Liberty Global Ltd (LBTYK) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen. 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 participant lines 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. Again, that's www.LGI.com.

Following today's formal presentation, instructions will be given for a question and answer session. As a reminder, this conference call is being recorded on this date, November 4, 2010.

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

Thanks, and good morning, everybody. I appreciate you joining us here for our third quarter call.

Let me just take a second and introduce folks on the phone with me here who you might hear from today -- Charlie Bracken and Bernie Dvorak, our co-CFO's of course. We have Gene Musselman, President of UPC Broadband; Mauricio Ramos, who runs VTR; Balan Mair, our CTO; Shane O'Neill, our Chief Strategy Officer; and also, Rick Westerman, who you know well. I'm going to turn back over to the operator quickly for a Safe Harbor and we'll get rolling.

Thank you. 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 the Company's expectations with respect to its outlook for 2010 and future growth prospects and other information and statements that are not historical facts.

These forward-looking statements involve certain risks that could cause actual results to differ materially from those that are 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 conditions on which any such statement is based.

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

Thanks.

Our agenda will look like prior calls here, and as we have done in the past, we'll be speaking to some slides which you can get off our website. We're also going to try to keep our remarks a bit briefer than usual since we know it's a busy morning for many of you and our results actually speak for themselves.

I want to start with some highlights for the quarter on slide four. I think there's three things you should take away from the call today. Number one, organic growth continues to trend up, especially in our core western European markets. Number two, our investment in new products and services, like 3.0 and digital, are driving this growth, and we feel positive about our ability to sustain the momentum especially in the fourth quarter. And three, we're very well-positioned strategically and financially to create value for shareholders. When you look at our improving competitive position, our focus on smart product innovation, our strong balance sheet, large cash position, we feel like we have a number of arrows in our giver to help drive value creation going forward.

The left-hand side of this chart supports the first point with some subscriber highlights. We added 167,000 net new RGUs in the quarter, up 46% from the same period last year and supported again by consistent and steady voice and data growth. Not included in that number, of course, are 250,000 new digital cable subscribers, which we don't double count as RGUs. I'll provide more detail on subs in a minute. Importantly our subscriber activity is translating into improved financial results. As you can see on the right hand side of the chart, we delivered rebased revenue and operating cash flow growth of 6% and 8% respectively, representing our highest OCF margin ever at 48%.

We talked a lot last year about how our focus on operating efficiencies would pay off as we rejuveniled our top line and that's exactly what's happening. The other half of that equation is free cash flow and our discipline on CapEx, offset by some higher financing costs, helped us deliver adjusted free cash flow of $406 million year-to-date, up over 250% from the same period last year. As in prior quarters our balance sheet is in great shape with over $10 billion in maturity extensions completed since early 2009 and $3.2 billion of total cash, including $2.6 billion at the parent. And then lastly, in terms of our stock buybacks, you know the story well here, but we continue to be buyers of our own equity with over $800 million spent year-to-date through September 30.

One of the key reasons we continue to buy stock is illustrated on slide five. If you have only time for one take away today this is probably the slide you want to focus on. It shows our rebased revenue and operating cash flow growth over the last four quarters and validates the message we delivered this time last year about our expectations for an improving top line picture driven by new products. On the left side of the page, you can see how our quarterly rebased revenue growth has ticked up every quarter from 3.1% a year ago to just under 6% this past quarter. As we predicted, the biggest contributors to this growth are large western European operations in markets like Belgium, the Netherlands, and Germany, each of which delivered quarterly revenue growth of 8% to 10%. On the right hand side, is our rebased operating cash flow growth over the last four quarters, and it's a similar picture, improving from 2.6% growth in the fourth quarter of last year to over 8% operating cash flow growth this past quarter. Again, our core western European markets, like Germany and Belgium, contributed significantly to this performance with 18% and 14% growth respectively. Overall, this was our best operating cash flow performance in the last seven quarters.

Slide 6 is a break down of subscriber additions across our core products. Most of you are used to seeing stats from us. Starting with broadband on the top left, we've talked a lot about DOCSIS 3.0 and, specifically, the impact it's had in the Netherlands, our first 3.0 market where we continue to exceed budget and regain market share week-in and week-out, and with nine markets launched in over 15 million homes marketable today, we're starting to see similar results in other countries such as Germany and Poland. Through nine months we've added 466,000 broadband subs, which is up 44% from a year ago. Even if you exclude Germany, our net adds in Europe were up nicely.

