Liberty Global Ltd (LBTYK) 2012 Q1 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 expressed written consent of Liberty Global is strictly prohibited.

At this time all participants are in a listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.LGI.com. Following today's formal presentation, instructions will be given for a question-and-answer session. As a reminder, this conference call is being recorded on this date, May 11, 2012.

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, everybody. As usual, we have a relatively large group on our call from various time zones, but I am going to introduce Charlie Bracken and Bernie Dvorak, who, of course, are EVPs and co-CFOs. Diederik Karsten is on, who is our EVP and Head of European Operations; Balan Nair on a telephone somewhere in the world, our EVP and Chief Technology Officer; and Bryan Hall, EVP, General Counsel. And of course, we have got Rick Westerman on as well from our IR and Communications Group.

So we are going to do the safe harbor and then we will jump right into it.

Thank you. Page two of the slides details the Company's Safe Harbor statements regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the Company's expectations with respect to its outlook for 2012 and future growth prospects and other information and statements that are not historical fact.

These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risk 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.

As she said, we are going to be working off of slides today, and as I usually do, I am going to kick it off with some highlights on slide four. I am going to say up front, our remarks are probably a bit longer than they usually are but pretty much everything we want to tell you or want you to take away from this call is right here on this slide.

Beginning with perhaps the most important storyline and that is our subscriber growth, which totaled 445,000 net RGU adds, our best quarter ever in the history of the Company. I will provide a little more color on this number in a minute, but 11 of our 13 markets are up year over year. We continue to exceed even our own internal expectations on sales and churn in most markets.

Our recent RGU growth acceleration underpinned rebased revenue growth of 5.5%, which was our best result in six quarters. I know I have said publicly that we believe revenue growth in 2012 should exceed 2011 and we are off to a good start.

On the cash flow front we generated rebased operating cash flow growth of 3.1%, a pretty good number, given the isolated impact of our 4G rollout in Chile and an increased sales volume in Europe. And then free cash flow growth of 15%, which is right in line with our full-year guidance.

As most of you would know, we have effectively closed the sale of our Australian business, AUSTAR, and should be receiving net proceeds of $1.1 billion before the end of this month. And we are right on track with the integration of our German business, Unitymedia and KBW, and I will give you a snapshot of that market in just a minute.

Stepping back for a moment, it's worth pointing out, in case you were not following it, that are publicly listed European peers, KDG and Ziggo, for instance, continue to trade pretty well in the market. Certainly at a premium to us, which on one level validates our own business and on another level I think shines a light on the upside in our own stock.

And then, lastly, our balance sheet remains, as usual, in very good shape. Pro forma for the AUSTAR sale, our total liquidity will be nearly $5 billion, including $2.8 billion of cash. Our debt remains fixed, hedged, and long-term with 95% of our debt due in 2016 and beyond, and we are on pace to complete $1 billion of buybacks this year.

So all of our core value drivers are working today. We are growing the business organically and at a rapid clip. Our M&A and rebalancing initiatives are on track and delivering results and our capital structure management, including liquidity, leverage and buybacks, continue to set us apart from our peer group.

The next slide, slide five, is one of my personal favorites. Without even studying it closely I think illustrates for you the steady uplift in the subscriber growth we have generated over the last five quarters. In each of the four corners of this slide you will see net adds by product over that period.

Again, just a quick glance at the charts. Across the top tells the story of how our quarterly broadband and voice net adds have picked up sequentially with over 530,000 combined new subs in the first quarter. At the bottom left you will see quarterly video losses over this same period, which have remained fairly stable despite having a significantly larger video base with the addition of KBW in the first quarter.

Then the bottom right just shows total net adds of 445,000, that is up 71% year over year. Now a big part of our growth is attributable to the addition of Germany, which is fantastic, of course. But the improvement in subscriber growth is not limited to Germany as you can see on slide six, which simply compares Q1 this year to Q1 last year, pro forma for our acquisition of KBW.

If you focus on the bottom of the chart, which is the green portion of the bar, you will see that Germany alone generated nearly half of our net adds in the quarter with 219,000. And that is up 12% organically. Again, I will drill down into the German market in just a minute.

Just as importantly though, the blue portion of the bar just above that represents the rest of Europe which is actually up 55% from 124,000 net adds last year to 193,000 net adds in the quarter. Again, nearly all of our markets are performing better year over year. Switzerland continues to improve with their best quarter in four years. We had a record quarter in Ireland.

Our Central and Eastern European operations added 54,000 RGUs; that is up nearly 70% from last year driven by a twofold increase in voice additions and, importantly, an improvement in our video churn across markets like Romania, Czech, Slovak. And when you add Latin America to the mix we are really hitting on all cylinders, as they say, and reaping the benefits of a superior network and better triple-play bundles.

Obviously, a major component of those bundled offers is our digital TV services, which we summarize on slide seven. We haven't shown you this chart in a while, but we certainly speak to it regularly. It simply depicts the evolution of our video cable sub base over the last 12 quarters, which through acquisitions like Unity and KBW and organic growth has moved from 11.4 million subs just under 18 million in that time frame.

There are three other key points that I want you to take away from this chart. The first is the continued growth in our digital video base, which is shown in green. It now totals 8.4 million or roughly 47% penetration, so we are consistently adding over 1 million digital homes organically every year.

