Liberty Global Ltd (LBTYK) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's investor call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited.

At this time all participants are in a listen-only mode. Today's formal presentation materials can be found under the investor relations section of Liberty Global's website at www.LGI.com. Following today's formal presentation instructions will be given for a question and answer session. As a reminder, this call is being recorded on this date, November 5, 2009.

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

Thank you and good morning or good afternoon, wherever you might be. Thanks for joining our call here, our third quarter call. I should make quick introductions. As usual, we have our court management team on the call with us today, including Bernie Dvorak and Charlie Bracken, our co-CFOs; Gene Musselman, who runs UPC; Mauricio Ramos, who oversees Latin America; Miranda Curtis and Graham Hollis, who oversee Japan, and a few other folks you might hear from -- Shane O'Neill, our Chief Strategy Officer; Balan Nair, our CTO; and Rick Westerman.

So with that, operator, let's get to the Safe Harbor statements so we can get started.

Thank you. Page 2 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 competitive and economic conditions and liquidity, and other statements that are not historical facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-K and 10-Q.

Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the condition on which any such statement is based.

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

So the agenda today is, I'll run through the financial and operating highlights, and then I'll turn it over to Bernie for the financial section. I just want to remind you that we are working off of slides, as you can access on our website. And I'm going to start with slide four, entitled Q3 highlights.

I think the best way to describe our results is consistent. For the third straight quarter we've delivered steady revenue, operating cash flow and subscriber growth, including 200,000 net RGU additions, rebased revenue growth of 4% and rebased operating cash flow growth of 8%. As you will see, we continue to grow through this cycle, and we believe we have all the tools in place to accelerate that growth through the fourth quarter. As you would expect, our cash flow margins reflect these scale benefits, exceeding 45% for the first time ever. And similarly, free cash flow was up 65% in the quarter and 24% year-to-date.

This won't be a surprise to anyone, but we are confirming our full-year guidance today on both operating cash flow growth of 5% to 7% rebased and free cash flow growth of 25% plus. In fact, we believe we'll come in at the high end of that operating cash flow growth estimate. In a couple of slides I'll tough upon our two key product drivers, digital TV and our next generation broadband platform and the impact they are having on our growth and competitive posture. I'll also talk a bit about some content initiatives and how we started using our scale to demonstrate product leadership in certain key markets.

Just a couple of other quick updates on the balance sheet. As you may have noticed, we remain relatively active in the debt markets, pushing out over $2.5 billion of long-term debt during the third quarter alone. And year-to-date, we've extended a total of over $8 billion of long-term debt with over 85% now maturing in 2013 and beyond. That includes virtually all of UPC's debt.

Our liquidity position remains strong with $2 billion in cash on a consolidated basis at September 30. At the parent company level, when you include amounts of available at UPC, we had total liquidity of about $1.4 billion. After the third quarter we continued to invest a healthy proportion of that cash into our own stock and year-to-date through October 30, we've repurchased over $400 million at what we believe are attractive prices.

Many of you are aware of two developing strategic situations. I'm referring to our Japanese partnership and our 20% shareholder in Chile. I'll be happy to answer questions briefly at the end, but I'll tell you upfront that we have very little new to report on either situation. That doesn't mean we've been idle; quite the contrary. It simply means that we are in delicate discussions and need to be sensitive when it comes to public disclosure.

So, sticking with the theme of consistency, let's move to slide five. This plays out our quarterly subscriber additions by product. The punch line here is that, despite the economic backdrop and strong competition, we continue to maintain steady and consistent RGU growth across most markets. You'll hear those words steady and consistent a couple times this morning.

If you look at the two top charts, you will see that we added organically 130,000 data and 124,000 voice subscriptions in the quarter, compared to 125,000 and 139,000 last year. This is relatively stable growth and not far off our four-quarter average, despite this being our seasonally slowest period. Perhaps most encouraging is the chart on the bottom left, which shows that basic video losses in the last three months were the lowest of any quarter this year -- 55,000 versus 80,000 in the second quarter and 96,000 in the first quarter.

As in prior periods, approximately 90% of our third-quarter losses were confined to just three of our 14 markets -- Hungary and Romania, which we've talked about before, and the Netherlands, where the picture on analog video is actually brightening. Specifically, we saw sequential improvement in net losses each month during the third quarter, which resulted in Holland's best video results in two years.

There's three things at work here, in my opinion -- the introduction of our fiber power broadband speeds, which have put KPM back on its heels; the continued growth of our digital TV base; and real improvements to our analog TV lineup, which I'll address in a minute. So overall, total RGU additions were around 200,000 for the quarter and are essentially in-line with the second quarter of this year and just slightly below last year.

