Liberty Global Earnings Call Insights: Q2 Rebase Growth, Pricing Environment in Germany

On Friday, Liberty Global, Inc. (NASDAQ:LBTYA) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Q2 Rebase Growth

Jeffrey Wlodarczak – Pivotal Research Group: Congratulations on the results. I wanted to get some more granularity around the second quarter rebase 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? And then in Germany, the amount of the potential M&A integration cost would be helpful, and were there any integration cost in Q1? And then I have one follow-up.

Michael T. Fries – President and CEO: Well, I’m not sure that we can provide a whole lot more color on the actual number for the second quarter, Jeff. And Rick, you’ll have to remind me what we said publically about the Chile operating cash flow. I’m sure we’ve given that number.

Rick Westerman – SVP, IR & Corporate Communications: We haven’t given specific granularity around that.

Jeffrey Wlodarczak – Pivotal Research Group: Then I’ll 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 kind of left off around analog video plan Net Neutrality. May be more color on that is that something you can take to the court system or the EU and how long do you expect to play out?

Michael T. Fries – President and CEO: Yeah, I mean, that’s something we do expect will take some time to play out and we can use both European Union and their regulatory framework as well as court system to challenge it. It really is a head scratcher, Jeff, it is hard for us to understand given the regulator (itself view) of that market and about two years ago that is plenty competitive and only more competitive today. So, I guess, I would say politics is at play here and we have to stay vigilant in terms of getting support from EU Commission who will likely start infringement proceedings on our behalf. Having said that, whatever occurs we’ll probably take some time, and 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.

Jeffrey Wlodarczak – Pivotal Research Group: By the way, is it true that they put OPTA in charge of setting the pricing which seems kind of odd because they’ve declared it is competitors?

Michael T. Fries – President and CEO: Well, yes, it is very strange. It means the fact that they will put the same regulatory body that concluded. There is plenty of competition in video in charge of implementing or at least kind of presiding over disputes and that’s one way to think about it. There has to be a dispute really for this to rise to their level. And I’ll 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 is all about broadband, so it is a head scratcher but from time-to-time we are going to have these sort of moments in European national politics and we are going through them.

Diederik Karsten – EVP, European Broadband Operations: Mike, I’ve 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 the commercial launch, we’ve got a significant amount of cost and it’s really at this point, we can’t predict the absolute number of subscribers, the gross add that we’ll have in Q2 and for the balance of the year for that matter, and that’s obviously a huge swing factor with the handset subsidies, with each new add.

Charles H.R. Bracken – SVP, Co-CFO and Principal Financial Officer: (indiscernible) given guidance on the future of retail mobile (indiscernible). You can assume it’s negative EBITDA this year at least. So, that will be a drag on our growth.

Michael T. Fries – President and CEO: We did communicate though in the Q4 call guys, I think $150 million in negative free cash flow for the year, Jeff.

Jeffrey Wlodarczak – Pivotal Research Group: That hasn’t changed?

Charles H.R. Bracken – SVP, Co-CFO and Principal Financial Officer: Up to that, yes. That hasn’t changed.

Pricing Environment in Germany

Hugh McCaffrey – Goldman Sachs: 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?

Michael T. Fries – President and CEO: I mean if you look, we have taken some modest rate increases in that market. I mean we have along with improving the product, I can let Diederik address it more fully, but as we ramp speeds and improve our bundles in that marketplace, we’re taking small rate increases, to the tune of €2 or €3 where we can. So while we’re not – while it’s still a competitive market, it is still very much a growth market in terms of raw organic growth. 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 our demand curve. Do you want to add anything to that, Diederik.

Diederik Karsten – EVP, European Broadband Operations: No, Mike, that’s pretty much it. The only other category could be alignment of tariffs between KBW and Unity where we’re also aligning products and from here on we will not only look at acquisition but also at – some of the pricing amongst the base, but it did hit the radar and I think that is a – it’s a key strategy to see how we can move up ARPUs in Germany.

Michael T. Fries – President and CEO: Our main product proposition is to be faster, have more features and content in our bundle at/or below the price of being incumbent and that’s what’s driving our market share, but we don’t – it’s still very, very profitable growth for us in these markets, it’s not as if we’re racing ahead on volume without being very cognizant and careful on return. So it’s still very positive growth for us and we’re trying to optimize that in this moment because I think we’ve got a good opportunity.

Hugh McCaffrey – Goldman Sachs: Just have a very quick follow-up on speeds, you talked about obviously people are paying for higher speeds, you’re still seeing strong demand from the consumer to go up the speed curve not just in Germany, but across Europe — your European operations is that right?

Michael T. Fries – President and CEO: Absolutely. It’s only going one direction. I think we will also find that we’re – our consumption levels are close to a gig a day up from what was it two or 300 just a few years ago, 200 pre megabit – megabytes. So speed and consumption are traveling along the same curve and we spend a lot of time looking at our network infrastructure and our ability to stay ahead of that speed in consumption curve and we feel really good about that. But there’s no question while two years ago we were probably talking to you about 25 megabits of bundles being the sweet spot that’s rapidly becoming 50 megabit that’s an important number though remember because you really can’t do 50 meg 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 and taking advantage of our 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’re trying to do video as well. So it’s a perfect spot for us to be in.