Liberty Global - Q2 2024

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's Q2 2024 Investor Call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission, or rebroadcast of this call or webcast in any form without the 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 fact. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K, 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 Fries.

Mike Fries (CEO)

Okay. Hello, everyone. Thanks for joining the call today. We've got a lot of ground to cover, so I'm gonna jump right into prepared remarks. My senior team is also on the line as usual, so I'll be involving them in the Q&A when we get there. So I'm starting on our Q2 highlights slide. On our year-end call in February, you'll all remember that we laid out what I think is a clear strategic plan, which included three core elements. First of all, maximizing the intrinsic value of our FMC operations. That's critical. Second, using the ventures portfolio to create liquidity to support those operations and to invest in strategic platforms, and then, most importantly, putting all that together to both create and deliver value to you, shareholders.

At the top of this slide, we provide an update on each of these core initiatives, beginning with Switzerland, where the Sunrise spin, which we have talked quite a bit about, is on track for the Q4 of this year. The purpose here is to hand shareholders a significant and well-deserved dividend of what analysts are estimating is around $12 per Liberty Global share. As a reminder, Sunrise represents only about 20% of our proportionate EBITDA, and that excludes, of course, the value that might be attributed to cash and ventures in our stock price.

Now, those Sunrise valuations of $12 a Liberty Global share are supported by CHF 1.5 billion of deleveraging that we will fund pre-spin, and it's supported by a commitment for Sunrise to pay an annual dividend of CHF 240 million beginning next year in 2025. So those two things are anchoring that $12 per share. Now, we scheduled the Sunrise Capital Markets Day. I'm sure you saw that, for September ninth in Zurich. Of course, there's gonna be a live webcast and replays, and management's gonna hit the road right after that, so hopefully you'll have a chance to connect with Andrea and his team. They are an outstanding group. I'm sure you'll see that immediately.

You also should stay tuned for more details on the spin mechanics and logistics as we finalize the SEC process and start working towards the shareholder meeting in the fall. So a lot of communication, and we'll be, we'll be heavily engaged in making sure you understand everything that's happening there. Now, we've got three key strategic updates in the UK as well, along the same strategic path. Earlier this month, we announced a fairly comprehensive agreement with Vodafone in the UK, which strengthens and extends our mobile network sharing agreement, which we've had for some time. That's going to occur whether or not the merger with Three goes through. It includes a right for VMO2 to purchase spectrum should the deal be approved.

And both of these address some of the concerns raised by the CMA, including rebalancing spectrum among operators, but in either case, are highly accretive to VMO2. Then on the fixed network front in the UK, we've now reached 5 million fiber homes across VMO2 and nexfibre, and that build-out and upgrade is ramping up and accelerating. Also, our announced plans to create a UK NetCo are on track for the first half of 2025, with financing discussions probably commencing really Q4 this year. And, I'll give you a bit more on these developments in a moment. Moving to the Benelux, where we are also making meaningful strategic progress at the country level in Belgium and Holland, and that progress is gonna support our ambition to create a regional operating platform with scale, with synergies, and with strategic optionality.

So, for example, in Belgium, we announced a preliminary agreement or MOU with Proximus to avoid overbuilding each other with fiber in about 2 million homes, and just as importantly, for each of us to use the other's network in those areas so we can maximize utilization. In the Netherlands, the 5G spectrum auction finally occurred, and we were able to recently acquire 100 megahertz of 3.5 gig spectrum, well below the expected price we thought we'd pay. And then sticking with Holland, we could not be happier about the hiring of Stephen van Rooyen, who will become CEO of VodafoneZiggo in September. I've known Stephen a very long time, and this is not the first time I've tried to hire him, by the way.

