Liberty Global Ltd (LBTYK) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's investor call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the expressed 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.lbi.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 5, 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.

Welcome everybody, and thanks for joining us today. I want to make a couple of quick introductions before we do the Safe Harbor and get into the call. I have with me as usual Charlie Bracken and Bernie Dvorak, our co-CFOs; Diederik Karsten, who heads our European cable operations; Balan Nair, our Chief Technology Officer; and Mauricio Ramos who oversees the VTR in Chile; and of course Rick Westerman, who you all know in the IR department. There are a few other folks on the call and if necessary we will hear from them as well.

The agenda is as we have done in the past, I am going to do a quick overview. Charlie will run through the numbers today and then we will get to your questions. So before we do that though let me turn it back to the operator for the Safe Harbor.

Thank you. Page 2 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 expectation with respect to its outlook for 2012 and future growth prospects and any 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 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 are on the conditions on which such -- on which any such statement is based.

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

Great, thanks, Operator. As usual there are some slides on our website. Hopefully you have had a chance to access those, and we will be speaking from those today.

I am going to start on slide 4 with a snapshot of our third-quarter operating results, beginning with our subscriber growth of 320,000 RGUs for the three months. As most of you know, the third quarter is typically slower for us, but this is actually our second-best Q3 for net adds. And we are now over 1.1 million organic RGUs for the year, bringing our total video, voice and broadband base to 34.1 million.

By far the most exciting development in the quarter was our long-awaited launch of Horizon in the Netherlands, and I am pleased to announce that the wait was worth it. The early adoption of Horizon, both the gateway and the online service, has far exceeded our expectations and internal forecast, and I will give you some more on that in a moment.

The third quarter was also our strongest this year from a financial point of view. Obviously, we continue to see the benefit of the last 12 months where we have averaged nearly 380,000 net RGU adds per quarter, and the last nine months in which we have added over 2.1 million Advanced services, so including digital TV subscriptions, which is a record for us.

As you would expect this volume growth, together with some selective price increases, helped deliver Q3 revenue of $2.5 billion or 6% rebased growth. Operating cash flow was also strong for the quarter with rebased growth of 5%, turning in $1.2 billion in total OCF for the period. You have probably done the math, but that translates into an OCF margin for the three months of 48.6%. And if you exclude VTR's 4G wireless project from the number, which I will update you on in just a minute, our rebased OCF growth would have actually been 7% for the quarter.

Charlie is going to dig into the numbers in much more detail, but I get the punchline, which is that that we are confirming all of our 2012 guidance targets today.

I will just make three quick points on the capital structure. First, we ended September with roughly $5.5 billion of total liquidity, including consolidated cash of $3.3 billion, $2.1 billion of which was upstairs at the LGI parent level.

Second, we continue to have great access to the capital markets, completing $2.5 billion in long-term debt financings in the quarter at an average interest rate in the mid-to low 6%s, well below our average cost of debt capital today.

And, third, we continued to invest in our own equity, with $620 million of stock repurchased through September 30 and $1 billion targeted by year-end. That will bring our total stock repurchases to over $9 billion since we launched our levered equity growth strategy.

And then, finally, just a few words on the announced Telenet transaction. As we described in our press release of October 29, which I would encourage you to review if you haven't, we are moving forward with our EUR35 tender offer to the minority shareholders of Telenet, and have waived the 95% condition, which means we will close on any and all shares tendered at that price.

Now having and been investors in Telenet since 2004 and the majority control shareholder for the last five years, we feel we have a pretty good understanding of the Company's risks and opportunities and are convinced that this is an extremely attractive price from essentially an evaluation perspective. A full prospectus laying out all the details for shareholders will be filed very soon and we look forward to completing this transaction in December.

With that, let me jump into a few more operating update starting on slide 5, where the chart illustrates the dramatic increase in subscriber growth that we've experienced over the last four years. The bars show total net adds through the first nine months of the year going back to 2009, and it is a pretty good visual from our opinion.

We generated 50% compound annual growth in net adds through that period, from 342,000 in 2009 to over 1.1 million through September of this year. Now, obviously, some of that RGU growth, especially in the last two years is attributable to key acquisitions like Germany, but even excluding Germany the balance of our European operations have added over 25% more subs this year than in 2011, in markets like Ireland and Switzerland and Belgium and Western Europe. And Hungary and Romania and Central Europe continue to perform well.

Two markets in particular underperformed in the quarter. In the Netherlands we had a more difficult three months due in part to increasing competition and the impact of a price increase on our triple-play bundles. Despite that, our Dutch financial results for the quarter were very strong. And in Poland we continue to work through the integration of the Aster integration.

If you look at this year from a product perspective the 1.1 million net adds year-to-date break down into 660,000 new broadband subs; 730,000 new voice customers; and a net loss of 260,000 video homes. Now despite the video loss, which was negatively impacted by a couple of markets, our video revenue continues to be a significant contributor to growth, as a result of converting over 700,000 analog TV customers to digital cable homes this year alone. And remember each of these customers generate higher revenue and gross margin for us.

