Liberty Global Ltd (LBTYB) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global Investor's 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 participates 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, November 3, 2011. I would now like to turn the conference over to Mr. Mike Fries, President and CEO of Liberty Global.

Thank you, Operator. Good morning, everybody, or good afternoon, wherever you may be. We have a number of people on the call with us this morning, as we usually do. Folks you will likely hear from, are Bernie Dvorak and Charlie Bracken, our co-CFOs, Diederik Karsten, our Managing Director of European Operations, Balon Nair,, our Chief Technology Officer, Mauricio Ramos, who runs Latin America, and, of course, Rick Westerman. Before we get going, I think we have a Safe Harbor statement, Operator.

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 expectations, 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 most recently filed forms 10-K/A 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 Mr. Mike Fries.

Great, thanks. The agenda we will use here is pretty typical. I will make some opening remarks, talk about the highlights of our Business, a little bit about our operations. And then, Charlie will run through the financials and then we will try to get to your questions, hopefully in about 20 minutes. As the Operator said, we are going to be speaking from slides today.

I am going to start with slide 4, which is a quick snapshot of the quarter for us. The key story line continues to be our subscriber growth. This was our strongest third-quarter in history, with 320,000 net new RGUs added. In fact, as most of you know, the summer months are typically very quiet in our business, yet we just delivered the second-biggest quarter we have ever had. And the driver continues to be the strong demand for our high speed, high value bundles, especially in Europe, which represented over 90% of our sub-growth.

And where 8, out of our 11 European markets, are growing faster this year than last year. Our financial results reflect this growth. I'll just hit a few key numbers. Rebates revenue was up 4%, in the quarter, which has been the trend all year, and year-to-date OCF growth is up 5%, rebased, of course. You will notice that OCF growth in the third quarter was only 2%, but as Charlie will describe in more detail, this number was impacted by our higher-than-expected sub-growth and the associated CAC and marketing costs, as well as some unique items. It would have been meaningful higher otherwise.

Looking at the bottom-line, free cash flow was up 36% in the quarter, and is trending, for the year right at our mid-teens guidance. Complimenting the continuing improvement in growth, is the stability of our balance sheet. Charlie will flesh this out in more detail, but you will see that leverage continues to trend down, a bit. We are at 4.3 gross-leverage and 3.7 net, with an average maturity approaching seven years. Our liquidity position remains strong at $2.3 billion. That number excludes the $1.4 billion we set aside for the KBW acquisition, and the $1.1 billion we expect to receive as part of the Austar disposition.

With the volatility in our stock, we have already surpassed our target of $1 billion in buy-backs. As you can imagine, we remain active today, and will remain active through the rest of the year. This has been a busy year for us on the M&A front. As we continue to focus resources on Europe, and the opportunity to build market share across our existing footprint, which spans, now, 10 contiguous European countries, plus Ireland. During the quarter, we closed the Austar acquisition, in Poland, which added over 600,000 RGUs to a market that has consistently been one of our strongest performers.

In Germany, the regulators have told us that we should expect a final decision on the KBW acquisition by mid-December. Despite the length of time that has transpired, we remain positive about this transaction. You may have noticed, we recently offered a number of remedies, which we think effectively address the Federal Cartel Office's competition concerns. The sale of our Australian business to Foxtel is on a roughly similar time-line, and we should hear from the ACCC, down there, by November 30th. So on both cases, we should have regulatory clarity and potentially resolution, by year-end. All the key elements of our Business are working well.

We are particularly pleased with the momentum in our subscriber growth. I think it's pretty simple, actually. Our bundles are faster and cheaper, and the Telcos are struggling to match us. Our sales reflect this, Just as importantly our churn, across markets and products, has trended lower. We are excited about the Horizon launch in Q1. We have introduced this Horizon platform, at a number of events, key notes, et cetera. The feedback has been extremely positive.

With that as a background, I will jump into operating results, starting on slide 5, which shows our regular breakdown of subscriber growth, by product. These are all good looking charts. They compare this latest third-quarter, with the same period in 2010 and 2009. Starting on the top left, you will see our broadband net adds, which totalled 192,000, up 31% from last year and 80% higher than 2009.

I will provide a bit more color on our Broadband business, in a minute. The chart on the top right, shows voice adds, also over 190,000 in the quarter, which essentially reflects the success of our triple-play bundles, which always include a voice product. But remember, voice is not really a give -way. Our average voice RPU is around $22 we are generating 80% gross margins. The bottom left of the slide shows our video losses, for the quarter, at 58,000.