Both we and Vodafone recognized right away his deep expertise in brand and product and in innovation that he's developed over 17 years at Sky, and we're convinced he'll—he's gonna bring the right energy, operational focus, and strategic direction to this critical market. Then finally, as I just mentioned, we're using our ventures platform to provide a source of capital that we can rotate into other strategic opportunities... and also as an investment vehicle for innovation and new scale-based businesses that align with our core value creation goals. Now, we're delivering on that first objective, with $650 million of asset sales in the last six months, a large portion of which will support the leveraging of Sunrise pre-spin.

And we remain focused on larger platform opportunities, as you can tell, by our plans to increase our stake in Formula E and our increasing commitment to digital infrastructure, and I'll talk about those in a moment. Now, moving from those strategic initiatives at the top of that page to our regular Q2 highlights. I'll start with our balance sheet and capital allocation model, which are in great shape. As we point out on every call, our debt profile is long term, fixed rate, and siloed, with no debt at the parent company and no material maturities until 2028. We're also sitting on a cash balance equal to roughly half our market cap.

And by the way, we continue to shrink that market cap through an aggressive buyback program, which saw us repurchase 5% of our shares year to date towards a planned 10% of shares through year-end. We also continue to both invest in growth and execute at the core FMC operating level. That includes powering through headwinds. We talk about this, as do our peers, every quarter. We are facing an increasingly competitive marketplace, with consumers who continue to feel the stress of inflation and macro challenges, as you'll see in a moment, while our fixed ARPUs are rising or stable, and that's great news, we're feeling pressure in the mobile sector from promotions and from flanker brands. Now, despite that, we are confirming all of our 18 different guidance metrics.

That's right, 18 different guidance metrics we provided, with the exception of one, which is revenue growth at VMO2. We are lowering that as a result of slower hardware sales in the mobile business. Now, these are low-margin revenue, sales at best, so we're still going to hit our EBITDA free cash flow guidance in the UK. That's important. And I'll end this slide by emphasizing that we are also seeing some tailwinds, in particular, as we begin to reap the benefits of four things. Number one, our investments in fiber and 5G, which remain substantial. Number two, the growth in our flanker brands. And number three, our access to new revenue streams and new homes generated by our fixed network strategies. And then lastly, the hidden value of our digital infrastructure assets.

I'm going to touch on all of these, but the punchline is that we feel we have a pretty good operating and strategic toolbox here to help us work through this transition and ultimately deliver that value to shareholders we've been talking about. So moving to operating highlights. So we provide our traditional KPIs on this slide, the big FMC opcos. I'm going to move clockwise from top to left. Starting at the top left, you'll see that Sunrise had a really strong quarter leading into the spin, which is always good. Broadband and postpaid mobile adds were 38,000. That's nearly double the prior year and up around 20% sequentially. This is also the third straight quarter of broadband growth improvement in Switzerland, driven by reduced churn on the main brand and continued strong inflow.

We're also benefiting from progress on the migration of the UPC base, which we've talked about for four or five quarters now, and that should be largely completed by year-end. Now those factors, along with the price rise last summer, have helped deliver four straight quarters of fixed ARPU improvement. Sunrise also delivered another strong quarter of mobile postpaid growth, supported by improved churn and our flanker brand, Yallo. The market continues to be highly competitive, this is a theme everywhere, with budget brands heavily discounting, and that's adding pressure to mobile ARPUs. Moving to Belgium, Telenet's results were largely consistent with prior quarters and up from Q2 and Q3 last year, when the company was managing through IT challenges.

We lost around 5,000 broadband and postpaid mobile subs in the quarter in a very competitive Flemish market, with intense promotions, by the way, ahead of this anticipated mobile launch from Digi. To combat that, we are executing a multi-brand strategy, as you know. Most importantly, though, we now have a nationwide FMC flanker brand that's available not only in the Flanders, but also in the south of Belgium, where we've just launched and are targeting a modest 10% market share. Everything's off to a good start there. And then finally, fixed ARPUs at Telenet continue to grow mid-single digit. That was helped by the price rise last year, with this year's price rise of 3.5% taking effect early June and also landing well. Now moving to VodafoneZiggo. While it was a challenging quarter in the Netherlands operationally, the financial results were outstanding.