Just as importantly, we're seeing churn rates decline, almost across-the-board in fiber power areas, and ARPUs stabilizing as we penetrate more deeply with these superior broadband speeds. Of course, another important benefit of these broadband bundles is the halo effect they continue to have on our voice business. Through nine months, we've added 387,000 new voice subs up 30% over last year. The bottom left shows you our video losses for the two periods which require some explanation, here. The reported figure for the nine months is 313,000, but 94,000 of those were in Romania, a small market that we've talked about many times, and 28,000 were in Germany which we didn't own a year ago. If you take both of those out, the video losses were actually better by 20% on a same-store basis and even including the losses in Romania and Germany, this is our lowest quarterly video loss of the year. Then, finally, on the bottom right is our total RGU growth; we added 540,000 RGUs year-to-date which is up nearly 50% compared to our subscriber additions for the same period last year. Again, Germany contributed to some of this growth, but we've added more subscribers this year as compared to last year in seven of our ten historical European markets.

Right now, we're in the heart of our Fall selling season and based upon recent results we're expecting to have a strong fourth quarter. Part of that confidence is supported by our digital TV business, which has been our largest contributor to ARPU in advanced services growth over the last 12 quarters. As you'll see on slide seven, we've added 2.5 million digital cable subscribers over the last 12 months, including 1.4 million from the acquisition of Unitymedia, and 1.1 million, organically. So, 60% increase in reported digital subs and a roughly 30% increase on an organic basis year-over-year and we're still in the heart of the growth curve here. With 60% of our cable subscribers or approximately 9 million homes still watching 30 to 40 analog TV channels, we've got great upside in digital.

And, it's not just more channels driving growth in digital cable. Demand for HD and DV's is irreversible as more and more HD content becomes available and the obvious benefits of time shifting become must have features for customers. With approximately 2.6 million or roughly 40% of our digital cable base taking HD and/or DVR service, we've got plenty of room to up-sell these killer Apps at a good margin. But in the end, that is really our main operating objective, here, continue to up-sell, high ARPU, and high margin products and services to our existing customer base. Slide eight illustrates where we are in that front.

At September 30, 35% of our 18 million customers were taking more than one product from us and 20% were taking the full triple play suite. It's a 38% increase in triple play subs year-over-year. It also means, however, that 55% of our sub base are taking just one service from us. Mostly analog video, and we have a very long runway for growth as we up-sell these customers to our advanced services, especially with the recent rollout of our DOCSIS 3.0 bundles. One important measure of our success is the amount of revenue we're able to generate from each connected home or ARPU per customer. You can see on the right hand side of the slide here, that LGI ARPU on a consolidated basis was up 7% to $41. That's the yellow bar and markets like Belgium, Germany, and the Netherlands are driving double digit ARPU per household growth.

So wrapping up my remarks before I turn it over to Bernie, it was a great growth quarter for us, operationally and financially. We've continued that momentum into the fourth quarter, generally our best quarter of the year for net adds. Our competitive position is strengthening, almost everywhere, as we rollout 100 megabit broadband speeds and convert more and more homes to digital, and we're capitalized financially and strategically for opportunity, whether that means buying our own stock or pursuing accretive consolidation or rebalancing transactions. Things are clicking for us, and as a Management team we feel energized and positive about where we're heading.

Bernie?

Thanks, Mike, and good morning or afternoon, everyone.

Slide ten summarizes our consolidated revenue for the quarter and year-to-date periods of 2009 and 2010 as well as gives a snapshot of third quarter growth by region. We generated $2.2 billion and $6.6 billion of revenue for the quarter and the nine months, ended September 30, 2010, which reflects reported year-over-year increases of 16% for the quarter and 21% year-to-date. Reported growth was primarily attributed to the contribution of Unitymedia, beginning in Q1 and organic growth, while FX hurt our quarter to date results and modestly helped our year-to-date 2010 results as compared to 2009. On a rebased basis, as Mike mentioned, after adjusting for both FX and M&A, we achieved 6% growth for the quarter and 5% for the year-to-date period. For the quarter, our European broadband operations achieved 6% rebase growth, driven primarily by our western European operations with improved performance in Chile and a solid quarter in Australia.

If you turn to slide 11, this slide builds upon the progression slide that Mike showed earlier on a consolidated basis, specifically for Western Europe. The chart depicts our quarterly rebase revenue growth for our six western European countries, with Germany included beginning Q1 of this year. Western Europe accounts for over 65% of our consolidated revenue, so the region is a key driver of our overall growth. Our western European Q3 growth of 6.6% reflects an acceleration from Q2 and it's the best quarter in this region since the third quarter of 2007.

