Michael T. Fries - Liberty Global Plc Charles Henry Rowland Bracken - Liberty Global Plc Lutz Markus Schüler - Virgin Media, Inc.

Joost Baptiest P. Coopmans - Liberty Global Plc

Vijay Jayant - Evercore ISI Michael Bishop - Goldman Sachs Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC Steve Malcolm - Redburn (Europe) Ltd.

Matthew Harrigan - The Benchmark Co. LLC James Ratzer - New Street Research LLP Andrew Beale - Arete Research Services LLP Christian Fangmann - HSBC Trinkaus & Burkhardt AG

Thanks, operator, and welcome, everyone. There's quite a bit going on the world, so we certainly appreciate you spending an hour with us.

We'll try to make it worth your while. Charlie and I will handle the prepared remarks today, and then I'll get other execs involved in the Q&A as we normally do.

I would be referring to slide as we walk through the quarters, so hope you can grab those off the website and follow along with us. And I'll kick it off on slide 4 with some key highlights from the quarter.

And this should get you level set on most of the main issues, many of which we'll come back to in this presentation. But let me start with the pandemic, as we've discussed throughout the year, while we're not immune to the effects of this global crisis, of course nobody is, we continue to deliver solid operating and financial results, largely in line with or in some instances better than our original expectations for the year.

And I'll talk about that a bit on the next slide. Obviously, this has been a busy year for us on the M&A front and we're excited to be on the verge of closing our acquisition of Sunrise in the Swiss market.

You would have seen that around 97% of the shares were tendered to us, which is a great result and we'll facilitate the de-listing and merger process. We also just received all regulatory approvals which means we're targeting completion of the transaction actually next week.

And in a few slides, I'll spend just a minute revisiting the strategic and financial benefits of this combination which are significant. We're also making steady progress on the completion of our JV with Telefonica in the UK.

The teams are working extremely well together and have already validated the £6.2-billion synergy estimate. They've developed strong commercial day one plans, and of course the transaction is now fully financed.

I've got to tell you, we're even more convinced today that this will be a fantastic deal for customers, employees and shareholders. And all we're waiting for now is regulatory approval which as we've said should be mid next year.

And you can see some highlights of our Q2 results on the right side of this slide. We delivered strong customer growth in both fixed and mobile, which I'll talk about in a second.

And we saw modest declines in revenue adjusted EBITDA and operating free cash, and Charlie will drill down on those figures but we are largely on plan for the year, which means we're managing through both the expected headwinds we identified at the beginning of the year and the unexpected impacts of COVID pretty well. And that's one of the reasons we're confirming our original 2020 guidance today, in particular mid-single digit operating free cash flow growth and $1 billion of adjusted free cash flow, both of which are benefiting from continued declines in capital intensity.

Now, you no doubt noticed that we added $1 billion to our buyback program today. This will give us the flexibility to be opportunistic for the remainder of this year and also give us the capacity to continue shrinking equity and driving levered free cash flow per share in 2021.

And then finally, I just want to say how encouraged we all are by our employees and how well they're managing through this pandemic. And we've consistently made their safety and well-being our number one priority.

And as a result, we're seeing record engagement levels across our markets, which is a good segue to the next slide, where we talk a bit about the COVID-19 pandemic, which has in many ways highlighted some of our own strengths. Beginning of course with our networks, which have remained resilient in the face of increased utilization, both upstream and downstream, and have plenty of remaining capacity.

I just – I can't express how important this is for the families and students and hospitals and schools and businesses that we serve. It certainly helps explain why we're experiencing some of the highest NPS levels we've seen across our core markets and allowed us to support our customers with more data, more speed and more content, while at the same time supporting our communities with programs like Virgin Media's Essential Broadband and Telenet's Digital Lifeline services that are targeted to the more vulnerable among us for whom connectivity is even more important.

I'd also point out that COVID has forced us to accelerate our investment in other areas of our business like digital. We've talked about this.

When customer care centers were disrupted and shops were closed, we need to lean on our digital platforms to drive things like online sales, which are up 10% in most markets and now represent nearly half of our sales in the UK, for example. We also ramped up our digital care and support platforms, which helped drive call volumes down 30% in markets like Switzerland.

And I'm sure you've heard from other operators, the COVID headwinds were less severe in Q3 than in the prior period. The return of sports, improved roaming traffic and growth in both fixed and mobile subs helped our results.

More recently, however, we've seen a return to more stringent lockdown and social distancing protocols in Europe as infection and positivity rates have spiked. To be fair, this could impact our medium term outlook.

But I'd point out a few things. Most of the measures are intended to be short-term in duration, two weeks to four weeks typically.

And generally they're more moderate and more targeted than last spring. And after six to seven months of this, businesses and consumers are more prepared this time around.

So I hope, as I said before, is to build on our improved relationship with subscribers, regulators and politicians, and to make sure we come out of this period even stronger and more customer focused, and I think we will. And the pandemic has also reinforced the fact that our strongest customer proposition is connectivity, fixed and mobile, fast and reliable, and intelligent and adaptable connectivity, including also the integration of incredible features, content and applications.

And on slide 6, you can see that our broadband results reflect that with 71,000 net additions in the third quarter, that's up six-fold from a year ago. And we saw strength across our footprint.

Belgium had its best result in five years. The UK delivered solid growth on both the Lightning and the BAU footprint, and Switzerland had its first positive month in September in a very, very long time.

Now we know that speed leadership still matters in these markets and that our investment in fiber deep, smaller node and DOCSIS 3.1 is paying off. I remember the debates we all do around the question of who needs 100 megabits at home.

Well, today, nearly 100% of our UK customers are taking 100 megabits or higher, with average speeds of 166 meg across the footprint. By the way, that compares to 46 meg in the rest of the UK among other operators.