Again, normally we see a decline in the third quarter from the slowdown in Europe during the summer months with sales and net adds picking up steam throughout the fourth quarter. And that is the pattern we are seeing thus far. As you might expect, we had our best month of the year in October at UPC.

It's also important to remember that analog TV today is only 16% of our revenue and declining as we continue to upsell what we call advanced services. Digital television, data and voice will be the advanced services we refer to into our existing and new customer homes.

And slide six is a great illustration of our success here. The left-hand side of the chart shows our total RGUs and the proportion in light blue that represent our high ARPU advanced services. So last year, 64% of our 25 million RGUs were digital TV, voice and data RGUs. Today that number is over 71%. We've added over 3 million advanced services subscribers in the last 12 months.

So building up this bucket, so to speak, is the primary growth engine for our business and there's still plenty of room for continued growth with 7.6 million analog-only homes still out there.

Our most effective marketing strategy continued to be the bundle and you can see on the right-hand side of the chart that we are now at 6.7 million bundled homes, up 14%, with triple play homes representing the largest proportion of that growth and helping drive our total ARPU per customer up 4% to $47.50.

By far the most impactful new product in that bundle is our next-generation broadband service, based on our DOCSIS 3.0 platform which we'll talk about on slide seven. Today 20 million homes in eight markets are now capable of 100-plus megabit broadband speeds or higher. That's 60% of our cable footprint. So far our subscriber results are very encouraging. In Japan we've doubled our 160-megabit customers year-over-year to 168,000 and in Europe, though it's early, we've seen discernible increases in sales and acquisition ARPU.

The best example is the Netherlands, where our two-way footprint has been 100% upgraded since June. And while it's only been a few months, gross sales are up noticeably in that time period. Perhaps not coincidentally, KPN actually lost DSL subs over the last six months, but we've added 19,000 including 15,000 in the third quarter alone. Remember that our networks cover less than 40% of Holland, while KPN is nationwide. So we are performing very well on a relative basis. And in broadband it's all about market share in that country.

Meanwhile, the economics of 3.0, of the 3.0 rollout, keep improving for us. The network upgrade cost is roughly EUR15 to EUR20 per home passed on average, and these numbers are falling as we deploy denser line cards in our CMTS infrastructure. Needless to say, EUR15 to EUR20 is a small fraction of the spend to deploy fiber to the home or fiber to the curb, and with 60% of our networks upgraded, most of that cost is behind us. Perhaps even more important, the variable capital, the cable modem, is also falling rapidly in price. We are currently buying 3.0 modems today for less than EUR40. That's down 30% or so in the past year, and we expect those prices to continue to fall toward 2.0 modems prices, which are now under EUR20.

If it's not already clear, we are really excited about this product. We continue to believe it's a game changer for us in the broadband business which will drive share and ARPU in even our most competitive markets.

Now, while we are extremely happy with our 3.0 rollout, our fastest-growing product today continues to be digital cable, which is highlighted on slide eight. The chart on the right-hand side shows our quarterly growth in digital customers on a fairly stable cable TV sub base of 14 million. Today we have 6.3 million digital cable homes or a penetration rate of 45%. That's up from 20% 2.5 years ago.

The key point here is that most of our remaining growth is in Europe, where penetration today is only 33% and we still have nearly 7 million analog TV homes we can convert.

Just look at just look at Central and Eastern Europe, for example, where we've added 360,000 digital RGUs year-to-date and now sit at 27% penetration, up from 12% one year ago. The demand for HD and DVRs is a big driver behind this growth with over 35% of digital homes in Europe taking one or both of these services. And in our more mature markets, like Holland, that number is 60%.

While it has defensive benefits, digital TV for us is all about ARPU uplift and cash flow growth. In UPC our average digital ARPU is 90% higher than our average analog ARPU, so every digital customer just about doubles the video revenue from that home. Not surprisingly, digital cable revenue in Europe is up over 50% organically this year and is more than offsetting the loss we've seen in analog subscribers.

Finally, I mentioned at the outset that our success with digital and the competitive nature of our basic TV business has allowed us to implement some strategic opportunities in content. For example, we just launched the Disney Channel in Holland exclusively on our analog tier. We believed we'd see an impact on our churn, and October was our best month of the year. We've also made a concerted effort to broaden our relationship with key broadcasters in each of our markets, including NHK in Japan, RTL in the Netherlands and, most recently, Swiss Television in Switzerland.

Unlike the US, in most of our markets broadcast TV still dominates viewership, and our ability to get HD, VOD and catch-up TV content on our digital platform has a huge impact on demand.

