Liberty Global Ltd (LBTYK) 2007 Q3 法說會逐字稿

Welcome to Liberty Global's third quarter 2007 investor call. This conference call and its associated webcast are the property of Liberty Global and any redistribution, retransmission or rebroadcast of this call or webcast in any form without express written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode. Following today's formal presentation, instructions for a question-and-answer session will be given. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded on this date for November 9th, 2007. I would now like to turn the conference over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

Thanks, operator and welcome everybody. Let me just take a minute and introduce who we have on the phone call. We have a full complement of the Global team here. In addition to myself, we have John Malone, our Chairman, Gene Musselman, obviously who runs our European operation, Miranda Curtis oversees London with Graham Hollis, Mauricio Ramos from Santiago who oversees our Latin American business. We also have Bernie Dvorak and Charlie Bracken, our co-CFOs, Liz Markowski, our General Counsel, Rick Westerman, who you all know, Shane O'Neill and Balan Nair, our new CTO. At this point, I'm going to turn it back to the operator for the Safe Harbor.

Thank you, sir. Page two of the slides on the associated webcast details the Company's Safe Harbor statement regarding forward-looking statements. Today's presentation will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including Liberty Global's expectations with respect to its full year 2007 guidance targets, its fourth quarter subscriber growth, its future prospects, its ability to improve its consolidated OCF margins, the timing and impact of its roll-out of digital process and services, completion of its announced transactions and its borrowing availability, its insight and expectations regarding competition in its markets, the impact of its M&A activity on its operations and financial performance, and other information and statements that are not historical facts. These forward-looking statements can involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. Factors that may cause Liberty Global's actual results to material differently from those expressed or implied can be found in the Liberty Global's actual results to materially differ from those so expressed or implied can be found in the Company's filings with the Securities and Exchange Commission, including its most recently filed 10-K(a) and 10-Q forms. I would now like to turn the call back over to Mr. Fries.

Thank you. That is a mouthful. We're going to change it up a little bit this morning. I'm going to walk through the highlights as usual. Then I'm going to turn it over to Gene and Miranda and Mauricio to provide a bit more color on their respective operations in Europe, Japan and Chile. We've had some good, positive developments there and I think they're worth expanding on. Berne Dvorak is going to walk us through the numbers and then we're going to get to your questions. As usual, we're speaking from slides here. And I'm on slide three, which you can get on our website. Before digging into the results, I thought it might be a good idea just to step back a second and reiterate our basic strategy for building value. Stocks in the broader cable sector are experiencing some volatility, no question about that. You all saw the Wall Street journal article yesterday, that the picture for the U.S. cable industry appears to be a bit fuzzy. Certainly I'm not going to comment on that article. We don't operate in the U.S. Our Company's picture or strategy or opportunity, we don't think could be any clearer.

We're still focused on the same three value drivers, what we like to call the virtuous circles. Number one, exceptional organic growth, in particular on the OCF line, what we like to describe as smart M&A drives to drive scale or generate capital. And third, tax efficient management of our leverage and capital structure. This is the model as we have said many, many times that sets us apart from our peer group. We think it's working and we're sticking to it.

Year-to-date OCF growth is 15.4% and we're tracking at the high end of our full-year guidance range of 14 to 16%, if you include Telenet. I don't have to tell you that that's best-in-class organic growth. We remain disciplined on the M&A front and we think the opportunities actually only get better for us going forward. Our capital structure is geared to drive equity return. We're still leveraged in the four to five times range. We'll be sitting on over $2 billion of cash at the parent company and we've already repurchased about $1.3 billion of stock just this year. So growth, smart M&A moves and a leverage driven capital structure that fuels opportunistic buy-in of our own equity. We think it's a winning formula. I don't see anything fuzzy about it myself.

With that, I'm going to go to the next slide and spend a minute on Q3 highlights, starting with subscribers. You can you see there, we ended the quarter with 23.5 million RGUs and 16.1 million customers. Those numbers are up about 30% and 23% over the last 12 months from a combination of acquisitions and growth. We experienced nice rebound in the third quarter with 385,000 organic RGU adds. That's a big increase from the second quarter and in fact, our biggest quarter ever, our biggest Q3 ever in absolute terms. I think it's also worth pointing out that we saw a pick-up in growth across nearly all products and markets. We added 190,000 broadband and 191,000 voice subs, a very strong quarter. In fact, the best ever for voice and we had a positive net gain in video sales helped by about 234,000 digital cable additions. So year-to-date, we've now added over 1 million RGUs on an organic basis. That's roughly the same number of RGUs we added last year through nine months. Our guidance, as you know, for the full year was 1.6 million net adds. And I think with two months left we expect to come in below that number, but that's largely of as a result of one market, Romania, which in fairness we've talked about all year. And I'm not going to rehash today. You're going to hear from Gene that we're making good progress in the third quarter. But that's primarily what's impacting that guidance figure.

Jumping to financials, revenue for the quarter was $2.26 billion and $6.5 billion year-to-date. Bernie is going to break those numbers down for us. But I would point out that, with over 5 million of those 16 million customers now taking a double or triple play bundle, we're still seeing customer ARPU uplift in the 5 to 8% range in markets like Europe and Chile. Lastly, OCF was $918 million in the quarter and $2.6 billion year-to-date. That reflects 14.6 and 15.4% growth, again rebased for acquisitions and currencies. Now those numbers were helped by, among other factors, continued scale and cost efficiencies. That has brought our OCF margin now to over 40%. And they just continue to head north. I'll repeat that we're confirming our OCF guidance. I'm sure Bernie will take us through that. And that ought to come in near the top end of the range. So for us, we've got, we think, a strong quarter operationally.

