Liberty Global plc (LBTYA) Q4 2008 Earnings Report, Transcript and Summary

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. Again, that’s www.lgi.com. Following today's formal presentation, instructions will be given for a question-and-answer session. As a reminder, this conference call is being recorded on this date, February 24, 2009. I would now like to turn the conference call over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

Thank you. And welcome everybody. As usual, we have a number of folks on the call from our side, from all over the place. And those you may hear from are Bernie Dvorak, Co-CFO; Rick Westerman, Investor Relations; and free folks from our operations; Gene Musselman from Europe; Ram Halus [ph], Japan; and Mauricio Ramos, Chile. I think before I get started, the operator has one more note to read there. Operator?

Certainly. Page two of the slide details the company's Safe Harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including with respect to Liberty Global's outlook and future growth prospects, its expectations regarding competitive and economic conditions and liquidity, and other statements that are not historical facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed forms 10-K and 10-Q. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. I would now like to turn the call back over to Mr. Mike Fries.

Thanks. So, as the operator mentioned, we are going to be speaking from slides today. And the agenda will be pretty much as we’ve normally done and I’ll hit some highlights, Bernie will talk about financial results, and we’ll get to your questions. I’m on slide four here entitled 2008 highlights. I’d like to begin maybe with a broad generalization, which I think would be helpful at times like this. We believe our business is in pretty good shape. We continue to deliver stable growth. Our balance sheet is solid. And our core strategic initiatives are intact. So let me start with organic growth figures, which is still in my opinion are the strongest part of our story. First of all, we added over 1 million RGUs during 2008, excluding acquisitions, and we ended the year with 26.5 million video, voice and data subscriptions. And those RGUs additions together with our continued focus on task discipline and scale efficiencies helped to deliver operating cash flow growth of 14% for the year. Our OCF margins improved 300 basis points to 43%. And we grew our free cash flow, which is an increasingly important metric for us and, I believe, you, about over 80%. I think these results speak for themselves. On the M&A front, we’ve often said that while doing deals as in our “D&A” will always remain smart and disciplined. And I think while this was an unusual year with the credit markets largely shut down, we still completed some very attractive and highly strategic transactions. In total, we added 1.4 million RGUs, completed over 20 deals; some big, but most of them pretty small. On the larger side, J:COM, for example, acquired over 540,000 RGUs in Japan, increasing our market share and footprint there in core cities. And Telenet…

Yes. Thank you, Mike. And good morning, everyone. I apologize upfront, I may sound a bit teeny [ph], but I’m on a telephone that I can’t change out in the – I hope you can – it's audible for everyone. I’d like to take just a few minutes to acquaint you with the current economic climate, what we are doing with our products, and update regarding the recent EU decision in NL, and provide some insight into a few of our key markets. Looking at the economic situation, so far we have seen limited impact to date across all of our markets. Gross sales were down modestly in the fourth quarter compared to last year, although net churn remained at similar levels compared to the same period a year ago. In addition, ARPU for – RGU for UPC remained stable in Q4 ’08 compared to Q4 ’07. That was primarily driven by strong growth in Western Europe. I should mention that we remained diligent, however, and continued to monitor our markets, including Central and Eastern Europe where currencies have been volatile and consumer spending is expected to come under pressure. Having said that, it’s worth pointing out that most forecasts continue to show that five out of our six markets in Central and Eastern Europe will show positive growth national product GDP for next year. Shifting to products, I’m happy to say that our product roadmap is on track with ’08 turning out to be a banner year, especially for digital, surpassing 2 million subscribers in November and posting record digital adds in Q4. And this trend is expected to continue throughout ’09 with digital being our key growth driver. In fact, just a few minutes ago I got a memo from Poland. They just went over the 100,000 mark,…