That's a 35% improvement year-over-year and 23% sequential improvement, from the second quarter. This is attributable to 2 things, significantly lower analog churn in Central and Eastern Europe, which we said would slow down over time, and the steady up-sell of analog customers to digital, with 258,000 digital subs, added in the quarter. Total net adds at the bottom right, of 327,000, which were up 2-fold, from last year and nearly triple 2009. Turn to slide 6, we have got a regional breakdown of subscriber growth, which, today, is predominantly Europe.

At the bottom, the blue part of the bar is all of Europe, excluding Germany. These markets, you will see are performing extremely well, adding 165,000 net new RGUs, in the quarter, up from under 70,000 last year. Netherlands and Switzerland each had their best quarters, of the year, for both broadband and voice additions, with Switzerland nearly tripling it's combined voice and data adds. Ireland had a record-quarter, for RGU growth, and continues to surprise us on the up-side. And our Central and Eastern European region reversed the trend, and added 64,000 RGUs in the quarter, compared to a loss of 12,000, last year.

The green part of the bar is Germany, which represents 40% of our subscriber net adds, in the quarter, with 130,000, up 65% year-over-year. What can I say that I haven't already said. That was Unitymedia's best quarter ever. When your bundles feature twice the broadband speeds, for a lower price than Deutsch Telecom, it's easy to see why German consumers are choosing cable. At the top of the bar, the gray section, is non-European operations, namely VTR, which had a great quarter, as well.

So, basically, all of our operations are meeting or exceeding expectations, and have continued to perform through the fourth quarter. I will spend a minute on broadband business on slide 7. Which is the core product, of course, in our bundled offers, and the engine behind our subscriber-growth story. The chart at the top shows our year-to-date broadband net adds of 535,000, and how that compares to the same period in 2010 and 2009. The numbers look great. We are up 15% year-over-year, and 65% over 2009.

We have talked a lot about the key factors here, primarily our 3.0 platform, that reaches all 11 European markets, and 90% of our 2-way homes, and the fact that speed sells. We have seen a 30% increase in broadband sales across Europe and if you look at the bottom-left chart, you will see that over two-thirds of our broadband subscribers today, in Europe, have signed up for a 25 megabit or faster broadband service. That is double where we were a year ago.

We are rapidly moving to 50 megabits, as the new sweet-spot in our tiered offerings, in markets like the Netherlands and Switzerland. So we are keeping the Telcos on their heels, but also driving up ARPU. Just as importantly, speed is sticky. Subs who take 25 megabits, or higher products from us, churn 20% less, than customers at slower speeds. This is a race we are winning today, and we think we can continue to win for some time.

Slide 8 provides a quick update on our bundled customer numbers, and ARPU growth is the main take-away, on the left side of the page, is the growth in triple-play subs, which have doubled in the last three years and now represent 60% of our 7.1 million bundled subs. As we said before, bundles help reduce churn, and create stickier customers as well. For example, in Holland, our triple-play subs are 40% less likely to churn, than single-play subs.

The bundle also drives household revenue or customers ARPUs, which were up 17%, on a reported basis, to 4150, and 5% adjusted for FX, which is how we typically show it. I had the opportunity to present our Business, the other day, to some US cable operators, and while they were surprised by our $41 ARPU, which are lower than their ARPUs in the states, they were even more surprised by our 47% EBITDA margins on that ARPU base. This is probably a good lead-in to the next slide, which wraps up, with a few words on our strategic positioning and near-term outlook.

I am not trying to oversimplify things, but just about everything we do falls into one of these 3 buckets on slide 9, starting with building scale. We have been working on this for a while. The rebalancing, in my view, is paying off. We have completed, or announced, around $20 billion in M&A transactions, in the last five plus years, selling over $7.5 billion of assets, tax-efficiently, and at sizable market premiums, and reinvesting that, as well as other capital, primarily into Europe, at lower multiples, and with significant financial and strategic benefits. We are bullish on our sector in Europe.

Remember that 70% of our European revenue comes from 4 countries, which have great fundamentals; Germany, Switzerland, Belgium and Netherlands. We have grown right through the cycle, really across-year, up over the last few years Scale helps drive organic growth and operational efficiency, we just talked about our subscriber growth. And our margins continue to tick up, as we drive operating efficiencies across our networks, our vendor relationships, our programming deals.

