Liberty Global Ltd (LBTYK) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Liberty Global's investor call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. At this time all participants are in a listen-only mode. Today's formal presentation materials can be found under the investor relations section of Liberty Global's website at www.lgi.com. Following today's formal presentation, instructions will be given for a question-and-answer session. As a reminder, this conference call is being recorded on this date, August 6th, 2008. I would now like to turn the conference over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

Thank you, and welcome everybody to our second quarter call. Let me do some quick introductions. We have on the line with us today, Gene Musselman, President and CEO of our UPC; Mauricio Ramos, President of VTR in Chile; Miranda Curtis, President of Liberty Global Japan; Bernie Dvorak and Charlie Bracken, our co-CFOs. We have Shane O'Neill, our Chief of Strategy Officer; Liz Markowski, our General Counsel; and Rick Westerman who you all know. I think before we get rolling here, the operator is going to do quick remarks.

Thank you very much, sir. Page two of the slides details the Company's safe harbor statement 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 with respect to Liberty Global's outlook and future growth prospects, its expectations regarding competition and M&A activity and other statements that are not historical facts. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. These risks and uncertainties include those detailed from time to time in Liberty Global's filings with the Securities & Exchange Commission including it's most recently filed forms 10-K and 10-Q. Liberty Global disclaims any obligation to update or revise any of these forward-looking statements to reflect any change in its expectations or in the conditions in which any such statement is based. I would now like to turn the call back over to Mr. Mike Fries.

Thank you. So our agenda will follow our typical path here. I'll do some highlights briefly and I'll turn it over to Gene, and Mauricio and Miranda to give you some color on their respective regions, and Bernie's going to wrap with financials and then we'll get to your questions. As the operator said, we're talking from slides, so I'm going to start on slide four of the deck -- hopefully, you all have that -- with the big picture so to speak. And first of all, I think we have a lot of good things to talk about this quarter. I'm going to begin at the top with our growth in value added services. We have talked a lot about two key drivers for us in the past year, consistent subscriber editions in voice and data and ARPU growth supported by our digital TV rollouts. And if you follow the results of our domestic peer group, you probably noticed they reported pretty good numbers in these two areas, and I think you can certainly include that in our highlights as well. For the quarter, we add 320,000 data and voice RGUs, that's in line with our second quarter last year, and 336,000 digital TV adds. That's a record for us. So our growth remains strong and consistent in these high ARPU, high margin products. The one area of subscriber weakness continues to be low-end analog TV customers in Europe, a topic we discussed and analyzed with you often and we'll do it again today. Gene willed address the issues and what we're doing about that.

The impact of these two conflicting trends partly explains why we would describe our financial results as stable for the quarter and year-to-date. On the positive side, operating cash flow year-to-date of $2.26 billion is up 14%, rebased for foreign exchange and M&A -- excuse me -- in line with your expectations and actually pushing operating cash flow margins to another high point of 42.2%. Revenue of $5.34 billion on the other hand is up 6% year-to-date, which is below our guidance and explained largely again by with a few markets in Europe, which we'll run through. The last point I'll make here is that the other key value drives in our business are working, and they are working well. Certainly our free cash flow of $318 million in the quarter and $445 million year-to-date is a highlight. That latter figure is up five-fold from the first of last year, and despite all of the rumors lately, we continue to remain disciplined on the M&A front. And the bottom line is that most sellers either aren't reading the newspapers or talking to other banks, because price expectations haven't budged. I'm not sure how long that can last, and so we'll wait patiently on the right deal and at right price. Having said that, we did make two sizable infill transactions in Japan and Belgium. J-COM will increase its ownership in FCN, the last of its unconsolidated managed franchises with nearly 200,000 RGUs. And Telenet agreed to buy InterCable, the business in Flanders which will add around 800,000 TV customers and give it nearly 100% of dutch-speaking Belgium. Both deals are smart and highly accretive transactions that should close this year.

And then lastly, through it all, we remain the largest buyers of our stock here, with $800 million purchased in the second quarter and $1.6 billion year-to-date and now over $5.2 billion since we started. This shouldn't surprise anybody. We're clearly positive and bullish on our business going forward, and if we liked it 12 months ago, you can imagine we love it today. In fact if you just hold our current trading multiple in the next year, in other words no improvement in market sentiment, our stock should trade up meaningfully and I suspect many of you have already figured that out. And that's certainly one reason why we just added another $500 million to our authorized buyback capital. Let me turn to some operational updates, starting on slide five, you'll see there year-to-date rebates growth rates for essentially all of our markets. Now we normally don't disclose this level of detail, but we made an exception here to make a point, and that point is that the vast majority of our markets are performing pretty well, while a few countries in Europe have negatively impacted results. If you look at the chart at the top left, you'll see rebates revenue growth rates, and with a quick visual glance, you can just see that most of our operations are performing at or above our group result of 6%, while three markets in particular, Hungary, Austria and Romania on the right have underperformed year-to-date. In fact if you exclude these three markets, our rebates revenue growth year-to-date would be about -- be over 7%, and you can see virtually the same trend in terms of operating capital growth at the bottom left. All but three of our markets are generating solid double digit growth rates. Four in fact are north of 20%, but again, the group result of 14% year-to-date has been negatively impacted by the same three countries, Austria, Hungary and Romania. If you back them out, our year-to-date OCF growth would be closer to 17% in rebates.