Okay, thank you. Nice job. And that’s a lot of information there, and I think most of it pretty darn good for us. Before I pass it over to Bernie to run through financials, I’m going to provide some quick color on 2009 operating outlook on slide nine here, let me start with the economy. I think Gene hit the high points in Europe pretty well, and it’s probably worth pointing out that we believe we benefit from geographic diversity on our operating platform at times like this. So I’d just make one key additional point, and it probably bears repeating. If you have to go through cycles like this, we think it sure helps to be selling connectivity through three of the most important devices in people’s lives; their TV, their PC and their telephone. And when people stay home, they consume more of what we’ve got. And importantly, what we’ve got is getting better with 100 megabit broadband speed and kilowatts for digital and competitive bundles. And nobody is entirely immune to the macro environment. And we are watching things very closely, as Gene said, but we will continue to grow in 2009. And we are providing guidance today of 5% to 7% operating cash flow growth for the year. That might sound conservative, but it’s still best-in-class and we believe achievable. We also expect continued margin expansion and free cash flow growth of at least 25%. So at current FX rates, that will be well over $900 million of free cash flow this year as CapEx continues to decline as a percentage of revenue. And then finally, our capital allocation of over 2 billion of liquidity and significant cash at the parent company, we will continue to generate and utilize capital or buybacks and acquisitions if they arise. We are not being specific on quantum today for stock purchases, but our money is going a lot further at these prices than it had in the past, as you well know. And I think you can expect that we remain opportunistic on that front. So let me turn it over to Bernie to run through financials and then we’ll get to your questions. Bernie?

Thanks, Mike. I’d just start on page 11 where you see the highlights for revenue and OCF growth over the last three years. Reported 2008 revenue reached $10.6 billion while reported OCF hit $4.5 billion, reflecting two-year CAGRs of 28% and 39% respectively. We’ve been successful at driving the OCF margin expansion through cost discipline, dropping over 60% of our reported incremental revenue to the OCF line in 2008. 2008 results were also benefited, as Mike had mentioned, from acquisitions in Japan and Belgium, as well as from favorable foreign exchange movements. If you turn to page 12, it shows the full year revenue by segment. Consolidated revenue for the fourth quarter was $2.6 billion, reflecting reported growth of 4%. If you adjust that for FX, it results in 8% growth. Revenue for the year was $10.6 billion, reflecting reported growth of 17%. However, adjusting for FX, growth is 8% as well. So, as you can see, FX was a headwind for us on a reported basis in the fourth quarter, but was in our favor for the full year. So if you adjust for FX and acquisitions, our rebased growth was 6% for both the quarter and the full year. At UPC, revenue reached $1 billion for the fourth quarter and $4.5 billion for the year, reflecting a 3% rebased growth rate for both periods. Telenet and J:COM each posted rebased revenue growth of 6% for the full year 2008, and VTR led our segments with 12% rebased growth on a full year basis. In addition to VTR, Poland and Australia were also double-digit rebased growth – revenue growers in 2008. Turning – slide 13 shows segment breakout of OCF. We achieved OCF of $1.1 billion and $4.5 billion for the fourth quarter and full year, reflecting reported growth…

All right. (Operator instructions) And our first question is from Alan Gould with Natixis. Alan Gould – Natixis: Thank you. Yes, I’ve got a few questions. Bernie, first the free cash flow growth that you are projecting for ’09, you said that you brought forward some CapEx in ’08. So that alone should give you some free cash flow growth in ’09. How much did you bring forward? And will there be good free cash flow growth ex-ing out that buying forward of CapEx?

The answer is yes. And if you just look at UPC, it was roughly 15 million euro, a little bit higher than that. And the reason we did that, Alan, was for a number of reasons. Our cash position at year-end allowed us to negotiate with vendors. And we achieved about a 10% discount on some of those purchases. So it will help the CapEx and the free cash flow growth story in ’09. Alan Gould – Natixis: Okay. And Gene, when you say you have to open up the digital platform in the Netherlands based on this EU decision, I’m assuming KPN doesn’t get access to your digital platform. But what exactly does this mean? Resellers can buy it. How do you set the rates for it? You said there is no impact in ’09, but you worry there's an impact in future years?

Is Menn Well [ph] there?

I can take a crack at that.

You want to take a crack at that, Menn Well?