Certainly, one reason that we are approaching 50% margins, on a $40 ARPU, is that we only pay $4 to $5, a month, for all of our content. That certainly helps. Lastly, our recent and the future success is a function of how well we innovate. DOCSIS 3.0 lit a fire under our broadband business, you have seen the results.

Horizon, our entertainment media platform, that brings personal web and cable content together, across multiple screens, has the same potential. If you get a moment, check out a video, we have just posted to our web site, that gives you a sense of Horizon, and a taste of what it is going to be. Then, of course, we are carefully exploiting opportunities in mobile.

In conclusion, our fourth quarter is off to a great start. Sub-growth looks good, and our rebased operating cash flow growth should come in higher, than our third quarter, and we are looking to leverage this tremendous RGU momentum, that we are experiencing, into sustained revenue, in margin expansion, well into 2012. With that, I will turn it to Charlie.

Thanks, Mike, and hi, everybody. Now, I am going to go to the financial section, and that begins on slide 11, which summarizes our year-to-date results. If you look at this slide, on a reported basis, our revenue increased by 16%, $1.1 billion to $7.66 billion, and our OCF grew by 18% or $540 million to $3.58 billion. But our reported growth rates have benefited from favorable foreign currency movements, because as over the nine month period, the US dollar is roughly 7% lower, compared to last year.

Outside of foreign exchange, and mergers and acquisitions, the principal driver of rebased revenue and OCF is increased subscription revenue, generated from selling triple-play services, as Mike mentioned. Over the last 12 months, we have added 2.6 million, over our service RGUs, and that is up 14%, over the last 12-month period, ending September 30, 2010. Rebased revenue growth in Q3, was 4%, so it's been around 4% in each of the last 3 courses of this year, or the first 3 quarters of this year. And rebased OCF growth was 5% year-to-date, including 2% in Q3, and I'll talk about that a bit more in a minute.

We have seen an expansion of our year-to-date OCF margin, which is an increase by 60 basis points, to 46.7%, and that is despite our meaningfully higher subscriber volumes, which impact CAC and marketing costs. If you turn to slide 12, this highlights the large majority of our revenue, and OCF comes from what we call, our Big 4 markets, namely Germany, Netherlands, Switzerland and Belgium. It demonstrates that our core 4 markets are driving our year-to-date, European-rebased revenue and OCF growth.

Our European business has generated roughly $6 billion of revenue, and $3.1 billion of OCF year-to-date, and rebased revenue in OCF growth of 4% and 6%, respectively. Of this, our top 4 markets account for over 70% of our consolidated European revenue, and OCF year-to-date, and grew revenue of 5%, rebased and OCF 7% rebased. So, our biggest markets are performing very well, and our best performing Big 4 market is Germany. Unitymedia has delivered rebased revenue and OCF growth, of 8% and 13%, respectively, for the first nine months of 2011.

Meanwhile, our Dutch and Belgium operations have each grown rebased revenues of 5%, and with respect to OCF, the Netherlands delivered 8% rebased OCF growth, this year, and Belgium posted 5% rebased OCF growth. Rounding out the Big 4, Switzerland increased rebased revenue and OCF growth by 2% and 4% respectively, and that is a meaningful increase over the growth-rates, that they posted at the same time last year, which were 1% revenue growth and a flat OCF figure.

Our other operations in Western Europe, namely Ireland and Austria, account for roughly 10% of our European business, in terms of OCF, and collectively have delivered rebased revenue and OCF growth, of 3% and 6%, respectively, which is led by Ireland, which is our fastest growing market with over 20% rebased OCF growth this year. And then, finally, Central and Eastern Europe, which includes our DTH operations that reside in our Central and Other segment, they account for about 15% of our revenue and OCF, in Europe.

On a combined-basis, we have begun to see more favorable growth-trends year-over-year. Poland continues to deliver the best, as it achieved year-to-date rebased revenue and OCF growth of 10% and 9%, respectively. If you go to slide 13, this looks at our Q3 results by operating region. And we will drill down on the OCF growth, which was tempered in the quarter, by 3 primary factors; 2 of which are country specific, and the third related to our overall strong subscriber growth.

On a Pan-European basis, excluding Belgium, our distribution business generated $1.6 billion of revenue and $824 million of OCF in Q3. That reflects rebased revenue of 4% and rebased OCF growth of 5%. In Belgium, Telenet reported rebased revenue and OCF growth of 5% and 1%, respectively, on revenue and OCF, of $489 million and $251 million.