Of particular note, three of our largest markets, Germany, Netherlands, and Belgium, achieved year-over-year growth in Q3 of 10%, 9% and 7%, respectfully. In the Netherlands, the 9% growth represents a significant improvement compared to the 2% rebase revenue growth that we saw for the full-year 2009. Although it's a small market for us, Ireland was actually our fastest growing business on a year-over-year basis for Western Europe, as well as LGI overall with a rebase revenue growth of 13% in Q3. And, finally, our cable business in Switzerland generated 2% revenue growth, its best quarter of the year so far, and we're looking for continued improvement in this market.

Slide 12 illustrates our quarterly OCF progression as outlined in the left hand chart and our quarterly margin progression on the right. Our Q3 result of just over $1 billion was lead by growth in Western Europe, Chile, and Poland, and relative to our Q2 results, the sequential increase in reported OCF was driven by organic growth and to a lesser extent, more favorable FX. Our Western European operations accounted for $827 million of OCF in the quarter, an increase of 10% on a rebase basis. Our OCF results were driven by the German, Irish, and Belgium operations which achieved rebased OCF growth of 18%, 16%, and 14%, respectfully. In Chile, we generated $89 million of OCF in Q3 and delivered rebase growth of 12%, Chile's strongest quarter of 2010 and best since the fourth quarter of 2008. This business has clearly recovered since the earthquake in February of this year.

Similar to the first three quarters of this year our central and Eastern European operations continue to weigh on our consolidated OCF results. OCF for the region was $136 million in Q3, a rebase decline of 4%, mainly due to Hungary and Romania where we continue to face competitive challenges. Turning to the OCF margin the trend in the last several quarters has been positive. The 48% margin achieved in Q3 was particularly strong reflecting a nice uptick from Q2 with all of our reporting segments delivering higher OCF margins in Q3 versus Q2. Our OCF margins this year have been helped considerably by the addition of Germany, which had an OCF margin of 60% in Q3 and stands at 58% for the year-to-date period. As in prior years we would expect that our Q4 OCF margin and rebased OCF growth will be lower than we saw in Q3, as among other factors we typically incur higher marketing and subscriber acquisition costs associated with our fall campaigns; and we will absorb the cumulative 2010 effect of the recently passed Hungarian revenue base tax in Q4, and we are also going to see more difficult Q4 comps in Germany.

If you turn to slide 13, this summarizes our CapEx and free cash flow performance. Beginning with CapEx, for the three and the nine months ended September 30, we incur CapEx of $458 million and $1.3 billion reflecting CapEx as a percentage of revenue of 20.4% and 19.7%, respectfully. The significant improvement in the year-to-date percentage over the 22.8% that we reported for the comparable prior year period is due largely to lower capital intensity and our UPC and Telenet segments. As we look at the phasing of our capital spend we expect it to be higher in Q4 as a percentage of revenue as compared to our year-to-date level of 19.7% due to the timing of certain projects.

We are normalizing our reported free cash for certain cash outflows associated with our transactions in Japan and Germany as we have done previously this year. The right hand chart illustrates these normalized numbers and you can see that we achieved adjusted free cash flow of $406 million for the 2010 nine month period as compared to $114 million for the respective 2009 period due largely to the inclusion of Germany and decreased capital intensity. As you think about the fourth quarter, it's important to note that we will incur higher interest payments this year compared to last year's fourth quarter, reflecting part the interest associated with the bonds and convertible debt that we raised last November to fund the Unitymedia acquisition.

If you turn to slide 14, this shows our leverage and liquidity. As the chart on the left highlights, we finished the third quarter with adjusted gross and net leverage of 4.9 times and 4.1 times and within our 4 to 5 target range. We had $22.1 billion in reported debt and capital lease obligations at September 30. After excluding the $1.1 billion loan backed by shares we own in Sumitomo Corp., we had an adjusted total of $21 billion. Our reported debt and capital leases increased by $1.7 billion from the second quarter, primarily as a result of the depreciation in the US dollar to the Euro through the end of the quarter.