Last slide I'll talk to, slide 5 here, just a couple of strategic topics. Number one, we had a reasonably quiet quarter on the M&A front. And the pipeline continues to be in a bit of what I would describe as a holding pattern as credit markets stabilize. Having said that, we did increase our interest in Telenet to just above 51%. That was really an opportunistic trade at a discount to the market price at the time and today. And we're still happy with our current position in that asset. More broadly, I think '08 is going to be an active year for buyers and sellers, particularly in Europe. In the meantime we're doing a number of smaller in-fill acquisitions, over 100,000 RGUs actually, that you don't read about but always have great returns and we're locking down what we think are some pretty interesting venture type deals.

Slower M&A activity means we continue to build great liquidity. We recently completed three financings in Australia, Europe and Japan that together will bring $1.2 billion of cash to the parent company this month. That's going to take us over the $2 billion mark this month, in terms of our cash at the parent company, and we've got approximately $5 billion of total liquidity if you add in undrawn debt facilities. And finally, we do remain highly focused on our stock, especially on days like today. If you include the most recent tender, we repurchased over 3 billion in the last 20, 22 months or about 21% of the company. Needless to say, if we liked it at 40 to 43 the last go-around. We love it at these levels. When, how much, what price, I'll simply say that we'll be patient and opportunistic with an eye towards maximizing the long-term value of the Company. You know, sometimes there's silver linings when markets get volatile. So that's our main goal. I'm still very encouraged by the strategy and we're positive. So I'm going to turn it over to Gene for a quick update on Western and Eastern Europe.

Thank you, Mike. Addressing Western Europe, I'd like to start by saying that the Western European environment continues to be stable. And echoing what Mike said a moment ago, we have enjoyed a strong rebound in subscriber growth and experienced a strong financial performance in Q3. Overall, organically adding 130,000 new RGUs, including Telenet, which represents a 51% improvement over Q3 growth prior year and up approximately 130% sequentially from Q2. Video competition remains largely stable across all of our Western European markets. IPTV has not made a discernible impact, leaving plenty of runway, we think, ahead to grow our digital business. To date, we're seeing limited progress in the Netherlands, Austria and Switzerland. In NL for example, KPN has made more headway with DigiTenna, their low-end DTT product. On the other hand, they've made limited progress with their IPTV product, registering I think about 10,000 subscribers, which is pretty limited considering the length of time they've been trying to go to market.

Austria's AON also is achieving limited traction. Switzerland's Bluewin only reports at this point about 60,000 IPTV subs and I think a part of those have only signed up and have not been installed at this point. On the other hand, they have not hindered in any way that we can see our own digital roll-out at this point and the success that we've enjoyed. On a product basis, we continue a steady trending upwards with regard to our new services, despite a seasonally soft quarter. Our digital ramp-up continues, adding 87,000 RGUs. Fueled principally by Telenet and a record growth in Switzerland, primarily driven by the demand for our new -- for our digital product and customer upgrades to our new digital entry package. Looking at broadband, we have achieved a 29% penetration, that's based upon serviceable homes. Leading markets were Belgium and Netherlands. Both added over 25,000 RGUs in the quarter. NL numbers were driven by the successful launch of our power any time bundle. That features a 6-megabit product as well as free call minutes and this was a product that we countered with in terms of a roll-out of APN's Internet (inaudible) product.

Voice, we added 86,000 new voice RGUs, with NL reporting its highest growth, 43,000 adds, since we launched VoIP in December '05. Also, our bundling strategy is progressing very well, as Western Europe triple play base has increased to 8% from Q2. Looking ahead, digital looks like it will be an increasing growth driver, as we go forward. NL continues ARPU expansion, entering Q4 with all digital homes VOD enabled. Cablecom expects to continue their rapid growth, since the roll-out there in April and Austria is set for digital relaunch of their product, starting this month. And they will be using the common set top box platform that we've been rolling out across Western Europe and that we'll be also introducing into Central Europe next year. We also continue to focus on enhanced service. We've seen solid DVR updates. More than 170,000 subs to date across Nederlands, Cablecom and Ireland.

We see considerable upside for Ireland. They just launched in August. We'll be launching DVR in Austria later this month and just today we introduced high definition TV in Switzerland. Focus remains on constant -- on cost containment and favorable growth, marginal growth, as acquisition synergies are yet -- many of them are yet to be realized. Turning to Eastern Europe, overall Central and Eastern Europe closed a strong quarter, gaining more or less 70% organic net adds. This represents a 49% increase sequentially over Q2 organic growth and an increase of 8% year-on-year backing out Romania. Also, there were 114,000 new adds during the quarter, including small acquisitions in Romania. While competition remains a factor in Romania, Romania's growth story, counter actions are beginning to take effect. And I think I mentioned a number of those in our last call. These include the launch of digital in Bucharest that we're just now in the process of rolling out, the introduction of a new data portfolio, the institution of loyalty offers, that includes social discounts and the acceleration of our upgrade plan.