And lastly, we are always on the lookout for smart and strategic content investments and to that end announced two recent deals in Europe through our Chellomedia subsidiary, including a joint venture with CBS involving four of our channels and a joint venture with Scripps to roll out the Food Network across Europe. Both deals, we think, will significantly strengthen and improve the outlook for Chellomedia's pay-TV business in Europe.

Sometimes I'm afraid that we actually start to sound like a broken record. But at times like this it should be comforting to know that we continue to grow our business at a consistent pace. Our balance sheet is strong, our product pipeline is delivering and our strategic position and opportunities are improving. So we are all feeling very positive.

And with that, I'd like to hand it over to Bernie to run through the numbers.

If you turn to slide 11, this highlights our year-to-date revenue and operating cash flow performance. On a reported basis year-to-date revenue was up 1% to $8 billion, and OCF increased 5% or $174 million year on year to $3.6 billion. In dollar terms, reported revenue and OCF continues to be adversely impacted by FX. However, the negative FX impact in the third quarter was much less pronounced than the previous two quarters, reflecting a weakening dollar as compared to the first half of 2009.

If you adjust our results for both FX and M&A, our rebased revenue growth year-to-date was 4% and our rebased OCF growth was 8%. The year-to-date rebased results were driven primarily by strong performances in our Polish, Australian, Belgian and Chilean operations.

And as the next slide will show, our quarterly rebased growth in 2009 has been very consistent, similar to our year-to-date rebased growth. So turning to slide 12, the two charts here illustrate our 2009 quarterly revenue and OCF trends. There are several key takeaways from this slide. First, for LGI the third quarter was a record in terms of reported quarterly consolidated revenue and OCF, realizing $2.8 billion in revenue and $1.3 billion in OCF.

Second point is that quarterly sequential growth is due primarily to FX and organic activity with third quarter reported revenue and OCF reflecting 6.5% and 10% increases over recorded Q2 '09 figures. More importantly, rebased growth has been very consistent with quarterly revenue growth of 4% and quarterly OCF growth of 7% to 8% in each of the first three quarters of 2009.

With respect to the fourth quarter, the FX headwinds should reverse and become a nice tailwind when we report, if current FX rates hold. For example, two thirds of our revenue is denominated in euros or yen, and at current average rates the euro is up 12%, and the yen is up 6% in the fourth quarter versus the average FX in the fourth quarter of '08.

Further, as Mike discussed, our year-to-date rebased OCF growth of 8% is tracking ahead of our full-year guidance of 5% to 7%. We expect that we will come in toward the high end of this range for the full year, so we expect that our Q4 rebased OCF growth will be lower than the previous three quarters of 2009. This is due in part to several factors, including an expectation that we will incur higher subscriber acquisition and marketing costs in the fourth quarter to drive our fall selling season.

If you turn to slide 13, this depicts our year-to-date revenue results by product and geography. The graph on the left presents the breakdown of our revenues among our key product segments. Video, voice and data subscription revenue account for 84% of our revenue base with non-subscription revenue, which includes programming, B2B and Internet revenues, the remaining 16%. Year-to-date, subscription revenue has grown organically by 5%, led by broadband Internet, our fastest grower at 7% year on year, voice at 5% and video at 4%. Data and voice, representing 37% of our revenue, reflect consistent growth of margin-accretive advanced services. And video is still our largest product category with the primary driver of video revenue being digital cable, which is up approximately 35% year on year.

The other revenue category continues to weigh down our top-line growth and, as you can see, is down a point organically year-to-date. The largest contributor to the decline in this category has been B2B at UPC and JCOM and interconnect revenues at Telenet and in the Netherlands.

The chart on the right depicts our revenue by segment and also our rebased growth. Year-to-date, rebased results through September 30 were very similar to those at June 30. UPC generated $3 billion of revenue year to date and grew at a 1% rate year on year. For the first time in over a year, though, UPC's quarterly rebased growth rate exceeded that of the previous quarter. If you pull out Austria and Hungary, two of our troubled markets, from the rebased calc, UPC would have grown over 2%.

Telenet and VTR reported year-to-date revenue of $1.2 billion and $500 million, respectively, reflecting rebased growth of 7% for each. JCOM generated revenue of $2.6 billion and a 5% rebased growth rate. Both Telenet and JCOM reported higher growth rates for Q3 as compared to Q2.

Overall, across all operations, revenue has benefited from growing digital penetrations and increased Internet and voice RGUs, due to the success of our bundling initiatives.

If you turn to slide 14 this shows rebased OCF growth and OCF margin, which continues to be a very good story. UPC generated year-to-date OCF of $1.5 billion, reflecting rebased growth of 4%, driven mostly by its Western Europe markets. The Netherlands, Switzerland and Ireland each achieved year-to-date rebased growth of approximately 7%, partially offset by negative growth in Austria. UPC's Central and Eastern European region posted rebased growth of 1% year-to-date as double-digit extension in Poland along with solid growth in Romania for the third quarter were largely offset by a challenging Hungarian market and a difficult first half for Romania.