In fact, even though we have passed through the 50% digital penetration level we still have nearly 9 million analog TV subscribers, which is just one of many reasons that we have put so much energy and focus on our new Horizon platform.

That is a nice segue to slide 6 where we touch on our September launch of Horizon in Holland. As I mentioned just a moment ago, we have been blown away by the market's reaction to Horizon, and I am not just referring to positive comments from consumers and bloggers and technophiles. Since the official launch eight week ago and a marketing kick off five weeks ago we have already sold over 50,000 subscriptions, 80% of which are already online, and usually through a self install.

Just to put that number into perspective, we exceeded our year-end target of 40,000 sales just about halfway through this process and should more than double that number by year-end.

Horizon has always been for us a plan to do three things -- one, generate incremental ARPU; two, attract new homes to our platform; and three, reduce churn. Its elegant and intuitive user interface, its ability to connect cable content to PCs and iPads and smartphones, and the way it integrates apps and web-based content are all, in our opinion, killer features.

But the Horizon TV online portal and the iPad app are perhaps the most impressive. To date there have been over 150,000 iTune downloads and over 125,000 Horizon TV online users. On average roughly 30,000 households every day are watching one of 80 linear channels or 6,000 hours of on-demand content, and over 3 million streams were delivered in October.

Interestingly, 50% of customers have used the integrated widgets or on screen apps like YouTube. And the point here, I guess, is it is working. Our customers have no reason to consider an over-the-top video provider or KPN for that matter.

As you would expect we have revamped our product and pricing plans in Holland. And now Horizon headlines our most popular bundle, the 60 megabit broadband speeds for EUR55; an incremental EUR5 above our old triple play bundle price. So we estimate the payback, including the startup fee to be around 12 months for new customers.

And we are on track to launch Horizon in Switzerland later this year with a full-scale commercial rollout in early January, followed by Ireland and Germany later in 2013.

We just had the head of Cisco's Video Division in to meet with our Board last week and he confirmed what we already knew. Horizon is where the industry is headed, and we are certainly thankful and glad to be there already.

Slide 7 gives you a quick update on our key mobile initiatives in Europe and Chile. We have always been clear that our mobile strategy is situational, meaning the approach will vary based upon a whole range of factors, including our scale in the market, the availability of spectrum, our MVNO relationships, the competitive landscape, et cetera.

Today we have over 600,000 mobile subs and we continue to pursue that same basic tailored approach. In six of our European markets -- the Netherlands, Germany, Switzerland, Poland, Hungary and Austria -- we have signed what we call full MVNO contracts, and are building a centralized core network infrastructure and IT system to support these operations.

Four markets have already launched in advance of this platform -- the Netherlands, Germany, Hungary and Poland -- and we are already serving 200,000 mobile subs.

In Chile our MNO operation is in full swing. In just six months we are approaching 100,000 subscribers. Our ARPUs are above the industry average. 75% of our postpaid subs are cable customers, and our turn churn and customer satisfaction are extremely good. It is a competitive market, but our network is best-in-class and we offer features others can't, like rollover minutes and rollover bits, unlimited calls within our mobile network and unlimited calls between the VTR's fixed and mobile customers. So we feel very positive about our prospects in Chile.

And, of course, in Belgium Telenet has been operating mobile for some time now and management has recently switched gears with a more aggressive rate plan for existing customers, which has accelerated sales there, generating 66,000 net adds in the quarter.

The success of all these mobile products relies on some version of the bundle, which represents nearly all of our gross adds these days, and it is the backbone to each of our fall campaigns, a few of which are captured on slide 8.

In Germany we continue to press the broadband speed advantage. That has resulted in 70% to 80% market share of net adds on footprint. Our 50 megabit broadband offer is roughly 3 times faster than VTR's comparable package, and includes 85 digital channels, 13 HD channels and flat rate phone services all for EUR35, and usually with a EUR5 discount in the first 12 months.

In Switzerland our top deal, as we call it, includes 100 megabit broadband speeds, 5 times faster than the comparable bundle by Swisscom, Wi-Fi modem, 115 channels, of which 25 are HD, and a HD DVR for a little over CHF100.

In both of these markets we are expecting Horizon to supercharge demand for our bundled offers and drive incremental ARPU, as it has done in the Netherlands.

To date 45% or 8.8 million of our customers take two or more products for us. That is up from 7 million a year ago, and pretty much all of that growth is in the triple-play segment, which was up 35% year-over-year. And while we are pleased with our results, we can't lose sight of the fact that we have 10.8 million customers who are one product households, and represent a great opportunity for RGU and revenue growth in the years to come.

So another quarter of strong financial and operating growth, supported by continued innovation with products like Horizon, anchored with a strong balance sheet, and a disciplined approach to capital allocation, in particular around M&A.