Across Europe, around 50% of our subs are taking products of 200 meg or higher. And then you add to that the fact that we are gigabit ready across 32 million homes and actively marketing gigabit services to about 45% of those.

And we're in a very strong position here. There's no question that broadband is also impacted positively by our fixed mobile strategies across our markets, where convergence continues to grow.

In Holland, over 40% of broadband subs take a mobile product from us after about three years. Now, we'll talk a lot about the strategic and operating rationale of a fixed mobile convergence in Europe.

We've done that, we'll continue to do that. And there's really no better example than VodafoneZiggo in Holland.

There's a chart on this slide and I apologize, it's a little small. But it shows the complete turnaround in revenue and EBITDA growth that the team has achieved over the last three years.

In 2017, the company's revenue and EBITDA declined 3.7% and 5.6%, respectively. Those numbers have improved steadily every year, with the revenue and EBITDA actually in the nine months of this year up 2.5% and EBITDA up 7.5%.

And there are several factors that contribute to this, including of course a significant synergy target that was achieved a year early. But equally important is the positive impact of higher NPS and reduced churn levels from fixed mobile subs.

That's anywhere from 50% to 80%. And the scale that VodafoneZiggo has in the Dutch market is also critical, right?

It's now larger than KPN in broadband, fixed voice and entertainment services, and is generating €400 million to €500 million of distributable cash to shareholders this year. The other major factor here is continuous innovation across our product and technology roadmaps.

In Holland, VodafoneZiggo is rolling out a nationwide 1-gig network. They were the first to rollout 5G and they've embraced our Horizon entertainment platform.

And that sort of innovation is occurring across the European footprint. It all begins with network superiority in markets like the UK, for example, where Project Lightning has been a resounding success.

In fact, we've included the latest figures in the appendix of this deck, so check them out. And we continue to be bullish on continued expansion of Lightning.

We're also working on a clear path to 10G or 10 gigabits per second using a combination of HFC and fiber-to-the-home. The pace of innovation of 5G mobile is equally critical, with VodafoneZiggo and Sunrise and others leading the way in their markets.

Robust and reliable network support innovation and connectivity, which is where this all begin. And we've led the way with smart and intelligent WiFi and better, faster and cheaper CPE.

And then finally, our entertainment platform continues to delight customers with the best user interface, seamless integration of apps, voice control and tons of other features. And importantly, Horizon has also laid the groundwork for our migration to an all IP video services platform with our Apollo box.

This is network agnostic, app-centric, portable and low cost. This is where the entertainment business is headed and we're leading the way again in Europe.

Now, our success in Holland and Belgium really underscore our excitement about the Sunrise acquisition, which we've recap a bit to you on slide 7. The main driver here is scale.

UPC and Sunrise together create a clear number two to Swisscom in one of Europe's most attractive and stable markets, with around a 30% share across all services and a significant opportunity to grab meaningful share in B2B. Now, like our other FMC deals, the combination is anchored in best-in-class networks.

Right out of the gate, UPC Sunrise will reach 90% of the fixed market with 1 gig services. They'll have leadership in 4G mobile and the largest and fastest 5G network in the country.

Now the synergies are also substantial, you'd expect that with an NPV of over CHF 3 billion, about 80% of which is attributable to OpEx and CapEx efficiencies. The real opportunity here is to deliver the sort of combined financial growth profile that we've seen in Holland.

I'm not saying the numbers will be the exact same, but we're convinced that scale, market strength and synergies will deliver stable free cash flow for a very, very long time. It's also worth mentioning that the both operations had a strong Q3.

As you can see from the charts on the right, UPC continues to deliver improved subscriber trends, with a record sales month for mobile in September and consistent improvement in broadband. Sunrise released their results earlier today, also a very strong quarter with positive service revenue growth despite roaming headwinds, positive EBITDA growth, which reflects strong cost management.

They also delivered their best quarter of postpaid mobile adds in a decade and really strong broadband and TV customer growth. So far, the pre-merger integration work here has validated the synergy estimates and clearly established the opportunity for Sunrise and UPC together to give Swisscom a run for its money.

Now I'll end on slide 8 with a quick look at Liberty Global, what we look like pro forma for both the Swiss and the UK transactions. Now most of you know this, but it's really, really important to continually reinforce the narrative of how we've transformed this company.

After spending over a decade, consolidating cable and chasing broadband market share, we saw the fixed mobile convergence story developing in Europe around five years ago. Around that time, the incumbent telcos started prioritizing their fixed networks and broadband growth together with wireless, and they left the other three to four mobile operators struggling to compete with their own fixed infrastructure.

So they didn't have any. And that was the moment we pivoted.

Where we didn't have scale, we exited the mobile-only operators like T-Mobile in Austria and Vodafone in Germany, and as you know, those deals were valued at double-digit multiples and represented huge returns on equity for us because of the value of the network and the value of the fixed customer base. In fact, you could argue today that those prices look cheap, given where infrastructure assets are trading.

And where we had network and broadband scale, we decided to build our own FMC champions in four markets, right? We merged with Vodafone's mobile unit in Holland to form a 50/50 JV, and I just showed you the results there.

We bought KPN's mobile business in Belgium, and Telenet today is the leading converge operator in the market. We announced the merger of Virgin Media and Telefonica's O2 in the UK to form a 50/50 JV that will be second only to BT in size and scale and poised for incredible strategic and financial upside.

And we're acquiring the best mobile company in Switzerland to create the clear number two to Swisscom. When you put it all together, we have tremendous converged scale in Europe, serving $84 million fixed and mobile RGUs and generating $26 billion of aggregate revenue.

