge demand amongst our existing customer base for the service. But I don't think we are giving out projections. I believe that's correct what I've said, though, Mauricio.

That is absolutely correct. This is an incremental IRR project that leverages on our existing infrastructure and our market share position, and customer base and brand

But you'd be surprised by the relatively low market share we require to make money there.

And now, pricing power on broadband. I'll let Diederik chime in a little bit here. I think you are right that at this stage of the game our main goal is to put out the most compelling bundle to drive customer ARPUs and to win share. Because in the end, you know, that's how you succeed in our business. And you have to remember that the price that we have charged for a bundle has in it several products. And so we are not always identifying for consumers what the broadband price is or what the broadband price isn't. And so, in essence you've got to allocate that bundle price to determine where we really are.

I would say that while we may not have today, typical pricing power, we certainly have pricing stability, which is the first time we've seen in a long time in Europe, in maybe six or seven years. And we have such a superior offer, we are seeing massive you know share gain. In Holland, we've had certainly in the last 12 months, even in the first quarter, we added a significant number of broadband subs, I think the actual number of broadband adds was somewhere on the order of 25,000. And that's just in our 35%, 38% of the market, and you know, KPN and lost 7,000 subs, nationwide.

So there's no question about it. We are in a share gain, but it's a share gain with pricing stability and margin improvement. So I'll take that any day of the week. Our margins are certainly meaningful and substantial in this service. And if we can have pricing stability, volume gain and margin improvement over time, that's a winning formula.

Diederik, do you want to add anything to that?

No, Mike, I think

Got it.

Mike, if I could -- one follow-up. Telenet announced pretty substantial dividends and did your buyback plan include that expectation? I think you have another $350 million --

No. We've certainly very close to their decision-making process, but no, we did not factor that in necessarily to our decision to increase our buybacks. So that's a positive.

Okay. Thank you so much.

And we have a question from Matthew Harrigan with Wunderlich Securities.

Thank you. I actually had a couple of questions.

You know firstly, on DOCSIS 3.0, you were very fast in driving share off that, as opposed to just positioning it as a high-end product . On the horizon box, I know it's got a lot more functionality than what is happening in the UK right now, with TiVo, and I know that the economics on it are a lot more compelling, but are you thinking about in the intermediate term and really in a mass-market sense? Is that something that even though it's very high IRR could be a little bit disruptive, in terms of pulling the CapEx to sales down medium term?

And then secondly, a question for Charlie. I know it's a little tricky sometimes to look at your hedge positions at the end of the quarter because they're almost always in flux, but it looks like you don't have any direct financings in Swiss Franc, and yet you're owe counterparties about 6X multiple of your Swiss cash flow on currency swaps. So if you just casually look at the balance sheet, or rather the notes, it looks like you are short Swiss Franc, notwithstanding your Chairman's bullishness on the currency. I'm curious if you could comment on that . I'm sure I'm probably just missing something.

And then thirdly, I had a follow-up after

On the Swiss francs, we've hedged it out to five times historic EBITDA, it's growing, so we under-hedged at the time. But we are -- and again, I can explain this to you in more detail off-line, but we are fully kind of matched against our group leverage on the Swiss Franc.

But you don't have any underlying Swiss Franc debt, do you?

It's all swaps. So we've done long-term swaps with bank counterparties. That's a big part of our derivative position.

Okay.

And on the Horizon, I think, Matt, your question was will it be disruptive on CapEx, I'm not sure if you meant up or down. But I will tell you that this is not a meaningfully more expensive device than we are currently rolling out. By that I mean, whether we roll it out to premium customers or whether we choose to roll it out to all future digital customers, you know, we don't believe it's going to have that meaningful an impact on the CapEx profile of the company. Was that your question?

More or less. And I guess, tangentially, would you eventually see that as a mass-market product akin to DOCSIS 3.0, or is it a little more high end?