Now, Telenet's lower rebased OCF growth, In the quarter, as compared to the 7% that it realized in the first half of 2011, reflects, in large part, roughly $10 million of programming-related costs, relating to the recently-won Belgium football rights. Going forward, we expect these football rights will amount to around EUR9 million to EUR11 million, in Q4, and it's important to know that the accounting of these cost is treated definitely under US GAAP, as compared to IFRS, which is what Telenet reported on last week.

Outside of Europe, our Chilean business posted revenue of $232 million and OCF of $89 million, representing rebased growth of 4% in revenue, and a rebased decline of 7% in OCF. Similar to the first 2 quarters of the year, our OCF was impacted by incremental costs, associated with the 4G project, which totalled approximately $5 million, in the quarter. We expect these costs to ramp significantly, in Q4, as we prepare to launch the service next year. Finally in Australia, our DTH business generated rebase revenue and OCF growth of 1% and 6.5%, respectively, as Austar has managed to control costs in what is a challenging business climate.

Back to our overall rebased and OCF growth rate of 2%. We have already touched upon both of the Telenet and VTR impacts, which totalled about $50 million, combined, during the quarter. In addition, our rebased OCF growth was also adversely impacted by our rebased year-over-year increase of over $20 million, in customer acquisition and marketing costs, which resulted from our strong RGU growth in the quarter. Adjusting for these factors, our reported rebased OCF growth-rate would actually have been meaningfully higher.

If you go to slide 14, this slide recaps our capital expenditures and adjusted free cash flow performance so far this year. In terms of CapEx, we reported capital spending of $474 million and $1.5 billion for the three and nine months, ending September 30, 2011. These figures translate into CapEx, as a percentage of revenue of 18.2% and 19.5%, respectively, as the left hand chart illustrates, and they compare very favorably to the 20%.4 and 19.7%, that we reported for the same periods of 2010.

As Mike noted, we are gearing for our mobile launch in Chile, next year, and our CapEx investment has been ramping. In Q3, we invested $19 million, which brings our total year-to-date spend on the project to $38 million. As for our CapEx in the fourth quarter, we would expect to report higher CapEx, as a percentage of revenue, as compared to the third quarter, given our subscriber growth, and the continued investment in our Chilean and 4G project.

Now, as the right hand chart highlights, our Q3 adjusted free cash flow of $61 million was up 36%, versus last year's figure of $45 million. This brings our year-to-date total to $491 million, or 15% growth, over last year's adjusted free cash flow of $427 million. The drivers behind adjusted free cash flow growth, for both periods, are principally related to higher OCF and favorable FX movements, which more than offset higher borrowing costs, which include derivatives and capital spending.

As we think about Q4, we would expect to generate much higher adjusted free cash flow, in Q4, as compared to the third quarter, due to the timing of our cash-interest payments and our debt, and some working capital cash flows. Turn to slide 15. This reviews our balance sheet position. On the debt side, we ended September 30th with $22.4 billion in total debt and capital lease obligations, resulting in a decline of roughly $1.4 billion from the second quarter. A large part of this decline was due to foreign currency movements. From a risk-management perspective, we remain substantially hedged on foreign exchange and rates, and have nearly 90% of our consolidated-debt due 2016, or later.

The bar chart on the left looks at our adjusted-leverage ratio, which adjusts for our $1.2 billion Sumitomo loan. The ratios declined from 5 times to 4.3 times, in the just the last year, largely on the back of OCF growth. And just to reiterate, we intend to remain within our 4 to 5 times target. We ended Q3 with $2.3 billion of consolidated liquidity, which consists of $1.4 billion of cash, and $1 billion in maximum borrowing capacity in our credit facilities.

Our liquidity and cash amounts exclude the $1.4 billion of cash held in escrow, in connection with the pending KBW acquisition. Our $1.4 billion of consolidated cash declined, by approximately $2 billion, during the quarter, led by activity at Turner, which we paid term-loans and made a cash distribution to shareholders, including LGI. And the remaining use of cash can, largely, be explained by the funding of our Polish acquisition and the cash we have used for stock repurchases.