Charlie will cover those numbers. VodafoneZiggo delivered a steady quarter on broadband, with slightly improved losses of 23,000 in a highly competitive market. The good news is that churn is declining on the back of extensive programs that provide more value to customers, including speed increases, more entertainment, customer experience improvements. Fixed ARPU continues to grow in the mid-single-digit range in Holland, supported by the retention of last year's 8.5% price increase. After steady gains, postpaid mobile subs turned negative in the quarter, but that was driven primarily by the loss of low ARPU B2B contracts with local government. Similar to fixed, postpaid mobile ARPU was up mid-single-digit, supported by the price rise last October.

And looking forward, Ziggo implemented a 2.5% fixed price rise in July, which is landing well, and is also supported by our exclusive UEFA football broadcasting rights, a strong FMC proposition, and I think importantly, our successful loyalty program called Priority. And then finally, in the UK, despite a tough trading environment, Virgin Media O2 delivered its fourth straight quarter of improved fixed ARPU results, with 3% year-over-year growth in the Q2, reflecting our focus on value over volume and the retention of price rise benefits. We continue to take a higher share of gross adds in the broadband market as broadband growth in the nexfibre footprint continues to build steadily and is expected to ramp in the second half.

However, as with any price rise quarter, we have seen a moderate increase in churn, with overall broadband losses of 12,000 broadly in line with the prior year. The postpaid mobile market in U.K. continues to be soft. You're hearing that, I think, from all of the operators, especially at the premium end, with weakness in the handset market continuing. Now, while O2 churn remained stable, Lutz and the team are implementing a series of measures to rebuild postpaid mobile momentum in the second half. That includes proactive campaigns to drive retention, strong offers around new hardware launches from Samsung and Google and iPhone later this year, renewed energy in our FMC packages, and better performance in the indirect channels.

So 2024 is a transition year, as we've said, the last few quarters here, and we are focused. I know the team is focused on preparing VMO2 for a strong 2025. Again, each of the OpCo leads are on the call, so we can dig into any of these markets during Q&A. Now, moving to the next slide. We've talked a lot about our fixed network strategies, in particular, our fiber build plans, and then more recently, our efforts to delayer certain of our businesses by separating out our fiber and HFC networks from the service platforms.

Now, we've already achieved this in Belgium, and we've talked about it, with the formation of Wyre, which together with our partner, Fluvius, now owns and controls the Telenet HFC network, passing 4 million homes, plus or minus, with a commitment to deliver fiber to about 80% of those homes over time. Wyre is already wholesaling its fixed network to Telenet and to Orange Belgium across Flanders, and representing about 50%+ utilization of the network. And they also recently announced, you might have seen an MOU with Proximus to share the fiber build out in around 2 million homes, and to wholesale access from each other, which would bring utilization of the Wyre network in those areas to over 80%. It's among the highest in the world.

Similarly, we've announced our intention to create a NetCo like Wyre from our 16 million fixed network passings in the UK, 3.8 million of which have already been upgraded to fiber. Together with our JV, which we call nexfibre, VMO2 will ultimately have access to between 21-23 million fiber homes in the UK. That's about 80% of the urban market. And the combined network would be available to third parties, potentially driving even higher utilization and newfound wholesale revenue. So why are we doing all this? What is the rationale for what appears to be, from the outside, a relatively complicated restructuring of our operations into NetCos and ServCos in these two markets? I think the answer is pretty straightforward, actually.