Telenet and JCOM continued to perform well with Telenet reporting $620 million of OCF and rebased growth of 14%. JCOM realized 9% rebased OCF growth on OCF of $1.1 billion. Both operations are benefiting from advanced service subscriber growth, relatively stable pricing environments and stringent cost controls. On a year-to-date basis, VTR delivered OCF of $206 million and rebased OCF growth of 6%. VTR had stronger third quarter, rebounding to 9% OCF growth as the negative gross margin impact of FX associated with dollar-based programming contracts was less pronounced.

We continue our steady track record of OCF margin expansion as the chart on the right shows. And for the nine months ended September 30, 2009, we delivered an OCF margin of 44.4, which reflects an improvement of 160 basis points over the nine months ended a year ago. Both SG&A and operating expenses contributed to our year-to-date margin gains as we continued to realize scale efficiencies and operating leverage.

In terms of our segments, Telenet, JCOM and UPC each showed year-on-year improvement, as they were up 240, 200 and 170 basis points, respectively. It's important to note that we attained a record quarterly margin in Q3 for LGI of 45.3%, which Mike had mentioned earlier. However, from a trending perspective we generally experienced sequential OCF margin compression in Q4 relative to Q3, reflecting in part higher advertising and promotional costs for our fall campaigns as well as higher customer acquisition costs for our strongest quarter of the year for subscriber, as I mentioned earlier.

If you go to slide 15, this shows CapEx and free cash flow and the metrics are both moving in the right direction. CapEx for Q3 and year-to-date was $525 million and $1.6 billion, respectively. As the graph on the left illustrates, spend in reported dollar terms is lower year on year for both measures, due primarily to favorable FX. As a percentage of revenue, CapEx was 18.6% for Q3 '09 versus 22.5% for Q3 '08 and on a year-to-date basis was 20% in '09 as compared to 21% in '08. Our CapEx to sales ratio has benefited this year from JCOM being at 14% of sales year-to-date while UPC and VTR are still both above 20%.

Of our total capital spend this year, CPE and scalable infrastructure, which facilitates advanced service subscriber growth, has been increasing approximately 62% year-to-date versus 58% for the same period in '08, the increase being largely due to our digital cable and 3.0 rollouts. By the same token, our spend dedicated to support activities and other CapEx has declined by over 200 basis points year-over-year and represents 15% of our year-to-date CapEx.

Moving to the chart on the right, our free cash flow continues to grow. Q3 free cash flow grew 65% to $167 million, and year-to-date free cash flow increased 24% to $662 million as compared to the prior-year period. Year to date, our $128 million increase in free cash flow was driven by an improvement of $66 million in cash flow from operating activities and lower CapEx of $62 million year on year. So we remain on track to grow our full year free cash flow by at least 25% over our 2008 free cash flow, which translates into cash flow generation of over $275 million in the fourth quarter.

If you turn to slide 16, it gives a snapshot of our balance sheet. We ended Q3 with consolidated debt including cap leases of $21.7 billion and consolidated cash of $2.4 billion, which includes restricted cash of $471 million related to our debt instruments for net debt of $19.3 billion. Relative to year-end '08 and Q2 '09, both debt and cash balances are higher, due largely to FX and incremental borrowings. Additionally, our cash balance continues to benefit from free cash flow generation.

Consolidated gross leverage continues to trend towards the bottom end of our four to five times range. It is down from year-end '08 and Q2 '09 levels of 4.6 and 4.4, respectively, to 4.2, at the end of the third quarter. The downward trend is largely the result of OCF growth.

On an adjusted basis, which is the way we think about it, after backing out collateralized debt associated with our Sumitomo investment as well as eliminating VTR's debt and the offsetting restricted cash, our gross leverage actually fell below four times in the third quarter. The chart on the right depicts our consolidated liquidity position. We ended Q3 with a consolidated position of $3.6 billion. This consists of $2 billion of cash including $874 million at the parent and $1.6 billion of unused borrowing capacity.

Our liquidity position is approximately $500 million higher than in Q2 as a result of a higher overall cash position driven largely by JCOM, which had approximately $250 million more cash at Q3 as compared to Q2, and an increase at LGI of approximately $300 million in unused borrowing capacity on a consolidated basis.

Upon reporting Q3 results, we estimated that liquidity accessible at the parent level is roughly $1.4 billion, consisting of cash accessible to LGI and availability under the UPC redrawable term loan that would be readily upstreamable if we were to draw it.