Lets go to the Conclusion slide on slide 16. In conclusion, subscriber growth was the obvious highest, in the quarter, as it clearly demonstrates that we are capitalizing on our network vantage and our superior product offerings. On the M&A front, we should have the Austar and KBW situations resolved, from regulatory standpoint, by year-end. With respect to our repurchase activity, we always look to capitalize on the softness in our stock price, and we were certainly more aggressive in the third quarter, as we repurchased 11.6 million shares, so roughly $440 million.

Additionally, although we completed our $1 billion buy-back target, for 2011, we remain active purchasers of our equity and we are buying in the market, literally, every day. As we have alluded to, on this call, we remain on-track to obtain all of our 2011 guidance targets and so we are reconfirming those today.

And finally, perhaps and even more importantly, if these strong subscriber-gains continue through year- end, we should have great momentum as we move into 2012. That's it from us, Operator. Do you want to open it up to questions?

(Operator Instructions)

We will pause for just a moment to give everyone an opportunity to signal for questions. We will take our first question from Jeffrey Wlodarczak with Pivotal Research Group.

Normally, fourth quarter is the strongest RGU quarter-season, of the year. Is there any reason to believe that has changed this year, given how strong this quarter was, and I have a follow-up.

We are not giving you, just yet, the fourth quarter results, but it has been a strong start to the fourth quarter. This was an unusually robust third-period, as you noted, and people would know given the history of those summer months, and the fact that it's generally not our strongest. I am not going to give you, directionally, an answer there, except to say, it started very strongly.

Fair enough. When do you expect these very strong RGU results will begin to translate into accelerating rebase revenue growth?

Right into 2012. As we look at 2012, we should certainly see the benefits of this larger customer-base, in our financial results.

Great, thank you.

James Ratcliffe with Barclays Capital.

Good morning. Thanks for taking the question. On marketing spend, with your acceleration this quarter, is that something that, given the growth you have seen on subscribers you would expect to extend into 4Q, or is that more of a timing issue, year on year, that last year you spent more in 4Q, and this year it has more shifted to 3Q. And if you could talk about programming costs, you mentioned Telenet, and the like, and programming costs small, but have gone up. How have they changed the percentage of your video revenue, and how has that affected video growth profit and how would you expect that to change in the future.

I will adjust the second one, and Diederik, you can start thinking about the marketing spend question. Today, you would know that we have extremely high video gross margins. Our numbers indicate that those margins, on percentage terms, might come down slightly, or will come down slightly, as we add digital customers. So that, on an analog customer, paying EUR15, we are going to have an 85% gross margin, on the analog programming costs. A digital customer that might pay us EUR30, we will have significantly more gross margin, but slightly lower gross margin percentage.

All in, it's still around 80%. So, our job is to keep programming costs in check. We don't have the pressure that a lot of the US operators feel from one or another dominant programming group, because of the nature of our market and the fact that it's so fragmented. I will point out when we launch Horizon, in Holland in the first quarter, we will launch that product with over 65-plus channels of linear streaming television, and over 3,000 hours of on-demand content, including catch-up TV, movies, et cetera. We have been able to assemble that content for that platform, very inexpensively, because of the relationships that we have with programmers in Holland, and our history, and the size of our Business there.

So, I think when you look at where programming costs will be going over the long run, as more and more of our activity comes on demand, and/or over the top through our Horizon platform, we are able to maintain reasonably good programming costs there, and I think in the end, they will hang around that area. They might come down slightly. But our long-range plan does not show a material diminution in our programming margins. On, the marketing point Diederik, do you want to address that?

Yes. The increase in, which you see in Q3, is largely volume-driven, and it's tracing to higher absolute-numbers in the sales costs, the commissions, sales commissions. Its not so much the variable costs, to relate it to the higher volume. It's not so much the more fixed piece of the marketing cost, like above the line, that leads to the conclusion that, what we have seen is that there is more effectiveness of our campaigns, and that may have to do with the fact that this year, we started to apply, learnings, from one country to the other country, so that effective campaigns from one country start to take effect in others. So, I would say it is, largely, volume-driven sales cost which is driving the total.

I think it's fair to say, as a result, if we have very strong subscriber in Q4, as Mike mentioned, we started well, but we are not making promises, you may see a similar effect in Q4. But it is good capital to invent, because, obviously we are getting subscribers in return with a good payback.

Great, thank you.

Mr. Ben Swinburne with Morgan Stanley.