This is Mike. And Menn Well, you can chip in if you – Menn Well, (inaudible) miss something. But really in essence, the reason we say we don’t expect an impact in 2009 is it’s going to take time for this particular ruling to manifest itself into a practical policy and practical deliverables. It just takes time. So the reason we say the impact in ’09 will be limited is because we don’t expect that there will be anybody actually on the networks in the event that we don’t prevail in terms of challenging it this year if at all. And so, 2010, it’s hard to know exactly what impacts us. It’s likely to me with respect to analog, retail minus approach where we will get reasonable margin, if it does come to that, and it will mean something different for digital. As you say, KPN can’t be part of it. And it’s unclear to us exactly who or how many will be part of it. It’s really uncharted territory to some extent, which we expect to fully comply with, but I do believe creates difficulty in predicting what it means. And as you can imagine, we will do our best to ensure that it perhaps is even a positive to us at some point. Our main goal is to ensure that we understand as soon as possible the implications. As soon as we do, we will communicate them. And secondly, to make that this is not something that becomes contagious, if you will, around Europe, and we don’t think it will. We think it’s pretty isolated and unique. So – does that answer your question, Alan?

It does, Mike. And one final question, could you just comment on the Super Media partnerships and the VTR option?

Sure. As you referenced Super Media, our joint venture with Sumitomo that’s just above the J:COM asset technically expires in February of next year. And we are in active dialog with our Japanese partners about a number of potential options. To short that particular fact out, I will tell you that I see nothing but positive developments for us, given that issue. Whatever outcomes arrive at here, we think they all look good for us. I have to be vague for very obvious reason. Simply say that if we think it’s a – no matter what we are able to structure or negotiate with our Japanese partners, we think it’s going to be a positive for us. Alan Gould – Natixis: Okay. And the VTR option, given the death of the founder?

Mauricio is on, but the punch line there is the state intends to, at this stage, keep the interest. And all of the assets have been contributed to a philanthropic foundation. And we are in close contact with his family and all the folks who run those interests who happened to be the exact same folks we were into facing with prior. Alan Gould – Natixis: Okay. Thank you very much.

Our next question comes from Vijay Jayant with Barclays Capital. Vijay Jayant – Barclays Capital: Hi, Mike. Couple of questions. First, you were talking about digital strategy that’s been successful so far, but also into ’09. Can you sort of really get into the unit economics on HD DVR? What are you sort of seeing in the ARPU lift? What are you really seeing in churn reduction? But I’m really bringing this not because some folks suggest that that’s going to be a pretty capital intensive strategy given you have to finance more expensive boxes. Does anyone understand what the IRRs are on this incremental strategy? And second, your growth rates – thank God, you have growth rates put in print, one of the few companies that have done that for ’09. Can you sort of talk about how do you see that 5% to 7% EBITDA growth you’ve talked about across Eastern Europe, Western Europe and Chile and Japan in some context there? Thanks.

I’ll take the second one first. And then, Gene, you and I can attack [ph] in the digital strategy point. We are not providing guidance by region, as you know, Vijay. But – and clearly when we provide an aggregate number that is comprised of regional results, I can tell you more directionally that we think markets like Chile or Australia and some of the historically better performers should continue that trend. And you can just look to our results for this year and for those markets we break out, which on one slide we did, I think you can expect that for the most part, those markets – the markets have performed well in ’08, will perform well in ’09. We will also though expect to see, as Gene highlighted, some improvement in markets that historically or at least in the last year or two did not perform well, like Romania, which we expect to be on a growth curve for the most part this year. So I think that the combination of having – seeing the markets that have historically done well continue to do well although in this new environment, and market that perhaps we are pulling down our results turn around a bit and show better progress. That’s really the best way I think I can characterize it. On the digital strategy side, I’ll just make a general point and then Gene can fill in some holes. We are not providing our HD or HD DVRs or DVRs. Generally, we are not providing those as a retention tool. We are providing those as a revenue generating tool. So for example, in just about every place we provide HD or DVRs, we are in one way or another through a box rental fee or a monthly charge, receiving revenue – incremental revenue and margin for those boxes. And so today there is a positive return on those devices. They are certainly helping with churn reduction and creating great buzz and excitement around our digital products, but they are not devices that we are handing out for the purpose of retention or in a defensive posture. We are mostly handing – almost entirely handing those out and as if [ph] generating positive economics. I don’t know if you have anything to add to that, Gene, or –?