With that I will turn it over to Charlie.

Thanks, Mike, and hello everybody. I am carrying on now from slide 10. To give you a big picture, we increased our reported revenue by 7% to $7.6 billion, and we increased our OCF similarly by 7% to $3.6 billion for the nine months ended September 30 compared to last year.

Our year-on-year growth was largely driven by a combination of acquisitions, particularly Kabel Baden-Wurttemberg and our strong growth in organic RGU adds over the last 12 months, which was at 1.5 million.

As was the case during the first half of the year, FX continued to be headwind for us in terms of our reporting in dollars, as the dollar strengthened against the euro over the nine months on average by approximately 10% relative to last year. So rebased growth adjusting to neutralized FX and M&A was 6% year-on-year revenue and 4% for OCF, with both metrics driven by our performance in Western Europe.

Our OCF growth has continued to be adversely impacted by costs associated with our Chilean wireless business. And adjusting for the incremental impact of VTR Mobile, our rebased OCF growth for the nine months we have increased from 4% to 5%.

Finally, our OCF margin for the nine-month 2012 period was 47.7%, including 48.6% for the Q3 period, and both of which were up modestly year-on-year.

Slide 11 looks at our third-quarter results by region. We delivered consolidated revenue and OCF of $2.52 billion and $1.22 billion respectively in Q3. And that reflects rebased growth of 6% of revenue and 5% in OCF. Our rebased revenue growth for Q3 was our best quarterly result in two years, and our rebased OCF growth was our best result since Q2 of 2011. And again, adjusting for the rebased OCF deficit of our Chilean wireless business of roughly $15 million, our total rebased OCF growth of LGI for the quarter would have been 7%.

Our European broadband operations, excluding TNET, generated $1.7 billion in revenue and slightly over $900 million OCF, reflecting 6% rebased growth in both revenue and OCF. And this strong performance was due in part to the best growth of the year in Germany and the Netherlands.

Moving to Belgium, Telenet reported another solid quarter with 6% rebased revenue and 8% rebased OCF growth. And although Q3 year-over-year revenue growth was its lowest of the year, OCF was actually its highest due in part due in part to a lapping of the costs associated with football rights in Belgium.

Outside of Europe VTR reported revenue of $241 million and OCF of $82 million in the third quarter. And although the Chilean market remains quite competitive, we managed to deliver our best rebased results so far this year. We achieved rebased revenue growth of 7% and a rebased OCF decline of 7% for Q3. But backing out the incremental wireless impact, VTR would have experienced double-digit triple-play OCF growth.

Overall, we remain comfortable confirming our mid-single-digit rebased growth targets for both revenue and OCF for the full year. And more specifically, we expect to come in towards the high end of our 4% to 6% range on revenue and for the low end of that range on OCF.

Turning to slide 12, we highlight OCF growth in what we call our big four. Germany, Belgium, the Netherlands and Switzerland accounted for roughly 75% of LGI's consolidated OCF in the quarter. And the bars in the chart show our rebased OCF growth for Q3 versus the comparable prior period last year.

Beginning in the upper-left the German story remains intact and is our strongest performer as well as our largest market, generating $341 million of OCF in the quarter or nearly 30% of LGI's total. The 12% rebased growth in Q3 was our best result since Q2 of 2011 and has been driven by the positive impact of KBW and the strong volume gains that we have generated in the last year.

For example, year-to-date we have added more than 550,000 RGUs in Germany alone, and these RGUs will provide our German business with continued momentum. And we expect to see increased synergy benefits in the coming quarters.

We have already discussed Telenet's growth, so moving to the bottom left our Dutch business posted rebased OCF growth of 6%, which is down modestly from the 7% that we posted in Q3 with our 2011.

With that being said, our Q3 2012 result reflects our highest total since a year ago. Our results were positively impacted by our triple-play price increase on the base. It also adversely impacted our RGU sales volumes in what is typically a seasonally slow period for us. But overall financial results were very good, despite aggressive competition from KPN.

And on the bottom right Switzerland has rebounded nicely, and increased rebased OCF growth from 2% in Q3 of 2011 to 4% in Q3 of 2012. And our Swiss rebased growth has been 4% or higher for the last four quarters, and this improvement from last year has been driven by 67,000 organic additions in the last 12 months, with 32,000 in Q3 of 2012, which was our best quarter in more than five years.

Slide 13 provides our year-to-date capital expenditures measured as a percentage of revenue and adjusted free cash flow results. Our cash CapEx totaled $457 million for Q3 and $1.45 billion for the first nine months of 2012. This translates into CapEx as a percentage of revenue of 18% for the three-month period and 19% for the nine-month period. Now these are down modestly year-over-year from 19% for Q3 2011 and 20% for the year-to-date 2011 period.

