Liberty Global Ltd.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's third quarter 2020 investor call. This call and the associated webcasts are the property of Liberty Global, and any redistribution, retransmission, or rebroadcast of this call or webcast in any form without the express 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 libertyglobal.com. After today's formal presentation, instructions will be given for a question and answer session. Page two of the slides 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 the company's expectations with respect to its outlook and future growth prospects and other information and 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 in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed forms, 10Q and 10K, as amended. 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 over to Mr. Mike Freese.

Thanks, operator, and welcome, everyone. There's quite a bit going on in 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. We'll be referring to slides as we walk through the quarter, so hopefully you can grab those off the website and follow along with us. And I'll kick it off on slide four 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 tender to us, which is a great result and will facilitate the delisting and merger process. We also just received all regulatory approvals, which means we're targeting completion of that 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 pound synergy estimate. They've developed strong commercial day one plans. And of course, the transaction is now fully financed. I 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. Now, you can see some highlights of our Q3 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. 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 during the remainder of this year, and it will 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 MPS levels we've seen across our core markets. And it 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 needed 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 point out a few things. Most of the measures are intended to be short-term in duration, two 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 our 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 six, 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. And we know that speed leadership still matters in these markets. and that our investment in fiber deep, smaller nodes, 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. Now, 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 for fixed mobile convergence in Europe. We've done that. We'll continue to do that. And there's really no better example than Vodafone Ziggo in Holland. There's a chart in 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 exponentially. steadily every year, with revenue and EBITDA actually in the nine months of this year up 2.5% and EBITDA up 7.5%. And there's 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 Vodafone Ziggo has in the Dutch market is also critical, right? It's now larger than KPN in broadband, fixed voice, and entertainment services. And it's generating 400 to 500 million euros of distributable cash to shareholders this year. The other major factor here is continuous innovation across our product and technology roadmaps. In Holland, Vodafone Ziggo is rolling out a nationwide one gig network. They were the first to roll out 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 HSC and fiber to the home. Pace of innovation of 5G mobile is equally critical with Vodafone, Ziggo, and Sunrise and others leading the way in their markets. Robust and reliable networks support innovation and connectivity, which is where this all began. And we've led the way with smart and intelligent Wi-Fi 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 ApolloBox. 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 recap a bit for 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 one 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 3 billion Swiss francs, 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 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 post-pay mobile ads 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 UBC together to give Swisscom a run for its money. Now, I'll end on slide eight 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 because they didn't have any. And that was the moment we pivoted. Where we didn't have scale, we exited to 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 Network. 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 converged operator in the market. We announced the merger of Verge Media and Telefonica 02 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 listings. Certainly Sunrise has shown us that the institutional demand for crown jewel assets on local exchanges is huge. Beyond that, we're focused on allocating capital just as we've done thus far. 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 a 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 Skills, 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 a quarter of a billion. We have small but important interest in content platforms in our largest markets. Our infrastructure portfolio was an early investor in EdgeConnects, which was just acquired by EQT in a multibillion-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 you think are 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 revenue saw a decline of 1.3% in Q3. And on the right-hand side of the page, we set out our estimates of the impact of COVID and 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 estimate that 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 billion, 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 for mid-single-digit rebased adjusted EBITDA decline, which implies a significant year-on-year decline in Q4. Why is this? 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. Now, this is because we have deferred the UK price rise that we typically execute in Q4, resulting in a $26 million delta. And in response to the demands of COVID, we are onshoring certain customer care operations and have 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 pre-merger integration costs 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 the decreased spend that resulted from upgrading our customer premise equipment on our new platforms. In Q3, we reported a CapEx per sales ratio of 22.3% or 19.9% on a pre-lightning 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 did not expect capex to rise as it did in 2019. And so for the full year, we estimate capex for 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 on the next page. For Q3, we reported OFCF of $552 million, and on a pre-lightning basis, $623 million of underlying OFCF. All our markets, except Belgium where it was flat, show underlying growth in OFCF versus the Q3 2019 numbers. The Netherlands 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 confirmed our guidance of $1 billion of free cash flow for the full year, increasing from $542 million year-to-date. Setting out the 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 in Vodafone Zygo, which we expect to be 50% of the upper end of their 400 to 500 million euro 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 pre-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 remains strong. We reported full company liquidity of $9.3 billion at the end of Q3, including $6.8 billion of cash and SMAs. Performing 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, performer cash is expected to be $4.7 billion. And with that transaction, we would 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 have purchased $1 billion through the end of October. Since Q3 of 2019, we've repurchased 29% of our market cap and continue to look to repurchase further stock. As Mike indicated, we're looking to opportunistically buy back a further $1 billion through 2021. Telnet's firmed up its dividend distribution model, committing to a dividend floor of 2.75 euros per share going forward. We see this firm 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 four to five 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 realize FMC synergies, which allows us optionality to deliver towards the middle of the range and below over time. Both our existing FMC champions, Belgium and Vodafone Ziggo, 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 Vodafone Ziggo. Belgian leverage remains at 4.4 times on a US GAAP basis, following the execution of the synergies of its fixed mobile consolidation. Vodafone Zyga is continuing to execute the synergies from its merger and should deliver 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 five times before the benefit of any synergies. with average lives of around eight years and a 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 of these financings, 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 percent of sales, excluding Lightning. We are reconfirming all our 2020 guidance metrics, namely mid-single-digit adjusted EBITDA decline, mid-single-digit OSCF 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.