On the NetCo front, once the physical infrastructure is isolated in these platforms, they can generate stable and high margin cash flows, driven primarily by the fixed monthly wholesale payments they receive from retailers for utilization of that network. As the utilization rate climbs, the cash flows improve, driving long-term returns to financial and strategic investors. These platforms also allow us to attract new capital, which helps accelerate our network upgrade and extension plans, and they can facilitate in-market consolidation of both network and operating platforms. The remaining ServCo can also benefit from the separation. What you end up with is an asset-light, typically a digital-first business model that prioritizes customer experience in order to differentiate from other retailers. There's more focus, inevitably, on innovation to drive new revenue streams, as well as the opportunity for in-market consolidation of other B2B and B2C service providers.

On the far right-hand side of the slide demonstrates the hidden value in our network assets. What we show here are nine recent fiber transactions that have been concluded in Europe, where the median EBITDA multiple in those deals was about 18x. Now, of course, there's a wide variance of valuations, which reflect things like the CapEx profile, the amount of overbuild in the market, forecasted utilization rates, and, you know, what the wholesale revenue opportunity is. But if you compare that to integrated telco multiples of mid-single digit, where most of us are trading, this is obviously a significant premium. Now, these are not easy transformations. The execution risk can be high, but we're focused, and we have focused our resources on the two markets where this will most easily be achieved, and I think where the dynamics will generate the most significant value creation for shareholders.

So stay tuned. Now, before handing it over to Charlie, I'm just going to spend a moment on some developments in our $3 billion ventures platform. To begin with, in October of last year, we committed to $500 million-$1 billion of non-core asset sales before mid-2024. Good news, we've achieved that goal with over $650 million of proceeds through Q2, and we're targeting another $100-$150 million before year-end. This is consistent with our strategy of rotating capital, as I've said, out of ventures and other non-core holdings and into higher growth or higher return opportunities. Obviously, the sale of All3Media and the use of that $400 million to deleverage Sunrise pre-spin is an excellent example of that.

We also remain focused on building larger positions in scale businesses like AtlasEdge in the digital infrastructure space, where our portfolio now totals $1 billion. And Formula E, where we just announced our intention to increase our stake from 38% to 65% at what we believe is a very attractive valuation. Now, interestingly, we haven't talked a lot about Formula E, so on the right-hand side here, we provided a short update of this platform. After just 10 seasons, this is one of the fastest growing motorsports in the world, with over 400 million global fans, races that span four continents, and revenue growth of nearly 20%.

As a reminder, we have an exclusive license with the FIA for electric racing that runs another 15 years, and we're riding the tailwinds, obviously riding the tailwinds of vehicle electrification with the support of car brands like Porsche, Jaguar, McLaren, Maserati, and Nissan, who are also committed to that. Next season, the GEN3 Evo car will be 30% faster than an F1 car at the 0-60 mile per hour range, with massive headroom on speed and performance moving forward. And the format of this race is extremely exciting, with nearly twice as many competitive overtakes per race as F1, and every champion, pretty much so far, being decided on the final weekend of the season. Also important to note, Formula E has been net zero since day zero, which is another major selling point for sponsors and for fans.

We definitely have work to do, particularly on the monetization of media rights globally and other things. This is, this is work in progress after 10 seasons only. I think it took Formula One 75 years to get to where it is. And we're gonna continually refine the racing series, along with the FIA and with iconic racing partners like Andretti and Penske. I think the bottom line is, with minimal future investment, the upside here, we believe, is significant, and we are squarely focused on realizing that potential. So Charlie, over to you now.

Charles Bracken (EVP and CFO)

Thanks, Mike. The next slide sets out the quarterly revenue and EBITDA for each of our four key markets. Now, we saw similar trends to Q1, with broadly stable reported revenues across all our opcos in the Q2. Sunrise delivered stable revenue in Q2, supported by the July 2023 price rise, and continued growth in mobile subscriptions and B2B. Now, because there's no price rise this year, the second half of the year will not see a price rise benefit. Telenet posted stable revenue in Q2, despite slightly weaker mobile performance. And Virgin Media O2 reported broadly stable revenue, but excluding the impact of the nexfibre construction, saw a revenue decline of around 4%.