The decreases are due principally to our working capital efforts around vendor financing and capital leases, which increased year-over-year by $37 million for Q3 and $112 million for the year-to-date period.

If you look at total property and equipment additions, which includes CapEx on an accrued basis and/or vendor financing and capital lease additions, we were flat at 21% for both Q3 2011 and 2012, and higher by 110 basis points for the 2012 nine-month period at 22% as compared to 21% for the corresponding 2011 period.

Turning to the right-hand side of the slide, our adjusted free cash flow, which primarily removes the impact of our mobile initiatives in Chile, is $440 million year-to-date, including a negative $26 million in Q3. And this compares to $423 million for the 2011 year-to-date period, including $31 million in Q3 2011.

Now for each of the Q3 and year-to-date 2012 periods our growth has been adversely impacted by the FX headwinds due to a strengthening US dollar, as well as higher levels of borrowings. And as you have seen in prior years, we expect strong free cash flow generation in the fourth quarter, and with that we are confirming our mid-teens adjusted free cash flow growth target for the full year.

Slide 14 summarizes our leverage in cash position at September 30. We were very opportunistic in the third quarter as we capitalized on the strong bond market and raised incremental capital at Unitymedia, Kabel Baden-Wurttemberg, UPC Holding and Telenet. In the aggregate we issued bonds with maturities of 10 to 12 years and a total principal value of roughly $2.5 billion. And the average coupon of this debt was just over 6%. It was very attractive from our perspective.

These financings contributed to an increase of $2.6 billion in our debt, and $1.4 billion in our cash from our levels at June 30. So as a result we finished the quarter with $26.5 billion of debt and $3.3 billion of cash. After adjusting for our Sumitomo loan, this translates into leveraged ratios of 5.2 times gross and 4.5 times net. That compares to the Q2 levels of 4.8 and 4.4 times respectively.

Moving to the right part of the slide, our consolidated liquidity position totaled $5.5 billion in Q3, up from $4 billion in the second quarter. And our $3.3 billion of cash consisted of $2.1 billion of LGI and $1.2 billion of operating subsidiaries, primarily Telenet. In addition we had $2.2 billion of maximum borrowing capacity under our revolving lines.

So given our liquidity position, our expected free cash flow generation in Q4, and the loan that we put in place in October which is secured by our shares in Telenet, we are comfortable that we had the cash to fund a full buyout of the Telenet minorities and complete our $1 billion share repurchase target for 2012.

So turning to slide 15, which is the conclusions, as our Q3 results highlight, we have good momentum going into the fourth quarter and 2013 in terms of revenue and OCF growth. We are confirming all of our guidance targets, including a more active buyback in Q4.

As Mike discussed, Horizon is a game changer, and we think it will have a very positive impact throughout our European operations. And it has certainly strengthened our competitive positioning in the Dutch market, and we continue to be excited about our product offers across all our markets during the fall selling season in Europe, especially in Germany.

This completes our prepared remarks today so, operator, can we begin the Q&A, please.

(Operator Instructions). James Ratcliffe, Barclays.

Two if I could. First of all, Charlie, on the debt structure you mentioned again that you are fully hedged on FX and rates. Are you comfortable with that position given clearly it has had some cash flow impacts, and would you be comfortable with having a less than 100% hedging on that front if it lowered overall debt costs?

And, secondly, on the video side, you mentioned you lost a contract in Germany. How do we think about is the more of that to come, are we largely through the process?

And, also, I see that you have launched some free video products in Switzerland and Austria. What is behind that, and how do we think about how extensive those could be? Thanks.

Charlie, you want to hit the debt side?

Yes, sure. So I think on the debt side, as you know, we run at a relatively high level of leverage, though we're very comfortable with that and we have ridden it through a number of cycles. I think we generally will continue to be very conservative around interest rates and making sure that we have fixed rates or caps to limit the risk on an increase on our interest expense.

That said, there are a number of things that we have been looking at to improve and optimize the cost of our debt, and we continue to work away at refinancing and taking advantage of the fact that a lot of our debt trades at a more attractive price than it was originally issued at.

So I think there is certainly upside on the interest expense number, but I don't think we're going to fundamentally change the fixed caps nature of our debt, because I think it is prudent to take away that risk.

And I think the second question you have was on -- was that on vendor financing, did I hear?

No, he asked about video subs, in particular around Germany. And I would say that -- and Diederik chime in here -- we did lose 26,000 video subs in Germany in the quarter. I would say most of that was attributable to some rate increases we took in order to harmonize video rates between KBW and Unity, and that we think is largely behind us.

Only roughly 6,000 of the 26,000 in Germany was related to a housing contract. We try not to give too much detail around where we are on the remedies in that market, except I will tell you that we anticipate doing much better than budgeted in terms of customer retention and our ability to work through, in particular, the remedy that was -- that requires us to open up our contracts on those 300,000 plus homes.