In terms of our recent refinancing activity in Q3, we completed one important transaction at our UPC credit group and another one in early October at Telenet. Including both of these transactions, over 80% of our total debt and capital lease obligations are now due in 2015 and beyond with only 4% due between now and year-end 2012 and this doesn't include the impact of the EUR500 million bond deal due in 2020 that Telenet closed yesterday. As the right hand chart highlights, roughly 80% or $2.6 billion of our consolidated cash is immediately available to the parent, which provides us with significant flexibility to pursue acquisitions and continue our stock buybacks. In addition to our consolidated cash, we have $1.5 billion of maximum borrowing capacity under our credit facilities subject to covenant compliance which together with our cash results in a total consolidated liquidity position for LGI of $4.7 billion at September 30.

If you to slide 15, in conclusion, we're obviously pleased with the numbers we've reported today, in particular the continued acceleration of our rebase revenue growth, our OCF growth and record margins. As Mike indicated earlier, we are in the key selling season in Europe, and we're encouraged by the traction that we've seen in the month of October and what our Q4 subscriber growth should mean for us heading into 2011. And finally, we remain well-capitalized to create value for our shareholders through a combination of stock buybacks and M & A.

So with that, Operator, we would like to open it up for questions.

The question and answer session will be conducted electronically.

(Operator Instructions)

In order to accommodate everyone, we ask that you ask only one question with one follow-up, if needed.

(Operator Instructions)

We'll take our first question from Mr. Jason Bazinet from Citi.

Hi, good morning.

I was just wondering if you could update us on what Telenet has said publicly about their levering and return to capital, what sort of implications that has for cash for you guys, and are there other opportunities to do something similar for other assets that you've consolidated, but don't fully own, that have their own cap structure.

Thank you.

Sure, Jason.

This is something, as you know, we've done -- or, certainly, encouraged our subsidiaries to do from time to time, AUSTAR, made two capital returns, certainly, Telenet has as well. Publicly, what they stated was that it was for general corporate purposes, potentially shareholder distributions in 2011-- or acquisitions. They didn't put anymore emphasis on one or the other, but they certainly have talked more recently about shareholder distribution as a potential for them, and they are targeting a leverage ratio in the area of 3.5% by the end of next year, sorry, 3.5 times by the end of next year.

I would say that their strategy is very consistent with what we've seen other publicly traded subsidiaries of ours pursue in terms of reasonable leverage and shareholder appropriate and shareholder friendly uses of that capital when available, and so I think the answer is there's a high likelihood of that I suppose; and secondly, AUSTAR has done it twice in the past and their issues are different and opportunities are different, but it's certainly something we focus on strategically.

It's fair to say, Mike's right that if they didn't have further capital ratings, they would be at 3.5 times within the next year, but I think their declared target is within the Liberty four to five times range; and I think people buying the term of that bond should certainly see it's a Liberty-controlled vehicle, and we would, obviously, generally, we reserve the right to leverage our subsidiaries up to that four to five times target

That said on a standalone basis, I know Telenet doesn't benefit from the portfolio effect that we have. I think in turn they probably have a little bit less on a standalone basis as a public company than the five times maximum than we as Liberty would put on it, but I think, certainly, their leverage targets as a controlled company of Liberty would be consistent with our own views on leverage, so (inaudible) is going to be down at 3.5 if there were no further fundraisings between now and next year. I would say that we would be looking to keep them -- to the extent to which we have to take into account the independence and, of course, the minority shareholders, so we look in terms to run the same kind of levered return that Liberty would.

Understood. Thank you very much.

Sure.

Our next question comes from David Kestenbaum with Morgan Joseph.

Okay, thanks.

Can you just talk about the impact of the falling dollar on your overall cost structure and is 48%, obviously impressive OCF number, where do you see the long term ceiling on that?

Thanks.

Well, I'll let Charlie address the dollar impact and the cost structure.

On the cash flow margin, we've said in the past that we think we can improve that quarter-to-quarter in small increments. This was an extraordinary quarter for reasons you can read about and we've talked about, but I think this -- certainly, our fourth quarter is typically not our highest margin quarter for all of the reasons we've described in the past, specifically, our focus on marketing and sales and CAC in that period of high growth, but I think we would stick to our original statement, which is our year-to-date margin is around 46%. We think we can continue to improve upon that incrementally year-in and year-out.

And, I think the impact of the dollar on our margins is not that great. I mean we do have some dollar programming costs and we have certain dollar network related costs, but in general, what we've done in years past is fix or swap those out as and when we sign the contracts, so at any given year, there is limited exposure. I would say the total dollar exposure is something like $200 million to $300 million in the cost base, so we've had some pick up in margin because of that.

You should remember, though, we do have net dollars coming in from our Puerto Rican business, so I think the weakening dollar clearly gives us a bit of head way when it comes to negotiating with suppliers who often do base their, particularly, network and programming costs in dollars, but I think the margins are not high just because of that. I think there are other factors at play, as Mike said which is not least the efficiencies and economies of scale that we continue to drive out of the business.