Well, it's obviously more expensive than a broadband modem, but I think over time as volumes increase, as multiple vendors -- you know, today it's Samsung, if in the future we have multiple vendors providing a product you will certainly see that cost of that product come down. We will, for a period of time, run two digital platforms, right? We're not going to swap customers out, necessarily. We're not going to roll it out on Monday, and on Tuesday call up 7 million digital customers and ask them to swap out their digital boxes. It is going to be introduced as a premium product. It will be slightly more expensive than the existing product. And it will deliver meaningfully more service and value than the existing product. But the economics look good, and I would say they are incremental they are not disruptive.

And I one quick follow-up, while I've got you.

When you look at the German mentality, they are very concerned about Germany's competitiveness relative to the other countries, Asia, et cetera. I know your friends at [Cobble Deutschland] did that full gig trial outside Berlin, partly to send a message saying, look at the hyper-fiber co-ax architecture, you don't need to build fiber for Germany to be absolutely first rate.

But are you seeing any anxiety on the part of the government or anyone, or industry associations over there, on fiber, given how stuck in the mud Deutsche Telekom seems to be and how muddled their priorities are, even if they get the T-Mobile deal done?

Listen, I mean, we don't ever underestimate our telco competitors. The average estimate for the cost of fiber to the home throughout Germany is somewhere in the order of EUR50 billion . I think they've publicly stated they'd like to get to 10%. I think they recently pulled that back perhaps in terms of their expectations. They are very much in a kabuki dance with regulators to determine what they get, if they spend that sort of money. I don't know how long that dance will take. Quite frankly, it may take years, it may take decades, I just don't know.

But in the meantime we are delivering the goods. So I don't feel anxiety, no. But we know we are in a race, and we know that there is a reason for us to work slowly or deliberately, and is there's every reason for us to work quickly and aggressively to sort of reclaim share and reclaim leadership.

Remember, cable is relatively small in the overall broadband picture in Germany. Now in the last couple of years, it has made all the difference and is gaining the vast majority of net add, because it's a superior product and the cable operators have woken up. As you remember what I said, two and half million homes on Unity's footprint that have no broadband or dial-up or no internet at

So you don't see anything happening --

We can't wait around. We've got to get it.

Okay.

So there is no anxiety in the German business press like there is in the UK saying, oh, BT's so slow, we have to do something. The government seems pretty satisfied that cable companies can address the needs of the German economy?

I think they should be. Now that doesn't mean they won't continually push towards Deutsche Telekom to innovate and continue spending, because that's what every regulator would like to see happen. And to some extent, they'll see that happen. But I wouldn't say anybody's particularly anxious about it.

Sorry to hog so much time, but I really wanted to get your views on that. Thanks.

See you, Matt.

All right. And our next question comes from Benjamin Swinburne with Morgan Stanley.

Hello. Good morning.

Maybe for Mike, and/or Diederik. I was curious if you would share some broadband usage statistics, if you have them, across your European footprint. We're all focused on the increased consumption of video online and how that impacts consumer behavior, but also the cable business. And I think it's a broad positive, I'm sure you guys would agree. But I'm wondering if you can help us understand the trends in Europe and what that might mean to your capital intensity long-term, but also your margins would seem and you guys have talked about pricing power and the competitive environment. It seems like your flow share in data and probably your ARPU, regulators depending, go up over time as this becomes a bigger and bigger trend.

I think that's right as well. On the usage side, as we ramp speeds, today our average speed across Europe is right around 20 meg. That's the average speed that a consumer is paying for and getting today. And that's up considerably in the last couple of years, probably three or four fold in the last three four years. And at the same time we've seen usage grow as well. We are now, on average our consumers are consuming about 800 Mb a day. That number is up from 450 Mb probably a year ago, 18 months ago. We don't see any -- I'll let Balan address it, we don't see any change in sort of a capital intensity or any real road blocks or problems with our networks, because they are fiber rich and we have relatively small analog packages. And so we have tremendous amounts of capacity to deal with that.

Do you want to speak to that very quickly, Balan?

Sure. So consumption has gone up, as Mike pointed out, about 800 MB a day, which is about 24 GB a month. Which is still pretty low, considering you know the upper limits, it would be in the 250 gig range, which is what Comcast has today, 250 GB a month. I would say that consumption rate we monitor that continuously, but I'm not as concerned about it for the next four to five years. And even it there's any cost, it's really on the back end of our network which, on a subscriber basis, the denominator is much larger and it won't have significant impact.