The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star or asterisk key, followed by the digit 1 on your phone. In order to accommodate everyone, we request that you ask only one question. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pause for just a moment to give everyone an opportunity to join the queue. And we will take our first question from Vijay Jayant with Evercore.

Good morning, Mike. Two questions. First, in the UK, you've been reconnecting with your customers and sort of contacted them on modifications of their plans as part of sort 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 conversion 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, won't 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 the margin benefits you're getting? I know the churn is down, you know, NPS is better, but any sort of profitability measure on this convergence would be very helpful. Thank you. Sure. Thank you, Jay.

Listen, Luke is on, and I'll let him address the end of contract and annual best tariff issue. What we've said in the past, I think we would repeat here though, which is we're not giving specific, we're not disclosing specific numbers to who's contacted 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 the same level of discounting or changes to ARPU that we thought would occur. So, you know, in the end, we believe that the end of contract notification process thus far has been better than we expected. But I'll let Looch dig into that. Let me just answer the second question.

If there's more to add to that, Looch, go ahead. We'll go ahead and do that now, Looch, if you have something else to add to that. Go ahead.

Yeah. I think what I can add is that overall you have seen strong net debt in the UK. So therefore you see that the churn number out of end of contract identification is not really material. 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 first off September and first of October, half and half across the customer base. So therefore, you see also that the impact is not too high. However, there's an impact and this impact will also obviously flow through into 2021 so that we have fully swallowed the impact in a negative way in 2022. Yes.

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

It has just started. Yeah, sorry.

On the FMC question, listen, I do believe, to answer your question in sort of the general way, we do believe that both the U.K. 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's a couple of things that are the same, of course. We look at the synergy estimates there. uh in both markets they're within you know the range of what we've seen in all the other transactions we've been involved in 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 and justin's in the case of holland and belgium it was about a five billion euro synergy estimate and we knocked the ball out of the park as they say on both in both countries so we've got experience you know to execute on 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, you know, the three billion number in Switzerland and the six 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 bundle, you've seen it in Belgium, you've seen it in Holland, having a quad-play bundle matters. Being able to provide the 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. 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, I would, you would see similar kinds of profiles. I mean, Zygo is, you know, up their guidance on epithelial this year and mid single digit. Well, I just showed you that three years ago it was negative 5%. And we do think that, you know, 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, you know, 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.

Yep. We'll take our next question from Michael Bishop with Goldman Sachs.

Yes, thanks. 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 BP'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.

Well, I think I got the question.

Yeah, go ahead. Go ahead. Yeah.

Well, while 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 built up in especially broadband NetApp. 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 pretty positive.

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 the 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, Luke, the market is clearly expecting from other operators, and other operators have made this clear publicly, that they will be taking price rises in 2021. So, you know, we'll decide internally what our best move is, but we think the decision in 2020 was the right one. And, you know, for sure it set us up for a stronger 2021.

And we will take our next question from Ben Flinders with Morgan Stanley.