Anything else?

No, thanks.

All right.

Our next question goes to Hugh McCaffrey with Goldman Sachs.

Yes, thanks. It's actually Tim Body here for Hugh.

I just wanted to ask a little bit about the potential competition in the fourth quarter, if you could -- and for the major European markets -- describe how you think the competitive scenario is shaping up? Obviously, you performed very strongly in the third quarter. Particularly, also with a focus on Germany, where you've been quite aggressive in some of your office, if you could just characterize the environment, I'd be grateful.

Well, I think if you look at the four big markets, as Bernie said, represent roughly two-thirds of our revenue and EBITDA, Germany, Belgium, Netherlands, and Switzerland. They are all a little bit different, but for the most part, these are markets that are starting to achieve very strong results for us, driven by the new products that we've launched.

You may have seen Deutsche Telekom's results today, very weak on the broadband side, whereas cable across-the-board is reporting 60% plus market share of net adds in that country. Holland, of course, if you look at what we've done in the last 12 months over 100,000 broadband net adds just on our small footprint, KPN essentially flat, so I do believe that the cable operators and us, specifically, have changed the game in broadband in Europe and the only --

We'll see what phone companies choose to do with this competitive pressure. It will vary market by market, some have made tepid promises about fiber buildouts, though few have done much, if anything, to date. We may see some more aggressive bundling or pricing; we'll see what that turns out to be, but it will be difficult, I believe, for most phone companies in Europe to compete with our product, Full Stop, and that product has great impact on our ability to sell other bundles and other products, specifically digital and voice.

So I think our competitive position, as I mentioned in my remarks, is improving, probably has never been stronger, and something that we are taking at this point serious advantage of. We do not expect that phone companies will sit around forever and lose market share, so, certainly, we have to stay nimble and aggressive. And we would do that and do do that market by market, but I believe in principle, the competitive position we see in Europe today is a very favorable one for us, certainly, from a product point of view, but also a regulatory point of view, which if you look at other cable operators, perhaps in the US, regulatory is a very big issue for us, we think it's a net positive.

I guess it's a helpful characterization, but my question, specifically, is have you seen any change in the competitive dynamics? So it sounds like it's continuing as it has been.

You haven't seen any particular intensification into the fourth quarter?

No, our fourth quarter looks pretty strong for us. Marked by market, I'm sure our competitors -- they are taking individual action based on products. It would take me an hour to go through each market and each product, so I think a general characterization is the best way to describe it at this point.

Okay, that's very helpful. Thank you.

Yes.

We'll take our next question from Mr. James Ratcliffe with Barclays Capital.

Good morning guys. Thanks for taking the question.

Two questions, actually. First of all, can you talk about the programming cost environment in Europe? Historically its been very benign, particularly compared to the US, and I understand you're even paid to carry content in some markets. Should we expect that to continue or is it getting tougher and if programmers are getting more aggressive, what additional rights are you getting as part of deals?

And secondly, you're clearly seeing benefits from the rollout of 3.0 and the new triple play marketing plan in Western Europe and comments this quarter and what we saw in the Netherlands thus far. How translatable are those benefits to your central and Eastern European markets? How different are those and do you expect the same marketing and product offerings to work there as well? Thanks.

Sure. I'll take the first one, and Gene why don't you think about the second one.

As we've stated in the past, we benefit, I think, meaningfully from a very fragmented programming environment in Europe, which means in short that the cost of programming for us is a fraction of what it cost a US operator. On average, I believe, we spend around EUR2 per subscriber per month for all of our content. That would be less for analog subscribers and more for combined analog and digital subscribers, but on average about EUR2, which as you know wouldn't purchase much here in the US from US programmers.

The reason for that is because there isn't great scale or heft, if you will, among programmers in a very fragmented European marketplace linguistically, geographically, et cetera, and that we've used to our advantage, because in fact we are, we do have scale. We've been able to maintain and in some instances lower costs of content for us. Going forward, we'll see how that evolves. As we add more content to our digital platform, of course, we spend more on content, but we do that knowing that we're doubling the revenue out of our video sub, so while we'll put more money into content for a digital customer, the benefit to us is 100% uptick in the revenue from that customer and that's worth it every time.