This summary on the balance sheet is that we feel good about where we are at, particularly given the maturity extensions that Mike discussed earlier.

So if you go to slide 17, in conclusion, you're going to hear the words that you've heard several times now. Our Q3 results have rounded out nine months of steady performance and consistent growth, which we think is impressive, given the state of the global economy. Digital continues to resonate with our customers, and we are excited about the prospects for digital in 2010, as we expect it will continue to be an important growth driver for us. HD is now in all European markets, and we are gaining ground and securing more HD content and demand for DVRs should continue to drive further penetration. We are very encouraged by our early success with Fiber Power in Europe, as we believe it is a key competitive advantage versus DSL and also a sustainable advantage.

Through October, we are on track to have a strong Q4 in subscriber adds. So, from an operating perspective, we are confident about our '09 OCF and free cash flow guidance and continue to invest in Q4 to set the stage for growth in 2010. And the last point is, as Mike said, our expectations that the JCOM and VTR situations will have further clarity as we approach year end.

So with that, operator, we will open it up for questions.

(Operator instructions) James Ratcliffe.

It looks like the quarter, at least since the last several quarters, we've seen Telenet operations seemingly outperforming comparable UPC Western European operations. What's driving that spread, and how do you -- are there learnings you can transfer to the UPC operations?

Well, Telenet has had a great year through nine months, for sure. You've seen the numbers. There's a number of things impacting them favorably. To begin with, it's a nice competitive environment. That doesn't mean there isn't competition, but it means that the competition there is certainly less than in other European countries where we operate. And they are able to maintain reasonably high ARPU's and solid growth, in particular in broadband and their data business.

They've had good success, quite frankly, across all three products, even mobile, where they are starting to add some customers and in fact have announced some pretty aggressive MBNO arrangements that should give them a leg up in the wireless broadband space. So I think, all in all, it's a nice duopoly marketplace where they have done a fantastic job with their brand and their bundles and have, most importantly, I think, been able to keep ARPUs at reasonable levels while driving good, solid but modest growth across all three products.

So I'm not sure there's much we can do about the macro factors I described. But certainly, the product strategy and the marketing strategy do not vary meaningfully from what we are trying to achieve elsewhere.

So I think they also benefit from the acquisition of think the Interkabel assets, which gave them a number of raw unmarketed homes to sell into. And that has really boosted growth, as we expected it would.

Regarding VTR, do you have the option of essentially saying, we're not interested in public listing and then letting the [Selchin] transaction either go through or not on that basis? I know you've made an offer. But if that offer isn't accepted?

Yes. I don't want to get into too much detail here, but I'll simply say that the offer that was put out there was one, on its terms, would require our consent, the way it was provided, so that whether we reach agreement with our partners or not, the transaction offered to them by the third party has presented is not achievable. I'm not sure if that's clear to you, James, but --

Jeff Wlodarczak.

As we look into the fourth quarter and 2010, if you could provide some color on if you are planning on pursuing similar competitive pricing strategies for the ultra-high-speed data product you have pursued in the Netherlands and Japan?

I think the answer is yes. And I'll let Gene comment on that as well, Jeff. We do believe there is a sweet spot in the marketplace at the 25 to 35 megabit range. And in each market, fighting where that sweet spot needs to be priced is an iterative process. But nonetheless, we expect to find it and that it's going to be -- if that requires us to lower or raise where we are in the market for that type of product, we will. But there is a sweet spot. It needs to be accessible. It varies by market; it's 25 for 25 and Holland. It might be something different in other markets. But there is a sweet spot in every market, and that is where the largest chunk of our growth is coming from. And we will find it.

Gene, I don't know if you want to add anything to that?

What I would add, I guess, Mike, is that with the introduction of 3.0, as demonstrated so far, it's still in its early days. And I'm talking, in particular, the Netherlands, which has the longest experience with the product so far. It appears that it's significantly boosting our sales. In the last two months it has had a very positive effect on churn, and we've seen churn at the lowest that we've experienced this year.

With respect to higher speeds, 60, 120 megs, the take-up is relatively modest. But what it does for you is to allow you to reclaim the speed leadership in the market. I think the uplift that you are really going to get from this is increased sales and decreased churn. And also one of the other things that we are doing is realigning all of our products. And as we do that, we are able to get some pricing power out of that realignment. But to tell you exactly how that will flow going forward, I can't.

When you say realign your pricing, is that a function of just eliminating certain tiers? And then I guess, for Gene, how do you think your competitors are going to respond? They can't upgrade -- they can't flip a switch and upgrade their plan. So as you roll this much faster product offering at a similar price, how do you think they're going to respond to it?

What was the first question, please?