The second point is that roughly half of our digital base now subscribes to an HD and/or DVR service, and these are not only killer video apps for us but important sources of gross margin. Then, finally, we still have 9 million homes that have not yet connected or traded up to our digital TV platform. So digital is and will continue to be a major source of revenue and absolute margin growth in our business for some time, along with, of course, our core broadband services which form the foundation of our triple-play bundles, consistent with our approach of capitalizing on our network investments.

The average speed delivered to our customer base today is approaching 30 megabits and most of our newer packages feature our 50 megabit product. The goal is obviously to win back broadband share from the incumbent telcos, who continue to dominate our markets but have been slow to invest in next-generation networks. Germany, for example, has less than 1% coverage of fiber to the home.

Slide eight shines a spotlight on how we have been doing on that front in two of our largest markets, the Netherlands and Germany. So in both charts you will see broadband adds over the last five quarters for our operation and for the incumbent telco. On the left you will see that our Dutch business has added over 130,000 new broadband subs over the last five quarters, while KPN has lost 60,000.

A couple of key points here. All of KPN's figures include fiber-to-the-home additions, so in the first quarter, for example, they lost 45,000 DSL subs and gained 23,000 fiber-to-the-home customers for a net loss of 22,000. And apparently, we are told, their worst quarter ever. Our 130,000 net adds occurred just on our footprint, which represents only one-third of the total Dutch households.

So obviously we are gaining share and taking all of the net adds in our footprint.

On the right you will see the same chart for our German operations compared to Deutsche Telekom. The first thing you will notice is that both we and Deutsche Telekom are adding customers since the German market is less mature than Holland, which has 90% broadband penetration. But just like the Netherlands, we only reach about a third of German households.

So on a much smaller footprint we have added over 0.5 million broadband subs through this period compared to a national gain of 280,000 consumer adds for Deutsche Telekom. What is not shown here are the other national operators, like Vodafone and O2, who are actually going backwards, so it's largely a two-horse race where we estimate we are winning 80% of all new broadband subs in our footprint.

As I said, these are two of our largest markets but we are seeing similar trends in many of our other operations. Given the low level of current fiber construction in our markets, together with the fact that we have nearly 30 million 3.0-ready homes, we believe we have considerable runway to keep taking share across Europe.

Now since this is our first full quarter with KBW, we decided to provide a bit more color on our combined German operation on slide nine focusing on our core areas. I will just hit the highlights since there is a lot of information on this slide, starting, not surprising, with subscriber growth in the top left.

Put simply, the business is firing on all cylinders with record RGU growth on a pro forma basis and 10% rebased revenue growth. I would also point out that thus far any impact from the remedy package we agreed to in order to secure approval for the merger has been in line with, if not better than, our expectations.

Our subscriber growth in Germany is being driven by our superior triple-play bundles, which we continue to simplify and add value to. We recently raised speeds to 50 megabits in our core bundles alongside a three euro price increase. And while 70% of our sales are triple-play, only 25% of our existing sub base takes three products, so we have a ton of upside left.

On the content front, we announced last week a new multiyear agreement with Sky Deutschland, which gives our customers access to Sky's full HD bouquet and gives us the incentive to market Sky products while preserving our current economics. It's definitely a win-win deal for both sides and a very positive outcome for our customers. We will also start bundling Sky's content with some of our services later this year.

In April, we signed our deal with RTL, which further expands our HD lineup so that now we are carrying all the key of free air broadcasters in high-def. When you add in Sky Services, our total HD lineup is now over 40 channels, and with the launch of VOD in Unity and KBW's growing VOD library we feel really good about our video competitiveness in Germany.

I'll also point out in the middle of the slide there, we have rebranded under the Liberty bloom there. Unitymedia and KBW keeping their names, but also incorporating a common brand, and that rebranding helps us pave the way for our launch of Horizon, on which we provide a quick update on slide 10.

The punch line is that we are full speed ahead for a Q3 launch of Horizon NL in Switzerland. That is a slight delay from what we told you in March, but we have the luxury of time on our side, as I have said before, and there is no reason not to use that time to perfect every last element of the platform. We continue to believe Horizon will be a financially and strategically accretive product that will redefine cable in the home, media, and entertainment space.

We have also provided a quick mobile update here. You will see in Chile we are ready to launch our 4G wireless network later this month. We now have over 10,000 paying trial subscribers with no marketing. The network is stable and our coverage reaches 100% of the country, and we are getting great feedback from customers. So we are really excited about this commercial launch and Mauricio is actually on the call if you have questions about that.

Finally, as many of you probably know, the rest of our European markets we have been taking a capital-light approach to wireless, which means continually improving our MVNO deals like we have done in Belgium and investing in a common wireless platform to support our MVNO agreements in Germany, The Netherlands, and Switzerland. We will evaluate very carefully the need to invest in spectrum, really for the option value, but in principle believe that this approach is going to get the job done wherever a quad-play offer might be needed.

So, again, a really strong operating quarter for us. We feel great about our ability to keep subscriber growth steady, cash flows optimized, and, as usual, the capital structure geared towards equity returns for all of us. With that I will turn it over to Charlie.