I think I’d just add a couple of things maybe. I think as I mentioned earlier, the DTV is our primary revenue growth driver next year. Not to mention the fact that that is also the primary responsible for net adds. The uplift that we budgeted in ’09 coming from – ARPU coming from digital was about euro 20 cents. If you take a look at the ARPUs starting with UPCNL [ph] – or UPC overall, ARPUs on CATVs would run next year somewhere in the range of 12 euros and DTV would contribute another 12-plus euros, almost 13 euros, so especially doubling the ARPU on digital.

That’s the point I was making earlier. Vijay, as you well know, general speaking in Europe, our increases were anywhere from 50% to 100%. So as we roll digital sub out, we’re either doubling or less than doubling the takeout per home, and that’s not just coming from the incremental digital channel that’s also coming from the value-added services like HD and DVR, which today we are generating positive margins from. Vijay Jayant – Barclays Capital: Mike, can I have a follow-up? On programming costs, in the US you’re seeing programming costs fairly increased for cable operators nearly double digits due to really the trend towards digital as well as the retransmission payments. Can you sort of talk about what your programming increases are?

Yes. Our programming costs generally have been over the last, say, four to five years not increasing anywhere near the US markets, principally because, one, our digital sub base is still evolving. And while we do pay incremental programming costs for digital customers in a relatively small base and we are generating incremental costs, but secondly because we have been able to exert fairly large influence over our programmers because of our scale and our multi-national approach. And few, if any, of our programmers have the benefit of a large market or scale themselves or a bit fragmented. So we’ve been able to take advantage of that. And in certain markets we’ve seen declines in our programming costs, not all markets, but certain markets, pretty sizable declines as we’ve been able to restructure and renegotiate. So we just simply operate in a different programming context than our US operators. We don’t have ESPNs and Disneys and programmers who are able to exert a meaningful power in the market because our markets are largely fragmented and because we actually end up being able to take advantage of our scale. So I would not expect programming cost to be a major component of cost increases on the analog level and then only incrementally on the digital level, but for that of course we are generating positive margins. So you should see that. Vijay Jayant – Barclays Capital: Thanks.

And our next question comes from Chris King with Stifel Nicolaus. Josh James – Stifel Nicolaus: Hi, guys. This is actually Josh James [ph] sitting in for Chris King. Thanks for taking my call. I was hoping if you could speak a little more to what you are seeing economically in Central and Eastern Europe and how the consumers are holding up in those countries? And also do you have a sense as – sorry. Also do you have a sense of how your competitors are holding up in these markets?

The first point – this is Mike. I’ll try to take a quick crack at it. It’s mixed. I would say with respect to the more competitive up-starts, the operators in Central and Eastern Europe who had given us fits over the last several years with low-cost bundles and really low value products. I think perhaps the best example would be DigiTV who is just as of today taking their second rate increase across their footprint in the last, I guess, couple months here, which indicates to us that what we forecasted several months ago that certain of our competitors would either have to change their business model or go out of business seems to be the case, that the companies who are not operating and what we believe are reasonable economic profiles because of where they are priced and what they are providing may have to change their model. And it looks like at least in the case of Digi, they are in fact doing that. I think incumbent telcos across our markets are fully active only depending on the markets, you know, may rebalance their rates if they are in different currencies. Others may see this is as a great opportunity together with us to reinforce our market position and our ability to set the agenda in terms of products and pricing. It’s really a mixed bag. But I do believe that the companies that have given us the most trouble, if you will, seem to be having a bit of trouble themselves, and their pricing is going up, not down. So that’s a positive development. Gene, do you want to add anything on the Central and Eastern Europe?