You were talking about how you were increasing your data ARPU. So is that just a function of removing tiers, going from five tiers to three tiers, with the rollout of DOCSIS?

I think what it means is, Jeff, is if you look at Holland, for example, when we plot the ARPU of net adds -- so what's our acquisition of ARPU? -- historically, that acquisition ARPU has been slightly below our then-current average ARPU, which would explain the trending down of ARPU over time. In reality, more recently, we are seeing that that acquisition ARPU is steady or up, reflecting the fact that this sweet spot of 25 to 30 meg in that market, which is priced at EUR25 to EUR30, is having a positive impact.

Our average ARPU in Holland is EUR20. (multiple speakers) starting to sell a bunch of EUR25 and EUR30 product, that's going to help. Now, that EUR25 to EUR30 product at 25 to 30 megs is a sweet spot, but our competitors have products there today with VSL or ADSL 2+. It's the products at or above that, 60 meg for EUR40, or 90 meg for EUR50 or 120 meg for EUR70, which is our pricing in Holland, that sets us apart with an increasingly large proportion of the market. And how they respond to that is anybody's guess.

At this point KPN, for example, only has about 800,000 fiber to the home homes, and half of them aren't even theirs in terms of all-out of control. And I think (technical difficulty) [flummoxed] how to respond. So we're not going to wait around.

David Joyce.

I was just wondering if you could provide some more color on what the economic effects have been. You did add more RGUs than we thought. But I was just wondering, with video losses decelerating, how much of that lately has been an economic effect or are consumers starting to get more comfortable that in the various markets things are improving? Or how much is all the incremental digital content that's now available starting to drive overall viewership to increase?

We always attribute an improvement in that basic video number to several factors. I don't think it's any one factor. The macro environment in Europe or elsewhere, I think, is relatively well known -- contracting GDP but flat inflation and job growth questionable. But at some point, we do believe these markets all turn around and start to head in the other direction, which is what we are seeing, I think perhaps even globally, in some cases. We would attribute the improvement in analog video to the bundle that we are offering in each market, the compelling nature of digital as it becomes more and more prevalent and is more and more in demand with new television sets and flat screens. And we think we've captured the attention again of the broadband market with these rollouts, which we've effected very rapidly and by design. And that attention is helping us retain core customers.

When we lose a broadband sub to DSL, we often lose that video customer as well. If we can retain that DSL sub or steal -- sorry, retain that broadband sub or steal DSL subs, that has a net positive impact on our video sub base.

Where the video has been the weakest, in Hungary and Romania and Netherlands, what kind of competition is leading the reason for the loss of that customer?

Well, in the Netherlands it's clearly a very low-end, cheap and cheerful DTT product from KPN, which is priced below us but is not -- it is one way, not interactive and fewer channels. And it doesn't have all the VOD or certainly -- no VOD and all the various catch-up and HD components that we provide. And in Hungary it's not dissimilar from Romania; it's cheap satellite product.

So we are moving in each case. We are (technical difficulty) an advanced digital service, to the theory that over time consumers will gravitate to the products and services we think all TV consumers want -- HD, VOD, DVRs, lots of quality channels, catch-up TV, strong relationships with content providers. If you believe that basic premise, then we are heading down the right direction, and these other competitive offers will, over time, suffer.

And in Japan, is the satellites and telco competition still fairly static? Or is the 160 meg offering still something that's attracting attention?

Well, all three products in Japan are pretty steady. But I'll let you random or Graham address that.

I think the answer is that the satellite remains, at best, stagnant. We see SKY Perfect yet again preparing to switch platform by introducing high definition on the old one 124/128 platform (inaudible) the last couple of years building up CS 110. They are now asking consumers to prepare to switch back to the previous platform. And they have absolute flat growth or negative growth month on month.

We are seeing some growth in the IPTV platform; but again, it's still relatively small, and we are not seeing any competitor really offering the same kind of range of content as we are able to do.

Ben Swinburne.

It's David Gober. My question is for, probably, Charlie or Bernie. I'm looking at the overall capital structure. You guys are now slightly below the stated target leverage of four to five times for the overall Company. As you look forward, does the mix of that change? And if you are able to raise the leverage at JCOM in some way through some sort of restructuring there, does that drive a decrease in the leverage in other parts of the Company? Or does it just drive an overall increase in the total leverage for the Company?

I think what we are trying to do is we are targeting the up to five times net debt to EBITDA target. I should be very clear that we do exclude from that the collar that we put on, on the Sumitomo stock, because we consider that to be asset-backed financing. And generally, we try and optimize our credit pools at that five times level.