Thanks, Mike, and hello, everybody. I am going to recap our first-quarter results starting on slide 12, which really builds on what Mike said already. As the charts highlight, we increased our reported revenue by 12%, or $279 million, to $2.54 billion and our OCF expanded similarly by 13%, or $134 million, to $1.2 billion for the first quarter of 2012 compared to Q1 2011.

Now reported growth in both revenue and OCF was driven to a large extent by the contribution of acquisitions, particularly KBW, and this is the first full quarter of the consolidation of KBW's results. But the remaining increase was attributable to organic growth, which was fueled by the volume gains that we generated over the last 12 months. And from that we have seen a real acceleration in revenue growth from both broadband and telephony.

Offsetting the M&A and organic growth was strong currency, which was a bit of a headwind for us this quarter. Besides the strengthening Swiss franc, all of our other key currencies actually depreciated against the US dollar on a comparative basis to the first quarter of 2011. And that includes the euro, which depreciated about 4%.

As Mike mentioned, our results reflect rebased revenue growth of 5.5% and rebased OCF growth of 3.1%. Our rebased revenue growth was the best absolute result in six quarters. On the other hand, our rebased OCF growth of 3% was tempered in part by the effects of subscriber acquisition and marketing costs, which include costs associated with our go-for-growth strategy at Unitymedia, as well as the impact of the Chilean wireless project and Belgian football rights.

Though rebased OCF growth was slower than revenue, our reported consolidated OCF margin for the quarter was consistent with the prior-year period of 47% as the positive contribution of KBW's higher margin business helped to offset the negative factors I just mentioned.

If you turn to slide 13, this breaks down our first-quarter consolidated results geographically. So excluding publically-traded Telenet our European distribution operations generated $1.7 billion in revenue and $882 million is OCF for an OCF margin of 51.7%. These results reflect year-over-year reported growth of 17% in revenue and 19% in OCF, as well as a 90 basis point improvement in OCF margin.

Adjusting for both M&A and FX, we achieved 4% revenue growth rebased and 4% OCF growth, and that is led by our combined German operation. Rounding out Europe, Telenet posted revenue and OCF of $478 million and $236 million, and that corresponds to rebased revenue and OCF growth of 10% and 6%, respectively. Particularly impressive for Telenet as top-line growth was its best result in over three years, and that is driven in part by higher ARPU and also by mobile revenue.

And on OCF, 6% rebased OCF growth was a very good start to the year, given the Telenet incurred roughly $13 million in costs for Belgian football rights. These are costs that we start to lap in Q3.

Outside of Europe our Chilean business produced $225 million in revenue and $75 million of OCF. VTR revenue reflects rebased revenue growth of 7% as we continue capitalizing on our strong market position, adding nearly 120,000 RGUs in just the last 12 months. On OCF, VTR reported a rebased decline of 10%, but most of that was related to the incremental costs of Chilean wireless, which were roughly $9 million higher in Q1 of 2012 as compared to Q1 of 2011.

If we adjusted LGI's rebased OCF growth rate for the VTR wireless and Belgian football costs, the growth rate for the quarter would be meaningfully higher year over year.

Turning to our OCF phasing for the remainder of the year, we currently expect that our consolidated rebased OCF growth rate for Q2 would be lower than the Q1's reported OCF growth rate. And this is largely a function of the continuation of the factors that adversely impacted our Q1 OCF growth rate. So those are Chilean wireless, which we expect the cost to ramp substantially in the second quarter in connection with our commercial launch; subscriber acquisition and marketing activities, particularly in Germany; Telenet's football rights; as well as some other factors, such as M&A integration costs.

We, therefore, anticipate that rebased OCF growth will be significantly weighted to the second half of 2012, and yet we are still confirming our mid single-digit guidance target for the full year.

We turn now to slide 14. A core strategic focus of ours has been to improve top-line growth so we thought we would focus on recent trends in our four largest markets which together represent 66% of LGI's consolidated revenue in Q1. The upper two quadrants highlight our two largest businesses, Germany and Belgium, both of which posted over 9.5% rebased revenue growth in the first quarter.

As it relates to Germany, both Unitymedia and KBW each delivered roughly 10% rebased growth in Q1, moving up with a nice trendline from 8.3% revenue growth in Q3 last year.

Turning to the bottom left, our Dutch business has shown an improving year-over-year trend over the last three quarters, moving from the 4% level up to 4.5% in Q1. Over this same three-quarter period UPC Netherlands has added over 130,000 net adds, including 42,000 in Q1 of 2012, as well as over 100,000 bundled customers.

Moving to our Swiss business on the lower right, the recent trends demonstrate steady improvement. Our quarterly rebased revenue growth of 2.8% was our best result in 3.5 years and doubled from the 1.4% rebased growth Cablecom reported in Q3 of 2011. And in the first quarter we added 29,000 RGUs in Switzerland, more than tripling net adds from a year ago, and continue to show strong results in digital TV take-up helped in part by an increasing array of HDTV channels.

So as is evident by the chart, we clearly feel the business is moving in the right direction. Overall, these four operations generated 7% rebased revenue growth in Q1 2012, up from 5% in the third quarter of 2011, and that is largely on the back of bundled product growth.