In terms of other products or other platforms, as you can imagine, we're focused heavily on HD content, VOD content, and going forward, IP or online rights, whether for our own version of TV Everywhere or for our Horizon digital box product that's coming out next year. We are definitely moving up the food chain in terms of rights, wherever and whenever we can in terms of making sure that we have access to both HD VOD, catch up TV, as well as other IP rights where appropriate. And we're doing that in a reasonably cost efficient way and doing that more or less in partnership with programmers. For example, broadcasters are very -- in most markets -- anxious to find ways of monetizing their content and have seen VOD with us and using our VOD platform as one of those ways. So, I think the picture, generally speaking, for programs for us is very favorable and we can expect that to continue.

Gene do you want to talk about 3.0 and anything you see in Europe?

Sure.

I think that we're seeing the benefits of Euro DOCSIS 3.0 across all of our markets, perhaps not in the same way as in the Netherlands where we really hit the sweet spot in terms of speed and price and have been able to drive considerable growth, but that is only one of our objectives as we rollout Euro DOCSIS 3.0.

One of the things that we wanted to do was to secure our legacy high priced ARPU or high ARPU subs, and we do that by increasing the legacy speeds, so we've moved all of our legacy fibers into the fiber power products which we call Fiber Power 10, Fiber Power 20, Fiber Power 30, Fiber Power 50, etc. And the bulk of our subscriber base is now on fiber power products rather than sitting on the old legacy speeds.

Another benefit of the rollout of EuroDOCSIS has been the reduction in churn, and probably Hungary is the best example of that. If you'll remember about a year ago we were churning very badly in Hungary and with the rollout of EuroDOCSIS 3.0, we've taken the churn levels back to where they were a couple of years ago, so the growth that we're really getting out of Hungary at the moment is coming from the fact that we rolled out EuroDOCSIS 3.0 and it has helped us reduce our churn.

And the other benefit of EuroDOCSIS is that it enriches our bundles. We've increased the speeds and then we're able to give more value, build value into the products, so I think we have largely EuroDOCSIS rolled out across our markets now, and we should finish with the majority of that buildout next year and should be in an excellent position to continue to drive these products and the value into the market.

Just to use Hungary as an example, I think in the last 12 months, we've added something like 35,000 broadband subs in Hungary and in that prior 12 months, I think it was maybe less than 10,000, 9,000 or so, something like that so we're definitely going to see an uptick with higher speeds and stronger bundles.

Thank you.

We'll take our next question from Matthew Harrigan with Wunderlich Securities.

Good morning.

More specifically, on the programming side, it sounds like ProSieben and RTL are trying to get compensation for the HD channels from Cabal Deutschland, at least. Does that fall within the rubric you talked about of, given the overlay of digital revenues, you're happy to incur a little bit of programming cost in that circumstance?

And then when you look at Germany, I know you're taking a different position than they are in terms of being more aggressive on 3.0 and they are trying to work more in concert with Sky Deutschland and (inaudible) driving premium TV, but how do you feel about -- your high speed adds are really taking off now. You've got big advantage (inaudible) with the DT and their architecture; and then the German premium TV markets have always been so problematical. If you bundle successfully in that market, is that really how you can just break the ice there and make it more normalized on the upside relative to, say, a Netherlands or a Switzerland over a good chunk of time?

Well, I always have to pause after your questions, Matt, because they are good questions but there's a lot of moving pieces in there.

On the first point, I don't want to speak specifically about what we may or may not be doing with ProSeib and [Edeins] or RTL, but I do believe that you've stated correctly. HD is an important component for us in that marketplace, just launched a bunch more HD channels more recently. We expect -- we launched ten new channels in the last couple months, we have 14 total channels today, and we're going to continue to rollout HD content when and where we can.

There is value to us in rolling out more HD content because we're able to put a smarter device in the home and we're generally able to charge for that, so we will work creatively and constructively with providers of HD content, including broadcasters to find win-win ways of getting that content distributed.

That's all I'll say there and Gene you can think about this question as well. Gene is spending, obviously, a ton of time in Germany and doing a great job for us in that market. I was puzzled by your comment about KDG and Sky. In fact all of the Sky premium subscribers are coming off our footprint through our networks.

I don't believe Sky has got much penetration in KDG markets or much penetration on KDG's boxes or subscribers. It's really only through our box that Sky is able to market, because of the deal our predecessor owners cut with them, when they owned the [Botosega] rights; so, we have a good strong deal with Sky. It gives us reasonably good margin on sell-through of their premium services and most of their customers are coming through our networks which we're fine with because we make money on those customers and they aren't necessarily cannibalizing our customers.