Thanks. Good morning. And good afternoon to the folks overseas. I wanted to just 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 partly bring it up because Sky is talking about you know, 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 SkyQ. And I think it's – I don't think it's a new set-top box. It doesn't feel like a big CapEx – deployments, I want to just make sure that's the case and get a little more color on that product, which launched this quarter.

Yeah.

Uh, I'll let you say again, let me just say a couple of things and I'll hand it over to you. The 360 platform, um, really is a new user interface, the horizon for user interface, which is, you know, X one plus plus, you know, whatever you'd expect to see. And that we think is a game changer in this market where everybody, you know, continues to watch video pretty, pretty significantly on the television. But it also integrates all the apps and has 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, and in Holland. 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 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 linear viewership remains pretty robust in Europe, compared to the U.S. 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 we'll 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 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. We can roll it out anywhere. We have IP rights. So clearly, Europe is heading in the same direction. integration of OTT apps, aggregation of over-the-top content seamlessly in an entertaining experience, and we lead the pack in Europe on that roadmap. So similar trends in the U.S., not quite as aggressive 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 SkyQ, right? It has some functions SkyQ doesn't have. And it's an over-the-air software update our customers will get and therefore not high cost and it will lead to lower term, right? So because... We know from other markets that MPS is extremely high and that leads to lower term. And we will factor that in. And on the program cost side, well, when you compare programming cost 21 to 20, 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 costs, right? So we help all our partners on their way to direct-to-consumer apps. And we have a lot to offer there from components, data, and so on and so forth. And on the other hand side, we are keen on getting more on variable content costs for linear viewing. And we have already managed to close some of these contracts and in some others we are still negotiating.

And don't underestimate the leverage we bring to those conversations today. Years ago, Ben, we didn't have any mobile customers. Today, if you include MD&O subs, we'll have something like 50 million mobile subs. The OTC guys are searching us out. You've seen how well Verizon did for Disney+, and you've seen all the DTC guys here looking for mobile partnerships to get launched. So we're in a position in all the core markets to play that role. O2 is already the launch partner for Disney Plus 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.

And we'll take our next question from Steve Malcolm with Redburn.

Yeah. Good afternoon, guys. 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 deal is largely fixed. The Sky deal is 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, right? But when I look around Europe, there are two kind of, you know, companies of that ilk, Telnet and O2D, 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 because 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, Luke, you can be thinking about the first one. And, Charlie, I'll chime in here, too, if you want. Look, and I think there's – you did ask the same question last time, didn't you, Deb? And there are lots of reasons why telemed 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 telemed among shareholders there, specifically related to strategic issues, whether it's the previous conversation, capital expenditures. So I don't think you can look at Telnet and read across the rest of Europe and say, well, because of trade here, you know, a Swiss IPO or a UK IPO won't trade well. If you just look at Vodafone Zigo with KPN trade, I mean, Vodafone Zigo puts, you know, lead KPN in all the core metrics. If you look at the three months or year-to-date results for both companies, it's night and day. And yet, you know, that also could be an opportunity for reasonable trade. Now, lastly, I'll just say that while you could be right and the valuations won't be as robust as perhaps we hoped for, they couldn't be any lower than our own valuation. Let me just pause there. So perhaps it won't be nine 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 is gives you the shot and manage with the balance sheet correctly and the dividend profile correctly, gives you a shot at long-term value creation that apparently we're not able to achieve at the top 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 sold Germany or the way in which we're managing talent, or the 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 Mike, Mike, Mike, Mike, Mike, Mike, Mike, Mike, Mike, Mike, Mike, Mike, Mike, I think it's, you know, we generate free cash flow, so we don't need to look at inorganic transactions to raise cash for equity strengths to generate free cash. But look, it will be opportunistic. You'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 strategic position we're in and the ability to manage our capital and capital allocation. So nothing's off the table. And you would know that about us. However, I think the plan A should be pretty clear. Did you want to address the programming cost question?