You are quite right to say that JCOM is not at that five times level, whereas everybody else at least can go to that level under their current indentures over our agreement with Telenet and the European operations probably are a little lower. But I don't think we would reduce leverage in the other markets accordingly. I think, if JCOM were to recap up towards the five times target, it would just move the group as a whole closer towards the five times level.

And one follow-up for Mike on capital allocation, clearly, on CapEx a lot of the big projects that you guys have been talking about should be behind you as you get through the end of the year with DOCSIS 3.0 and digital and VOD rollouts in a lot of markets being behind you. How do you think about CapEx for 2010? Are there any areas within the current markets that you feel you'd like to invest more in, or something like wireless or interactive TV, any areas like that?

Well, I would say, just looking at the steady state business, we would anticipate continued declines in CapEx as a percent of revenue. We have certain of our more mature markets like Holland, I think, are in the 12% or 13% of revenue range. We have markets in Europe like Ireland where we are still heavily rebuilding that would be higher.

But on balance, we would expect that the steady state business as is does not foresee any massive rebuilds we hadn't contemplated or technology advancements we hadn't factored in, such that you should see a continued decline in that CapEx as a percent of revenue. There's only one possible project that we've talked about publicly, and that is deciding what we'll do with the wireless spectrum in Chile. But that's an isolated event in Chile. And whether we do that with partners or on what basis we pursue that business has yet to be determined. But on the steady state, core global TV business I think you should see continued declines in CapEx as a percent of revenue.

Jason Bazinet.

How long do you think it will take before the majority of your footprint is DOCSIS 3.0 enabled? And then second, on JCOM, I respect that you're not going to talk about it. But do we still think some resolution, regardless of how it unfolds, will occur this year as opposed to closer to the expiration of Super Media?

Well, I'll tackle the JCOM question, and I really -- Gene, you can start putting some thought to the DOCSIS question. But the terms of the partnership expire, by their terms, in February. To terminate that relationship earlier does require some steps. I can't tell you exactly what we are considering or may or may not do there. So I wouldn't want to handicap for you what that outcome will be by year end. But we have been clear that there is a defined date by which the partnership ends, and so you can expect that, absent any other strategic announcement, that that's what will happen.

I know I'm not being particularly helpful, but I really can't be.

Understood. And then the DOCSIS (multiple speakers) --?

Now with some specific numbers, so far we've launched in seven out of our nine markets to approximately 8.6 million homes passed, which represents about 62% of the total UPC footprint. And we would anticipate that by the end of next year that we would have rolled out Euro DOCSIS 3.0 to almost the entirety of the footprint.

Frank Knowles.

I note on your release you talk about being poised to use excess capital for strategic M&A. I just wonder where you can give a bit more color on that, both in terms of whether you're looking at entirely new markets that you are not currently involved in or whether you will focus more on infill and maybe buying out minorities.

Secondly, in terms of whether you would, as part of that, expect to just use leverage and come up to nearer the mid-or top range of your target leverage, or whether you would plan also maybe to use shares as acquisition currency?

Well, we don't have any information to provide today on any of the M&A targets we may have. And the pipeline seems to be more full today than it was on our last call, and I think that's principally a function of the capital markets returning a bit and the availability of leverage for reasonably priced and reasonably structured consolidation opportunities.

So I would say they are both new and infill businesses that we would be interested in looking at, with nothing specific to report on. And in the first instance we would seek to optimize the balance sheet or the financing structure of any acquisition with an amount of leverage that's largely consistent with our goals for the group on a consolidated basis. So you can expect that it's always our intent to optimize the equity returns that we receive on these types of deals, and that's how we'd approach it.

Matthew Harrigan.

First of all, on the magic of the rebased numbers, you talked about 0.7% rebased growth in the UPC markets. And when you go to some of the granularity in your release, you talked about customers being down 2.8% year-over-year, and the ARPU was up 0.6%. I know you've got some other elements in their like B2B, but that was actually down. And I was trying to figure out how the math worked out to a positive number off that.

Secondly, on the more positive side it looks like if you go out to 2010, particularly at the moderation in CapEx, your free cash flow yield has to be at least in the mid-teens unless you really make some dire assessments on working capital. I know you've got some working capital noise from the timing of interest payments and all that in the last quarter. But is there anything happening on the working capital side that would tend to negate just looking at the EBITDA minus CapEx minus interest and the cash taxes and looking at the implications that your proportionate free cash flow yield is probably higher than any of your peers?

Charlie, do you want to take the second question?

Yes; I'll do the working capital side. The answer is we're working capital -- we are a net receiver of capital from our suppliers because our receivable cycle, or our customer investment cycle, as we call it, is pretty tight. It is changing slightly because we are moving, in some cases, from analog television which is billed a year in advance, to digital, which is billed monthly in advance. But that's a minor trend, so I think you can assume there shouldn't be any significant deviations in working capital to what we've seen over the last three or four years. And it should continue to be a net positive every year.