I guess the only thing I would add is that, you know, generally speaking, the GDP in Western and Eastern Europe and particularly in Hungary are contracting. Although on the other hand, you are still seeing some pretty healthy growth in GDP in your Central and Eastern countries with the exception of Hungary. Hungary, in particular, is experiencing volatility in the font [ph]. You’ve seen a significant devaluation there. They have also increased their VAT from 20% to 23% most recently. Romania has seen a devaluation of the leu against the euro. Poland also had seen a fairly significant contraction in the currency. Ireland is an exception to the Western European market. In Ireland we’re seeing a significant increase in unemployment, but withstanding all of that, as I said earlier, we haven’t seen a significant impact in our business at this point.

What I think is important to point out is just cap it up at (inaudible). Our products are not priced at higher end of any particular market in Central and Eastern Europe. We are all – we have been such a competitive posture for so many years that we put our bundles and our pricing to a point where hard to argue that we're gouging the consumers. In fact, I'd say it’s very much the opposite. So I don’t believe that in these particular markets we will feel whatever pain might exist for a consumer product the way others might. Because we have been in such a competitive environment, our products and our pricing and our bundles are darn cheap. And we don’t have $120 customers who would like the premium services that might churn off or might walk away. We really have very high-quality, low-priced products that I think put us in a very strong position as you go into what might be some economic headwinds in those markets. But we'll keep you abreast of it as quarters go on here. Josh James – Stifel Nicolaus: Thank you.

And our next question is from Matthew Harrigan with Wunderlich Securities. Matthew Harrigan – Wunderlich Securities: Good morning. A couple questions. First of all, I know you’ve got hedges on the emerging European currencies of about four to five times EBITDA. I was a little bit surprised that there wasn’t (inaudible) some gain from those hedges in Q4. I understand the issues on the yen debt offset by the euro debt to a certain extent. But I was curious as to when that was going to flow into your financials, because you see some pretty significant currency movements as you’ve noted with the foreign. And then secondly, on the stimulus side, Swisscom and KPN have taken a pretty meandering approach on the fiber rollouts. I know some of that is relating to getting access and all that. But do you see anything happening in terms of policy in Europe that’s going to accelerate the rollout of fiber? And then lastly, on Telenet, they posted some pretty encouraging guidance even if InterCall [ph] included, I think the 12% revenue and OCF, I was curious if you could give us a little bit of a vantage point on that business and how you would compare it to KPN and Swisscom – I'm sorry, the Netherlands and Switzerland.

Sure. Well, I’ll tell you what – Bernie, why don’t you think about the hedge question? And (inaudible) I’ll try to address the stimulus issue, and Rick, why don’t you think about Telenet? On the stimulus side, I think the European community is approaching it not dissimilarly from the US community. And by that I mean when it comes to telecoms or broadband, the first approach is for what I would describe as regional or rural initiatives such that the money that may be invested into our industry would firstly be invested in under-served markets, in markets that today don’t have either a competitive or existing networks provide services. So that’s point one. And I think we are very, very attune to what may or may not be happening in each particular case. It’s not to say that there may not be in some instances regulatory enthusiasm around fiber build or things of that nature. But in principle, I think when push comes to shove, nobody needs to see the government get into our space instead of building the networks and certainly the incumbent telcos are on our side in that regard. I was in Dhabas [ph] with all of my peers in the European telecom sector and we all I think were singing from the same hymn book that we really want to ensure that we don’t see over regulation in this space. We want to see appropriate regulation that’s helpful for – just in the economy, but appropriate. And I think that everyone would be attune to that and focus on that in the same way we are. KPN and Swisscom, I’d say, are tiptoeing into fiber, Matt. I mean, you’ve got the facts and the figures. You follow them the way we do. Both have announced what I would describe as limited fiber initiatives, not to say that they won’t become perhaps more substantial over time. But I think Swisscom, for example, has said it will take them six years to build fiber at a significant cost. And it’s a bit of a (inaudible) approach to it. And I don’t know that that’s going to be accelerated in this type of environment. KPN has taken a slightly different approach, invested in fiber through joint ventures mostly, which could create complexity for them, but nonetheless won’t allow them to control their destiny as much as they would like with respect to the speed and timing of rollout. They are seeing benefits on their fixed line business, principally from low-cost DTT television services. And IPTV and fiber don’t seem to be as front and center as you would expect they would be, especially as we roll out 120-megabit products across our footprint, which are having an impact, I can assure you. So we will wait and see as the year unfolds. There is a lot of moving currents there. You want to talk about hedges, Bernie?