So that is sort of anecdotal, but I do feel like if we were pressed for details we are in pretty good shape. Half the contracts we have already renewed. We have got every one of them -- the rest of them in our sights. We have lost a handful, a couple, 3, and we are doing the best we can to try to retain as many of those remaining as possible, and we feel very good about that.

Diederik, are you on board here? Do you want to talk about the Swiss unencryption?

Yes, thank you, Mike. With regards to Switzerland we did announce unencrypting their digital signal, which means that as of January consumers can get the, let's say, a new basic package without the need to buy a device, other than maybe a converter to go digital, which we will provide on no charge.

And we do that to further strengthen, I would say, our position competitively, but also to gradually open up capacity to help create from a CapEx point of view some room to maneuver and to free up data or capacity for data.

We expect that that it is still -- it is seen as a step forward. It was well-regarded, well-received, and as a quid pro quo also from the regulator, and we were allowed to further increase or benefit -- increase our rate for the video product in 2013 by CHF0.90 -- ruppen, they call it -- 2014 CHF0.60, that is even -- I would say that is a good result. So it is a win-win for consumers, also for the regulator and for us. That is said -- that would be my answer.

Thank you.

Jeff Wlodarczak, Pivotal Research.

I was hoping you the comment some more on the Telenet situation. It seems like they have effectively raised guidance a couple of times since your EUR35 offer. It seems also they have gotten far more aggressively around their mobile strategy without consulting the Board, which I think you guys have been a bit more -- certainly not as aggressive as their sort of intention is right now. So if you can comment on that.

And then specifically on Germany, any update you can provide on the negotiations with broadcasters on those -- the feed-in fees. And then in Germany DT just signed those bulk discount wholesale deals to resellers. Do you think you're going to get a sizable number of retailers participating in that? Do you think that discount is going to go towards lower end market pricing?

I will take the Telenet one, Diederik, and why don't you think through the German questions. On Telenet, listen, I think Jeff -- I appreciate the question. I know you are pretty clued into what is going on. My strong preference here is to let the prospectus speak for itself. There will be a document. We have already filed our draft of it with the FSMA may and within a week or so a full prospectus should be produced, which is going to have more than enough information and background regarding assumptions and valuations and all that good stuff. So my preference is not to really get into it on this call, but primarily give everybody a chance to read what is going into the process and our views, which are very clearly, I think, and comprehensively laid out in that document.

Diederik, you want to talk about Germany?

Yes, thanks, Mike. With respect to the wholesale resale, let's say, topic in Germany, we know that in July the F&A allowed Deutsche and NetCologne a deal since they had to -- made a change in their rights also to other operators, is that what the question was?

Yes, that is right.

Yes, well, overall, I would say that, obviously, we see this as a negative -- the outcome, but we also assessing the impact would at this date say that it is expected to be immaterial since, for example, NetCologne could also -- they have a fiber network already. DT is also using the same infrastructure, and so we don't expect that demand to really change.

On the feed-in fees, I think the issue there is also, dare I say it, a bit immaterial. The feed-in fees in question reflect less than 1.5% of our total revenue in Germany, a pretty small number in the scheme of things.

Having said that, it is an issue we intend to pursue vigorously. KDG has been much more vocal about it than we have, and much more aggressive about it than we have, and to some extent we draft behind them. But rest assured we are vigilant and we intend to protect our rights. But it is in the end, I think, something like 1.3%, 1.4% of our total revenue. With our revenue growth there, not really the most important point. It is more of a philosophical issue that we want to -- we believe very strongly we are in the right on, and we will pursue those rights to the end.

Fair enough. If I can as one follow-up, Mike, if you can give us any color on trend so far in the fourth quarter that would be helpful.

Yes, sure. Well, I will tell you this, if you look at the third quarter market by market and month by month, in almost every case we were trending up through the third quarter. September was our best month pretty much across the board in all markets, in all products, and October is looking -- October was very good as well.

So we anticipate, as you know, the fourth quarter being our strongest quarter of the year. And at least if September and October are any indication from a trend point of view we feel good about that.

Great, thank you.

Ben Swinburne, Morgan Stanley Smith Barney.

I just wanted to follow up on a couple of points in the opening remarks, maybe for Charlie in Germany. You mentioned expecting more KBWs or synergies -- I am assuming KBW synergies -- as you move through the next couple of quarters. Any way for us to quantify that either in percentage terms, how much you have captured versus how much is ahead of you?

And then the same kind of question on the Chilean wireless business. I think the losses -- you got another quarter behind you, I am just curious if you have a line of sight to profitability in that business now that you'd be willing this discuss for us?

I think on the synergies, we have got a lot of what I will call the near-term synergies, but we still have quite a lot of network-based and IT-based synergies to realize. And, Diederik, you might want to give a more detailed update on where we are there.