Now, the key driver of this decline continues to be lower year-on-year hardware sales, which although they're very low margin and have a limited impact on the EBITDA of the company, do impact top-line growth. Now, despite this, overall mobile service revenue and fixed subscription revenues did grow. Encouragingly, as Mike noted, in fixed, we saw improved ARPU trends supporting fixed revenue growth. At VodafoneZiggo, revenue was up 1.5% this quarter, supported by price indexation, continued growth in mobile and B2B fixed revenue. Q2 was another record quarter of strong mobile service revenue growth. Moving on to our Adjusted EBITDA performance this quarter, Sunrise posted stable Adjusted EBITDA growth, including cost to capture, driven by the revenue increase in the quarter and lower OpEx, particularly in labor costs and marketing spend.

Telenet's EBITDA was down around 9% year-over-year, reflecting a tough comparison base against Q2 of last year. Now, this included a EUR 10.5 million one-time benefit they got last year. In addition to this, the decline was due to higher staff-related expenses following the mandatory 1.5% wage indexation and growth in our overall FTE base. This quarter, we also had increased sales and marketing expenses, including the FMC launch in the south of the country, compared to the same period last year, when we scaled back our spending due to IT platform migration issues. Virgin Media O2's adjusted EBITDA decreased 1%, including nexfibre construction, as the quarter saw reduced contribution for B2B Fixed. Additionally, in Q2, VMO2 continued to invest in the future growth drivers, largely in IT and digital efficiency programs.

VodafoneZiggo delivered around 8% EBITDA growth, driven primarily by the reversal of energy cost headwinds and lower consultancy service costs. Now, this was partly offset by wage increases due to the new collective labor agreement. Turning to the next slide, we give an update on the key metrics underpinning our capital allocation model. In the first half of 2024, we saw consolidated free cash flow and central spend on track, and as is the case in previous years, anticipate cash distributions from the JVs will be realized in the second half of the year. In relation to our cash position, our consolidated cash balance was $3.5 billion at the end of Q2 2024, and the quarter saw cash inflow related to operations of $0.3 billion.

We realized net cash from our ventures of $300 million, and share buybacks were around $170 million during the quarter, consistent with our guidance for up to 10% buyback in 2024. On ventures, we closed Q2 with a fair market value of around $3 billion, following the All3Media disposal. We made net investments of around $100 million in ventures, focusing on AtlasEdge and EdgeConneX, both are data center assets and part of our infra pillar, where we see strong growth potential and are focused on creating new unicorn assets. Finally, turning to our sum of the parts, we'd like to highlight the key value drivers of our stock on a per-share basis.

We believe the current share price of $18-$19 per share still does not reflect the inherent value of the business, and we're committed to closing this valuation gap, and the Sunrise spin is the first step to do it. Encouragingly, the current average analyst valuation for Sunrise of 8.4 billion CHF, which is up from 8 billion CHF in Q1, now implies a $12 per share contribution to the current Liberty Global stock price. And as we go through the Sunrise spin-off execution, our aim is also to unlock the remaining value sitting in cash, ventures, and the other FMCs, with Sunrise and the Rump trade separately.

So when taking the book value of cash, listed stakes, and unlisted ventures, which sums to around $14 per share, and combining with the Sunrise $12 per share, the implied value of a Liberty Global share is around $26 per share. This is even without attributing any value to the remaining FMCs. The implied value is around the current average analyst target price of $25 a share. But if the Sunrise value is realized over time, does imply very substantial upside on Rumco from a pro forma value of $7 a share to $13. Turning to our debt stack, we continue to have a strong position, maintaining long-term fixed debt profile of around five years. We also continue to hold our cash and liquidity at the parent company, with the debt stack siloed at the key FMC assets.