That's a strong platform for value creation. And as we've shown in Holland and Belgium, each operation generates stable long-term free cash flow and represents a real opportunity for further strategic growth and potentially public listing.

Certainly, Sunrise has shown us that the institutional demand for crown jewel assets on local exchanges is huge. Now beyond that, we're focused on allocating capital just as we've done thus far, right?

We've announced a new $1 billion buyback program, I mentioned that. When that money is spent, we will have purchased around $4.7 billion of our stock since we closed the sale of Germany to Vodafone 16 months ago.

It represents about 40% or more of those proceeds. Now, we'll look for opportunities in our remaining cable markets, Ireland, Poland and Slovakia.

We'll see if there's opportunities there to pursue similar FMC playbook strategies or not. And we'll continue to invest in adjacencies through our Ventures portfolio, which we conservatively value today at over $1 billion.

Let me just take a second to talk about that. We've had a really good track record with our venture investing and some recent wins.

We were an early investor through our technology portfolio in Skillz, a mobile gaming platform that just got bought for $3.5 billion. That was a 10x for us.

The crown jewel of our sports portfolio is Formula E race series, which we conservatively value at $0.25 billion. We have small but important interesting content platforms in our largest markets.

Our infrastructure portfolio was an early investor in EdgeConneX, which was just acquired by EQT in a multi-billion dollar transaction. And we're actively pursuing ways to monetize or grow our own infrastructure and property-related assets, which is an exciting space right now.

You're following that I'm sure. So looking forward, we're mainly focused on four things.

Firstly, delivering stable and long-term free cash flow in our core fixed mobile markets. I've just talked about that.

Looking for ways to close the value gap on those assets, which we think are a real and tangible opportunities. Investing in our own equity story through buybacks, of course we've just added more to our buyback program.

And then selectively and only when appropriate, investing in adjacent and attractive opportunities. That's the strategy.

So, I'm happy to take questions on any or all of my remarks at the end. But for now or right now, I'm going to turn it over to Charlie.

Charlie to you.

Thanks, Mike. Turning to our consolidated numbers, I'm starting on a page entitled underlying revenue stable.

Total group revenues sort of declined at 1.3% in Q3. And on the right hand side of the page, we set out our estimates of the impact of COVID and on what it has done to our underlying revenue growth, which as you can see accounts for more than 100% of the Q3 decline.

In Q3, we estimated COVID reduced revenues by $41 million compared to $110 million in Q2. Of the total, premium sports accounted for around $13 million, B2B revenues were also impacted by $13 million and mobile revenues were reduced by $9 million, predominantly by roaming revenues.

Broadcaster revenues accounted for around $6 million of the drag. Many of the affected revenue streams are either relatively low margin or have other compensating operating expense impacts, which is why our adjusted EBITDA growth was not significantly impacted in the quarter.

On the next slide, we provide details of our adjusted EBITDA. The rebased adjusted EBITDA growth was minus 5% in the quarter, which means year-to-date growth is minus 3%.

Now, we're confirming our full year guidance of mid single-digit rebased adjusted EBITDA decline, which implies a significant year-on-year decline in Q4. Why is this?

Well, 2019 saw a material step up in adjusted EBITDA in Q4 versus Q3. Whereas in 2020, we expect Q4 EBITDA to be broadly flat to Q3.

And this is because we have deferred the UK price rise that we typically executed in Q4, resulting in a $26-million delta. And in response to the demands of COVID, we are ensuring certain customer care operations and an accelerated investment in a number of digital initiatives.

Together, this results in an increased spend year-on-year of $17 million. We expect these investments to deliver long-term savings going forward but these are after these initial setup costs.

Finally, in both the UK and Switzerland, we expect to incur a premerger integration cost of $8 million and $9 million due to the pending transactions. Turning to our capital intensity, year-to-date, we continue to reduce our CapEx spend versus previous years due to the completion of many of our investments in capacity and roadmap projects, as well as a decrease spend that resulted from upgrading our customer premise equipment on our new platforms.

In Q3, we reported a CapEx to sales ratio of 22.3% or 19.9% on a pre-Lighting basis. There was a reduction in new build spend in the quarter, but we still succeeded in building 125,000 homes in the UK and Ireland, contributing to a year-to-date total of 311,000 homes.

We're looking to complete a further 100,000 homes in Q4 assuming our plans aren't affected by the upcoming lockdown. In Q4, we do not expect CapEx to rise as it did in 2019, and so for the full year, we estimate CapEx to sales pre-Lightning will be around 20%.

Because of this reduction in CapEx, we remain on track to grow our OFCF mid single-digits in 2020, as we set out in the next page. For Q3, we reported OFCF of $552 million in the next page.

The Q3 we reported OFCF of $552 million and on an pre-Lightning basis $623 million of underlying OFCF. All our markets, except Belgium that was flat, show underlying growth in OFCF versus the Q3 2019 numbers.

The Netherland in particular saw very strong growth, rising from $247 million to $348 million year-on-year. We expect this underlying growth to continue in Q4 across our markets and are targeting $500 million of consolidated OFCF for Q4, including the impact of our Lightning investments up from $433 million the previous year.

Turning to free cash flow. We confirm our guidance of $1 billion of free cash flow for the full year, increasing from $542 million year-to-date.

Turning now to key drivers to achieve this. We expect no further material interest payments in Q4 in line with previous years and tax payments will be minimal.

We expect to receive the balance of the shareholder distributions with VodafoneZiggo, which we expect to be 50% of the upper end of their €400 million to €500 million target range. Year-to-date working capital is positive $31 million and we expect it to be broadly flat for the full year.

Our underlying year-to-date pre-Lightning adjusted free cash flow was $789 million, demonstrating the continued strong cash flow generation of our businesses. Turning to our capital allocation on the next page.