Just to clarify, the 250 gig is the cap, not the consumption for Comcast, right?

Yes, I think that's right

We generally don't have caps in our markets and I'm not sure we will need them or we will necessarily implement them, but the point Balan was making is those who have implement caps in the 250 gig range, our average consumption is 90% less than that, but it is growing. So your point is an accurate one, as we deliver more speed, people consumer it, it is highly weighted to big users, no question about it. I don't think it changes our economics over time, except for the better because as you point out, more and more consumption on that pipe increases ultimately the value and the perceived value of that pipe. And as long as we keep network cost and bandwith cost reasonable and margins where they are, that should be a net positive.

And as a follow-up, Mike, do you see any correlation yet between markets that have higher above average usage in your market share or is it too early?

No, I mean not really I mean, I can't say. We'll track that, but I think the answer is -- I don't know that there is a huge correlation yet.

But listen, broadband in Holland is 85%, 88%, 89%. So there is no question about it that Dutch consumers are more avid and sophisticated broadband users, for the most part, whereas penetration across, say Germany, is in the 60s. So you are definitely on the curve depending on the market penetration of the product, but I don't know that there's a meaningful correlation yet.

Thanks a lot.

And we'll take our next question from Hugh McCaffrey with Goldman Sachs.

Good afternoon, guys.

I've got a question on Germany and then a follow-up. And firstly on Germany, I understand that the DSL switcher and promotional offers that have been introduced in September have a three- to six-month free period. And how much it has that affected this kind of sequential revenue development in Germany, and do you expect growth to accelerate in the business through the second half as these offers wash out of the sequential comps?

That's a good question. This campaign is really kicking into high gear, so a number of -- to get folks to switch from DSL, you've got to make a pretty compelling offer and so I do think the second half of the year we'll see, you know, some incremental uptick in that. But, Diederik, you want to comment on that?

Yes, everything what is happening is in line with budget, so we don't see anything unexpected. This is also a particular type of promotion which we have been using successfully in the first stage of, let's say, a more assertive and aggressive promotional strategy versus DSL. So there is nothing to be worried about, I would say, from that point of view. Does that answer the question?

Yes. I wouldn't say that I'm personally worried about it, looking at the KPI performance.

And just on the second, sort of follow-up, in mobile you've got auctions coming up across Europe. Any change in thinking on those? And I guess, what was your decision, what triggered the decision to roll out network in Chile? Is the difference between rolling out network and not rolling out network having a national footprint with your cable operator?

It's a number of things. It's a national footprint. It's a competitive environment. It's the market share. In Chile, we are the number one video, voice and data company on our footprint. We are larger than the incumbent in all three products. So I think the competitors are pursuing comparable strategies. It was really a very, very situational decision and approach.

And in Europe, at this point and throughout most of Europe where we operate, we are looking at a more of a capital-light approach that allow us to get our feet wet into the business, before we take any other -- we don't see us competing for spectrum, although it has been rumored that Telenet may partner up Belgium. We'll see how that unfolds. They already have 220,000 mobile subs, so they have great experience in that market with the mobile business. Throughout the rest of Europe, we are going to go slowly and cautiously, and I would say focus on incremental benefits from mobile and high returns.

Okay. Thank you.

All right and we have a question from Vijay Singh with Janco Partners.

Hello. Good morning.

My question is on Netherlands. Early this year, Mike, Opta granted [Zigo] a hundred thousand mobile numbers which have to be used within this year, and the speculation is that [Zigo] is going to enter an MV and O type of agreement while -- and then start to build out its own footprint. And if this were to happen, how would it work out with your joint ownership of the 2.6 gigahertz spectrum?

Well, i'll let Diederik address that. But the punch line is, we are pursuing separate but not dissimilar strategies with [Ziggo].

You want to add some color to that, Diederik?

Yes. In this case it's good to separate possible MVNO type of moves and the shared ownership of 2.6 Europe spectrum. The latter is an option, has an option value in the future, with regards to the usage of the LPE spectrum, with frequencies which are not in commercial use yet.