Now, our debt silos do not face material maturities until 2028, and we remain proactive in extending the tenure. This is facilitated by our extensive swap portfolio, with the swaps independent of the underlying bank debt. And importantly, this allows us to remain opportunistic and strategic in the market and strengthens our attractive debt position. At Sunrise, we're proactively deleveraging ahead of the spend to ensure an initial leverage range of 3.5-4.5 times. The CHF 1.5 billion deleveraging, which is approximately $1.7 billion, will be funded by Liberty Global corporate cash, Sunrise 2024 free cash flow, and the All3Media proceeds, which we received in Q2. And lastly, I'd like to give you an update on our 2024 guidance.

At VMO2, the company expects to deliver a low- to mid-single-digit decline in revenue, excluding Nexfibre construction. Now, this is a decline as a result of the lower margin hardware revenue, which continues to be a headwind. However, the other revenue streams are expected to be stable and adjusted EBITDA, adjusted free cash flow, and all other 2024 guidance is reiterated at VMO2 as the company continues to invest in its growth drivers. To underpin this, VMO2 has had a solid start to the year with a slightly better than 2% EBITDA decline. I also want to additionally reconfirm all other guidance at Telenet, Sunrise, and VodafoneZiggo. And that concludes our prepared remarks for Q2 2024, and I'd like to hand over to the operator for Q&A.

Operator (participant)

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 one 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. The first question is from the line of Carl Murdock-Smith with Berenberg. Your line is now open.

Carl Murdock-Smith (Co-Head of Telecoms and Media Equity Research)

Hi, thank you very much. I just wanted to ask about Virgin Media O2 and the fiber rollout there. So fiber now passes 5 million premises, but of that, how many are actually ready for sale? And how many broadband customers do you have on the fiber infrastructure, particularly in upgraded cable areas? The reason I'm asking is there were a few reports a few months ago that you faced delays in being able to launch services to fiber customers in Project Mustang areas, where there was previously cable network. Thank you.

Mike Fries (CEO)

Well, I mean, I'll let Lutz dig into the details. I'm not sure we're disclosing that much information, Carl, but the 5 million breaks out into both nexfibre at about 1.3 million, I believe, and the balance on our VMO2 upgrade or fiber up, as we call it. We're certainly connecting customers on nexfibre. I'm not sure we've disclosed our penetration rate. Lutz and Charlie, jump in here if you think we have. I'm pretty sure we haven't. And then we're taking our time on converting HFC customers to fiber, just getting ourselves ready to do that more than anything. And that's as much around how we package and market products and services than you know where we build or where we don't build.

In terms of homes ready for service, Lutz, I don't believe we're providing that detail. That's how the fiber homes break out, but clearly we're gearing up to take advantage of these fiber homes, or we wouldn't be building them in the first place. Jump in here if you think there's more we're going to say, Charlie or, or Lutz.

Lutz Schüler (CEO)

No, nothing to add.

Charles Bracken (EVP and CFO)

Just to confirm, we haven't provided-

Lutz Schüler (CEO)

I mean, we are only selling-

Charles Bracken (EVP and CFO)

Sorry. So just saying we haven't provided any firm numbers. Yeah.

Mike Fries (CEO)

Yeah, okay. Go ahead, Lutz.

Lutz Schüler (CEO)

Yeah, I was. The only thing I can add is that at the moment, we are well positioned with our HFC network, with our 60 million homes. So therefore, we have taken a conscious decision not to start selling fiber, but as Mike has said, we will do. And you see in our churn numbers that at the moment, customers are not leaving our network because of fiber.

Carl Murdock-Smith (Co-Head of Telecoms and Media Equity Research)

That's great. Thank you.

Operator (participant)

You.

Mike Fries (CEO)

Operator?

Operator (participant)

Next question is from the line of Maurice Patrick with Barclays. Your line is now open.