Recent actions have reduced our video loss by more than 50% in Q3 from Q2. In addition to that, we also successfully migrated 12,000 digital customers during the quarter. In addition, we were able to sustain organic growth in our DTH, our voice and our data products, through solid churn reduction programs and that we will continue with going forward. With recent launches across Central and Eastern Europe, digital is emerging as a product to reinvigorate our growth and increase our ARPU. Recent roll-outs in Romania, Czech and Slovak generated approximately 35,000 net additions in Q3, with Czech among the top three growth performers of the quarter. We've also planned digital launches in Hungary and Poland in Q1 and Q2 of next year, again, leveraging our common set top box platform. Again, looking ahead, we still feel that there's ample room for advanced service growth. Penetrations are well below Western Europe and ARPUs are steadily increasing. Our Q3 data growth lifted overall data penetration to 18.5%, reaching as high as 23% in Hungary and 31% in Slovenia. We still feel there is plenty of runway ahead in growing these penetrations.

Our voice uptake has been somewhat impacted by mobile substitution but at 8% penetration, we think there's still plenty of opportunity for growth. We're also in the process of completing our upgrades, which should further fuel growth and support new service and services and drive our competitiveness. By Q2 next year, our digitalization plan should be completed, in other words we will have digital rolled out to all of our markets and we will be able to leverage digital and triple play and bundled offers. In closing, I would simply like to say that I anticipate a strong fourth quarter in terms of both subscriber and financial performance and with continued emphasis on operational execution and continued cost control, we expect to maintain consistent EBITDA growth throughout the fourth quarter and throughout '08. At this point I would like to turn it over to Miranda Curtis who will speak or cover Japan.

Gene, thank you very much. The key headline from Japan is that J:COM continues to deliver solid execution while it appears the competition is really beginning to slow. As most of you are aware, satellite competition continues to be a non-issue in Japan. Recent news report suggests that FTTH growth is beginning to slow while ADSL remains in positive decline. Just to show you two specific examples, you're aware of the threat of competition from IPTV in the retransmission of broadcast signals. That's something that we've been concerned about for a while. That now looks like it's unlikely to happen for at least two years. J:COM retains exclusivity on the key content against IPTV. And IPTV Growth itself remains anemic. The other interesting development is J:COM's recent trial of 160-megabit service which has seen the first significant churn away from FTTH to J:COM based primarily on best service and better local presence. That 160-megabit product is going to be rolled out across the J:COM footprint in 2008 and really demonstrates that J:COM can match all better FTTH, both in service and performance.

COM continues to show very consistent financial performance. Digital in particular is very strong with over 100,000 adds in Q3. Digital now standing at 63% penetration. And the high definition DVR is also performing very well with more than 0.25 million contracts signed. Churn is constant or declining across all product lines and we continue to expect rebased revenue growth in the high single digit and low double digits and rebased OCF growth in the low to mid teens, 13% year-to-date. The focus for 2008 and COM is going to be really on improving COM brand awareness and diversifying sales channels, looking particularly at new retail outlets and web sales. Now the [JP] merger is closed, COM recently announced a deal with NHK to launch Channel Ginga next spring is going to be very important for COM's visibility and reputation and some of you remember the importance of the BBC deal reflects that. It is not quite on the same scale but still very important for the Company. There will be renewed efforts in 2008 to continue to build ad sales in partnership now with [Densu], the major Japanese agency, and the recent announcement of the [Kioto] acquisition demonstrates that there are still a continuing flow of M&A opportunities in the market.

So the key summary really for Japan is that we think the competitive environment is increasingly competitive. We have high confidence in Management's ability to hit the operational targets. And the Company's well-positioned to develop new growth prospects in the next year. Now with that, I'll turn it over to Mauricio to tell you what's happening in Latin America.

Thank you, Miranda. As I believe most of you know, in our footprint in Chile, we are number one in video and broadband and number two in voice. And we actually continue to grow in that one segment. During Q3, we again focused on building upon our position of very strong leadership. And indeed, during Q3 we had 24% base OCF growth as you see on that chart and that actually makes this our tenth consecutive quarter of 20% plus OCF growth. During Q3 on the top chart, can you see that we also added 68,000 new RGUs and that's up 9% from last year's Q3. And it is just as important to highlight that we have sustained strong growth in our video product, despite the fact that the incumbent, Telefonica, entered that video market and matched our triple play offer, now well over 15 months or so ago. Indeed, during the first nine months of 2007, we added approximately 40,000 new video customers, which is about the same number of video customers we had added during the same period in 2006, and that with less competition back then of course.

Bundling as you know remains a key engine of our RGU growth and financial performance. Over 35% of our customers now take a bundle triple play product from us. But more significantly in my mind even during the first nine months of 2007, we added 41,000 new customer relationships, this is actually higher than the 33,000 new relationships we had added during the same period back in 2006, again, with a little less competition back then. And I say this to point out that growth is not only coming from bundling, but also from new customers and that's something that we can, of course, build future growth upon. At a more strategic level, during 2006 and 2007, we migrated our premium analog base to digital, digitized our network in Santiago and other key cities in Chile and have launched VOD, DVR and HD services. With these launches now behind us, we will now turn to driving digital penetration across the subscriber base. All new sales are now in fact digital. That is our classic (inaudible) triple pack product is now sold and priced as the (inaudible) triple back digital.

We have also begun to experience renewed momentum on voice sales as a result of recently including off network local calls into our flat rate plan for an additional small fee, of course. So today we stand with a product line-up that is as strong as we ever had. Demand is still robust and we remain very focused on bundling, customer segmentation and driving cost efficiencies. So as I look ahead, I actually feel pretty good about our sustainability to maintain this benchmark that we now seem to have set ourselves of 20% OCF growth. And with that, I will hand it over to Bernie for the financials.