And I think Sky has potential in this market. It's a good brand. It's got good content, but it needs to really be creative and rethink it's business model, I believe, to reach scale. That's their challenge, getting the scale -- 2.5 million sub is not scale in a market of this size, so that's really their main goal. I'm not sure I'm being responsive to the second question, but maybe I didn't understand it.

No, actually the only element that I left dangling, and I apologize for being a little complicated, is just the bundling. It seems like the advantage you have on 3.0 -- and I know you are emphasizing 3.0 more than KD -- do you think that over time you implement the same bundling strategy you have in the Netherlands and you finally cracked that German pay TV market that's been so difficult for such a long period of time just off the Teutonic equivalent of the dream deal that you have in the Netherlands?

Yes, we are doing that. Gene you want to comment more?

Yes, I can.

First of all, I think there's a huge upside in terms of driving premium product into the market. Up until, really, the acquisition of Unitymedia buyer sells, there wasn't a whole lot of premium product and since acquiring the system, we've rolled out Next Generation box, we've introduced HD. Last week, we enabled the DVR functionality on the box. These will be key drivers of improving premium penetration in the market.

We have on the drawing board, the rollout of VOD and it wasn't until June or July that we've really introduced a bundling strategy, and that strategy is a cookie cutter of what we've introduced and been so successful with here in the Netherlands. If you take a look at our product portfolio and our campaigns that we have introduced for the fall, they are very similar to what we're doing in the Netherlands and across our other properties; and I don't see any reason why we shouldn't see exceptional premium growth in the future in Germany, but you've got to price your products right. There's got to be value for money, and as Mike mentioned with the Sky model, I personally think they've got that wrong, and if it was priced or offered in the market in different fashion, I would think they would have better success as well.

Thanks, Mike. Thanks, Gene.

Yes.

Our next question comes from Mr. Dave Gober with Morgan Stanley.

Good morning,d guys.

A couple if I could, just going back on Germany and thinking about it in a little more of a short-term way, the growth really accelerated incredibly on a sequential basis and just curious if you could walk us through what was happening there, especially on the top line in Q3 versus Q2 and how sustainable that is in the near to medium term. Obviously, the long term picture seems very bullish.

And, then, just on CapEx, you talked about Q4 CapEx as a percentage of sales potentially going a little bit higher. Just curious if you have any initial expectations on 2011 and how the advanced set top box deployments are going to impact that number and maybe a little bit a rehash of your longer term thoughts on CapEx as well.

Well, I'll let Gene think about the German question.

On CapEx, I think we've stated, consistently, that we believe year-in and year-out we ought to be able to bring the CapEx as a percentage of revenue down on a steady staid, normalized basis, absent, for example, a huge acquisition that we felt was massively accretive, but required some upgrade or new build, those sorts of events.

So in principle, if you look at our core operating business, we should continue to believe that year-in and year-out, we should see the same sort of reduction in CapEx as a percent of revenue as we seen over the last three or four years. Every year we've said that and every year we've delivered that and of course year-to-date, we're below that, we're below our stated target to the extent that we were specific about that. I think we said last year on CapEx as a percent of revenue that it would be lower than 2009. 2009 was about 22.5% year-to-date we're at about 19.7% and the 20% is where we might have guided people.

Fourth quarter for us, though, is a big CapEx quarter for all of the reasons we've talked about in terms of growth and CPE and things of that nature, but in principle, there's nothing we see in our core capital structure or core network or operational infrastructure that wouldn't allow us to achieve that kind of year-over-year reduction, absent again some large acquisition that requires upgrade.

I suppose the only other qualifier which I've consistently spoke about is the extent to which we take a slightly different approach around mobile than we've taken to date, which I think is the right approach. We've historically been very capital light focused on MV&O's, but we do leave open the opportunity, should it arise to take action more like what we're doing in Chile where we feel there it's a huge opportunity to spend a little bit of capital to buildout our own network and be competitive in mobile. So with those two caveats, I think the trend remains the same.

You want to talk about Germany, Gene?

Mike, let me hit the revenue question real quick, and then Gene can give color to it.

Sure.

Really, the rebased growth, as you look at the quarters, it's really an increase in revenue from advanced services, strong demand for the Unity triple play offerings, and the other digital, video, and broadband offerings that Gene talked about a minute ago.

And then in January there was a price increase in selected segments of multiple dwelling units, and that's what's really driving the growth from a comparative basis, so Gene I don't know if you want to give more color it than that?