I'll make two key points here. First of all, as you can imagine we're intensely focused on each of these three markets and Gene is going to walk us through recent additions and results there. I'll simply say that in each case we're dealing with unique competitive challenges, mostly from low-end service providers. A combination of product innovation like EuroDOCSIS 3.0 and digital TV launches as well as response to bundling and package offers will largely solve the problems and are already showing an impact. The second point relates to our guidance. While we're currently seeing and expect to continue to see improvements in revenue growth in the second half of the year in Europe, we think it's prudent to lower our 2008 guidance ranges for both revenue and OCF by 1 percentage point each. So our new revenue growth range is now 6 to 8% rather than 7 to 9%. And OCF growth is now expected to be 13 to 15%, rather than 14 to 16%. Nobody likes to lower guidance here, but these are still great numbers for our industry. In the case of OCF growth, clearly best in class, and we will as always strive to outperform these expectations, which I like the sound of a lot better.

The purpose of my next two slides is simply to reinforce points made a moment ago about the key drivers of operating growth for us today and going forward. So slide six shows our subscriber growth trends and our regular seasonality in fact for the last five quarters. As you would have seen from our release, we ended June 30, with $24.7 million total RGUs, and today over 60% of those RGUs, over $15.2 million represent advanced services, so digital TV, voice, and broadband services, and that's up $2.8 million in the last 12 months, all organic. Now certainly one major component of that is our relatively consistent voice and data growth on a same-store basis. And as the chart on the top of the slide illustrates, you'll see that telephony in the quarter -- telephony and adds in the quarter were up 3% over last year to $166,000, while data additions of $154,000 were largely in line with last year, and with penetration rates of just under 17% and 22%, we have got some real head room in these products and our sales and net ad results reflect that. At the bottom right, you'll see the net video losses I referenced earlier of $71,000 resulting largely from low-end analog TV competition in a few key European markets, which Gene will talk about in a second. I'll just reinforce the point, the real bright spot for us in the video segment is digital TV, the second half of that one-two punch I spoke about driving our growth.

And my last slide, number seven, shows the progress we're making in digital, which has been pretty considerable. As I mentioned earlier, Q2 was a record quarter for digital cable adds, $336,000 for the three months. That's an increase of 74% over last year, and an even higher number than we did in our fourth quarter, which is always our strongest. Most of the second quarter increase came out of Europe, where digital is now launched in every market. In terms of digital cable penetration, you can see we stand at 30% on a global basis, which is up almost 50% from a year ago. On the left you see Japan leads the pack at 73% penetration, but the rest of our regions are starting to accelerate from a lower base. And as a result, we still have lots of runway in terms of incremental penetration here, as you can see on the chart, and we're starting to see the expected uplift in ARPU just about everywhere. In fact ARPU per customer, a key measure for us, is up across each of our core regions, anywhere from 8 to 10% as a result of our growth in voice and data. The penetration of -- and the penetration of digital cable as well as our success in bundling. Today 36% of our customer base or nearly 6 million customers out of 16 million are taking a bundle and that number grows every quarter.

So before I turn it over to Gene, I'll just conclude with a few thoughts. Despite competition, we're performing in arguably the most important part of our business, high ARPU and high margin products like voice and data and digital, and that's what will drive our growth in the medium and long term. We certainly have some challenges, but it's important to realize that those challenges are typically isolated to specific and unique markets, and as you can imagine, we're addressing those every day. And the other key components of our equity growth story are intact and accelerating like free cash flow and now our even our heightened interest in shrinking our own equity using that free cash flow and existing debt capacity. Let me just add at the end here that we had our annual summer retreat last month, and I'll just say that the team, folks on this call and others are pretty pumped. We feel we have got great tactical solutions for near-term challenges, we feel we've got untapped potential with EuroDOCSIS 3.0 and digital TV. And clearly, we have an improving operating and free cash flow profile, so we're focused and very optimistic here. And with that, Gene, I'll turn it over the you for an update on UPC.

Thank you, Mike. Turning to UPC broadband, that's slide eight for those of you that have a deck, I would like to draw your attention to the highlights for the second quarter. If you look at the top right chart, it illustrates as Mike noted that digital cable has been pivotal to our results this year, as we now offer digital across all ten of our markets. In April and May, Hungary and Poland were successfully launch and combined have generated 59,000 digital cable adds in Q2. In the Netherlands, we added 29,000 subscribers in Q2, making it the highest digital growth quarter since the migration from the push strategy to the pull strategy going back to 2006. Additionally, we have continued to roll out enhanced digital services across our footprint in Q2, specifically high def and DVR. With more than 425,000 subscriptions, now over one quarter of our digital subscribers take high def or DVR. These enhanced services have been instrumental in driving digital cable revenues, which are up more than 40% year-on-year.

At this point I would like to emphasize that we are very focused on using high def TV to exploit the competitive advantage that we have compared to DSL-based video products. We think high def is a meaningful differentiator for us, and we can see momentum building around high def in those markets where we have launched. Generally speaking we're realizing considerable growth across all of our advanced services. In Q2 '08 we organically added 331,000 advanced RGUs, 76% higher than Q2 '07. Growth was driven by 179,000 digital, 67,000 data, and 85,000 voice adds. Data adds were largely stable with central and Eastern Europe compensating for slower growth in our more mature Western European markets. Also our voice business continued to grow steadily as customers gravitate to our limited calling plans. Moving to the lower chart, you can see that we continue to achieve meaningful OCF growth at the UPC level with a 34% lift on a reported basis and 13% growth when rebased for acquisitions and foreign exchange. Supporting this growth, OCF margins remain very strong, with all systems ranging from 51 to 58% with the exception of Romania and Ireland.

Looking at revenue, in Q2, revenue was depressed by ARPU pressures, slower B-to-B growth, and analog losses in most of our competitive markets, which I'll address in just a few minutes. On the other hand, it should be said that we have seen an uptick in revenue for the past three months, positioning us I think for a better second half. Just briefly, I would like to take a moment to provide you with an update on our more competitive markets. Austria, Hungary and Romania continue to be our most challenging, especially in Romania where '07 RGU losses combined with deep discounting and aggressive pricing have impacted ARPU and our overall Q2 and first half results. In both Romania and Hungary, low price CATV competition has forced us to introduce low-priced tiers, and to discount prices for a significant part of our analog base, negatively impacting our '08 financials. However, we expect to see improvements as churn reduces and digital is rapidly rolled out across both countries.