Slide 15 recaps our consolidated capital expenditures and adjusted free cash flow for Q1. We incurred $521 million of CapEx in Q1 of 2012, or 20.5% of revenue, as opposed to $490 million, or 21.7% of revenue, last year. The growth in absolute CapEx was due in part to the inclusion of KBW, which accounted for about $38 million of CapEx, or 7% of the total.

Together with Unitymedia, Germany accounted for $134 million, or roughly 25% of our total spend in Q1. But volume also played a role as we added roughly 825,000 organic digital, television, broadband, Internet, telephony RGUs in the quarter as well as nearly 300,000 HD and DVR subscribers. These results were higher in Q1 2012 by more than 170,000 and 50,000, respectively.

Due in large part to this RGU growth, CPE and scalable infrastructure accounted for 57% of our total additions in property and equipment during the quarter. It's worth pointing out that the decline in CapEx percentage of revenue was aided by a $30 million increase in vendor financing and capital lease additions, as we continue to focus on optimizing our working capital whilst driving higher subscriber volumes.

That is a perfect segue to the right-hand chart, so for Q1 2012 our adjusted free cash flow, which adjusts primarily for the impact of our Chilean wireless project, is $279 million for Q1 2012 as compared to $243 million for Q1 of 2011. This 15% year-over-year growth was in line with our mid-teens guidance target for the full year and was driven by a 9% increase in cash provided by operating activities, offset in part by a 6% increase in CapEx and a modest foreign currency headwind.

The increase in our cash from operations stemmed from higher OCF which offset a more than $100 million increase in total cash interest and related derivative payments. In terms of the phasing of our adjusted free cash flow, we would anticipate that adjusted free cash flow will be substantially weighted to the fourth quarter as compared to Q2 and Q3. And that is similar to the quarterly patterns that we have seen in the last couple of years, which are impacted by the timing of our cash interest payments on our debt, as well as working capital movements.

Turning to slide 16, I will touch on our capital structure and cash position. At March 31, we reported $25.2 billion of total debt and capital lease obligations, and that is up $400 million from Q4, largely due to FX translation. During Q1 we completed a number of refinancing transactions at our UPC and Telenet funding costs, and these transactions further improved our maturity profile. As a result, only 5% of our debt is currently due before 2016. Just last week we completed a debt exchange, whereby we combined our two German businesses into one much larger and more liquid German credit pool.

Due to both Unitymedia and KBW's strong financial performance, we were able to undertake this combination much earlier than we had initially contemplated.

Now looking at the left-hand chart, our adjusted leverage ratio remains at 5 times, which is the upper end of our target range, but netting out our cash position at March 31 our ratio falls to 4.7 times.

Moving to the right-hand chart, our consolidated liquidity position at Q1 was $3.7 billion, and including the $1.1 billion in expected proceeds from the sale of AUSTAR, our pro forma position would increase to $4.8 billion. Now besides the $1.1 billion from AUSTAR our pro forma liquidity consisted of nearly $1.7 billion in consolidated cash, including roughly $850 million at the parent level, as well as maximum borrowing capacity of $2 billion under our credit lines, of which we expect to be able to borrow nearly $800 million upon Q1 reportings.

Our substantial liquidity position provides us with plenty of flexibility to buyback our equity and through March 31 we repurchased 5 million shares for approximately $230 million, leaving us with about $780 million of authorization. And as Mike mentioned earlier, we remain on track to complete our $1 billion 2012 repurchase target.

If we go to the conclusions on slide 17, we obviously feel very good about the state of our business and our outlook for the balance of the year. We are reconfirming all of our 2012 guidance targets, and we should report that the positive RGU development has continued in April. Coupled with the upcoming launches of Horizon and Chile Mobile, we feel we are very well-positioned for a very good second-half performance.

That completes our prepared remarks, so, operator, can we open it up to questions please?

(Operator Instructions) Jeff Wlodarczak, Pivotal Research Group.

Good morning, guys. Congratulations on the results. I wanted to get some more granularity around the second-quarter rebased growth. Do you have an absolute number you can give us around the hit you are expecting from the Chilean wireless launch? And then when do you expect that to go EBITDA positive?

Then, in Germany, the amount of the potential M&A integration costs would be helpful. Were there any integration costs in Q1? And then I have one follow-up.

I am not sure we can provide a whole lot more color on the actual number for the second quarter, Jeff. Rick, you will have to remind me what we said publicly about the Chile operating cash flow. I am not sure we have given that number out (multiple speakers).

We haven't given specific granularity around that.

Okay, fair enough. Then I will jump to my next question. There has been a lot of noise recently out of The Netherlands. The Senate recently seems to have picked up where OPTA left off around analog video and net neutrality.

Maybe more color on that? Is that something you can take to the court system or the EU? And how long do you expect it to play out?

That is something we do expect will take some time to play out and we can use both the European Union and their regulatory framework, as well as court system to challenge it.

It really is a head-scratcher, Jeff. It's hard for us to understand given that the regulator itself's view of that market, what, two years ago that it's plenty competitive and only more competitive today. I guess I would say politics is at play here. We have to stay vigilant in terms of getting support from the EU Commission, who we will likely start infringment proceedings on our behalf.

Having said that whatever occurs will probably take some time. The last time, as you will recall, we had pretty good economic solution, even if it did come about, but we are not too worried about it as we sit here.