I wanted to ask you about the high-speed data subscriber-growth in the quarter, particularly in your larger markets. So for Mike or Diederik, or both, can you give us a sense 9 months-to-date, what you think your flow-share is, on net new customers in broadband, across the Germany, Netherlands and Switzerland, if you can generalize, or if each market is different. Second related question is, what do you think the incremental ARPU, or marginal customers bringing in ARPU, for data relative to the base. You talked about revenue accelerating, next year, Mike, and certainly if the subscriber growth that you are seeing comes in without any ARPU degradation, or in fact if ARPU goes up, then that is a hockey stick effect. I wonder if you can talk about that piece?

Yes. I can tell you that we do calculate our market share of net adds or net gain, in every territory pretty regularly. In the markets that you referenced, Germany, the Netherlands were anywhere from 80% to 100%. If you look at the Netherlands, for example, in the third quarter, we added something in the order roughly 30,000 broadband net adds, and that is on our 30% footprint. I think KPN reported something on the order of 20,000 loss, guys, something like that, 9,000 loss, maybe, but anyway it was a loss. Sorry 11,000 net add loss.

So, we gained roughly 30,000 net adds in the third quarter, they went backwards 11,000, and they have a nationwide footprint. If you extrapolate that, clearly, we are getting all the gain in the marketplace. That has been the case for 6, 7 quarters, you could plot it. We added between 20,000 and 30,000 net adds in Holland, going back 4 or 5 quarters, and they have essentially lost customers every quarter.

Germany, I think the number is closer to 70% or 80% of net adds. There are other non-DT operators in that market, but there is no question that our bundles are far more compelling, on a speed and product basis, and that's a really positive thing. In terms of ARPU, I would say, and Diederik can comment, as we have ramped up speed, for example, in Holland, as we have taken the sweet spot, or the primary bundle, from 25 meg to 50 meg, we have added ARPU or price to that bundled price. So what was EUR45, is now EUR49, so we are trying to maintain, not just stable ARPU for bundles and broadband, but also ARPU appreciation, if you will, on those products and services.

In some instances there are promotional discounts for periods of time. As those roll off, you will see a little kicker in ARPU. If you look at the ARPU across products, in the video side of our business, we are growing ARPU every month, because as we add digital customers, the video revenue we generate out of each home doubles. On average our overall video ARPU continues to grow. Broadband and voice have been stable-to-slightly-down as we -- it's somewhat of an allocation issue as well, because the vast majority of our sales, something in the order of 70% of our sales, in Germany, are triple-play bundles.

How do you want to allocate that ARPU? It's not as simple as it used to be. In principle, the number one factor for us, is are we getting more money out of the home. So every quarter we are focused on whether the ARPU we are generating out of each customer household is growing, and that is clearly up 5% to 8% every quarter. That is the key metric. The mix of that ARPU, whether it's coming from digital or broadband or how much of the bundle you want to allocate to each product, that is a science or maybe an art. But I think the main goal is, we are driving ARPU out of the household pretty regularly, and adding products into the household.

You think, to finish up on Switzerland, you think the flow share there, also, is over 50% of the market in your footprint.

We had a really good quarter in Switzerland. We added 10,000 broadband net adds, big quarter there. In terms of share, I bet you it's over 50% today.

Right. It has been rising. We are not there, in Switzerland, like you said, where we are in the Netherlands, and where we take the full growth in the market, at the expense of the DSL, but we are picking up share-points in Switzerland, with the strengthened portfolio, which, indeed like you said, Mike, is also moving to kind of between 30 meg and 50 meg as a sweet point. That is underpinning the superiority that we are able to construct in our products. We are still having a lot of flexibility in the speed. Together with the speed increases, we can also step-wise raise.

The ARPU in Switzerland is healthy and we would like to keep it that way. We feel confident about further growth. Looking at Germany, for example, our base share is only 12% broadband. So, we see enormous potential to make people switch from DSL, still largely ADSL, lower speeds, towards our products. It's a matter of supporting it and keep your eye on the market. In the Netherlands and Switzerland, our base-share is higher, so It will go at the expense of the DSL players, in a somewhat more aggressive fashion, but, so far, with Holland taking more than 100% of the growth and Switzerland 50%, we are confident we are on the right side.

Thank you, guys.

David Joyce with Miller Tabak company.

Thank you. I was wondering if you could give us an update on what your path might be towards going all-digital in the event you might need to free up capacity for the Horizon rollout.

Balan, do you want to address that.