Let me give you a little bit more detail on each of these three countries. In Hungary, we have seen positive RGU growth in each of the first two quarters. We have seen 140% increase in our advanced service adds in the first half of this year, with over 100,000 RGUs added year-to-date. Meanwhile, we have significantly reduced our video losses from -- with only 12,000 year-to-date compared to a 37,000 loss in the first half of '07. Also in Hungary, our digital rollout is off to a great start with strong DVR and HDTV takeup, reaching 37% of our DTV subscriber base by the end of Q2. In Romania, as discussed in the past, we made a decision to fight back the low-end competition by introducing a CATV loyalty program, which in return for a one- or two-year commitment by our subscribers, results in up to a 33% discount on CATV monthly fees. On the other hand this has had a negative impact on Romania's Q2 financials, as you saw from the slide Mike showed you earlier. I am pleased to report that the loyalty program is having the intended effect, that is churn has decreased and video losses have been significantly reduced this year compared to last. We lost 23,000 video RGUs in Romania year-to-date, compared to 67,000 last year.

Finally, we're encouraged by customer facing and operational improvements. Having just completed the conversion of the legacy billing system to Darby, this will enable Romania to further realize savings and drive operating margins towards the desired 50% level. This is one of the two countries that are operating below 50%. So we can expect better performance in Romania in future quarters, I think, based upon these actions. Moving to Australia -- Austria, the competition there has come from mobile broadband, more than video. Although Austria did experience an increase in video churn during the first three months of '08, this is primarily related to the one euro 50 rate increase that we took in January. In Q2 we actually saw a 39% decline in CATV churns versus Q1. So we're seeing the diminishing effect of that rate increase. To address the mobile competition, Austria has just recently introduced a new three-play package that has reduced data churn by 29%, vis-a-vis Q1 and has resulted in a 27% increase in sales in Q2 versus Q1. Also, in Q2, Austria realized digital adds -- record digital adds, as they introduced new digital pricing after completing the migration to our common digital platform that we have rolled out in almost all of the countries at this point. The result has been an increase in Austria's digital subscriber base of nearly 80% since January '08, and now we have over 100,000 digital RGUs. Also Austria posted a solid quarter for voice additions, registering 10,000 organic adds in Q2.

Lastly, just a few words on the Netherlands. This is UPC's largest market as you know. In the Netherlands we have soft launched EuroDOCSIS 3.0 and we are preparing for a Q3 commercial rollout, which will add megaspeed products, that is 60 to 120 megabytes initially to our data portfolio. This is truly a revolutionary step increase in data speed and will dramatically improve the competitiveness of our data products. We expect to have 3.0 products launched in most if not all of our markets by the end of next year. In closing, we remain confident that our product leadership strategies, the expansion of digital, and the planned rollout of EuroDOCSIS 3.0 -- pardon me -- positions us strongly in our markets, and that we're poised for improved revenue growth for the remainder of the year, and into 2009. At this point, I would like to turn the call over to Mauricio. Mauricio?

Thank you, Gene. I'm on slide nine on VTR, and we had another good quarter with good operational and financial results. But we would begin first by showing you where VTR sits today in terms of national market shares in our three core products. In the video market in Chile, as you may know, VTR is the largest player with approximately 70% market share. This is roughly as of the end of last year. But since our network does not cover the entire country, we do expect to lose some market share over time. It is important, however, to point out that we continue to grow our video customer base organically every year, because (inaudible) penetration in Chile remains at only about 35% and the market continues to expand. Last year, for example, we added well over 40,000 video subscribers, and this year so far, we have added 18,000 subscribers -- video subscribers so far. In terms of the residential voice business, we have nearly 25% market share, again, on a nation-wide basis, although our network does not cover the entire nation. So if you look just at the VTR cable footprint, our market share is double that, much higher. As many of you may know, VTR was one if perhaps not the first cable company in the world to offer residential home services and that's what explains these high market shares. This product has been a steady engine of growth for us over the year, and we think it has good legs going forward.

Finally on broadband internet, our national market share is approximately 47%, but again, if you were to look at our footprint alone, that figure would be over 60%. So we feel pretty good about our market share position in the Chile market. And that trickles of course into our second quarter results. Specifically with regard to those results, in the second quarter we added 84,000 organic value-added services. And those were aided by record digital additions of 46,000, our highest quarter so far, which will of course more than double the number of digital adds we had in Q2 of last year. On the financial front, we grew -- rebased revenue by 13% and rebased OCF by 23%, both figures against the second quarter of 2007. The OCF line continues to see the benefits of top-line growth and contained costs. Our top-line growth of 13%, which I just mentioned, benefits from volume growth and from rate adjustments. We continue to see the cost benefits of more focus on preventative network maintenance and better customer service platforms, both of which of course help to reduce expensive (inaudible). Indeed, if you were to focus on our OCF conversion ratio for the quarter it was 70%, which is in line with Q1 of this year and consistent with the same 70% conversion ratio that we had obtained for all of 2007. Therefore, the financial trend remains the same. As revenue grows we contain rather than cut back costs, and that's basically how we're driving better off the OCF margins. We attained for this quarter a 42% OCF margin, and that's a 360 DPS gain over the second quarter of 2007. That's it for the financial and operating highlights.