Well, I'll shift from the revenue more to the OCF where we've enjoyed very good growth, as well. I think there's a number of factors. Number one, I think we hit the ground really running. We inherited a strong Management team with a solid staff who have made the integration into LGI a very smooth process. In other acquisitions that I've been involved, we have not been able to integrate as rapidly or as smoothly as we have in Germany.

We've been -- we've set a fast pace in terms of launching new products and services. In May, we launched, as I've said, Next Generation set top box and we rolled out high definition. In June, we ramped up our marketing efforts with the introduction of new triple play services and introduced 32 mega bits as the standard product in one of our packages. In September, we launched an entry level digital pack. We've also rolled out as part of the fall campaign a couple new premium packages. In August -- I mentioned we've also rolled out the DVR functionality.

We launched B to B, which is a new product in the market and will develop more into a business line of its own. We accelerated the deployment of EuroDOCSIS 3.0. They had only planned the rollout of an incremental 1.5 million homes. We actually will rollout an incremental 5.5 million homes and that's what's really enabled us to get the new product portfolios into the market to take the speed leadership with respect to broadband and that's what's really driving our bundles and our subscriber gains at the present time.

We completed the Management restructuring and that's all that's completed at this point and we're pretty much on track with our synergy. We're about 100 headcount below budget, actually, so all of this has contributed to a very successful year and there's no reason, in my opinion that this can't be, we can't maintain this momentum into next year and beyond.

Great. Thanks, Gene.

And our next question comes from Mr. Vijay Singh with Janco Company.

Good morning.

Just a quick question on the fall campaign. Which markets did you have to go and have more aggressive price promotion relative to others?

And then one question, not related, obviously, is a question on Poland. We know that (inaudible) is looking to be sold and I was wondering if you have looked at their assets and see if it fits with your footprint and subscriber profile, thank you.

You want to take the fall campaign, Gene?

Yes.

In response to your question, I think our fall campaign strategy is pretty similar across all of our markets. Our focus is really on leveraging the deployment of 3.0 and being the speed leader in the markets. Our tag line is that our internet products start at a speed where ADSL stops and that's very catchy and plays well with the audience. We are focused heavily on driving the three play and two play bundles into all of our markets and building value into those bundles with attractive pricing.

We're focused in all of our markets in moving analog subscribers to digital because as you know, once we do that, we essentially double the ARPU overnight, so the focus there is selling in the value-added services High-Def, VOD where we've rolled it out, and with respect to your question, are we move aggressive in some pricing, in some markets than others. I guess maybe in the Romanian situation, but other than that, we're pretty much following our normal tactics.

On the M&A side, we usually don't speak about that too specifically. I'll just say more broadly that there are lots of opportunities we think, and with the debt markets reasonably strong and multiples picking up, we think more and more folks will be sellers in Europe, but the challenge for us is always maintaining -- not the challenge, the challenge is trying to find a price that clears the market where we feel good about returns, so you can expect us to stay disciplined in the M&A environment, because that's been our track record and we'll continue to do that.

Thank you.

We have time for one final question.

We'll take that question from David Joyce with Miller Tabbak.

Thank you.

Could you give us some color on when you would envision getting all digital in your various markets and also with Chellomedia being in a number of markets -- but there's still a lot that you're not in -- is there an expansion plan there or are you happy with your current exposure?

Shane, do you want to take the Chellomedia question?

I think we see think the big growth opportunity is to continue to follow in behind UPC's digital expansion, indeed, many of the other cable operators, KDG, KBW. I think in market specific opportunity we think Germany is a very fertile ground for us and particularly levering off the Unity position, so I think both digital growth and new markets will provide good growth for us in the coming months, years.

On digital, we haven't given projections on that. Today, we're about 42% penetrated on digital cable. Some markets, like Czech, are closer to 80%. Ireland is over 70%, Belgium is over 50%, Chile is 66%, so it's across-the-board, but in principle, we think we should be able to trend closer to say markets like the UK and the US, and there's no reason why we shouldn't. We're selling the same products and services, we have the same Apps and the same fundamental demand, so that's probably a reasonable long term assumption.

All right, thank you very much.

Okay. Well, appreciate everybody joining. That's our last question.

We appreciate everybody joining and spending time with us and certainly also appreciate your support. It's a very focused and dedicated Management team, as you can tell and we look forward to finishing out the year and talking to you soon in the new year about our fourth quarter, so have a great day.

Thanks very much.

Ladies and gentlemen, this concludes today's Liberty Global Conference 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.

You may now disconnect. Thank you.