Yes. We have no plans to go all-digital in the near future. Our sense is that, what would drive that, would be capacity. We are doing a number of studies internally, but you are not going to see us do anything in the next 24 to 36 months.

Okay. And secondly, if I might, could you please update us on the relative size of your commercial market and the video, voice and data subs.

Sure, Diederik do you want to address the B to B in Europe?

What we see in B to B, is very successful companies, behind a new renewed mix, where we focus more than previously, on the SOHO, with the products which have their origin in superior broadband- mix, make that the fixed voice. And there are some countries, like Germany, where we are starting from scratch. Where we still have great opportunities, but since it is building from scratch, it will take us time, and that will also help us to further strengthen the total European contribution of this division, which we still see as a highly potential one.

It's adding countries to the Group, which is already successful, and that is the way we built it. There may be some (inaudible) growth. There may be some small acquisition opportunities, but we will be very cautious. For example, the DSL providers, and so forth, is not on our list. It is going to be mainly autonomous growth, (inaudible), careful CapEx and maybe some acquisitions, when feasible.

It's a relatively small piece of our overall revenue stream. 3% to 4%, maybe, and growing at about 5%, organically, but it has the potential to be much larger, especially when you consider the fact that markets, like Germany, we have $0 B to B revenue, because the historical owners just never exploited that opportunity. There is tremendous up-side in the B to B business, especially as Diederik said in the SOHO, or small, medium segment. We have launched cloud services, in a number of markets, to relatively positive results, and in some cases we own data management and COLO-type businesses. It's a mixed bag in each market. Its not necessarily a consistent product offer, in each country, but most of our countries have the beginnings of, or at the medium stages of, relatively interesting and robust B to B businesses that we are trying to take advantage of, on a more consistent basis, across Europe.

Thanks for the update and nice execution in the face of this market.

Thank you.

Will Milner with Arete Research.

I want to focus on the KBW deal. Could you talk around the various concessions that you have offered to the Cartel office, and potentially, what the financial impact of those might be as the deal progresses. Thanks.

Sure. I will do it generally, because we want to keep this process tight, with regulators, but the concern expressed by the German regulator revolved around 2 principle areas. One was the role that cable operators play in the large housing associations, and the extent to which cable operators might someday expand or extend their reach, across borders, into other territories where they don't operate today, to provide more competition in that MDU, or housing association market. The second concern was around the role we play in what they call, the feed-in market, where programmers are looking for distribution across our networks. We have a different view of cable's position, in the German market, than was expressed by the regulator. Cable is the only industry sector that is investing in next-generation networks, 100 megabit broadband speeds. There is a reason why we are getting 70%, 80% of net gain. We are providing the products and the services that consumers want, and we are very, very small in the scheme of the German marketplace.

To combine KBW and Unitymedia, would be like EUR1 billion revenue, compared to EUR35 billion for Deutsch Telecom in Germany alone. It's very, very strange, in many respects, the analysis that has come out, but we are cognizant of it. This is an important deal for the market, and we are trying to be responsive. 2 or 3 things we have done, that we think are responsive, one of which to continue, in Unity, what KBW has already been doing,and that is unencrypting a basic digital package to make access to that basic digital package easier, not just for consumers, but potentially, resellers, which we are happy to do.

And it had little to no effect on KBWs business, and also, looking at perhaps changing the nature of our relationship with certain housing authorities, in a way that might make it easier for other operators to enter into those markets or contracts. In the end, it's hard to know what impact these will have on our Business, so I can't give you a number. But, we do feel that, in the context of the importance that this merger holds, not just for us, but for the German market and for German consumers, they were not costly.

That's very clear, thanks. I have one follow-up, actually. I wanted to understand, a bit better the motivation behind the switch, that you talk about toward vendor financing arrangements, which I think is a non-cash addition to property and equipment. I think you mentioned that it started in the second quarter. I wanted to understand who is providing the financing, over what assets, and what is the impact of this, in terms of CapEx and OpEx, and what it means for the customer.

Charlie?

I would say that, in general, we have been very much focused on trying to improve our working capital management. We have bench marked ourselves against other companies. We felt that there was opportunities left for us to exploit. So, when we talk about vendor financing, I would consider it to extend the payment terms. We have been trying to push our average payables up from 45 days to 60 days to 60 days, 70 days. The way the accounting works, we have to define it as vendor financing, whereas years back, we had payables as normal.