As in prior calls, we would also like to briefly provide an update on the status or our key strategic initiatives. Our bundling strategy remains, as you know, a central aspect of our activity with a bundling ratio of almost 2 times, 1.98 exactly at the end of the quarter. 58% of our subscriber base now takes two or three products from us. Over 40% of that base now takes three services from us, and an additional 18 takes two products from us. As you may recall, we continue to market our flagship triple-play product, but we are now placing emphasis on the bundle of internet and telephony as that is where we see the highest growth residing today. And as a result of these efforts, our two-play customers are now up 22% from a year ago, and now make that 18% of our subscriber base, which I just mentioned. As always it is important to know that customer acquisition, not just bundling, remains healthy as well. We have added 25,000 new customers so far this year, a number that is in line with the number of new customers that we had added at that point in time last year. Our digital strategy also seems to be working. Digital penetration of VTR is now 31% of our video subscriber base. That's up from the 26% number at the end of Q1, and we expect that number to continue to increase steadily as the strategy unfolds. This will mean with digital critical mass now being reached, we will soon begin reinforcing the marketing of our unique and differentiating field services.

During Q2 we also added two additional differentiating elements to our digital offering on top of the DVR product which we had launched back in 2007. During Q2 we launched our second HD channel, obtaining our HD leadership in the marketplace and we also launched the first vertical retail TV channel Chile with the largest local retailer. This is a revenue-share model which allows us to test these promising waters in risk efficient manner. Wrapping up, it was overall a very good quarter for VTR, particularly in an increasingly competitive marketplace for all our product lines. Our strategy as a result remains unchanged for now. We continue to be focused on digital migration, targeted bundling and scaling our growth to lever OCF growth. And with that I will turn it over to Miranda for J-COM.

Thank you, Mauricio. J-COM continues to deliver steady growth, with most of the gain in the high-end high-value sector of the market, as you can see from the data on the 160 meg rollout. As the slide shows that's delivered the strongest quarterly data of J-COM for the past three years. J-COM has successfully launched the largest DOCSIS 3.0 rollout in all of the world and has now deployed the 160 meg rollout in all of its regions. Fully 26% of J-COM's data adds this quarter were at 160 meg where its available, comfortably exceeding our own expectations. And the real benefit of this product is that it appeals a high-end customer who is typically not particularly price sensitive. At the same time, J-COM is (inaudible) targeted at the low end of the high-speed data range, in order to extend it's customer base. And the key factor to keep in mind is despite all of the noise about competition, J-COM continues to grow it's bundle rate, continues to grow its ARPU, while it's already low churn continues to decline.

As far as digital is concerned, with digital penetration already at 73%, we foresee some slowdown in digital growth as the Company prepares for the final push to achieve full digitization, which will be completed well before the Japanese government's own objective of full digitization by the end of 2011. We expect to see continuing growth meanwhile in J-COM's VOD, in the rollout of new HD channels, and in the takeup of HD DVRs. J-COM remains the unquestionable Japanese market leader in the rollout of HD services and set-top boxes, well ahead of all other distribution platforms. On the M&A front, as Mike mentioned, the long awaited FCN/CV 21merger transaction will serve as a catalyst to strengthen J-COMs position in the key region of Kyushu, adding almost 200,000 RGUs and over 500,000 homes passed to J-COM's consolidated footprint. We do still believe J-COM has more to do to improve growth on the net add fund and we continue to work with J-COM management on the implementation of new sales and marketing strategies to achieve that aim. On the financial side, in terms of financial performance, J-COM realized Q2 rebased revenue and OCF growth of 7% and 9% respectively. Keep in mind that Q2 OCF is generally weaker due in part to seasonal and annual factors. which Bernie will discuss in a moment. Looking to the second half for J-COM, we will continue to grow the J-COM flagship 160 meg product and will leverage the J-COM HD market leadership to fuel adds. And from a financial perspective, we'll be particularly focused on J-COM's cost containment and on them running the business as efficiently as possible. With that I'll pass it over to Bernie to walk you through the financial results for the quarter.

Thanks, Miranda. Slide 12 shows our financial highlights for the second quarter. Revenue totalled $2.73 million, an increase of 25% over Q2 '07 on a reported basis and, similar to recent quarters, favorable currency movements were a large contributor to reported revenue growth while acquisitions played only a minor role. On a rebased basis, revenue growth was 6% in Q2, similar to Q1 with markets like Poland and Chile generating double-digit rebased top-line growth in the quarter. OCF came in at $1.15 billion, an increase of 34% over the prior year, resulting primarily from FX and organic growth. And for the quarter we achieved rebased growth of 13%. I'll get into more segment detail on the next slide. OCF margins, as Mike talked about, 42.3% in Q2, an increase of 280 basis points from Q2 of last year and slightly above Q1 margins. We continue to realize year-over-year increases in margin as a result of our operating leverage, of focus on controlling corporate overhead and cost savings from acquisition integration. Lastly, our OCF conversion was 88% for the quarter, compared to 61% in last year's Q2, which essentially means that for every dollar of incremental revenue growth, $0.88 fell to the OCF line.

If you turn to the Slide 13, this gives a breakdown of OCF for our reportable segments. As I said earlier, rebased OCF for the quarter grew at 13% to $1.15 billion and stands at 14% for the year. Our top performing markets in terms of Q2 rebased OCF were Ireland, Poland, Chile, and Australia, all with growth rates in excess of 20%. UPC realized 13% rebased growth for both Q2 and year-to-date, reporting OCF of $547 million and $1.1 billion. OCF performance continues to be negatively impacted by Austria, Hungary and Romania in 2008 as previously discussed. And sequentially to Q1 '08, UPC's Western Europe OCF was fairly consistent in terms of rebased OCF growth, but central and Eastern Europe, due largely to Hungary and Romania reported much lower rebased growth in Q2 versus Q1, 5% in Q2 versus 9% in Q1.