Yeah. My comment, Steve, was more across all programming costs. So you were now only referring to the spot premium programming costs, right? So therefore, take this view a bit more broadly across all our content costs, not only the trends. When it comes to the Sport Premium, obviously we have with both partners, BT and Sky, still we are sitting in an existing contract and the news 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 variable. And this is something obviously we will figure out in the next 18 months. And then obviously we will share that with you guys. But the idea is that obviously strategically in general, we want to get more and more on variable costs. And on the other hand side, if it comes to variable, then obviously we use all the assets we are having to then come to a proper volume plan behind that.

Just one thought. Do you feel you're negotiating position with those operators has strengthened in the last eight 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 hopefully have closed. And then, yes, I mean, then we are mobile and a fixed customer, and hopefully we have more to offer for distribution also.

Great. Thanks a lot.

And we'll take our next question from Matthew Harrigan with Benchmark.

Well, thank you.

Mike, in your comments at CableTech, you kind of highlighted some of the differences between your position and the U.S. operators, a lot more fiber competition over in Europe. And I thought you also seemed to suggest pretty explicitly even that you thought the headroom on DOCSIS 3.1 was a little bit less than what the U.S. operators were saying. And clearly that requires a need for deeper fiber and DOCSIS 4.0 and all that. I mean, do you think that's a fair argument? characterization, and do you think that with all this capacity being brought on on 5G and Docs and Sporo and all that, you're going to finally see some better app development that you can monetize? I mean, there are some cool things at CableTech, like the Lightfield holographic hopping frog and all that, but it feels like you really could see something definite acceleration in your perceived value and price potential even beyond what we've seen with Zoom and conferencing and all that. Thank you.

I think there's a couple points there. The value of our networks is, you know, undeniable. You can just look at what's happening in the European infrastructure space. You know, we know our networks are valuable today well beyond, you know, what we're seeing valued and for all kinds of reasons that make good sense. The path to continued speed enhancement in our fixed networks, we've got multiple paths. Today, we're getting the most out of 3.1 with a gig. We've already trialed 2.5 gig speeds with 3.1. That's something we can do if we choose to do. We've trialed that in the UK. But we're really focused on 10 gig. And to be honest with you, when I mentioned one gig five or six years ago, everybody was like, what the heck is that needed for? Trust me when I say that, you know, the 10 gig conversation will be starting and we'll 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 U.S. operators, charters, and Comcast, both of whom would be pursuing a strategy like that. And we could also use private home, like CS Pond, 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 speeds 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 Internet, the ideas around Internet of Things. And to be honest with you, there's real benefits to 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 to 5G and 10 gig. And, you know, sky's the limit. I think that's really why these networks are being valued where they are.

Thanks, Mike. Yeah.

And we'll take our next question from James Rassa with New Street Research.

Yes, thanks very much indeed. And two quick questions please. The first one was just regarding your UK KPIs. I mean the customer ads this quarter really looked to me like one of the 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 ads up even further than we saw in Q2. I mean is that solely down to being more kind of price competitive, I'd have thought not having the price rise might have only impacted September. So 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 collar 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 rationale for continuing to hold that and what you want to do with that stake longer term. Thank you.

I'll take the second one, Luke. You can take the first one. Look, on ITV, as you would know, James, when we originally acquired our position some time ago, Uh, our average cost is well over two pounds. Fortunately, we call it 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 own. 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 state. 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 state and the largest broadcaster could be strategic defensively, offensively. I don't know. But there's an opportunity to own that state for 70% less than you thought we owned it. We think that's a good trade. So we might look at that. We might not. We could hedge the position again once we – Once we unwind it, we could also hedge it again. Expect us to be financially astute and take advantage of any opportunities there are to average down and be in a stronger position than we were a year ago on that strategic position or strategic stake. Luke, do you want to take the KPI point?

Yeah. Predominantly, your question was around fixed net assets. 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. We have onshore a lot of call center resources. We have offered a lot of digital functionality for customers. We have offered 100 ended speed at the minimum for everybody without charging more. So we have offered a lot to them. And NPS has increased 10 percentage points in previous years. So that leads to lower terms. And this is an effect which we see is not only in Q2, Q3. It's more midterm. And obviously, also, we are making up for the term of end-of-contract notification, as I said before. And then, on the other hand side, although we have closed all our retail stores, you might remember that, we have been able to accelerate sales. So we are not only above budget, we are above previous years in terms of sales. And, I mean, acquisition price is... more under pressure, right? So there is, uh, while the back book is getting more rational, the acquisition pricing is still, uh, uh, 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, uh, fixed mobile convergence is helping now, right? So we have launched, uh, OMS 50 months ago and also that you will see that more and more contributing to terms. 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 terms.