Yes, I’ll do that. It’s a difficult question. As you know, our situation is pretty complex. But for the year – and I’m not going to just address the quarter, but for the year, we did – we have losses in every one of our markets with respect to interest rates and our derivatives. We had gains associated with the decrease in the value of the Polish zloty and the Romanian leu relative to the euro. We had gains associated with the decrease in the value of the Chilean peso relative to the dollar. We had losses associated with an increase in the value of the Swiss franc. So it’s a pretty complex issue that may be better taken online if that’s okay. Matthew Harrigan – Wunderlich Securities: That’s fine, thank you.

Okay.

And what was your question on Telenet, sorry? Matthew Harrigan – Wunderlich Securities: Yes. What are the drivers of net – I've heard it from their vantage point, but like to get your vantage point in terms of how the builds in market is divergent from Switzerland or Holland in terms of the competitive overlay and all that. Because I think if you included InterCall, it looks like they gave some pretty healthy guidance.

Maybe I’d take that, Rick. I mean, I think the principal difference, Matt, is that for the most part, Belgium looks more like a duopoly environment and a very competitive and healthy duopoly environment, I might add, then perhaps Holland in particular. And I think from that point of view, any competitive developments are really in the context of these two primary operators, and Telenet has a very, very strong position in their marketplace, both in the point of view of obviously digital television, but also broadband. ARPUs are a bit higher in those markets today, which is a positive. It means that we’ve got more revenue and margin to deal with both in terms of being competitive and bundling and launching new products. And (inaudible) has taken more of ADSL2+ or VDSL approach in IPTV. And I don’t know that they have made specific announcements about fiber, but I suspect as we push Telenet to launch more broadband speed, you will see that occurring. So they have a very healthy B business in that marketplace that’s been hedged about a good couple of years and we think that’s a big part of their growth profile. And it’s just a good strong business. I don’t know if you want to add anything to that, Rick. Matthew Harrigan – Wunderlich Securities: Thanks for the guidance, guys.

I would just say they also benefit from their ability to market across 100% of the Flanders footprint. We have roughly 35% market share. In Switzerland we have about 50% market share. So that’s just one other differentiator.

That’s a good point Matthew Harrigan – Wunderlich Securities: Great. Thank you.

And our next question is from Murray Aronson [ph] with Yankle Partners [ph]. Murray Aronson – Yankle Partners: Thank you. Good morning. I have a couple questions. One is, I wonder if you could just provide an additional – some additional color on the 3.0 rollout plans, do you expect that to roll evenly through the year or if it gets more aggressive later in the year, and what the difference is between entering the market versus fully penetrating the market there? And secondly, I just wanted to get your thoughts – I know you have a couple different WiMax initiatives going on. I wanted to hear about those and just what your views were on WiMax in some of those key markets or maybe that’s an issue.

I’ll take the WiMax point and then, Gene, you think about the 3.0 and I can provide some color on that. I think we continued to maintain a similar posture to what we have communicated in the past on WiMax. And by that I mean that we are skeptical in most instances, both the economics and performance of that product, particularly when you’re in a 3.5 gig environment like we are generally where we have spectrum as opposed to lower spectrum ranges where it’s a bit more productive and fruitful. The economics haven't changed materially in terms of CPE or other network gear. We have rolled a network out in Chile. We do have some practical experience with this technology, and we are in the midst of some trials and things of that nature. I think the biggest challenge that we will face, in particular, in this market, in the US is that it is not going to be ubiquitous. It’s going to take time to be ubiquitous. And we’ll compete with ever-increasing and sophisticated mobile networks which are ubiquitous. So I would say we remain cautious on WiMax. And where we have spectrum we are more or less in a stable posture. On 3.0, I mean, Gene, I don’t know if you have stuff in front of you, but I mean – the plan in Australia and Europe is to get 3.0 rolled out principally in almost every market by the end of this year. But that time frame varies by country depending on the market and situation. And the main challenges of 3.0 are first of all getting it rolled out, main opportunities as much as anything, as effective as possible. And I will say that we’ve got a number of procurement initiatives that are bringing our cost of 3.0 down meaningfully. From even what we said it was, at $20 a home, we think we are even selling below that at some point here with some very innovative procurement initiatives, which we really can’t speak about more than that. And then the second major opportunity for us is really layering in the pricing and the speed increases. And that’s an art, it’s not a science. And the art varies by market in terms of what speed you roll out where, how we price it, how we upgrade people, how we migrate people, and what competitive reaction we expect. So I think what you’ll find is, for the course of the year we’ll be very aggressively rolling it out and very aggressively building it out. And that market launches will vary and look slightly different depending on the country. Murray Aronson – Yankle Partners: That’s great. Thanks very much.