Thanks Mauricio. I'm now on page 13, which is the Q3 financial results. As you can see, we reached revenue of $2.26 billion in the quarter, an increase of 39% over Q3 of last year on a reported basis and it's obviously boosted by acquisitions and positive FX. Rebased revenue growth was 8% for the quarter which, as we talked about earlier, is below the 10% rebased revenue growth in the first half of 2007, which is mainly due to slower growth in Western Europe, following soft Q2 RGU adds as well as some ARPU compression in our voice and data products. I'll give you more detail on our regional results in a minute. Year-to-date our rebased revenue growth was 9.4%. As a result, it now appears our full-year rebased's revenue growth will come in below 10% which is the low end of our guidance range. Operating cash flow was $918 million for the quarter, an increase of 53% over the same quarter of last year, and that represents 14.6% rebased growth in Q3 and for the nine months our rebased OCF growth was 15.4%. That's toward the high end of our 14 to 16% guidance range, so we think we've done a good job of controlling cost to make up for the revenue shortfall I just described and we feel very good about our outlook for mid-teens OCF growth.

Turn to the revenue breakdown on slide 14, this shows the revenue by region for Q3 and also year-to-date. UPC generated $982 million in Q3, up 6% rebased and year-to-date growth has been 8% overall. That represents a blend of 7% in Western Europe, versus 11% in Central and Eastern Europe. As we discussed in our 10-Q, the growth percentage in the Netherlands in Q3 was negatively impacted by about EUR 5 million accrual releases that occurred in the Netherlands in last year's third quarter so it distorts the comparison. On average, Central and Eastern European markets continue to show double-digit top line growth despite the competition we're seeing in markets like Romania as Gene talked about. Telenet had a solid quarter with Q3 revenue of $325 million and rebased revenue growth of 10%. J:COM revenue of $563 million in Q3, represents rebase growth of 8%, although they're still at 10% year-to-date. VTR continues to deliver great results with rebased revenue growth of 12% in Q3 to $161 million and they've posted 11% revenue growth year-to-date.

Slide 15 shows the operating cash flow breakdown and once again, we had strong OCF performance across nearly all of our major markets. Performance was driven not only by top line growth but also by significant market expansion. I'll discuss more detail on the next slide about the margins. If we break it down by region, UPC broadband grew 12.7% in a seasonally soft Q3 but the year-to-date growth is strong at 16.5%. Western Europe rebased OCF growth in Q3 was 8.5% but this growth rate was negatively impacted by the prior-year Netherlands accrual releases that I just mentioned. Eastern Europe, as you can see, had a strong Q3 with 19% rebased growth. Telenet had their best quarter of the year so far with 18% OCF growth and for the year-to-date they're just below 14%. J:COM came in at 9.5 in Q3 but nearly 13% so far this year. VTR remains the star performer, up 24% in Q3, and nearly 23% year-to-date. So overall, LGI, little softer in Q3 at 14.6 but year-to-date nearly 100 basis points higher at 15.4. And we feel confident about Q4 and expect that we'll meet our full year OCF growth targets and we're tracking towards the higher end of our guidance.

You look at the margin improvement, in Q3 we achieved a 40.7% OCF margin which, as you've already heard, was a record quarter for LGI. Compared to last year's Q3, we're up 380 basis points. We're also up 120 basis points sequentially from Q2 of '07. OCF margin increases were driven by several factors including good operating leverage on the platforms we've developed for advanced services, particularly as we begin to scale in less mature markets like central and eastern Europe where margins were up more than 400 basis points year-on-year. We're also realizing benefits of scale as we centralize operating expenses and we continue to generate cost savings in markets where we've had historical acquisitions as in Japan and Chile. I won't run through each of the regional results but suffice to say that all major segments, UPC, Telenet, J:COM and VTR are up over last year. And as Mike mentioned in his remarks, we do see continuing opportunity for margin expansion going forward.

Looking at leverage and liquidity, we ended Q3 with $16.3 billion of total debt, which is an increase of approximately $500 million over Q2. That increase was driven primarily by a drawdown on our European credit facility during the quarter as well as an FX impact from the weakening U.S. dollar. Consolidated cash of $2 billion includes $485 million of restricted cash, which represents cash set aside to collateralize our Chilean loan. And as we talked about in Q2, we contributed VTR into our European bank facility which had a number of benefits, but the Chilean facility remains outstanding locally and is cash collateralized. The as adjusted column takes into account several transactions that closed after the end of the quarter, namely, the loan that we've taken on the value of our equity interest in J:COM, which generated approximately $655 million in gross proceeds to LGI, a recap at Telenet to increase leverage in line with our corporate philosophy, and a return of capital that will generate approximately $480 million of proceeds to LGI. And lastly, $147million in proceeds from Austar following their recent recap.

So adjusting for these transactions, our debt balance would have been $16.8 billion and total cash would have been $2.7 billion, approximately $2.1 billion of which is accessible by LGI. Our leverage ratios on either a reported or adjusted basis are very similar, right around 4.5 times gross, so right in the middle of our four to five times target range. In conclusion, we're pleased with a number of factors in the quarter including strong Q3 OCF growth and margin expansion, accelerating RGU growth in the second half of 2007 especially the fourth quarter, we're on track to achieve the high end of our OCF guidance. And lastly, the balance sheet is in great shape and ready to take advantage of acquisitions and stock buybacks. So with that, operator, I would like to open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) We'll take our first question from Jeff Wlodarczak with Wachovia.