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

Great. Thank you.

And we'll take our next question from Andrew Beale with Arate Research.

Hi. Just following on from Steve's earlier IPA question, I mean, I guess I understand the point Rose is of 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 that 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 and adjacencies, can you explain what you're meaning? I mean, I've seen that, um, fiber and targets and conjugal fees are indicate, but what about geographical expansion, exclusive content? Is there anything you can rule out?

Yeah. Okay. Um, good questions. Um, on the IPO question and the reference to public and private multiples and other sort of corporate transactions, you know, us, um, 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 tracks or who knows. But we do know that taking action and being sort of on the front foot when it comes to value uh 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 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 you know rest assured that we're you know 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 long-term value creation. In terms of adjacency, yes, certainly we can rule certain things out. I mean, you know, geographically our focus is principally in Europe. That's where we think the adjacencies reside, you know, 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, you know, in an absolute way anything else, but you should assume that Most of those adjacencies would be Europe focused and the adjacencies would be technology and content focused things that enable our core fixed mobile converged platforms. So the things that we've done, uh, you know, uh, investments we've made in our tech platforms and things to Charlie and Andrea working on an infrastructure, um, things that have content team are investing in. These are all opportunities to not just make money in the underlying investment, but create value. relationships, long-term partnerships 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 where we have vast knowledge of where things are happening, what things are going technologically. And so the adjacencies also exist in our talent pool and our expertise and our specific, you know, capabilities in this marketplace. So those are the three adjacencies we're referring to.

And I would, you know, if you stick with those three 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.

No, I wouldn't want to get into that right now.

And we'll take our next question from Christian Singman with HSBC.

Yeah, hi. Thanks. I have actually a question on the Swiss business. It looks like the UPC asset is finally stabilizing its 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 trends. I mean, I know going forward now that you have 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 Baptiste, Charlie, you want to take a second? Yeah, this is Baptiste. So we see now in the quarter that in-quarter momentum really comes. Positive broadband net ads in the last month. The trend is really turning. But like always in the cable business, you're a trend business, so you're Last 18 months, 24 months, net ads and price effects flow through your P&L. But like promised, we were able to stabilize the free cash flow and again, a strong free cash flow course. So with that, we see the momentum for a turnaround in the coming year as well. So, Charlie?

I think you were right that there is obviously investments in digitalization true across the board where COVID has accelerated what was going to be good return investments anyway. The other thing I think, Christian, we should bear in mind is there's a lot of 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, whereas in the old days you'd have considered CapEx. So that's one of the reasons why sometimes it seems counterintuitive that our OFCF is growing so much that our, quote, EBITDA or OCF is declining. There is a bit of an accounting effect, and it's recent material. We might try and quantify for you for the group as a whole actually at the year end.

Okay. Then I have one follow-up regarding the UK deal. It looks like with respect to timing kind of your scheduling or expecting it for 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, you know, that timeframe could also be consistent with a longer-term evaluation from the EU, right? But, you know, it's really in the hands of the Commission. They'll determine whether to decide the case or refer it back, and we're prepared for the longer-term process, if that's where it goes, and we'll happily engage with CMA, principally CMA, but to some extent Ofcom, on the transaction, which we think is absolutely... you know, positive for the UK consumer, the UK business environment, and, you know, has virtually no competitive issues at all. We think it's probably the cleanest, simplest transaction any regulator has looked at. So we're excited to keep the process moving, and I think the next year is a time frame we've always talked about, and so, you know, we'll hopefully make that time frame.

Okay, thanks. Good luck.

All right, operator, I think, yep, you got it.

I think that's it for us, Operator, and I want to just thank everybody for joining us, spending a little over an hour with us if you're still on, 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. Order me and Charlie or anybody here 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.

Ladies and gentlemen, this concludes Liberty Global's third quarter 2020 investor call. As a reminder, a replay of the call will be available in the investor relations section of Liberty Global's website. There you can also find a copy of today's presentation materials.