And our next question is from David Kestenbaum with Morgan Joseph. David Kestenbaum – Morgan Joseph: Okay, thanks. You talked about margin improvement next year. Can you just talk about where you expect that? Is that from VTR, J:COM? Is there anything that prevents their margins there, which are slightly lower than UPC from rising the UPC levels? And then second, have you thought about buying back any of your bonds in the market? Thanks.

I'll take the bond point first. People have asked that question a lot and it’s a fair question. And my perspective on that is while our bonds clearly are trading at low levels and although that’s trading much better recently, it’s certainly not as good a return as our stock. And we are in the business of deploying capital in the most return efficient and aggressive approach we can. If we were to stop buying our bond, I think it would – it also may signal to people that, hey, we believe we have amortization challenges here and so we better capture that cheap debt while we can to lower the maturity burden or amortization burden we face down the road. Well, we don’t feel that. And so I don’t believe we are sitting in a position where we should concerned about our ability to repay debt any time in the near, medium or long-term. And so I’m not sure what I’m achieving by allocating capital to bond repurchases that have a lower rate of return than our equity, and we will make less of an impact in our overall balance sheet, capital structure, or in fact our growth initiative and value creation initiatives and would – will no doubt signal through others, I suppose, wrongly that we have some concerns around our amortization position. So that’s our posture on bond today. And I think that’s the right one. In terms of margin, I don’t think we can provide a whole lot more color than what we did, except to say that generally all of our operations year-over-year improve in their margin. And we don’t normally have businesses that grow the top line less than their expenses. And that’s the nature of how we operate. So where we have top line growth of X, we generally have operating expense growth of X-minus. And as a result, we have seen pretty consistent improvements in our operating cash from margins across markets. And I would expect you would see that next year or this year. David Kestenbaum – Morgan Joseph: Is there anything structurally that prevents UPC – sorry, VTR or J:COM from having the type of margins you’ve achieved in UPC?

You mean at the end game. David Kestenbaum – Morgan Joseph: Yes.

No. I mean, where they are in their growth curve in some respects, I mean, remember that J:COM had maybe 5-plus million RGUs, but doesn’t have a very – you know, an 80% penetrated video business. So with some respect, there is still some ways to go in VTR and J:COM in terms of the number of total homes passed that they service today. And that’s a positive thing from a growth point of view, but does mean that there is more scaling to achieve there. The question is how quickly they will achieve it. I’m not sure if anything that I would raise, David, of a structural nature here that says we're going to reach some natural sealing on those margins. David Kestenbaum – Morgan Joseph: Okay, thanks.

Yes. I guess – I don’t know, Rick, we have time for one more question here or –?

Yes.