In terms of the Chilean business I think it is a little premature for us to give you guidance on that business. Clearly the faster that business grows in the short term you get more losses. I think, as Mike indicated, it had a pretty good start, but it is just a bit too early for us to give you a clear roadmap. But the business is performing very well and we are pleasantly surprised by the demand for the product.

Just a couple of additional points. In Germany the synergies really are intended to hit in 2013. We have had a lot of really good [in] work this year in terms of putting the businesses together, harmonizing rates, getting the teams aligned. And there has been some actual -- actually OpEx synergies or negative synergies as you do that. But through 2013 on an annual basis is when we expect those to really start kicking in, and I'm sure we will talk about those more in the next year.

And in Chile, listen, I am proud of the team down there. They are expecting to have a pretty large subbase for Chile by the end of the year, and they will more or less have hit their EBITDA and free cash flow targets. So going into 2013 the trends look good. I think we have learned a ton in terms of launching our own business on top of our own cable networks. But mostly we have learned that if you can position it right, build it right and market it right, your cable customers are very, very happy to buy mobile from you.

The nice thing in Chile is we have good margins. We have great control over the network, and the product, because it is our spectrum, and mostly in the key areas our network. So it has been a good project so far, and we are happy with the result.

Thank you. And could I sneak one Horizon question in for you, Mike? Anything that surprised you so far as you have gone to market? I know it is still early. You mentioned self-installs, which was really a surprise to me. It sounds like you're having some success there. Any surprises operationally on the technology front?

And how quickly does the cost curve kick in? I know you're the first one globally out with this kind of hybrid high-end set-top, so you probably had to bear the brunt of some development costs, how quickly do you get to see those benefits?

I will ask Balan to chip in here too, but I would say a couple things surprised me. Certainly the ability to have so many customer self-install was not what we expected. Our demand was so robust we had to default into self-installs, and the operating team in Holland just did an unbelievable job of getting that implemented quickly and effectively, as to the point where now the vast majority of our installs are self-install and they're going well.

We had some call volume spikes, but you would more or less expect that. That was volume driven, and again, as I said we exceeded our full year budget, something like six, seven weeks into it.

I was impressed to learn that 95% of Horizon customers are opting in to our privacy deal, in essence, where we are able to recommend content to them, power the search engine with their preferences. And there has been very little, if any, resistance to that, which I think is a very positive thing for our ability to make that product even more substantial and interesting going forward.

We were the number one app download until the new iOS software came out, unfortunately. And that really was, for us, not a surprise. We thought people would use it, but we have definitely been surprised by the diversity of usage. So smart phones, PCs and iPads are pretty well balanced in terms of access to the content. And I'm really excited with the over-the-top, if you will, version of Horizon, where you can watch any one of 8- linear channels.

And interestingly the vast majority of viewership is of those linear channels. Imagine if you could watch ESPN or any one of the networks in any part of your house, just picking up your iPad and dialing in. Linear television is obviously 95% of viewership today anyhow. It is not surprising that linear television on the iPad is still a very attractive feature, and we are able to do that in Holland, unlike any over-the-top provider there or in the US. We will do the same thing in Switzerland. So having that linear content over the top for us has been a really positive thing, and usage has been higher than we had expected, which is terrific.

A couple of glitches here and there, but Balan and his team have done a fantastic job. The box is stable, the platform is stable. Things are working well. And we have got -- every few months here we will have new additions and new updates and new features rolling out, which is really very positive.

What was the second question (multiple speakers)?

On the cost, just on the cost side.

Yes, we have some built-in cost reductions in the box itself. So the box will reduce in price by contract with Samsung. We will, at some point, talk to multiple vendors about that box.

But when you look at the payback is pretty good. And in Switzerland we will be even probably a bit more aggressive on the incremental ARPU from Horizon. So we do anticipate very, very short payback periods with new customers. And we have been very good about collecting install and buy-in fees for existing and new customers.

So we didn't invest as much in this as you might think. Our partners, meaning Intel, Samsung and NDS collectively, have multiples more invested in the product than we do, but that is how the partnership was designed. And we are hopeful that they will be able to take the parts that they worked on and monetize them in their ecosystems and we will get some benefits from that as well in the long run. So it is all -- it is trending in a very favorable way, and I think we couldn't be happier with the result.

Thank you.

Matthew Harrigan, Wunderlich Securities.

At SCTE in Orlando there are some consultancies that are talking about 15 X increase in mobile data traffic over the next five years. You can't even begin to address that on an LTE network even though you need the coverage. So obviously a lot of technical issues in setting up these heterogeneous networks where you can use advanced new Wi-Fi to handle a very limited range, but you can do things that are high usage in these dense areas.

Are you being approached by a lot of companies in various markets to work with them? I know it is a pretty complicated technical process, and you haven't wanted to go full bore on Wi-Fi outside the home, but I would just be curious.

And then, secondly, DT, while being very not in the game almost on fiber, is certainly getting more aggressive on some of the more advanced xDSL technology. It has some fairly decent headline speeds. Is that anything that gives you any incremental pause on the German market, where right now at least you just seem to continue to just rack it up on the RGU adds every quarter?