By the way, is it true that they put OPTA in charge of setting the pricing? Which seems kind of odd because they declared it was competitive.

Well, yes, it's very strange. I mean the fact that they would put the same regulatory body that concluded there is plenty of competition in video in charge of implementing, or at least presiding over disputes. And that is one way to think about it. There has to be a dispute really for this to rise to their level so --.

I will also point out that very few people ever expressed an interest in using our analog video spectrum for video, only because, of course, the market is rapidly moving digital and it's all about broadband. So it's a head-scratcher, but from time to time we are going to have these sort of moments in European national politics and we just work right through them.

Great. Thank you very much.

Mike, I have got a couple of figures on the VTR wireless loss in the first quarter. The negative EBITDA there was $16 million compared to a negative $6 million in Q1 of 2011. So obviously with the commercial launch we have got a significant amount of cost and it's really -- at this point we can't predict the absolute number of subscribers, the gross adds that we will have in Q2 and for the balance of the year for that matter. And that is obviously a huge swing factor given the handset subsidies with each new add.

Plus we haven't given guidance on the future profitability. I think you can assume it's negative EBITDA this year at least, so that will be a drag on our growth.

Okay, thanks.

We did communicate though in the Q4 call, guys, I think $150 million in negative free cash flow for the year, Jeff.

That hasn't changed?

Up to that, yes, that hasn't changed.

Okay, thanks.

Hugh McCaffrey, Goldman Sachs.

Thanks, guys. I was just wondering if you could update us on your thinking around the pricing environment in Germany. Do you see scope for price inflation in your broadband and triple-play offers there?

If you look, we have taken some modest rate increases in that market. I mean we have, along with improving the product and I will let Diederik address it more fully. But we ramp speeds and improve our bundles in that marketplace we are taking small rate increases to the tune of EUR2 or EUR3 where we can.

So while it's still a competitive market, it is still very much a growth market in terms of raw organic growth and so we are finding opportunities as we improve the bundle, which really means improving speeds and adding more HD to take small modest rate increases and to do it in a way that doesn't affect the demand curve. Do you want to add anything to that, Diederik?

No, Mike, that is really pretty much it. The only other category could be alignment of tariffs between KBW and Unity where we are also aligning products, and from here on we will not only look at acquisition but also at some point harmonizing amongst the base. But it did hit the radar and I think that is a key strategy to see how we can move up ARPUs in Germany.

Our main product proposition is to be faster, have more features and content in our bundle at or below the price of the incumbent, and that is what is driving our market share. It's still very, very profitable growth for us in these markets. It's not as if we are racing ahead on volume without being very cognizant and careful on return.

So it's still very positive growth for us and we are trying to optimize that in this moment, because I think we have got a good opportunity.

Okay, great. And I just have a very quick follow up on speed. You talked about obviously people paying for higher speeds. You are still seeing strong demand from the consumer to go up the speed curve, not just in Germany but across your European operations. Is that right?

Absolutely. It's only going one direction and I think you will also find that we are at -- our consumption levels are close to 1 gig a day, up from -- what was it -- 200 or 300 megabits just a few years ago. So speeds and consumption are traveling along the same curve. We spend a lot of time looking at our network infrastructure and our ability to stay ahead of that speed and consumption curve, and we feel really good about that.

But there is no question, while two years ago we were probably talking to you about 25 megabits bundles being sort of a sweet spot, that is rapidly becoming 50 megabit. That is an important number, though, remember because you really can't do 50 megabit on a VDSL footprint. And in a place like Germany there might be 20% VDSL coverage but only 1% fiber-to-the-home coverage. In a place like Holland there might be 40% or 50% VDSL coverage and 25% fiber coverage.

So the point is we have to keep ahead of our competitors in taking advantage of our 3.0 footprint. Not pushing it too far, but definitely staying ahead of competitors and telcos are going to hit a wall right about there if they are trying to do video as well. So it's a perfect spot for us to be in.

Okay, that is really helpful. Thanks, Mike.

James Ratcliffe, Barclays.

Good morning, thanks for taking the question. Two, if I could.

First of all, can you help us quantify year on year what the impact of the faster RGU growth was on EBITDA, just in terms of what the incremental installation costs were or what our growth would have looked like if you had had the 180,000 fewer RGU adds that you did in 1Q 2011.

Secondly, I know it's rather early, but are you seeing any impact on the German housing associations that were able to end their contracts early as part of the KBW deal? And any movement on their part? Thanks.

Sure. On the second one, we are trying to be careful because a lot of these processes are unfolding in Germany on a confidential and negotiated basis. But as I said in my remarks, the process thus far is in line with our expectations, if not a little better.

So we are going to compete for these contracts and we are going to compete appropriately and fairly and on the basis of a superior product. Our confidence level is high that as these contracts are opened up and people are given the opportunity to bid and provide alternative infrastructure and pricing to these customers of ours that we are going to be on very good footing given the quality of our networks and the quality of our relationships.

So we obviously made some assumptions, James, that over time we wouldn't keep every single contract. This is, again, roughly 340,000 homes that we are talking about in Germany. But at the same time we are going to compete for every contract, and I am very, very encouraged and proud of the team and what has been accomplished thus far. I don't want to give any more than that at this stage.