Group liquidity remained strong. We reported full company liquidity of $9.3 billion at the end of Q3, including $6.8 billion of cash and SMAs.

Pro forma for the Sunrise transaction close, this will be reduced to $5.4 billion including approximately $2.9 billion of cash and SMAs. If you overlay the close of the Virgin Media O2 transaction, pro forma cash is expected to be $4.7 billion.

And with that transaction, we will deconsolidate Virgin's revolving credit facility, leaving remaining revolvers of $1.2 billion predominantly at the UPC credit pool, resulting in total group liquidity of $5.9 billion, which will continue to provide the group with excess capital to invest. We continue to repurchase our stock and repurchased $1 billion through the end of October.

Since Q3 of 2019, we repurchased 29% of our market cap and continue to repurchase further stock. As Mike indicated, we're looking to opportunistically buyback a further $1 billion through 2021.

Telenet's firmed up its dividend distribution model, committing to a dividend floor of for €2.75 per share going forward. We see this current dividend distribution policy as a template for our future FMC companies as we explore local listings over time.

In terms of leverage, we remain committed to our 4 times to 5 times leverage targets and are very comfortable at the top end of the range, as there is clear near-term visibility on EBITDA growth as we realized FMC synergies, which allows us optionality to delever towards the middle of the range and below over time. Both our existing FMC champions, Belgium and VodafoneZiggo are on this path, both have long dated debt with an average life of around eight years and low borrowing costs fixed at 3.4% in Belgium and 4.2% at VodafoneZiggo.

Belgium leverage remains at 4.4 times on a US GAAP basis, following the execution on the synergies of its fixed mobile consolidation. VodafoneZiggo is continuing to execute the synergies from this merger and to delever further from its current 5.25 times.

We completed a number of financings in the quarter, including attractive financings in advance of closing our UK and Swiss transactions. In both the UK and Switzerland, the companies will be levered 5 times before the benefit of any synergies, with average lives around eight years and the cost of debt in the UK of 4.4% and 3.8% in UPC, which benefits from the lower underlying Swiss rates.

Given the completion refinancings, we do not anticipate having to allocate any of our excess capital to further deleverage these or any of our other credit silos. In conclusion, Q3 saw strong customer and broadband performance with high NPS.

The Swiss transaction has been approved and will close around mid-November, and the UK transaction remains on track. Our underlying cash flow generation remains strong, with capital intensity established below 20% of sales excluding Lighting.

We are reconfirming all our 2020 guidance metrics, mainly mid single-digit adjusted EBITDA decline, mid single-digit OFCF growth, and adjusted free cash flow for the full year of $1 billion including Lightning construction CapEx. And then finally, we are announcing a new $1-billion buyback authorization.

And with that, operator, over to questions.

Good morning, Mike. Two questions, first, in the UK you've been reconnecting with your customers and sort of contact them on modification of their plans as part of a repricing of the base.

Can you just talk about how much was done, what's been the customer impact in terms of dollars, and any sort of outlook on what that could be going forward? Second, more sort of a bigger picture question.

Obviously, your fixed mobile convergence strategy is showing a lot of success in Holland and Belgium. We expect that to come in the UK and Switzerland over the next year.

Can you sort of talk about structurally or competitively or culturally, is there any real reason those two markets, the new markets will have similar success and we can get back to pretty healthy EBITDA growth and KPI growth? And in that context, is there any way to even sort of quantify what sort of margin benefits you're getting?

I know the churn is down and NPS is better, but any sort of profitability measure on this convergence would be very helpful. Thank you.

Sure. Thanks, Vijay.

Look – Lutz is on and I'll let him address the end of contract and annual best tariff issue. But we've said in the past, I think we would repeat here though, is just we're not giving specific – we're not disclosing specific numbers to who we've contacted and how many here.

But we have said publicly that so far the effect of that end of contract notification process has been better than we expected, which means that while our churn from that process was largely in line, we have not had to provide any level of discounting or changes to ARPU that we thought would occur. So in the end, we believe that the end of contract notification process thus far has been better than we expected.

But I'll let Lutz dig into that. Why don't you just answer the second question if there's more to add to that, Lutz.

Go ahead. In fact, well, go ahead do that now, Lutz, if you have something else to add to that.

Go ahead.

Yeah. I think what I can add to this, like overall you have seen strong net adds in UK.

So therefore you see that the churn number or the end of contract notification is not really material. And overall year-over-year, we are doing much better on churn.

And on ARPU, we are 1% down, but a year ago we have had the price rise started September 1 and October 1, half and half across the customer base. So therefore, you see also that the impact is not too high.

However, there is an impact, and this impact will also obviously flow through into 2021 so that we have fully swallowed the impact in a negative way 2022.

Yeah. And annual best tariff has really just started, so it's too soon to know.

It has just started.

On the FMC question, listen, I do believe to answer your question in sort of a general way, we do believe that both the UK and Switzerland can show, should show similar trends in terms of both financial trends and operating trends to what we've seen in Belgium and Holland. There is a couple of things that are the same of course.

We look at the synergy estimates there in both markets there within the range of what we've seen in all the other transactions we've been involved, and we've been involved in over eight different country mergers whether we're a seller or a buyer or a partner with FMC. And so there's a lot of data on synergies.

Just in the case of Holland and Belgium, it was about a €5-billion synergy estimate and we knocked the ball out of the park as they say on both – in both countries. So we've got experience.

We know the experience synergies. I believe the estimates have been validated – I don't believe, I know the estimates have been validated in both transactions by both sides of the equation.

And we feel really good about those estimates, the $2 billion number in Switzerland and the $6 billion number in the UK. And those provide a lot of tailwinds financially, obviously.