Hey, guys. Good morning. Just to make sure I understand on the rebased revenue growth in Q3 lower than expected, the main driver of that was the RGUs lower in the second quarter and the fact that the RGUs you're adding in the third are quarter heavily weighted toward September. And then can you clarify the Netherland shopping channel under performance and quantify how much revenue is that, that entity. And then finally, Mike, post 2007, do you feel comfortable if you're growing revenue at high single digit rates, that you can still generate mid-teens operating cash flow growth. Thanks.

Let me take the last one first. I think the answer to the question is yes. You know, it's a fair question, if you see our peers growing EBITDA at 13% with 12% revenue growth, it's a fair question, how can we grow 15, 16% with 9 or 10% revenue growth. I think the fact of the matter is we have higher margin products at the gross margin level. We run our businesses more efficiently, part of that is by -- is because we're better we think at running the businesses in some respects and part of it is just the nature of how we operate and where we operate. The EBITDA drop both from products and I think from the group is higher. And so it's my belief that, yes, we can continue to post these type of EBITDA returns and growth rates at the 9, 10% revenue growth level. That's just the nature of our operation which when you -- you do quite well, Jeff, when you peel it back, is a function of higher margins and a better EBITDA drop and a more efficient corporate structure, more efficient central structure. So we're pretty confident about that.

I'll let Bernie talk about the rebased Q3 numbers, I think he explained pretty well what the differences are or what the impact is. I don't believe we've broken out the NL shopping numbers historically. I'll simply say that they have distorted revenue in some respects because we did have reasonably high expectations for the shopping service which we're now in the process of considering strategic alternatives for. The good news about the NL shopping service is it has not impacted our OCF line because it wasn't intending to be meaningfully OCF positive in the early years and was a roughly low margin shopping type product, type operation. So it's not impacting our OCF. But it is impacting that top line. Bernie, do you want to say anything more about the Q3 revenue?

Yes, I think you're right on the two points that impacted rebased revenue growth. One is the RGUs were lower. And the adds in the quarter were weighted towards the September time frame. So you'll see that pop in the fourth quarter. And then probably the third thing that I would add is that, as I mentioned, that the pressure on ARPU in the quarter because of discounting particularly in Europe, there was a little bit of pressure there. So there are probably three factors.

Thank you.

Operator?

We'll take our next question from Vijay Jayant with Lehman Brothers.

Are you there, Vijay? You want to go -- operator, are you there?

Sorry, sir. We'll take our next question from David Joyce with Miller Tabak and Company.

Great RGU adds this quarter, especially on voice. Gene touched on there being some mobile substitution in some of the Eastern European markets. How long can we expect some outsized growth of your voice product? Can you talk about markets where you're still on an upswing versus where you might have some more deceleration?

Well, I mean, I think the basic point he made, which I would just repeat here and then I will let him end on it, is that when you look at the penetration rates on voice, we're still reasonably low in Eastern Europe with the exception of Hungary which sits at about 15% voice penetration. The rest of them are in mid single digits. So on average in Central and Eastern Europe we're only 8% penetrated in voice and as we get more creative and aggressive with our bundle and our product offerings, we expect those numbers to continue to rise. So I think the basic answer is that, as he used the word, there's a fair amount of runway here on basic voice penetration. It isn't as if, David, we're looking to go to 35% overnight or something of that nature. We're starting from mid single digits and every point of penetration with the high margin voice product has pretty good impact on the OCF line. Gene, you want to add to that at all?

I guess I could mention a couple things. I guess number one, I think we'll continue to grow our voice penetration across our markets as we become more aggressive in terms of our bundling. I think this is one area that we probably can give up more and really benefit from, just as the Telcos are heavily discounting their video product to protect their telephone core base. The other thing is that we still have a fairly large number of homes to upgrade in Ireland, Romania and Poland. And these are three markets where I think you'll see significant growth as we bring on -- as we complete the upgrades, which will take for the most part, all of next year and, in the case of Ireland, perhaps even into '09. So I still see plenty of upside here.

Thanks. And Mike, you had alluded to some ventures that you're working on. I know that you had -- I think you had disclosed something with HIT Entertainment and some children's programming. Are there more ventures, and are they on content side or the distribution side.

Well, we have -- as I think I've been highlighting for about a year now, we have been looking at some, what I would describe as venture deals, because they typically are in more emerging markets with economic interests that are less than controlling. HIT Entertainment deal is a venture in Europe where we're going to launch the JimJam channel which is a kids service across the footprint. We like that transaction. That's a more traditional programming opportunity for us and one that we think has great prospects. Along the lines of a venture deal, though, there was an announcement that we have signed a joint venture with the Beijing Cable Company, a cable company of roughly 3 million subscribers to work with them on a joint venture basis to launch broadband across that market which we think has great potential. Now, it's a joint venture. It's a small investment. But it's a toe hold and an opportunity for us to get smarter with a leading cable operator and build our credentials in the market. And who knows some day down the road what it could mean to us. So those are things that are happening, largely under the radar screen. They're interesting and intriguing to us. They don't take up a lot of time or a lot of resources but I think these types of opportunities in more emerging markets, whether it's India, perhaps even Russia or whatever, we think could bear a lot of fruit. It's the right thing for us to be doing, especially when the bigger, more traditional M&A deals seem to be in a holding pattern. That's how I would describe it.

Thank you.

We'll go back to Vijay Jayant with Lehman Brothers for our next question.

There he is.