On the other point, Matt, I think the basic answer there is, it's not purely a, quote-unquote, customer number that were focused on; it's the ARPU we are getting out of each household, which is a function of the number of products we are selling into each household. And even in Europe, every quarter along the way, for example, September 30 last year we had about 1.4 products per household. Now we are at about 1.5 products per household. So you need to look at the bundling and the sell-in statistics there.

It says per customer relationship, so I was assuming that that took the bundling into account. But there must be something else I misinterpreted.

David George.

Just on the higher broadband speed products, I wondered in the Netherlands if you could give us an idea of what percentage, roughly, of adds are coming through on these, particularly the 25 to 30 meg offers, and also just how you actually use this as a retention tool in practice, if an existing customer is looking to churn. Are you moving them to these higher speeds within their existing price points, or is that every customer having to pay up for this?

And just finally, on that, the premium prices you have for some of your higher speeds -- I wonder how long you see those as sustainable.

Gene, do you want to take a crack at that?

Yes. We have about, I think, 80% in NL subscribing to speeds of what we call in that sweet spot range of 20 to 40 megabits, with about 65% of those coming from change of service and about 35% coming from new subscriber additions.

With respect to -- the other question was, with respect to the higher speeds, whether we can continue the higher premium charges. I think, for the foreseeable future, because that's a premium service that we are offering. Our real target market, as Mike has said, is that sweet spot. And that's the product that we haven't had, up until we launched Euro DOCSIS 3.0 late summer. And what that did was enable us to spread out those tiers and target that sweet spot, the 25 for EUR25 and the 30 for EUR30, which has been our nemesis for so long because that's where KPN and some of the brands that they offer was most formidable. And so the real benefit coming from this 3.0 launch in the Netherlands has been able for us to realign target to sweet spot and then move subscribers across those tiers with higher speeds to a point now where we've got them at a level where, unless you've got fiber to the home, you're at a very big competitive disadvantage to us. Does that answer your question?

Yes, that's great, thanks.

David Kestenbaum.

You are talking about the acquisition pipeline. Can you talk about -- are there more acquisition opportunities now in content? It seems like to be an increased focus of the Company. Or is it more in traditional cable that you're looking at?

I'd say it's more of the latter. The deals that we've announced in the content realm, I think, are a reflection of the success we've had creating shelf space and really solid content channels around the European marketplace, number one. And number two, the increased focus among US cable programmers and cable operators in the channels business. If you look at what's happening with some of these channels that are being bid on now, the multiples for the cable channels business or the focus of some of the larger media conglomerates on cable networks, it has to be observed.

And so clearly, when someone like Scripps or CBS says to us, we want to partner with you because we see that you've created a terrific platform here for our brands, perhaps, and for a joint venture, I think that's a reflection of Shane and his group's ability to find those niches and find those spots. So we'll continue to do that where it makes sense. But I would say the vast majority of anything we would look at in the pipeline would be along the lines of cable.

And then, specifically, can you comment about the reports out that you're looking at the German cable operator? And does it make a difference whether you buy the minority interest, like you did in Telenet, and then increase your stake, where you buy the whole company, like you did with Cablecom?

Well, I don't have anything to add to that. If there were something going on, we'd have to be careful, anyhow. But I really have no comment on that.

But generally speaking, on a more general basis, as you know, when we look at large acquisitions we would like to control those businesses to get the synergies. So if we did look at a large cable acquisition in Europe, in general our track record has been to try to control those businesses such that we can realize the synergies we might think are available to us.

Murray Arenson.

Most of my questions have been answered, but I thought I'd take this opportunity to ask a little bit about the rest of the Asian market and your thoughts there. I know you have some early partnerships in China, and I just wanted to hear how you are approaching that part of the world these days and if whatever you are doing with Sumitomo might impact the way you view that region.

Yes; I would say it probably does not impact how we view the region because the region is so vast and unique. We have announced historically that we have a joint venture relationship we've been developing with the cable operator in Beijing. It's still not at the point where we can invest the capital or -- and because the venture has not yet been approved. It's small and, I would say, exploratory.

Outside of that market, we have very little activity in the broader Asian or Southeast Asian region, for all sorts of reasons that will take too long to address. But the Japanese market is a great one for us. China is just a toe in the water to see what may make sense there. I think the rest of the region is challenging, and so we have nothing specific to speak about there.

Okay, well we appreciate everybody getting on the phone this morning and we look forward to talking to you about our fourth-quarter results in the new year and wish you all a great fourth quarter. Thanks.

Ladies and gentlemen, this concludes the 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. You may now disconnect.