Of course on the operating side, the benefits of FMC are hard to argue with. Structural reductions in churn, consistent and regular improvements in NPS.

In a competitive market, having this quad-play bundles – you've seen it in Belgium, you've seen it in Holland, having a quad-play bundle matters, being able to provide full package of products and services around connectivity matters, having a mobile operation to cross-sell broadband, having a broadband platform to cross-sell mobile matters. And the statistics and the opportunities are very similar in both countries to what we've seen.

I can't share with you the long range plan. But if I could, you would see similar kinds of profiles.

I mean, VodafoneZiggo has upped their guidance on EBITDA this year to mid-single digit. Well, I just showed you that three years ago, it was negative 5%.

And we do think that those same kinds of characteristics, both operating and financial, are achievable. And again, I can't share with you my plans, but you should assume that we see that opportunity similarly as do our partners in the case of UK and I think the Sunrise management team as well.

Of course, they were on the other side of the transaction for a long time. So, everybody seems to be aligned here and we're anxious to get started.

Thanks, Mike.

Yes.

Yes. Hi.

So I have just one question, which is also on UK pricing. I just wanted to understand how you think the price versus volume equation has worked in the year, not taking price.

And that's with a view to potentially what you're thinking about next year, given BT's move and actually some of the moves on UK mobile we've seen as well. So just in general, the pricing environment feels like it's got quite a bit better despite COVID.

(00:31:24) that question...

Yeah. Go ahead, Lutz.

I'll add to it if I need to. Go ahead.

Yeah. Well, we have only postponed the price rise for this year, Michael.

And we wanted to make sure that we really continue with the momentum we've built up in especially broadband net adds. And – but as you have recognized yourself, the market seems to get more rational on the price increase side.

And obviously, we cannot disclose here what we are going to do, but I think, overall, I see that's pretty positive.

Yeah. I think the decision made to defer the price rise in 2020 was the right decision.

It had perhaps a marginal impact on volume, although I think reduced churn, the pandemic, the essential element of our products and services probably had more of an impact on that. But as you pointed out, Lutz, the market is clearly expecting from other operators and other operators have made this clear and publicly that they will be taking price rises in 2021.

So, we'll decide internally what our best move is, but we think the decision in 2020 was the right one, and for sure, it set us up for a stronger 2021.

Thanks. Good morning and good afternoon to the folks overseas.

I wanted to stay in the UK, if we could, two questions. One, you guys have had some programming cost pressure, I think, over the last couple of years, probably largely tied to sports.

And I'm wondering if you look out from here if you see the curve there bending one way or the other. I'm partly bring it up because Sky is talking about some real opportunities in terms of driving down, I think, entertainment expenses.

So I'm just wondering if you see that in your outlook as well. And then sticking with video, I know we don't talk about video much anymore, but this Virgin TV 360 platform, is this a big deal for your position in the market?

I don't know how you would compare that to Sky Q. And I think it's – I don't think it's a new set top box.

It doesn't feel like a big CapEx deployment. So I want to just make sure that's the case and get a little more color on that product, which launched this quarter.

Yeah. I'll let Lutz again.

I will just say a couple of things and I'll hand it over to you. The 360 platform really is a new user interface.

The Horizon 4 user interface, which is (00:34:06) what everything you'd expect to see. And that we think is a game changer in this market where everybody continue to watch video pretty significantly on the television, but it also integrates all the apps and has the full – that why it's called 360, the full integrated OTT experience built-in.

So we do think that's a game changer later this year when it rolls out. It has been in other markets in Switzerland, just rolling out in Ireland.

NPS, and in Holland, the NPS rises materially. And people see it as the next-generation of video experience, which we need to be part of and our customers are as well.

On the programming point, without being specific about any particular programmers, I think it's fair to say that across Europe, not just in the UK, we anticipate a different type of discussion with all of our linear providers, whether it'd be sports or entertainment. And you're seeing that in most of our markets, we're not disclosing it.

And why is that occurring, for the same reason you're seeing it here in the US perhaps. While viewership – many of our viewership remains pretty robust in Europe compared to the US.

It's clearly moving the other direction over time and we are seeing some modest losses in video subscribers. So the idea that we'll continue to pay more for linear programming in Europe that will continue to pay flat rates, if you will, and not customer-dependent rates is crazy.

It's not going to happen. And so in all of our negotiations with these providers, we're finding that their desire to go over the top together with the headwinds we feel in the video – linear video business will result in better margins over time on the video product.

But I think most importantly on that issue, we're not waiting around for that transformation. We are integrating apps into our boxes today.

As I mentioned in my remarks, our IP box is rolled out in Poland. That's an app-centric, network-agnostic box.

You can roll it out anywhere we have IP rights. So clearly, Europe is heading in the same direction, innovation of OTT apps, aggregation of over-the-top content, seamlessly entertainment experience, and we'll lead the pack in Europe on that roadmap.

So similar trends in the US, not quite as progressive or quickly appearing, but I think programming cost pressure ought to be lessening for us over the longer term here, which is natural given where the market's evolving.

Yeah. I think you said most of it, Mike.

So I think like – Virgin Media TV 360, we think it's a bit better than Sky Q, right? And it has some functions, Sky Q doesn't have.

And it's an over-the-air software update our customer will get. And therefore, not high cost.

And it would lead to lower churn, right, because we know from other markets that NPS is extremely high and that leads to lower churn and we will factor that in. And on the on the program cost side, well, when you compare programming cost 2021 to 2020, obviously the cost increase has flattened a lot, but this is more due to COVID.

In the long term, we are doing exactly what Mike has explained for the overall European market. We want to get much more to variable cost, right?