Sorry about that. Mike, in terms of the other comparison that I think investors would like to hear about with respect to the U.S. is allegedly there is a slowdown expectation in the U.S. and housing formation may be at risk. Can you talk about how that is relevant in your footprint and how different that is. And on the EBITDA numbers that you talked about, still being able to deliver that EBITDA growth, Telenet, which has nearly 50% EBITDA margins, is that the kind of metric we should be thinking about long-term for your footprint?

Well, I'll just take the second one first and then we'll get to the housing issue. Clearly, we -- 12 months ago, we were describing 40% margins as a medium term objective. Clearly, we have reached that objective well in advance of that time frame. We have reached that objective for a number of reasons. One, because I think the margins in our products continue to be very, very good. We're launching higher margin products, more rapidly in terms of in particular data. We have a larger focus on cost and efficiencies, as we integrate mergers that we've made and just step back and look at how we operate the business. It's not the kind of efficiencies where you're scraping the bone. It's a kind of efficiencies that are no-brainers, that don't impact your ability to operate or derive revenues but clearly make sense when you look at central costs and other factors. So is 50% achievable over some period of time? Perhaps. I think that, we've certainly gotten to 40% faster than we could -- than we thought we would. It's not in our forecast. But it's certainly in our forecast to get somewhere in between and that ought to have meaningful impact on our OCF growth.

It's one of the reasons we continue to feel confident about that OCF growth number. It's sustainable, not just next year but beyond that. And on the housing issue, you know, the European market is very different than the U.S. market, as would be Chile and Japan. We simply aren't seeing the same types of locations, whether it's with subprime mortgages or general economic factors. I can't speak to housing formation, perhaps one of the other operating guys can. But I will say, as Gene pointed out, we still have some two -- new way homes to build. So perhaps in addition to not experiencing the kind of slowdown in housing formation, we are experiencing the benefits -- or yet to experience the benefits from additional rebuilds, especially in Central and Eastern Europe. I think year-to-date we've added roughly a million upgraded homes. There's more to go. I don't think you can say that about U.S. operators. They are largely rebuilt and they have harvested at least once, if not many, many times each of those homes. We're still going after what I would describe as virgin territory and that's also going to be one of the reasons we sustain the growth.

Thank you.

We'll take our next question from Benjamin Swinburne with Morgan Stanley.

Good morning, guys. Thanks for taking the question. This is sort of a theme touching on what Vijay and Jeff also asked, but thinking about revenue growth in your more mature markets and the operating leverage around that, in this quarter you talked about some of the shopping channel issues in the Netherlands. But your SG&A I think was actually down year-over-year in that market. And I'm just trying to get a sense, as we look forward, sort of what type of fixed cost growth do you guys think is appropriate to assume in the business on the marketing and just headcount front? I would assume that the Netherlands is not a place where you're pulling synergies out. That looks like just good operating controls. And how should we think about that piece of the cost structure? And then maybe a question for Gene on the DTT side, I guess the worst case model or market is the U.K. with Freeview which has almost a third of the market. How do you guys think the DTT product from KCN stacks up relative to your core video product in the Netherlands?

Well, on the first question, Ben, I think the way we look at our business, and we're now just going into -- in fact, next week we'll all be working feverishly on our '08 budget. So we're not in a position to tell you what exactly will move or won't. But I will tell you that fixed costs are largely fixed, that we went through a period in the post 9/11 phase, let me describe it as that, where we certainly reduced a number -- the headcount pretty dramatically. In the course of the last two or three years, as growth has rebounded, we've added back to that headcount. We are very, very efficient in comparison to our peers today on an FTE per RGU or any metric you want to look at. But we still believe that we can be more efficient. And generally speaking, headcount is largely flat if not down in most of our operations year-over-year. And I would say the same thing for our basic fixed costs. Now the costs that are variable in nature, we always try to be as efficient as we can, but they are as such variable in nature. But you can expect that if it's a fixed cost or something we can control without impacting the revenue line, that we are going to be focused on that like with a laser, and that we will be delivering as efficient a result as we can. Gene, you want to get to the second question?

Yes, Mike. With respect to DTT and the Netherlands, we've seen them experience a reasonably rapid growth since they lowered their prices by about 50% last August. If you'll recall, they were initially charging I think 9.95 for a package of 24, 25 channels and they reduced that to 6.95. And I guess that would be comparable somewhat to our analog product to date. Some of the issues I think that they have in terms of long-term growth, I think at the present time only about -- between 60 and 70% of the households in the Netherlands are able to receive DTT or [DigiTenna]. There are technical issues, as you know, it's over-the-air and in the Netherlands, we're known for our rainfall and cloudy and overcast weather. I mean, it's a typical day today with the winds blowing and it's raining and storming and that's not the kind of environment that over-the-air functions best. I think we have a distinct advantage in terms of now that we've got DVR in place in about -- almost 60% of all new sales are taking the DVR in the Netherlands and we've just completed now the roll-out of VOD and as people become more aware and start using that product, I think that's going to add a lot of stickiness to our subscriber base. So at this point, I think we're in a good position to compete and with respect to KPN's IPTV product, again, they lowered the price a bit by 50%, I think as well. And they're having difficulty getting traction. I'm not saying they won't work their problems out. But it appears at this point they've kind of gone toward a low-end poor man's cable type of product.

Gene, does the DTT offer limit your ability to raise prices annually on the analog base or that -- is the product different enough that you can continue to do that?

Well, I hate to speak to that, because that kind of forecasts our plans for next year. Let me put it a different way. At least on the analog base, I would anticipate that we would take limited increases in the future, probably closely tied to the CPI.