Telenet grew OCF at 11% in Q2 to $190 million and stands at 12% year-to-date primarily due to various efficiencies and process improve projects. So overall good results in Belgium for the quarter. J-COM reported $276 million of OCF, representing 9% rebased growth. And on a local currency basis, as Miranda mentioned, J-COM experienced sequential decline in their OCF from Q1 to Q2, resulting primarily from higher costs related to new hires and salary increases, which kick in on April 1st, and higher costs related to their golf network, which is seasonal, as they have costs related to the summer PGA and LPGA events and costs from the launch of Channel Ginga which is a new channel. VTR delivered another quarter of 20% plus OCF growth, achieving rebased growth of 23% and experienced a reacceleration in OCF in Q2 '08 as compared to Q1 '08, supported in part by recent price increases.

Slide 14 shows free cash flow results. Cash from operating activities in the quarter was $879 million, an increase of 80% over Q2 of '07. Year-to-date cash from operating activities was $1.53 billion, up 45% from the first half of -- first half of 2007. CapEx in Q2 was $562 million or 21% of sales. Year-to-date CapEx represents 20% of sales. The breakdown of CapEx has remained consistent with prior quarters. On a year-to-date basis, 58% of our CapEx spend has been success based, 23% was deployed to upgrades and line extensions with remainder primarily used for support. The net result is that Q2 '08 free cash flow of $318 million meaningfully surpassed our Q2 '07 level of $42 million and brings the year-to-date free cash flow to $445 million, an increase of 350% over the first six months of 2007. I do want to point out that free cash flow in the second and fourth quarters are typically the strongest of the year, due to the timing of our cash interest and tax payments, which are generally weighted towards the first and third quarters. In addition, we also typically generate favorable working capital swings in Q4 due to customers in certain European markets that prepaid for a full year of service, for example, in Switzerland. As we move forward, we expect free cash flow growth will become a more significant component of our overall growth strategy.

The last line in our financial section shows a snapshot of our balance sheet. Total debt increased $1.4 billion since December 31st of '07, and $300 million in the second quarter alone. The increase was mainly a result of FX and, to a lesser extent, incremental borrowings. We continue to maintain a relatively low costs of borrowings, with a weighted average interest rate of approximately 5.6%. We have also limited near-term maturities, as less than 2% of our total debt including capital leases is due within the next 12 months. Lastly, we are extensively hedged on currencies and interest rates, we recently enhanced our hedging program, which had previously been executed on a rolling basis for certain higher yielding currencies to a program locking in rates and swaps to our debt maturity on all currencies. Our cash position, including restricted cash of $1.7 billion, decreased by approximately $830 million year-to-date and $160 million since the end of the first quarter. The decrease since Q4 '07 is largely attributable to our stock repurchase programs, partly offset by FX, cash derived from borrowings and free cash flow. At quarter end we had $420 million in cash at LGI and non-operating subs, $790 million at our subsidiaries, as well as aggregate unused borrowing capacity without regard to covenant compliance of $2.6 billion. And of this borrowing availability, approximately $1.2 billion is available at UPC upon reporting of Q2 results.

The key take-away here is that while we have experienced an increase in net debt, our resulting gross leverage ratio has continued to decline as we have delevered through OCF growth. We currently have a gross debt leverage ratio of 4.3 times, which is near the low end of our 4 to 5 times target. And expect us to be a opportunistic capital raisers, if there is a turn-around in the debt markets, especially with our equity trading at these depressed levels. So last slide in conclusion, our suite of advanced services continues to resonate with our customers. We have been able to maintain combined data and voice adds in excess of 300,000 for the last 11 quarters. And we are encouraged by digital acceptance in our new markets, as well as some recent pick-up in countries that previously had rolled out digital. Digital video will be a key driver for us as we out the next few years and drive towards more mass market acceptance and exploit our HD advantage. As we see it, the sequential decline in revenue growth over the last several quarters at UPC appears to be stabilizing, and we are looking for revenue improvements in Europe and for LGI overall in terms of top-line growth in the second half of the year. And finally, in terms of our equity, we will continue to be active purchasers and have the necessary liquidity to do that. In our eyes there is no better place to invest our cash than our own stock, especially when we are trading at historic low valuations. Obviously, our board is fully supportive of this, authorizing an additional $500 million plan as mentioned earlier. So with that, operator, I think we are ready to open it up for questions.

Thank you so much. (OPERATOR INSTRUCTIONS) And our first question comes from Vijay Jayant from Lehman Brothers.

Hi, guys. Mike, given this country data that is shown on revenue in OCF growth on a rebased basis and the initiatives Gene talked about in really the three markets that are the laggards, can you sort of guess how long will it probably take to sort of get those markets back to sort of your normalized growth rate? Is it one quarter out or is it six to nine months out? Second, is -- obviously you talked about the whole digital rollout in Europe, and I'm sure you are probably getting some lift on HD growth from the soccer championship thing in June and you got the Olympics starting next week. Can you talk about any lift -- magnitude of lift you can probably see in the second half of the year from those kind of things? Thanks.

Sure. Thanks, Vijay. On the individual countries that we spent some time talking about in our relatively lengthy remarks this morning, Gene laid out the basic plan and the basic action items that we're taking, and in each case, I think he showed and demonstrated some pretty positive development. So we're not a position to tell you Vijay it is one quarter, it is two or three quarters. I can simply say that, we're optimistic about the actions we're taking today and we are seeing benefits. And clearly, as I think Gene and Bernie mentioned, we expect the second half of this year at UPC to be slightly more positive than the first half in terms of revenue growth. One big factor coming from the very markets and the very initiatives that Gene described, as well as the other things you just mentioned, in particular the killer apps in digital, which are starting to pick up pretty meaningfully in just about all of our markets. As you know HD -- Japan is all HD, and it's has seen good development of HD content throughout the last -- really since it has been launched, and we now have DVRs in all but two of our markets, and we'll have Romania and Slovenia the last two markets launch in the fourth quarter. We now have HD and/or HD DVRs in all but three of our markets. And the other three will happen at the end of this year.