On the RGU growth, listen, one way that I look at it -- and Rick and Charlie and Bernie may have a different spin on it -- is roughly half of the difference between the 5% revenue growth -- 5.5% revenue growth and the 3.1% EBITDA growth is attributable incremental marketing and customer acquisition costs associated with higher volume. Then the other half you can roughly attribute -- and most of that is in Germany, which we like -- and the other half you can attribute to be Belgian football rights or the mobile launch in Chile and things of that nature.

Beyond that, guys, if you want to provide more quantification you can do it.

No, I think that is a pretty good summary.

Great, thank you.

Ben Swinburne, Morgan Stanley.

Good morning, it's Ryan Fiftal on for Ben. So a question on Switzerland. We have seen a couple of quarters of revenue acceleration there, and if I am doing my adjustments correctly, I think it was the best RGU quarter in quite a while.

So could you give us a little more detail on that environment; what is going on in the market, what you are doing differently that is starting to get some traction? And then can that market start to look more like some of your other developed markets, like The Netherlands and Belgium?

Yes, so I think I am going to let Diederik answer this, but I will tell you just from a general point of view that we do think this market can look like The Netherlands. We have put in place, really several years ago, a strategy focused on really the customer, the customer experience, the competitiveness of our products and our brand, and we changed the management team -- that is what is proving out today.

And in a place like Switzerland the secret of our success is just having better products. In our bundles we have 2.5 times the broadband speed for less money. We are offering comparable video; we are going to launch Horizon; we have rebranded. So it's just blocking and tackling and, most importantly, improving the churn.

I mean I am really proud of the way we have reduced churn across all of our products in that market. The sales are going to be what the sales are to some extent. It's a mature market and largely just us and Swisscom, but in the end, if we can keep our churn lower and get it down to really, really low levels, we are going to retain more customers and those sales drop down.

So I am really proud of what is happening in that market. Diederik, you want to add to that please?

Thanks, Mike, that you are proud of what we are trying to achieve. I would say that, indeed, things are all coming together. We also have quite a competitive portfolio now versus Swisscom with, like you said, almost 2.5 times, let's say, broadband speed for kind of 50% less. And if you add to that the improved operational pieces, like after sales customer care, I think we are talking about kind of step-wise and step-by-step going into the right direction.

It's a tough market; Swisscom is a tough competitor, but we feel that we are kind of exactly where we have to be. I think that the reduction in churn also traces to the stickiness and the strength of the bundles. The 2.5 times the speed versus competition; where do you go after having discovered our product? So we feel pretty strong about further developments in Switzerland, like you said, with Horizon which is still due, hopefully, before the end of the year. That is it.

Okay, thank you.

Matthew Harrigan, Wunderlich Securities.

Thank you. Moving past your comments on the DSL, I think, Mike, you talked or were on the panel at the Cable Congress that talked somewhat about the new protocols they are trying to develop, like G Fast. You still think that with reasonable loop lengths, the physics of the copper are going to be sufficient that your DOCSIS, your network is going to retain an advantage over what the telcos are able to do with the copper?

Then, secondly, in your Q I think you have got 7% of your German revenues from payments from the broadcasters for programming carriage. I noticed some offset to that on the programming cost side, but could you talk a little bit about how you see that evolving on a net basis in Germany over a longer period of time, particularly as you get more video revenues from your advanced customers?

Sure, I will start with the second one and, Balan, I hope you are still on, you can talk to the first one. As you point out, the carriage fees in Germany where we are paid by broadcasters to deliver their broadcast signals essentially is part of the tradition and history of that market. And by the way, we are not the only people who are paid. Deutsche Telekom is paid EUR100 million a year to deliver content on their IPTV platform to roughly 5% of consumers, so in the end the price per sub that cable operators are paid is relatively small compared to what they are paying other operators.

But having said that, we are also very realistic that these broadcasters, in particular the commercial broadcasters, are very anxious to expand into either digital tiers or into HD content. And so we are finding ourselves, for example, with RTL and others, able to construct arrangements where we are sharing the upside of their investment in more content. So we are not fundamentally changing the nature of our carriage fees, but we are creating win-win arrangements where they can essentially offset some of those fees by putting out better content and HD content and digital content.

So I think the way we are handling this is the way we should be handling it. In the long run we will see how it all unfolds, but whatever that percentage of revenue is represented today by carriage fees, ultimately, the complexion of that relationship and the complexion of those revenue streams are going to alter over time as we incorporate more and more HD content, more and more catch-up TV content and VOD content, and more and more digital channels. So we are not fussed by it.

The status of the dialogue we have and the quality of the dialogue we have with broadcasters in that market, including Sky, of course, who we just announced a major deal with, is very, very good so I am not too worried about it. Balan, are you still on?

Sure. On the VDSL I would say it has probably reached the peak of what it's going to get to. Bear in mind as well that they have to share this bandwidth with their video platform, which leaves not very much bandwidth left for broadband. No matter how high VDSL will go, we will be able to outpace it at least 5 to 1.

Good to hear. Thank you.

David Joyce, Miller Tabak and Company.

Thank you. I was wondering if you could provide some more color on the really strong growth of net adds in Germany. What sort of tiers are customers coming in at on the Internet speeds? The voice adds also are very strong so it doesn't seem like there is any new wireless voice substitutions, if you could comment on that a bit.