Thanks a lot.

We'll take our next question from Alan Gould with Natixis.

Thank you. I've got two questions, please. First, for Gene, you mentioned that the phone guys are lowering the phone prices fairly rapidly. You're lowering your -- excuse me, they're lowering the video prices fairly rapidly. You're competing more by lowering the phone prices. In the Netherlands, you had an exceptional quarter in terms of new phone RGUs. Was there a special promotional plan there? And in general, do you think the two sides are going to keep lowering prices so ARPUs keep coming down? And then I've got a second question for Mike after that.

To specifically address the NL question, we introduced a new bundle in order to counter a new product introduction by KPN called Internet Plus Bellen that really limited our sales during Q1 and Q2. And with the introduction of that new bundle, it was quite competitive with the Internet Plus Bellen product of KPN and that is what's primarily responsible for the uplift in telephony in particular in the third quarter. I would also say that as you look forward and perhaps the best way to compete may not be aggressively lowering your prices but lever your -- the advantage that we have over most Telcos. And that is in the data area, where we have the ability to maintain speed leadership, introduce products of 20 Meg and better and with the anticipated introduction of 3.0, [euroboxes] 3.0, to achieve speeds of 100 megabits and more and I think between the combination of using telephony to our best advantage and leveraging our advantage with data, that that combination should continue to fuel growth.

Yes, I mean, I think if you look at Holland, if you have been tracking it for say the last 11 quarters, that voice net add number is the highest we've ever experienced in the last 11 quarters. And then data net add figure's the second highest. So there is no declining trend here. In fact our voice and data net adds across the entire group on a consolidated basis are higher than they were this time last year. So we are not experiencing a slowdown or any kind of downward trend or slippery slope in our high margin voice and data products at all. And I think, I will repeat what I've said before, it's an isolated situation in one European country that unfortunately put us in a position of having to lower that RGU guidance. What is your second question?

Okay, Mike. The second one is with respect to M&A. I know you said there had been no major deals. You did a few small tuck-in acquisitions. One, what kind of multiple in general are you paying for these tuck-in acquisitions relative to the multiple on your stock price. And two, I was just a little surprised to see them being in Romania. I realize they're small, but Romania's a tough market.

Yes, the tuck-in acquisitions range. It's hard to say, use a multiple per se, because some of these are very, very small businesses or still growing. But generally, they're single digits in both this year and next. Generally, they have immediate realizable synergies that bring that multiple down one to two turns or more. And generally they're our highest IRR opportunities. So they're deals that -- I don't want to every use, I hate to use the term no brainer -- but they're obvious deals that are either like line extensions or where we might already be providing services. And they've been happening most regularly in Austria, Switzerland and Japan, three markets that really benefit from that type increased consolidation. With respect to the small deal in Romania, let me make it clear, that was I think a EUR 3 million or EUR 4 million acquisition of essentially a local area network or LAN data provider that we felt was, as much as anything, experimental for us and in no way tilts the scales or somehow impacts our longer term returns in that marketplace. So it wasn't a traditional acquisition, Alan. It was a unique toe hold into this emerging land market that we felt was -- the best way to learn about was perhaps to acquire a small operator.

Thank you very much.

(OPERATOR INSTRUCTIONS) We'll go next to Greg Kolb with Janco Partners.

Hey, guys. Good morning. Thanks for taking my call. First question, Mike, just on previous calls and I think maybe the analyst day, you had had mentioned some new data mining software you've been using. Maybe you guys could comment on how that's been maybe helping you in the cost control side of things and how it looks, helping you manage your costs going forward, sales and marketing particularly. Second, maybe Gene, if you could talk -- looks like you had pretty solid DTH adds in Romania, it was about 11,000 or 12,000 also coupled with a pretty strong high speed data RGUs, about 20K. Maybe if you could just give us some more color on how you're operating at DTH stacks up and if there are maybe any promos or anything else going on there.

I mean, there's not much to add to the data mining question. We continue to utilize in every country traditional marketing tools and engines and so, as you would expect, we're constantly trying to be more and more efficient with who we're marketing to and how we're marketing to. I will tell you that in Europe in particular, we've made great strides in moving the vast majority of our sales onto either an online platform, and inbound or outbound platform, where the costs per sale are meaningfully lower than door-to-door. And those trends every quarter are up and up. In fact, if you had access to our budget, you would see that we're at or slightly ahead of budget on sales across Europe. So we don't have a sales problem in Europe. We do not have a sales issue. We have isolated issues around retention which we've talked incessantly about and I won't get into again. So I think you can expect that we're using state-of-the-art and sophisticated tools across our marketplace. And I think, maybe as just a last point, we do believe we have great opportunity in markets like Japan to take it to the next level, if you will. That's a market that has historically relied very heavily on door-to-door sales as their primary vehicle, which is as you know expensive and becomes less and less efficient over time. So I think there's a great opportunity to reinvigorate sales. And you can expect, as we have been doing, we're putting our management teams across -- in Japan and Europe together regularly to explore those options. So I think there's actually some upside on sales there. Gene, do you want to talk about the DTH numbers?

I think that probably the easiest way to explain maybe what you want to term as the bounceback in terms of growth on DTH and high speed data in Romania, it's a combination of factors, I think. This is the fall and this is a period of time where we normally invest more heavily in acquiring subscribers or spend more heavily, however you want to refer to it. We do have some aggressive promotions that we've put in place that seem to be effective and that are driving growth. We've introduced loyalty discounts and put a lot of emphasis on churn reduction. So for every subscriber that you don't lose, that's a benefit in itself. You don't have to get two to replace one. So I think it's just a combination of things in the fall that are having a positive impact.