So we help all our partners on their way to direct to consumer app and we have a lot to offer there from prominent data and so on and so forth. And on the other hand side, we are keen on getting more on variable content cost for linear viewing.

And we have already mentioned, we closed some of these contracts and in some others we have to negotiate.

And don't underestimate the leverage we bring to those conversations today. Years ago then, we didn't have any mobile customers.

Today, if you include the MVNO sub, we have something like 15 million mobile subs. The OTT guys are searching us out, they – you've seen how well Verizon get the Disney+ and you've seen all the OTT guys here looking for mobile partnerships to get launched.

We're in a position in all the core markets to play that role. O2 is already the launch partner for Disney+ in the UK.

So, we'll be in that position in all these core FMC markets with the mobile platform, which gives us additional leverage in those conversations.

Right. Got it.

That makes sense. Thank you both.

Okay, Ben.

Yes. Good afternoon, guys.

So I just want to come back to that question on programming costs and just clarify, if that's, okay, and then one more quick question after that. You basically have two large premium sports providers in the UK, BT and Sky, the BT deals largely fixed and Sky deals kind of fixed and variable.

From what you're saying, I think it's reasonably clear but should we assume over time you are making every effort to make those fixed costs from those two large suppliers more variable and give them kind of more access to a larger base and ability to go OTT? So I guess that's question one.

And then secondly just on the local listings point, Mike and Charlie. I did ask this last time around.

But when I look around Europe, there are two kind of companies of that ilk, Telenet and OTD, both trade at very high dividend yields and pretty low multiples. So I guess the question is what's the market missing?

Why would Switzerland be that different? Is it just could it's a better market?

And would you consider something a bit more radical say a full demerger to your shareholders in an effort to create value? Thank you.

Well, I'll take the second one and Lutz you can be thinking about the first one, and Charlie chime in here too if you want. Look, I think there is – you did ask the same question last time, I appreciate that.

Then, there are lots of reasons why Telenet is where it is. We think the dividend they've announced, the long-term free cash flow profile, their competitive position in the marketplace are winning characteristics.

I think there is some concern that's unique to Telenet among shareholders there, specifically related to strategic issues whether it's (00:40:28) conversation, capital expenditures. So I don't think when you look at Telenet and read across the rest of Europe and say well because they trade here, a swift IPO or a UK IPO won't trade well.

If you just look at VodafoneZiggo where KPN trades and VodafoneZiggo lead KPN and all the core metrics, if you look at three months or year-to-date results for both companies, it's night and day. And yet that also could be an opportunity for reasonable valuation.

Lastly, I'll just say that while you could be right and valuations won't be as robust as perhaps you hoped for, they couldn't be any lower than our own valuation. Let me just pause there.

All right. So perhaps it won't be 9 times EBITDA and a 6% free cash flow yield.

But if you look at where we trade today, creating local listings with local following and local energy in that marketplace gives you the shot at – and manage the balance sheet correctly and the dividend profile correctly give you a shot at long-term value creation that apparently we're not able to achieve at the opco here for reasons you would know better than me I suppose. And so from my point of view creating value at the opco whether it's the way we serve Germany or the way in which we're managing Telenet or a value we're creating in Vodafone, that's the core of that creating value for us.

And we'll look at all options – to address your last point, we'll look at all options to create fundamental value, shrink the value gap...

Mike. Mike.

...in our opcos, whatever that might look like. Yeah.

Should we assume that your sort of number one – hello? Sorry.

No. You go ahead.

Go ahead.

I was just going to ask, should we assume that you wouldn't seek to use any proceeds raised during IPO just to retire more equity, arbitrage a higher multiple in Switzerland possibly against your group multiple?

I think it's – because we generate free cash flow so we don't need to look at inorganic transactions to raise cash flow, equity strengths to generate free cash. But look, we'll be opportunistic.

We've seen that over the last five years, right? We've always done what we believe is the right thing both in terms of the operating and strategic position that we're in and the ability to manage our capital and capital allocation.

So nothing's off the table, you would know that about us. However, I think that Plan A should be pretty clear.

Lutz, do you want to address the programming cost question?

Yeah. My comment it was more across all programming costs.

So you were only referring to the sport premium programming cost side, so therefore take this view a bit more broadly across all our content costs not only the trend. When it comes to the sport premium, obviously we have with those partners, BT and Sky, still we are – we're sitting in an existing contract and the yields will come up I think in 18 months from now.

So, we need to find a way, on one hand side, to help our partner to have a secured revenue stream, but on the other hand side to sit on something more valuable. And this is something, obviously, we will figure out in the next 18 months and then obviously, we will share that with you then.

The idea is that obviously strategically in general we want to get more and more on variable cost. And on the other hand side, if it comes to variable then obviously we use all the efforts we are having to then come to a proper volume plan behind that.

Do you – just one final – do you feel your negotiating position with those operators has strengthened in the last 8 months given what's happened?

Well, I mean – so first of all, we have worked very good together during the pandemic, I think that was very good. And then – I mean these content contracts come into play, I think when we are also – when – hopefully have closed and then, yes, I mean then we have mobile and the fixed customer, and hopefully we have more to offer for distribution also.

Great. Thanks a lot.

Well, thank you. Mike, in your comments at the cable tech, you kind of highlight some of the differences between your position in the US operators, a lot more fiber competition over in Europe.

And I thought you also seem to suggest you're pretty explicitly even that you thought the headroom in DOCSIS 3.1 was a little bit less than what the US operators were saying. And clearly that takes – requires a need for deeper fiber and DOCSIS 4.0 and all that.

I mean, do you think that's a fair characterization? And do you think that with all of this capacity being brought on 5G, and DOCSIS 4.0 and all that you're going to finally see some better app development that you can monetize?