Then also beyond the Netherlands rollout of Horizon, what other sorts of network upgrades are you going to require as that rolls out? Thank you.

Sure. Diederik, do you want to handle the German question?

Yes, sure, Mike. Bulls-eye product, best-selling product is currently the 50 meg where we came from 32 meg broadband for EUR30; now selling the 50 meg for EUR33. That is the core bundle.

Telephony, as we see also in our many other markets, is kind of moving out of the way for the broadband. With respect to the telephony usage, I would say that in the German market indeed you might not see a kind of transfer from wireline usage to wireless. Mind you, it also has to do with the somewhat traditional kind of nature of that market. For example, cable broadband penetration is also somewhere in the mid-teens compared to 30%, 40% in other markets.

We have to say, however, that we do see the first signs emerging in other markets with a kind of decline in telephony usage, wireline. It is not necessarily all going to wireless, although we have seen declines in telephony usage. It may be social media, Whatsapp type of applications which kind of takeover the usage.

Fortunately for us, we have never had a lot of telephony usage in our revenue streams. It's s principally comprised of the rental fee that comes along with the broadband connection. If you buy broadband bundles from us, you are going to get voice for very little incremental cost, and this what is generating our revenue mostly in that category.

Balan, do you want to address the network upgrades in Horizon?

Sorry, I missed the question.

I think the question was, with respect to the rollout of Horizon, are any network upgrades required and what are we doing with the network?

No, absolutely no network upgrades are required for the Horizon platform.

Some investment in the head-end infrastructure, but that is it.

Okay. All right, thank you very much.

Vivek Khannak, Deutsche Bank.

Good afternoon, it's Vivek Khanna. Sorry to trouble you; I just had a quick question to ask with regards to CapEx. I mean clearly RGU growth is coming in very well and clearly ahead of our expectations. Can you just provide is maybe an update on CapEx guidance and then also on what incremental vendor financing you will be applying on the back of that?

Then, finally, just on vendor financing could you provide some color as to how it would work between the various entities? Like my understanding is that it's going to come out of Germany to a certain extent and then -- the facilities based out of Germany and then UPC will benefit from it also. So just some clarity on how that will work between the various entities would be great, thanks.

Charlie?

I think, just to remind everybody, the vendor financing issue is part of a general working capital efficiency project. So it's not just vendor financing, it's things like optimizing your receivables, reducing prepayments, etc., etc.

So as part of that we are working with our vendors to try and extend our payment terms from roughly an average of 90 to say 92, 93 days. That two- or three-day pick up on the average clearly derives you cash flow benefit, but it's not trying to stretch the envelope. But we do disclose it just to make sure it's transparent to everybody how we are doing it.

Historically, the way we have done it is go to the big vendors, Cisco would be a good example, if they have significant cash, and just ask them under certain terms to extend their payment terms. Increasingly what we are looking to do is perhaps use a bank to intermediate, which is a win-win for everybody. And so that program is underway.

Because of that we are not giving specific items as to who is getting what vendor financing. It depends a lot how much is spent by the Germans on their Cisco equipment or how much is spent by the Europeans on Cisco equipment so I think it would be wrong of me to give you guidance.

But in general, you are right, it is easier to derive the better financing benefit from CPE purchases because, clearly, we are using a smaller number of large vendors who are, at this stage, more attuned to the program, although over time we may optimize that further. So I think that I wouldn't give you specific guidance on how much is coming out of Germany or how much is coming out of Europe, but it will play a role. And I think the number we have in Q1 is kind of indicative of the cash flow benefit that you should expect to see going forward. We reserve the right to tweak it up or tweak it down depending on the attractiveness of the payment terms and the vendors.

That number is $30 million in Q1 and there is no change to our cash CapEx guidance, which as a percent of revenue this year will be down we expect 50 to 100 basis points compared with last year.

Thank you very much.

Will Milner, Arete.

Thanks very much. My first question is just on the Chilean wireless project. I mean obviously we are talking about the drag to EBITDA and free cash flow from that project. It strikes me you are going to be the fifth network operator in Chile and I think we see Nextel launch quite recently with cheap price plans. We have also seen Telefonica report falling EBITDA in the last quarter, so it seems a pretty competitive market with falling prices.

I wonder if you can just talk a bit more about your prospects for generating a return on the mobile investments in that kind of environment, what other options you might have to generate a return in that market, including taking part in consolidation. Thanks.

Sure, I will kick it off and then Mauricio Ramos is on. I will let him deal with the specifics. But I will tell you that certainly Chile looks different than many of our other markets from the point of view of the reach we have of that country in terms of physical reach in our networks; the brand position we hold. We really are the incumbent in many ways in that market, at least on our footprint in terms of video, voice, and data market share.

The way Mauricio and his team have very effectively and very inexpensively acquired spectrum, constructed towers, and put in place nationwide roaming deals to allow us to have a nationwide launch in a relatively quick manner. So the beauty of it in this instance is we don't need a lot of market share, quite frankly, to make this business work given the way in which we have constructed it and capitalized it. But I will let Mauricio make the case. Mauricio?

Sure. There is a couple of things that, as Mike was pointing out, are different and make us be a unique new player in the mobile marketplace in Chile.