Great. Thanks.

We'll take our next question from Matthew Harrigan with Ferris, Baker Watts.

Two questions. Firstly, I guess for want of a better phrase, I guess the capital markets have gotten a lot more spastic over the last year or so. Do you still think that tendering directly for shares with Dutch auction mechanism is the best way to go or would you be more inclined to look at open market purchases, when you get these dips like we've had over the last few days that might better enable you to avail yourself of the opportunity to buy cheap shares without really supporting your stock price, which is really what the effect of the tender does to certain extent. And then secondly, I understand some of the issues in the Netherlands but with the upside in the ARPU from digital, I was a little surprised on the ARPU there and I was curious, one of the differentiators relative to the U.S. names is that you have so much head room incrementally on the digital video pricing, ultimately with HD as well as DVRs, is that something that you ultimately see being more visible in your results, and is this quarter more or less an anomaly or is it just -- or are we going to continue to see this discounting in that market?

Let me remind you of one of the things that Bernie mentioned, that we did have a one-off accrual in the third quarter of last year which impacted the NL revenue figure. And I don't -- we're not in the position to tell you what that growth figure would have been either revenue or OCF had that accrual not occurred. But you could expect that it would have been meaningfully higher. So I think you've got to factor that into your quarter on quarter comparison. We still see the ARPU uplift, in fact, we see sequential ARPU uplift in particular on video from the digital product launches, regularly. We don't see that trend changing at all. And the answer to your question is, yes, over time VOD which is now launched across the footprint and we're seeing increasing pick-up in streams, as well as HD and DVRs are going to have an impact on that ARPU. They are going to be ARPU positive products. We're not giving them away. And at this stage there is no plan on giving them away. So we do see continued growth. I just think you need to factor that Q3 '06 event into the number.

On your first question, it's a good question and we do say I think in our press release or restate that we have $150 million of capital allocated and authorized for open market purchases from the Board. We can't tell you when or if we'll use that capital. But you can expect if the market continues to be volatile in its current fashion, that we will certainly look favorably upon that opportunity. In terms of whether it's a tender or an open market purchase, we're opportunistic. This is not science for us. We don't sit down and have a scientific formula. We look at our cash balances at the parent company at any one time. We look at M&A opportunities and prospective M&A opportunities that might utilize that cash. We look at the current market price for our stock. And we make a determination.

What we don't change and what I would argue is, if not scientific, definitely linear, or systematic, is that we do believe that over time our ability to continue to generate capital at the parent company, tax efficiently, in excess of the money we need to run our business or make acquisitions, that we will continue to look at using that capital opportunistically to shrink our equity. We see absolutely nothing that's changed our opinion about our opportunity and our growth prospects and where we're heading. There is nothing fuzzy in the least about how we run or operate or see our business. Not fuzzy at all. So with all respect to journalists and analysts, there is nothing fuzzy for folks on this end of the call. And I think we're going to maintain the posture and approach we've taken over the last two years as far as we can see out.

Great. Thanks, Mike.

We'll take our next question from [Matthew Ward] with Bear Stearns.

I have two questions about M&A in Europe. You've been talking about some of the small acquisitions you've made in countries like Austria. Given how fragmented that market is, how far do you think you can push consolidation there. And then looking across to Belgium, given the developments that have happened in the southern regions, do you think there's any real chance of an extended -- a significantly extended footprint with regards operations and if any further towards maybe more in terms of an equity type stake?

In Austria, the transactions we've done have been really normal and expected. We bought the system in (inaudible) which essentially would be an extension of our footprint, about 85,000 RGUs there. We are going to look to sweep up smaller operations and again, they don't reach your radar screen but in the aggregate, they can certainly have an impact on a point or two or whatever in growth in these more mature Western European markets like Switzerland and Austria. So we're going to continue to do it. Perhaps we should be more transparent once a year in what we're doing. And we do see opportunities continuing to arise there at very, very good multiples. Can't say much about Telenet. I've already stated that we like our position. We have no current plans to change that position. The business is operating and performing well. We are supportive of management and what they're trying to achieve. And the current gymnastics around the southern region we really shouldn't speak about what may or may not happen or unfold in that litigation and debate. If it did occur, certainly more scale in Belgium is better than less scale. But we're not forecasting that.

Great.

And we'll take our final question from [Michael Cohen] with Newburger Berman.

My question has been answered. Thank you.

Great. Well listen, we appreciate everybody getting on the call. We know it's a busy day in the marketplace and you've got lots of other things to do. I'll simply state again that we feel very, very confident in what we're doing. We feel badly about the volatility of the market, can't control that. To the extent our results have had any impact, it's certainly we think is explainable. We've gone to great lengths to explain it and where it's isolated. And the core strategy that's going to drive our stock in the future remains the same, sustainable OCF growth. We think very interesting M&A opportunities opening up next year. And the continued ability to tax efficiently bring capital to the parent company and increase that liquidity posture and a continued affection for our equity. That's simply all I'll say, especially on days like today. So thanks very much. And we look forward to talking to you at the year end. Bye now.

Ladies and gentlemen, this concludes Liberty Global's third quarter 2007 investor call. As a reminder, a replay of the call will be available in the investor relation's section of Liberty Global's website www.lgi.com. There you can also find a copy of today's presentation materials. Thank you again for calling. You may now disconnect.