With regards to the buying of the 100,000 telephone numbers, that may have to do with [Ziggo's] specific MVNO strategy and, like Mike, said it's not totally dissimilar. So we are let's say looking into the same type of opportunities as UPC and now, but we will not do a joint MVNO deal we will do that separately from [Ziggo].

Would you look to, if [Ziggo] decides to build their own footprint, will they end up using the spectrum that they jointly own with you, and --

If there were a decision made to build out a network, which I would put a very, very low probability, that would be something we have always contemplated looking at together. But I put it at a very low probability It's an option play, because together with them, when we acquired the spectrum, we will looked at the economics and said, hey, there's a better way to go.

Thank you

Maybe one more question, operator? Or is that it --

We have a question from David Joyce with Miller Tabak and Company

Thanks. I was just wondering if you could provide some color on the business services update, if there are any new quantifiable net adds in the numbers that you reported today?

Well I can tell you the B2B revenue growth was a little lower than we had hoped, but I think it was about 3% or 4%, from memory. But there's a ton of really good things happening in the B2B space. You want to touch on that, Diederik?

Yes, shortly, I think it is definitely picking up. Most of the countries now have a solid first stage of growth in Soho, based on the superior broadband, which will also make a difference towards let's say smaller offices and home-based companies. We are moving away from low margin wholesale. So we are seeing, I would say a relatively promising future for total be to be across the European group, yes.

We've also got some new products underway in the cloud space, that we would partner with companies like Microsoft on. So there a lot of interesting things happening, and we expect that the B2B business over the next three years will hopefully have a growth rate that's accretive to our core play growth rate. So we're putting time and effort into it, and I would expect over the next two to three years, you would see growth out of that space that's accretive to our Triple Play growth.

All right. Thank you very much.

Great

And we'll take our final question from Amy Stepnowski with The Hartford.

Hello. Thanks for squeezing me in.

Just wondering is you could give us a little more commentary regarding Central and Eastern Europe. You spoke a little bit about Hungary looking like it's gone through the worst. But just in terms of your strategy with that portion of the business, obviously key focus being Western Europe. But just wondering, does Central and Eastern Europe still factor into your real focus, or will we eventually see that sort of being potentially up for sale?

I don't think -- I mean it's a tale of many market. So to go through it Poland, for example ,is continuing to be one of our fastest growing markets and a market that we have great confidence in and we have great scale, with the Astor acquisition. We are the largest in that country, by a pretty large margin. And I would say that we expect Poland to be a significant contributor to growth for a long period of time.

Hungary has also had, as I mentioned, a pretty good turnaround. If you look at the net adds, it hit almost 20,000 in the first quarter, you know, and they had a really strong fourth quarter. So we're starting to see positive trends there. We're still feeling a bit of pain around the pricing of products in that market as competition sort of resettles the appropriate pricing, but I'd say Hungary, in my opinion has had four consecutive quarters of improving revenue and really I think strong RGU growth. So we feel pretty strong, pretty confident about Hungary.

Czechoslovak are smaller markets. They have, depending on the market, competition that is, you know, I would say robust, and we will have to look at each of those individually. But for the time being, we have no plans other than to continue competing and succeeding in those markets.

Romania, we've talked about -- fortunately, we've gone through almost an entire call without talking about Romania. But we will, I guess, address the fact that we are looking at opportunities to rationalize that marketplace, and see and try to figure out the best way to move forward.

The underlying question you're asking is, do we see the other market evolving like Romania and the answer is no. I think Romania is unique. I think it is now finally experiencing the consolidation it long needed with recent announcements of satellite operatives going from five to three, discussions around cable consolidation. So the market is finally rationalizing after several years of chaotic and irrational competition.

I don't see that happening in the other markets. I do see Poland and Hungary being strong contributors, both in size and growth, to the business. And Czechoslovak, we just have to just monitor and keep fighting the good fight.

Okay. Great. Thanks very much.

Well, I appreciate everybody joining us and I think the operator will tell you where you can get the recording, if you want to. But we will speak to you in the second quarter, and appreciate your support. Thanks.

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