Balan, you want to address the mobile Wi-Fi portion?

Sure. So we will be launching early next year a second SSID on all of our Wi-Fi modems -- all of our modem eMTAs, and what does that mean? That means that every home that has this modem will enable Wi-Fi access to folks that are within the range. So essentially we are building an outdoor Wi-Fi network without actually building an outdoor Wi-Fi network.

We have not struck any partnerships with any mobile operators on actually moving traffic onto this Wi-Fi network. It is going to be open to our subscribers. So it is a way to give our subscribers an added value.

Now what the MNOs we are working on a number of contracts to build backhaul for them to get base stations, but that is a separate discussion altogether.

On the DT on xDSL there are a number of different technologies on DSL that would improve DSL speeds, but the laws of physics being what it is, most of all these technologies are very effective up to a certain distance limitation. So beyond about 1,000 meters almost all of these technologies start to fall -- go back to the traditional DSL type speeds.

So from that sense I think you will see cable has a much more ubiquitous footprint than DSL. And we will always be -- all of these technologies, by the way, will have speeds faster than that.

Great, thank you.

Yes, and in Germany -- I will let Diederik fill in here a little bit too -- but as you do know, DT has been relatively slow on the fiber. We think something less than 2% to 3% of the entire German market has any fiber-to-the-home at all.

VDSL, which might have been what you are referencing, is more prevalent. Roughly one-third, maybe a little more, of the market has VDSL, which gives them upwards of 40 megabit type product speeds.

What they do from here, I think, is very much a cat and mouse game between DT, its shareholders, the government and regulators. When and how these things will evolve is anybody's guess. There is a lot of discussion on DSL vectoring and what impact that might have on the regulatory framework that is in place. So a lot of posturing and a lot of dancing around. In the meantime, we just keep selling the product.

We do expect that at some point these things will get sorted out. In the meantime, we're just going to grab as much market share as we can. And fortunately for us we have got DOCSIS 3.0, And at some point DOCSIS 3.1. And I don't know how much speed we think consumers will need in the long run, but we have no problem fulfilling it -- that demand, and we feel pretty strong from a competitive position.

Balan made the point on the 1,000 meter issue and the physics of the copper, but beyond with the current VDSL, that GDOT Fast protocol that was almost -- talk about your BPON and FiOS speeds if you're close enough -- is that still developing? Is that the way or is it kind of dead in the water in your estimation?

Balan.

Sure. There will be technologies that enables you to get through in the 500 meg space, but it is very, very short distances -- a couple of hundred meters type distances.

But, also, remember if you are to do that there is something called a binder group in the copper infrastructure. You have to change out almost all the service in that group of copper pairs with the same technology, which means you have to go back -- everybody on it has to be moved onto this technology. It is not trivial both from a cost and operational perspective.

And it is also tricky from a regulatory point of view if you are referring to vectoring itself, because the main operator has to control the last mile, which I think is a problem both technologically, economically and potentially operationally for anybody who is utilizing that network today. So is not without meaningful challenge, but at some point we believe something will get sorted out.

I thought it had a hard nail on the vectoring. Thanks, Mike, Balan, I appreciate it.

Will Milner, Arete Research.

I just want to come back to telling -- I appreciate you said you wanted to wait for the prospectus. I just want to understand really though why remove the 95% acceptance threshold? It sort of suggests you're happy to sit at an ownership level below 95% for a time, but clearly then you won't have achieved the objective of accessing Telenet's free cash flow. So I wonder if you can just comment on that and discuss that.

And the second question I have is on Holland. You have obviously suffered RGU losses for the first time. And we have seen clearly commentary that KPN has become more aggressive promotionally, and it makes sense, I guess, for KPN to continue to be more aggressive. So I wonder if we can just talk about how you're seeing KPN promotions trend over the next 12 months in the context of Horizon?

Sure, I will take the Telenet question, and Diederik, you can grab for the Holland question.

Listen, we have been investors in Telenet for eight years, and we expect to be owners in whatever capacity of Telenet for the next eight years. And while initially we had thought a condition of 95% made sense, at this point we are happy to own more and improve and strengthen our control position in the company.

It shouldn't be surprising, and just the way this thing has unfolded was a natural ande normal step for us, and one we think is consistent with what shareholders want. We think a significant number of shareholders, if not all the shareholders, will see this as a very fair price in the context of historical valuation multiples, operating performance, comparables, any measure of metric you want to look at. And it seems like the right thing to do to waive that condition and let those shareholders take advantage of it.

Diederik, you want to hit the Holland point?

Yes, I think if you talk about KPN you also talk about, let's say, the summer period where we indeed saw them coming after cable aggressively from there, and I would say that was over overdue. But it was a mix of a few things. They completed some product upgrades, the IPTV. And had to follow us in offering higher speeds, and where they are -- where they had been a follower for, I might say, three years they tried to close the gap, and that is with the 30 and 40 meg product.