So we've essentially got the products in place, and I think while we haven't reached a tipping point in HD in every case, it is starting to take hold. Whether it's the Olympics or European soccer or other major sporting events, every month we have seen new and more HD content becoming available in our markets. Broadcasters are starting to realize -- especially state-owned broadcasters, that HD is a critical part of their business model. And fortunately across Europe we're actually charging for HD today, in a set-top fee or in a monthly programming fee. So it's not for us a loss leader, it's truly a revenue source, and one that's unique in our markets. As we said many times, phone companies are largely restricted, at least in most of our countries to ADSL2+ and relatively limited bandwidth. And the ability to compete with us on HD, we think, is going to be difficult. So that we -- as Gene said, expect to be the HD leader in just about every country we operate in, and I don't believe we have seen most of the benefit from that, because clearly we just don't have enough digital subs. As that digital sub base evolves, HD and DVR and the revenues we generate from those products will make a big impact.

If I can ask another follow-up, OPTA put out some form of a notice recently suggesting that it might consider sort of reselling analog video in the Netherlands. Can you just talk about what that means? Is that real? What is it you have to do with that and if there's any business implications if that ever happened, thanks.

Sure. This is in Holland. One of the regulatory agencies there has issued -- I guess I'm not sure what it is described as these days. They did the same thing three years ago, Vijay, virtually the same thing. And the EU at that point in time concluded that there was sufficient competition in the video market in Holland, not to approve that particular request by OPTA. I can tell you that if there was video competition three years ago, there sure as heck is video competition today. So we're a bit befuddled, to be honest, about this approach. It seems to be KPN driven. Why wouldn't they? Although KPN themselves to not -- if this were to ever become law, would not benefit from it. They would not be allowed to access any of the networks. It's intended to be for third-party resellers who would have the ability to bundle and analog TV product into their products, but not without -- I believe the wholesale rates and things of that nature haven't necessarily been finalized and they would have to secure their own broadcasting rights. So we're a bit confused by it. And this happens just about every two or three years in the Dutch market. And at this point we're sanguine about what it means to us on any kind of practical or near-term basis.

Thank you.

Thank you so much. Our next question comes from David Kestenbaum with Morgan Joseph.

Thanks. Mike, you talked a lot about the shortfall being related to competitive issues. Can you talk about how much you think is related to economic issues? And as any economy gets better do you think you can get back to the type of guidance, 7 to 9 type of rebased growth that you had forecast this year as the economy improves.

Yes, I think it's -- and I'll let these others speak as well -- I do think that we are not immune to what is happening around the world, and certainly in this market from an economic point of view. I will say, however, that we aren't seeing as much direct impact from the economic development here as you might expect. There are a couple of instances, for example, in Hungary where we have seen some inflation, so we do think perhaps customers are becoming more price sensitive. No question about that. But we don't think that in the long run or even a bit sustained it will have a meaningful impact over our product. I'll state what all of our peers say, which is that this is relatively recession resistant products and services, broadband and TV and voice are generally not the products and services that people get rid of if they are feeling economic constraints. They might, as I just said, be more price sensitive and so we have to be -- we have to be cognizant of that, and I think deal with that where we can. But I don't think we're losing any direct sales. Sales in Europe, in fact, year-to-date are ahead of last year and ahead of budget. So it's not impacting our sales as far as we can tell, and I think perhaps in markets like Hungary and perhaps even Chile a little bit, we may have some modest impact from household discretionary income, but -- I mean, we're not seeing that as the major driver here.

Okay. And can you compare and contrast Poland where you are doing really well, compared to some of the other Eastern European markets? What are you doing differently in that market?

I'll just say a couple of things and I'll let Gene do it. The benefits we're seeing in Poland have come from years of rebuild where we spent considerable time and money rebuilding networks that were prior to this one way, and didn't have (inaudible) products. So it's a low penetration base off newly rebuilt networks and a market that seems to be great appetite for the broadband and the bundle. Gene, you want to add to that?

I guess I only thing I would add, Mike, is that to differentiate between Hungary and Romania, for example, in Poland, there's less competition. It's primarily TPSA, the incumbent, along with some overbuild situations in some of the major cities like Warsaw and Krackow. But that overbuild situation has been there since the very beginning, so it really hasn't gotten any worse. In fact if anything it is probably moderated. I think the major difference is that we have -- we continue to do a large amount of upgrades in Poland, and that allows you to introduce the new services, which of course, then drives the ARPU and the revenue and the EBITDA, and if you look at -- particularly Hungary and Romania to some extent, there we completed a large portion of the rebuilds and we just don't have that same upside opportunity via the introduction of new services. So they were more heavily penetrated with those services.

Okay.

It seems to be a slightly more, maybe perhaps a bit more sophisticated consumer base too. We launched the DVR there, and it went right out the door. I think, Gene, something like 80% of our sales were picking up DVR. It just seems to be, partially because of some satellite competitors who are pushing the technology equation as well, seems to be a more sophisticated customer base.

Fair enough.

Thank you so much. Our next question will come from David Gober with Morgan Stanley.

Thanks, guys. Gene, I was wondering if you could give us a couple of the early take-aways from the soft launch of DOCSIS 3.0 in the Netherlands, and also if you could talk more generally about our strategy on DOCSIS 3.0 and how you view that in terms of is it a product you are going to upgrade the top tier of subs all to DOCSIS 3.0 or is it something you sell as an incrementally ARPU driver? Is it really an ARPU driver or is it a penetration driver?