I mean there are some cool things that cables have, like the light field holographic hopping frog and all that. But it feels like you really could see some definite acceleration in your perceived value and price potentially even beyond what we're seeing with Zoom and conferencing and all that?

Thank you.

I have just couple of points there. The value of our networks is undeniable.

You could just look at what's happening in the European infrastructure space. We know our networks are valuable today well beyond where they're being valued and for all kinds of reasons that make good sense.

The path to continued speed enhancement in our fixed networks, you've got multiple paths. But today we're getting the most out of 3.1, which again we've already trialed 2.5 gig speeds with 3.1.

That's something we can do if we choose to do, we trialed that in UK. But we're really focused on 10G or 10 gig.

And to be honest with you when I mentioned 1 gig five or six years ago everybody is like what the heck is that needed for. Trust me when I say that the 10 gig conversation will be starting and will be starting pretty quickly.

And when we look at our networks, we've got a couple of ways to get there with DOCSIS 4.0 as you mentioned, where we would fall right in line with the US operators, Charter and Comcast, both of whom would be pursuing a strategy like that. And we could also use fiber-to-the-home, CSPON, where we have, we think, the economics to support that kind of roadmap to 10G.

So stay tuned, lots to talk about there and as you point out lots of cool things with faster speed and lower latency, lots of cool things we can do both with our fixed and mobile networks. We just talked yesterday as a team on some of the – the ideas around Internet of Things.

And to be honest with you that we have benefits with being in the mobile space for the IoT opportunity. It's also advantageous to be partners with companies like Telefonica and Vodafone who are leading the way in the development of IoT revenue.

And as partners of ours, we learn and benefit from that too. So I think there's tons of opportunity to monetize networks.

Fixed and mobile continue to expand speed and capacity and reduce latency with 5G and 10 gig. And sky is the limit.

I think that's really why these networks are being valued where they are.

Thanks, Mike.

Yeah.

Yes. Thanks very much indeed.

And two quick questions, please. The first one was just regarding your UK KPIs.

I mean, the customer adds this quarter really looked to me like one of kind of standout figures in the release. So I was wondering if you could kind of just talk us through a bit more what's helped to drive those adds up even further than we saw in Q2.

I mean, is that solely down to being more kind of price competitive? I have thought not having a price rise might have only impacted September.

So on a strong performance there, I was wondering what you can say about how you see that in future quarters as well. And then secondly, just interested to get your updated thoughts on the ITV stake.

I believe that that color position you have is now unwinding. I think about 30% unwound in the quarter.

So you're now running a kind of economic stake with equity exposure on the ITV stake again. Just interested in your thoughts on the kind of rationales continuing to hold that and what you want to do with that stake longer term.

Thank you.

I'll take the second one. Lutz, you can take the first one.

Look on ITV as you know, James, when we originally acquired our position some time ago, our average cost was well over £2. Fortunately, we colored that position and had virtually no economic exposure to the ups and downs of ITV.

As those colors are expiring, we had a choice to make and we decided to average down the price, around 70% or more. So we're essentially owning the shares that the market thinks we owned anyway at about a 70% reduced price.

In our minds, that was worth exploring and we are doing that from time to time and we think that's smart. We have no intention of doing anything with the stake.

We have no intention of doing anything with ITV. But, look, we're going to be the second largest telco in this market, second only to BT.

And our view is a small stake in the largest broadcaster could be strategic defensively, offensively, I don't know. But there's an opportunity to own that stake for 70% less than you thought we owned it, and we think that's a good trade.

So we might look at that, we might not. We could hedge the position again once we unwind it.

We could also hedge it again. So – and expect us to be financially astute and take advantage of any opportunities that are there to average down and be in a stronger position than we were a year ago on that strategic take – position or strategic stake.

So Lutz, do you want to take the KPI point?

Yeah. On – predominantly, your question was around fixed net adds.

And so I think it's two factors, right? The churn is down and this is not only because of COVID.

COVID has helped, especially in Q2, as Openreach had no installation teams out there and we had, but that was not the case in Q3. But we have done a lot for our customers.

So we have onshore global call center resources. We have offered a lot of digital functionality for customers.

We have offered 100 Mbps speed as a minimum for everybody without charging more. So, we have offered a lot to them and NPS has increased 10 percentage points from previous year.

So that leads to lower churn. And this is an effect which we see is not only in Q2, Q3, it's more mid-term.

And obviously, also, we are making up for the churn of end of contract notification, what I said before. And then, on the other hand side, although we have closed all our retail stores, you must remember that, we have been able to accelerate sales.

So, we are not only above budget, we're above previous years in terms of peak sales. And I mean acquisition price is more under pressure, right?

So there is – while the back book is getting more rational, the acquisition pricing is still the heavy competition. We are not going down to these price levels and we get our fair share.

And that's a combination. And also, obviously, fixed mobile convergence is helping now, right?

So we have launched Oomph 15 months ago and also that – you will see that more and more contributing to churn. So therefore, maybe long explanation, but short story, it's not that we have done anything special, more commissions or lowered acquisition prices enormously or huge retentions and we can only do this for one quarter.

It is an automatic effect of the long-term lever, more digital, better NPS for customers and lower churn.

Thank you. So that would kind of suggest that the rate you've seen in Q3 could probably be sustained towards into Q4 as well.

Stay tuned.

Right. Thank you.

Hi. Just following on from Steve's earlier IPO question.

I mean, I guess I understand the point versus the current Liberty Global equity valuation. But what are you thinking is the rough timeline for local listings?