But on our own side, don't forget this was our pre-Horizon quarter, where we obviously didn't, let's say, spend all our marketing dollars just before Horizon arrived. But from that point of view it was a soft period. We tried to also make up for it. In September we tried to regain the speed differential versus KPN. So we think that both with Horizon and some other, I would say, corrections in the portfolio, we are still, I would say, regaining ground versus KPN.

But something else I would like to highlight, although you would have to ask them, is that they are currently at a quest to, I would say, regain net adds at the low end of the market. We do not necessarily believe that is, from our point of view, a healthy commercial strategy, because one would argue that this goes against healthy margin points. So you will also see us remaining disciplined in further reactions to their quest of almost buying low-end net adds. As we speak, they do that via exploitation of their B brand being called Telfort.

So it hurts, but it hurts KPN as well from a margin points of view. It is an excessively expensive operation to gain net adds.

Right, with an EBITDA loss year-over-year it is hard to see how that is sustainable.

Agreed. Sorry, could I just have one quick follow-up, on the fully swapped borrowing cost, which fell again to, I think, 7.5%. And I know you have been cautious about extrapolating that, but I wonder if we can think about that being a new level or sustainably lower level for your hedging costs?

Charlie.

Yes, I think the answer is, yes, you can think of that as a new level. And I think this -- certainly today's rates there is some upside to that which will work through in 2013.

Okay, thank you.

Vijay Jayant, ISI Group.

Mike, I just want to talk about business services other category in aggregate. You give some numbers on your SOHO subscriber count, but can you talk about how big it is and how fast it is growing and were really the opportunity is in terms of the runway ahead? Thanks.

Sure, I would say on balance B2B is one of our fastest growing revenue streams. I think we are 8% or something trending. And that, of course, includes two major components. We are growing our SOHO revenue stream closer to 35% to 50%. And so the SOHO base, which is for us a massive opportunity -- I can't quantify it for you just right here, but it is millions of SOHOs that we believe are accessible and available to us.

And that opportunity is one way or exploiting very aggressively today as you can see from the numbers, and we will start reporting those numbers. And you have to measure that against a larger to medium enterprise business that is very competitive. One in which we face extreme competition from incumbents, in particular, who see the enterprise business has one of their two coveted revenue streams, along with mobile.

So it seems to us that we need to continue shifting to the small, medium enterprise and SOHO market, which we have done. That we have, for example, in Germany next year a budget for B2B that goes from a zero number to a very relatively substantial number as we rollout B2B there for the first time.

And I think overall it is clearly going to be a revenue stream worth watching and one that we are all focused on, every one of us on this call, on realizing. And we will be an above average grower relative to our guidance, if you will, for years to come. And, Diederik, you want at any color to that or --?

Well, you're absolutely right. Other than to say that, for example, Switzerland and the Netherlands are kind of front burners there with SOHO being the fastest growing segment. We are, I would say, leveraging the strength of our network where it is our high-speed data products combined with voice, which are making the inroad, where the addition of digital TV is a new product, also for somewhat more professional environments.

We try to also stay away and avoid high CapEx-related runoff projects for overly large customers. We have burned our fingers in the past on that. So I would say, apart from a good revenue grower, it is also going to be an efficient CapEx strategy, which we are contemplating. That is what I would add, Mike, thank you.

Yes, thanks.

Thank you.

Tim Hamby, Janco Partners.

The first question is a follow-up on the Horizon question earlier. Are any of the surprises that you have seen there enough to change more of your strategy going forward?

And then I just wanted to get a brief -- your take on the opportunities that you see available in the rollout of more of a cloud-based user interface there. Thank you.

I will let Balan answer that. We are already rolling out and are preparing to roll out Horizon on a cloud-based UI format. And everything we learn on a daily basis gets incorporated into the next rollout, which is Switzerland. So that is a long, long list of things, but I wouldn't say there is very few surprises. But, Balan, why don't you address those two?

Sure. So the strategy for Horizon, as Mike indicated, we have made some tweaks here and there, but nothing significant. But we are committed to the Netherlands. We are going to roll it out in Switzerland, then follow it by Ireland and Germany.

In addition to that, we have also started work on moving the Horizon UI into the cloud. And that work is fully funded and the engineering teams are working on it. We expect probably by the end of next year we would have something.

Okay, thank you very much.

He is being very modest right there. Next question, Operator.

That, actually, is all the time we do have for questions and answers.

Terrific. Well, listen everybody, thanks for joining us again. We hope you have terrific fall and winter and holidays and all that good stuff. And we look forward to coming back to you with our year-end results sometime in February. And appreciate your support and we will talk to you soon. Thanks very much.

Ladies and gentlemen, this concludes Liberty Global's Q3 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.