I wouldn't overplay the dramatic shift that is going on. What it broadly means is, that we are trying to extend our payables and reduce our prepayments, and try to optimize more cash, out of our relationships with our vendors. Some of that gets classed as vendor financing. If we go beyond 90 days, with a vendor, that becomes financing, in terms of the accounting rules. That is really a small part of a general push on working capital. The way it impacts us on CapEx, we report cash CapEx So any interest payment terms on CapEx, means it is effectively cash CapEx is impacted by that. In the scheme of numbers we are talking, I don't believe it's material to the size of our CapEx budget or of our cost space, so I would not apply it.

So, it's not a change of approach around set-top boxes, and how those are divide?

No. Sorry. It is definitely not that. It is just better working capital management.

Okay. Great. Thank you.

Daniel Morris with JP Morgan.

In an interview today, your Chairman expressed an interest in the UK market. I appreciate that he is also interested in other sectors, but can you comment on whether you see value in UK cable, if there are associated tax assets that could help you with your future US cash repatriation needs? And I have a follow-up, thank you.

That interview actually took place, a long while, longer than you think, 3 or 4 weeks ago, at least, when we were in London together, and I read it briefly yesterday. I haven't studied the quotes or the article. I would not read anything into that. That's the point I would make. What is your follow-up.

Thanks. The follow-up is on the subs-versus-revenue growth question. Can you give us an idea on how back-end loaded the subscriber growth was in Q3? I would imagine September would be a very strong month.

Yes, that's true. September was a strong month, interestingly enough that followed August, that was so far the strongest. September strongest, then August, then July. That's correct.

Thank you very much.

Hugh McCaffrey with Goldman Sachs.

Good afternoon. I have a couple of questions, please. Firstly, if the decision from the FCU is negative, are there any other options you have to pursue the deal with KBW? And following on that a little bit, is there any deadline associated with the Oskar Rakso structure? And, secondly, can you give us an update on regulation and do you have any view on the suggested copper price-counts that have come out? Thank you.

Yes, it's too soon to respond to the third one and we are not sure what, if any impact, it would have. I don't know if Diederick wants to add anything to that. In terms of the German transaction, it's been clearly articulated that December 15, they will have, at that point, assembled all of the information they need, from the market. We will have continued our dialogue with them on remedies, and they will reach a decision about the transaction. At that point, there is very few things that we could do.

Certainly, if it were not to be a positive result, you should expect that we would pursue litigation, but that is normal and ordinary course. Why wouldn't you. In our view, this is a transaction that should certainly be cleared, and may not be the last time we have such a situation in front of us or other operators, for that matter. So, we would certainly look to understand better, at least let a court decide whether this is the right situation. That will take a long time.

I wouldn't expect that would necessarily lead to a reversal in the amount of time necessary to own the asset, I would really just be for seeking market clarity, if you will, down the road. There aren't a lot of options beyond that. You can't own the business if you don't have regulatory approval. Regulatory approval is an important, necessary precedent to closing, so if that doesn't happen on the 15th, there are no easy options.

Okay. That's clear. Thanks, Mike.

Jason Bazinet with Citi.

Thanks so much. As it relates to AUSTAR, I think on the last earnings call, you expressed a reasonable amount of optimism that, ultimately the sale would go through. Has anything changed tonally?

No, I think the situation is fluid, as it always is, in these matters. But there is a very good, healthy dialogue among AUSTAR, Foxtel, and the ACCC, the competition administration in Australia. There will continue to be, up until the moment that they provide their ruling. I would also point out that there is a new ACCC commissioner, who has assumed the position, almost after the fact, of the objections being published, and has, in our view, a reasonable approach to this.

Interestingly, unlike Germany, if that announcement did not go the way we wanted it to go, that could be reversed, rather quickly, in the courts. A similar transaction was recently reversed and ended up closing. I think there is far more optionality, or far more control over outcomes in that marketplace. Having said that, I really feel like in the end this transaction has great potential to be perceived favorably, with or without remedies, and certainly I am hopeful that we will get that done.

Okay. Thank you very much.

I think that's it. We appreciate everybody on the phone call with us this morning. As I said, we look forward to talking to you about a robust fourth quarter. Until then, we wish you well and thank you for joining us.

This concludes Liberty Global Investor call. As a reminder, a replay of the call will be available in the Investor Relation section of Liberty Global's web site at www.lgi.com. There, you can also find a copy of today's presentation materials.