And given the state of the European sector valuations, why do you think this is a better mid-term value creation path than private market or corporate transactions, given your now fairly unique footprint and the fact there seems to be a pretty wide gulf between public and private, both for the operating assets and also the underlying infrastructure? And also, if I can just ask, Mike, if – when you say strategic investments in adjacencies, can you explain what you're meaning?

I mean I've seen the fiber and target in current geographies are indicated, but what about geographic expansion, exclusive content, is there anything you can rule out?

Yeah. Okay.

Good questions. Listen, on the IPO question and the reference to public and private multiples and other sort of corporate transactions, you know us, we are always going to be opportunistic.

It isn't like we have one path and we will pursue that path at all costs, stand by or stand down. We're going to be looking at all sorts of opportunities.

And sometimes it could be dual tractor, who knows. But we do know that taking action and being sort of on the front foot when it comes to value crystallization and things of that nature is the right posture for us.

And so, you'll see us look at these opportunities. We may not take advantage of them, we might.

So, we'll always be opportunistic and focused on creating value, first and foremost, and would never exclude any particular financial, corporate or strategic approach to doing that. Without getting into the details of what those might look like or valuations or things of that nature, just rest assure that we will – you know us, you've seen us, you've watched how we pivot and adjust and stay agile.

We're always going to do what we think is the best for the long-term value creation. In terms of adjacency, yes, certainly, we can rule certain things out.

I mean, geographically, our focus is principally in Europe. That's where we think the adjacencies reside because we have a strong fixed mobile footprint in Europe.

And so for the most part, the adjacencies geographically would be in Europe. We don't exclude in an absolute way anything else, but you should assume that most of those adjacencies would be Europe-focused.

And then adjacencies would be technology and content-focused, things that enable our core fixed mobile converged platform. So the things that we've done, investments we've made in our tech platforms, the things that Charlie and Andrea are working on in infrastructure, the things that our content team are investing in.

These are all opportunities to not just make money in the underlying investment but create value, relationships, long-term partnership with our operating assets. So the adjacencies are sort of structural in terms of our operations and our technology platforms, and they are geographic.

And it's also, thirdly, using our expertise. I mean, listen, one thing we know how to do is buy and sell companies.

One thing we know how to do is finance and manage and structure businesses. We have an incredible T&I platform that Enrique runs.

We have vast knowledge of where things are happening in the technical – where things are going technologically. And so, the adjacencies also exist in our talent pool, in our expertise, in our specific capabilities in this marketplace.

So those are the three adjacencies we're referring to. And I would – if you stick with those two lenses, I think you'd be close to where we're heading.

Okay. Thanks.

And just on the timeline for local listings, is there anything you can say without breaking the rules?

I don't think so. Yeah, no, I don't even want to get into that right now.

Yeah. Hi.

Thanks. I have actually a question on the Swiss business.

It looks like the UPC effort is finally stabilizing at RGU trends. But financially, I mean obviously we have not seen a substantial improvement.

What's the structural issue that the EBITDA is weaker than the top line performance? Are you still investing in the digital infrastructure?

I was expecting a bit more, let's say, closing the gap between the revenue trends and the EBITDA trend. I mean I know going forward now that you will own Sunrise, things will materially change anyway.

But just trying to understand the short term dynamics with respect to Q4 and maybe Q1 next year? Thanks.

And Baptiest or Charlie, you want to take a stab at that?

Yeah. This is Baptiest and maybe – so we see now in the quarter that in-quarter momentum really comes, positive broadband net adds in the last month.

But the trend is really turning. But like always in the cable business you're a trend business, so your last 18 months, 24 months net adds and price effects flow to your P&L.

But like promos, we were able to stabilize the free cash flow and, again, a strong free cash flow quarter. So with that, we see the momentum for turnaround in the coming year as well.

So, Charlie?

Yeah, you are right that there is obviously investments in digitization through across the board where COVID has accelerated what could be good return investments anyway. The only, I think, question we should bear in mind is, there's a lowest switch across our cost structure from CapEx to OpEx, which actually is a good thing.

So for example, if you provide cloud-based services, which is obviously a more efficient way of providing IT support, that's actually OpEx, where as in the old age, you'd have counted it as CapEx. So that's one of the reasons why sometimes, it seems counterintuitive that our OFCF is growing so much that our core EBITDA or OFCF is declining, and there was a bit of an accounting effect.

And it's usually immaterial, we're not trying to quantify that for you for the group as a whole actually at the year end.

Okay. And then I have one follow-up regarding the UK deal.

It looks like – and with respect timing kind of you're scheduling or expecting a full kind of mid – of next year. That implies actually that you think it's going to the UK level rather than staying at the EU, is that a fair assumption?

Well, it's outside of our control really. I think it could – that timeframe could also be consistent with a longer term evaluation from EU, right?

So – but it's really in the hands of the commission. They'll determine whether to decide the case or refer it back and we we'll be prepared for the longer term process if that's where it goes and we'll happily engage with CMA and – principally CMA, but to some extent Ofcom on the transaction, which we think is absolutely positive for the UK consumer, the UK business environment and has virtually no competitive issues at all.

We think it's probably the cleanest, simplest transaction any regulators look at. So we're excited to keep the process moving.

And I think the next year is the timeframe we've always talked about it. And so we'll hopefully make that timeframe.

Okay, thanks. Good luck.

All right, operator I think – you got it. I think that's it for us operator and I want just thank everybody for joining us.

I think we're a little over an hour, unless if you're still one. So I appreciate that.

Just to point out, the IR teams in London and Denver are always available for more questions and they're on standby. So feel free to reach out to them or to me, and Charlie or anybody that you'd like to chat with about this.

We always appreciate your input and questions, and we look forward to talking to you in three months or so. Between now and then, please stay safe and well.

Thanks very much, everybody. Take care.