And our last question will come from Richard Dineen with HSBC. Richard Dineen – HSBC: Thanks very much for taking the question. I guess we touched a little bit on DOCSIS 3.0 a couple of questions ago. I’m just wondering if you might dig into that a little bit more, just broadly what you’re expecting really in terms of adoption rates, this is a premium service, it’s a softening consumer spending environment, and what you might be able to achieve in terms of an ARPU uplift, whether you are expecting to offer a lot of discounts first maybe to improve the adoption rates. And just on the cost side of things, again, if you might just guide a little bit on the incremental CapEx and OpEx trends, if you’re going to get any CapEx scaling benefits as you build out into the new geographies and whether you’re seeing any customer acquisition expense trending down, whether that’s through deflating price of modems or whatever. And just maybe just quickly as a sort of follow-up, if you could just give us an idea of a realistic average speed for DOCSIS 3.0, the kind of speed you might get at a peak hour on an averagely populated cable modem – I don’t know, 1,000 homes, that would be fantastic. Thanks.

I think on 3.0 – and Gene, I’ll let you fill in the holes here. On 3.0 what you see is what you get. We don’t have the issue that DSL or ADSL experiences where it’s really a function of where you sit relative to the central office or other factors. And in principle, we’ve been under pretty intense scrutiny in Holland by a number of consumer groups and consumers themselves. And when we market 60-meg and 120-meg, what you see is what you get in general. Are you going to get exactly 120-meg in every moment? No, but you’re not going to get much less. I mean, the point is that it is what it advertises itself to be. And I don’t know, Gene, do you want to fill in a little bit, some of the adoption rates and ARPU uplift we’re seeing?

Yes. The initial focus is not too much upon the ARPU uplift, even though we have introduced a 60-meg and 120-meg product, and we’re getting ready to roll out a 50-meg and a 100-meg product in Austria. We don’t anticipate that the tick-up of those two products will be significant at first because first of all they are priced at premium level and they would be most attractive to a customer that’s already subscribing to a relatively high ARPU product. The initial strategy is to do two things. Number one, leverage our existing 2.0 infrastructure by allowing us to increase the speeds to their maximum in the markets where we don’t have fiber-to-the-home competition, for example. So in many of the markets we’re moving our dot [ph] speeds up to 30-megabit and then gradually moving – and in concert moving all of our lower speeds up as well. The 3.0 product allows us to even move the lower products higher. And most importantly, I think – or as importantly, it allows us to reclaim our speed leadership as a marketing tool in all of our markets. And also by increasing the speeds of our lower products, number one, we should get higher uptake. Number two, we should reduce churn. And in some cases, we are able to increase the rates on those products driving some incremental ARPU. Does that help?

And I think (inaudible) as well, but why don't you address procurement initiatives and where we see set-top box and other CPE and modem prices going?

Sure. On DOCSIS 3.0, both ends of the chain, the CMTS, the side in the net rate and the modems, we’ve seen dramatic price reductions there as well. On the modem side, it’s probably running 10% to 15% ahead of what we thought the numbers were going to be at this point in DOCSIS 3.0’s evolution. On the CMTS side, for the most part we are upgrading existing CMTSs. So it’s swapping out cards. So the incremental cost isn’t that significant. And then in areas where the chassis cannot be upgraded, we’ve selected a pretty innovative startup vendor that’s delivering some significant cost reductions to us as well. And one other thing I would add, with DOCSIS 3.0, the next generation cards are significantly more denser than the existing DOCSIS 2.0. So on a per-port basis, the prices have dropped quite a bit as well.

And then lastly, on set-tops, we were seeing the same kind of evolution around the world, anywhere from 10-plus percent reduction in set-top box pricing every year. So to your customer acquisition cost, clearly the biggest cost in acquiring customer is the equipment, and that piece of the puzzle for us consistently comes down every year, and the variable marketing depends on the market itself.

Correct. Yes, our next generation box is with a 320-gig drive. It’s a lot less than what we would have paid for even 12 months ago for storage, a lot less than that. Richard Dineen – HSBC: Okay, guys. Thanks every so much. That’s very helpful.

Okay. Listen, everybody, we appreciate you getting on the call with us this morning and – or this afternoon here in Europe. And we look forward to keeping you updated on the year as it unfolds for us. We are all very motivated and very excited about it and focused. And we will speak to you all sooner. Thanks very much. Operator?

Ladies and gentlemen, this concludes Liberty Global’s investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.lgi.com. And you can also find a copy of today's presentation material. Again, the website is www.lgi.com. Thank you again, and have a good day.