Well, I think it's both. And Gene, I'll let you -- as you get your thoughts together on Holland, it is a penetration driver, a retention tool, and an ARPU driver. Clearly, you take a market like Holland, where on average you're generating 20, 21 euros a month from a relatively large broadband base, clearly, when we start launching 30, 60, 90, 120 meg products, we don't expect ARPU there eroding. We expect to gravitate people to higher tiers at competitive prices in a way that our competitors certainly can't do. And so it is -- and it is in our minds, a volume growth tool as well as an -- a means of putting a floor under ARPU and then driving ARPU over time. Bandwidth consumption -- the increase of bandwidth consumption everywhere in the world, but particularly in Europe, more so than the U.S. in fact is a foregone conclusion, and you are either in that space with a game changing technology or you are not. And we think we're going to be first out the door with this type of product and service, and it will have a meaningful impact on perhaps the single biggest area we have focused on in our broadband business and that's ARPU erosion from people switching to cheaper and yet faster products. So we're pretty confident that this is going to be something we roll out in all of the markets in Europe when and where needed certainly on a phase basis. But cost efficiently, CapEx efficient, and in a manner that is going to have impact on both volume and ARPU.

Yes, if I could just add to that and focus more on NL in your questions. We have been field trialing, I guess EuroDOCSIS 3.0 since I guess July, and at this point, we have expanded the field trial to two communities. I think at this point we have a couple of hundred boxes out in the field, and the good news is that we have not experienced any technical issues. And as you know, EuroDOCSIS 3.0 is a major leap forward in technology, and any time that you roll out such a technology, you can experience some fairly significant problems. We have been lucky and we have not. We had a few configuration issues, legacy boxes in homes, a few wiring problems, but at this point everything is looking relatively good, so we'll continue the rollout in the Netherlands, and start scaling, and -- and hopefully move forward to a full commercial rollout. We're initially targeting areas where there's some fiber-to-home overbuild that's taking place here in the Netherlands. The target for this year is to pass somewhere between 400 and 1 million homes, and I know that's quite a range, but that is the target at this point, with making EuroDOCSIS ready for service, and -- in those homes passed. The initial rollout will be utilizing cable modems instead of the MTAs for example. We won't have some of the -- the -- let's call it the -- equipment that we need until later in the next year, so our focus in the Netherlands initially is to protect those areas where there is fiber and where we have high ARPU subscribers. And then depending upon the competitive situation, we will adjust the speed of the rollout of EuroDOCSIS in the Netherlands throughout '09. It's our intention to roll out EuroDOCSIS to as much of the plant across all of our markets as we can next year, and I expect by the end of '09, that a large portion of our plant will be EuroDOCSIS 3.0 ready. Whether we introduce the higher mega type speeds in all of those markets will of course be driven by the competitive situation. Does that answer your question?

Yes, it does. Thanks, guys.

Thank you so much. (OPERATOR INSTRUCTIONS) Next, we will go to Alan Gould with Natixis.

Good morning. First question is for Miranda. Miranda, Japan is about a quarter of the reported EBITDA. You have done 10% rebased OCF growth for the first half of the year. The Company has targeted 13 to 15%. Are there any structural issues or reasons why Japan would be having a lower growth rate than the rest of the Company?

I think Alan, what we're seeing, as Bernie mentioned, some factors related to programming costs, which of course are an element that being introduced -- reflected for the first time in this year's numbers. I think Bernie mentioned the fact that some of the businesses like Golf Network are very susceptible to seasonal programming costs, with things like the PGA tours, and we have also seen some rate hikes. But we're actually working very closely with management to contain any areas where we're seeing costs creeping up, and we're very optimistic that as the new sales and marketing strategies come into place, and as the -- we begin to see the take-up of the value-added services that we described earlier on, that we'll start to see this year's numbers come back on track, so there's nothing fundamental or structural in the market that we think should concern you.

I'll also just to add to that, Alan, that we took the Board, as we do every summer -- we take them every summer to a foreign market for a Board meeting. We spend a fair amount of time in the country, talking to politicians and meeting with management and really getting an in-depth view of that market. We went to Japan in June, and I would simply say that the Board came away, as did we all, with a very positive -- in fact even more positive than when we arrived, view of this particular asset and its steady straight-forward and consistent growth, as well as the ability to accelerate that growth, partially given some of the changes happening in the macro environment there, in particular, the requirement for digital conversion that's only a few years off here, and the government realizing that the cable TV sector and J-COM in particular represent a very important component in that digital conversion which they're trying to achieve. So I can tell you we're more bullish today than we were a year ago or even six months ago, at least I am and I know the Board is as well, on this particular business, it's ability to continue to penetrate from a relatively low penetration level in its core products, and its ability to compete against the folks out there it is up against day-to-day and TT in particular. So we're pretty bullish.

When is that digital conversion in Japan?

Miranda, I think it's '11.

The government date is 2011, but J-COM will be fully digital significantly before that, some time around the winter of 2009.

I have one follow-up technical question. What is the cost to upgrade to DOCSIS 3.0, and what do you need to have 160 megabit service, do you just need enough channels available to bond the channels to go up to 160 megabits.

I don't know how much we have said publicly. In principal, we're looking at in Europe for example roughly $20 give or take per home pass. And if you are a 2.0, which we are largely now across Europe, the upgrade is more or less a card swap and not that meaningful. The -- I'm not giving you today absolute CapEx figures, because we're still fine tuning those for next year, but I will tell that you it is not a meaningful increase in our CapEx component over the 18-month, 2-year time frame that we would roll this product out. And each market is different, but in principal it's just channel bonding. And the beauty of our business in Japan and Europe is we have very high capacity networks with very small -- at least in the case of Europe -- very small analog packages, and of course Japan will be all digital shortly. And that -- because we have small analog packages, we have tons of bandwidth available to bond. Whether it's 4, 8, or whatever we think we'll need over time. And that's something that perhaps distinguishes a bit from the U.S. guys, who in some cases might not sufficient channel capacity and others might, but we don't see any issue or any structural rebuild or large-scale rebuild required to achieve continued improvement with DOCSIS 3.0.