Number one is, as Mike was saying, we are number one in each one of the products that we offer within footprint, so if you will, we are extending that position into a new line of business. That is different from any other player that has entered a market in many locations in the world and certainly different from all the other players that are entering Chile.

We are doing it from the position of leadership in each one of our products, leadership in our brand, and we are doing it, as Mike was saying, in a very cost effective manner.

The second big differentiator that we have, precisely because of our position as a fixed broadband and telephony operator, is the ability to offer fixed mobile integration, which we are in a unique position to do. None of the other entrants are and some of the existing players are not really in that position, perhaps other than Movistar, Telefonica with certain handicaps.

The second thing that is very important to bear in mind is that, unlike the US and certainly unlike, perhaps, certain markets elsewhere in the world, the Chilean mobile marketplace remains a very healthy business with high ARPUs and low minutes of usage. Just to give you an idea, OCF margin is about 40%, operating free cash flow margin is about 20%, 25%, and only about 30% of the subscriber base is postpaid and it's being converted very, very rapidly.

Mobile broadband has exploded there and we, as the fixed broadband provider of choice, are in a unique situation to complement our product with a mobile broadband offering, especially because we are going to have -- like a lot of the other MVNO new entrants, we are going to have an empty network advantage to do that over. So when you look at that marketplace and you look at our position you realize that there is plenty of room for us to come under that price umbrella and enter that market, which in Chile remains very healthy.

The key in our mind is to do it in a manner in which, since we intend to be long-term players there and that is where our business plan has been developed, to do it in a manner in which we maintain the healthiness of that market.

And going back to the earlier question on the subject in terms of our ability to reach EBITDA breakeven, the important point to keep in mind is that since we believe we have the ability to drive volume here and a need to do it and the desire to do it in a very profitable manner, to some extent we hold a certain degree of leverage to control our destiny because we can control -- we believe we are going to have sufficient demand to control the level at which we want to bring that volume into our business.

That is very helpful, thanks. I have a second follow-up question actually, just switching to Germany.

You mentioned the price increases earlier that I think you put through at least a month or so ago now. I just wonder if you could you share with us any thoughts as to the customer reaction to prices being put up EUR3 and thinking specifically around churn levels since the price increase or customer intake since the price increase that would be helpful. Thanks.

We the price increase was on new customers. I don't think we -- correct me if I am wrong, it's not a retroactive price increase on existing customers, but we haven't seen a lot of spin down or spin up. Generally speaking, when we put these price increases in we add some promotional period. But do you want to add any color to that, Diederik?

No, you are right. There is no slowdown in sales, which we would expect as a first negative reaction, so that is good news. Like you said, it doesn't involve the existing base, the present base that are still in their promotional period. But we are considering obviously to lifting the price as well.

Sorry, I just missed the last bit. You are considering increasing prices for existing customers, was that the final comment?

Yes, we are not ruling that out, but as I said, most of the actual base is still in there, I would say, promotional period where we can't just raise the price. But obviously it crossed our mind.

Okay, thank you.

That would be a future event.

Vijay Jayant, ISI Group.

This is (inaudible) for Vijay. I was hoping you could help us reconcile the fact that when I look at other Western Europe the RGU seems to have grown almost 50%, but when I look at the revenue and OCF growth that is significantly lower than what you did last year.

We had a hard time hearing you, but I am going to try to translate a little bit. You correct me if you can hear me okay whether I am wrong. But I think you were asking about trying to reconcile the acceleration in RGU growth in Western Europe with the revenue and OCF results.

I would tell you simply that obviously what we do in the first quarter in Western Europe quarter over quarter isn't going to impact -- we are not going to get the real impact of that till the succeeding quarters or the following quarters. I am not sure, that is sort of a generic answer but --. Did we get the question right because you are coming through very poorly?

Sorry, I was talking about other Western Europe; that is Ireland and Austria.

Okay. Well, in a place like Austria it takes more to move the needle there. But in a very competitive market like Austria we are finding, of course, that to keep the business on course we have to be competitive and that sometimes means faster speeds and more effective prices.

So I think you are going to -- and you have been following us for some time, you realize that Austria is a very mature and competitive market. Relatively good cash flow yields, but has always been a bit challenged on the top line both in terms of subscriber growth and revenue growth. Diederik, you want to add anything to that?

No, you are absolutely right. Where we also now see that ARPUs are stabilizing in Austria and some of the other competitors are also struggling with them, so the heated promotional environment for mobile data three years ago seems to be over.

Next moving to Ireland, it's the only country where we do see declines in particularly the premium market, premium DTV packages as a result of the somewhat, I would say, lackluster economic conditions. And that is dampening the, very healthy, I would say, development in Ireland that particular market. People are downgrading -- Sky must see it as well -- away from the premium market. We see it as something temporary, but that is an adverse revenue effect in Ireland.

Does that help? Okay, I hope that was a yes.

Well, listen, appreciate everybody joining the call. A couple of us are getting over bad colds, but I do appreciate everybody checking in. We had, as we said, a really great quarter.

We feel extremely good about how the second quarter has unfolded. Things are clicking on all fronts with our business so we feel very, very positive and, as always, we appreciate your support. You know where to find Rick and his team if you have follow-up questions. Thanks for joining us.

Ladies and gentlemen, this concludes Liberty Global's Q1 2012 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.