Thank you.

Yes.

Thank you so much. Our next question will come from Paul Kagan with PK World Media.

Thanks, hi Mike.

Hi, Paul.

I got a question about your -- your program of buybacks. Can you tell us the average price that you have paid for stock you bought back?

Yes, I think -- I think we probably can. It's approximately $30 since we started on the $5.2 billion level.

Okay. The comment you made about the best use of your capital. I wonder if you could expand on that a little bit. Some people would say, well, you have got a growing business around the world, and you could do more technology and -- and keep looking for more revenue and -- and new applications instead of applying so much money to the stock.

Well I think the key response to that is we are free cash flow positive and generative in our core operating markets. So we generate excess cash over and above our CapEx programs, our R&D, and our innovation programs, so if we needed to spend more capital in the individual operations, it would come from that $445 million we generated year-to-date if we thought it was necessary. The vast majority of our buybacks are coming from the debt capacity we have built in to our business and our ability to continue to add to that debt capacity through operating cash flow growth. So I would say we have -- probably haven't spent $1 on buybacks that could otherwise or should otherwise have been spent in the operating business because we're generating free cash and the vast majority of the money we're using to buy back stock is coming from generous debt capacity that evolves from our cash flow growth.

I'm fascinated by the situation because of the times we're in. Most people can't borrow money, and also other companies in the field are relatively inexpensive compared -- historically. So how does this play against possible acquisitions at a time that would seem to be really good for acquisitions?

Well, as I kind of made -- as I noted in my remarks in somewhat of a tongue-in-cheek fashion, we haven't seen the sort of compression in private multiples, a topic you have known about, written about for 20, 30 years -- we have not seen a compression in private multiples in the markets that we're evaluating or the assets that we're considering. That's good news, bad news. It's good news because somebody thinks these businesses are still worth 8, 9, 10, 11 times, and they aren't going to get rid of them. And those are generally smart money. It's not great news because we're all hopeful of great opportunity to expand and grow at cheap multiples and when you can't borrow at 8 times debt-to-EBITDA, that equity makes it difficult to generate a meaningful return. So it's a combination of sellers, I think, hanging on to private market multiples and banks and lenders not getting up to the levels we had historically seen in the 7,8 times leverage multiples. And that gap is being fund equity, which is making the IRRs a bit lower than we would hope. So something has to give, debt capacity or private market multiples on the exit, but to date we just haven't seen that. And so we're not the type of company to sit on cash and burn a hole in our pocket. Our stock represents the highest rate of return, based on what we know. And we know our company very well and what we think we can achieve over the next two, three years. And so we'll continue to put that to work, and that's the business we're in. I think -- we're hopeful over time that perhaps some of these assets will unfold or become available, but we have always said there are no must-have deals in our future, and the core operating business we represent today is a business we think can grow and prosper on the footprint we have.

One other question, if I could, you mentioned a few minutes back about -- or Gene did, targeting areas with fiber to the home overbuild. That's telco overbuild, isn't it?

In some cases it is. In the case of Holland it's a private company that the telcos has invested in. One other telco in our footprint, Swisscom, has talked about fiber builds. I think it's safe to say that they are very few and far between in Europe, but that doesn't mean to say they won't over time develop in certain pockets, where we might see some fiber development. That's one of the things we have be cautious of as we roll out these megaspeeds as we start to completely change the paradigm and the price value relationship, we want to do it sufficiently to generate consumer interest and be farther ahead of our competitors, but we don't necessarily want to stimulate three and four and five-year fiber builds. Although I will tell you, if even the telcos we compete with did start fiber builds, they will take years to complete, cost billions of dollars, and in our opinion, be very -- we'll be out way ahead of that. So while we certainly are cognizant of that. Today we have got a pretty wide open field and we're going to take advantage of it.

Okay. Thank you.

Sure.

Thank you so much. And our final question today will come from [Camille McLeod] from [Portsmith] Investment.

Hi, I just wondered if you could give a bit more color about Ireland and your buildings and networks there that compete with (inaudible).

Sure, Gene. Do you want to deal with that?

Yes. At -- by the end of this year, we will have completely upgraded the plant, except for Dublin itself. So the entire countryside will be upgraded. The focus then shifts to Dublin itself, and we anticipate that we will complete the rebuild of Dublin sometime late '09, maybe somewhat in to 2010. We're progressing a little bit slower in Dublin than what we would like, because there our cable plant is attached to the facade of buildings. It's aerial, but aerial is normally attached telephone poles, in this case it is actually attached to the facade of houses. So one of the issues we have with respect to replacement of cable and upgrading of amplifiers and changing up assets and those things is getting permissions to enter private property and -- and to make those upgrades, and that has been slower than we had anticipated in some cases. On the other hand, where we have upgraded the plant, which is everywhere except Dublin, we're very optimistic about the uptake that we're seeing in the advanced services. As you know, Ireland is basically a duopoly, us and Aircom, and there's just a huge appetite for telephony and data services, so we're highly motivated to move the Dublin upgrade as rapidly as we can, and after the end of this year, we'll be 100% focused on it.

That sounds helpful. Thank you.

Thank you so much. And that is all the time we have for questions at this time. I would like to turn the call back over to the speakers for any closing comments.

Thanks, everybody. We went a bit over but our remarks were a tad long. We felt it was necessary. Thank you for sticking with us, those that have. And I'll just say as a management team, we couldn't be more optimistic and focused on this business. We have individually and collectively a long history, and I would say a successful history, dealing with adversity, externally and internally, and we don't see the sort of challenges in front of us as too difficult or too burdensome. We're actually very positive, and we look forward to talking to you in November on our third quarter results and wish you all a relaxing and restful rest of your summer. Thanks again.

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