Maurice Patrick (Managing Director)

Yeah, thanks, guys, for taking the question. Yeah, it's Maurice here from Barclays. Sorry for another UK question. But yeah, I see in the financials, you lost, I think it was 12,000 broadband customers, but you had growth in Nexfibre. I'm just conscious listening to, looking at the BT numbers yesterday, they saw 190,000-odd losses of customers in Openreach, which they said they were seeing increased loss to competitors, but also a soft broadband market. So I'm just curious as to, given you presumably lost about 30,000-40,000 on the legacy footprint, are you seeing more impact from alt nets? Is it a soft market? You know, what's driving that shift, and should we see improvements in the coming quarters? Thank you.

Mike Fries (CEO)

Go ahead, Lutz.

Lutz Schüler (CEO)

Yeah. Thank you for the question, Maurice. So, in the net add development outside nexfibre, we are a bit better this year in a price rise quarter compared to last year. So therefore, yes, I agree, alt nets are increasing their activities, right? They build less, but they try to sell more, and therefore you see aggressive promotion. But in the scheme of things, we managed to keep our base stable in a price rise quarter. And we have now managed also to increase the ARPU and the fixed service revenue, first time in three years. And this is a result of a completely different way of working. Right? We understand every household we are serving.

We run 25,000 campaigns in parallel, and we come up with individual product and price combination, and therefore we are able to maximize retained revenue, something we have teased for several years, and it starts now to really pay off since Q3 last year. On the nexfibre area, we haven't disclosed any numbers, but it is fair to say that we are a bit behind in our ambition. The reason for that is that fiber is a new product, we had to also deliver the video product. It's a bit of different sales, it's a different sell process, it's a different provisioning process.

But we are getting better and better, and we stick to our ambition that end of this year, we have sold so many fiber customers into the next fiber area, that turns into a growth driver for 2025. Yeah, but I think it is simply a ramp time. We lost a couple of months there, but month-over-month, we face record months in sales and provisioning, and we want to sell, and we will sell much more in second half. I hope that answers your question.

Maurice Patrick (Managing Director)

Yeah, just maybe on the phasing. Sorry, sorry for a quick follow-up, but if you look at the cadence of net adds and ARPU, it should be maybe different this year, given the way the price increases put through?

Lutz Schüler (CEO)

I mean, it could be, but the majority of our customers are in contract, so we know exactly how many will be out of contract. So we don't expect a massive different phasing there. A little bit, it could be.

Maurice Patrick (Managing Director)

Thank you.

Mike Fries (CEO)

Operator?

Operator (participant)

You. The next question is from the line of Ulrich Rathe with Bernstein Société Générale Group. Your line is now open.

Ulrich Rathe (Analyst)

Yeah, thank you very much. I wanted to ask a little bit about the Belgian Memorandum of Understanding. So the idea for the mutual wholesale access, could I just confirm that's at the active or the passive level? And also, when you envisage sort of an agreement eventually, obviously, the terms aren't really announced and probably not finalized yet, but do you essentially foresee this JV, sorry, this carve up to offer terms to each other, to the partners on a reciprocal level that are different from the terms that are offered to other takers by virtue of the underlying agreement? Or are the wholesale terms essentially gonna be open to all takers at the same level? Thank you.

Mike Fries (CEO)

Yeah, that's a really important question.

Ulrich Rathe (Analyst)

Sorry.

Mike Fries (CEO)

I'll just remind everybody that the contract is under, is now being reviewed by the regulators. So there, you know, we're hopeful they'll see it the way we see it, as a very constructive development for the market and for the operators. John, do you want to address the specific issue around wholesale rate, to the extent we're disclosing that at all?

John Porter (CEO of Telenet Group Holding NV)

Yeah. Yeah, but first of all, for clarity, it is a passive, reciprocal passive deal, ultimately with Proximus, where Telenet will be building 60% and Proximus 40% in the collaboration zone, which is about 2 million of the homes passed in Flanders. The principle of it being open and non-discriminatory is already a public principle articulated by the regulator. And, you know, we do have a regulatory process which will be underway here very shortly. But like I said, the principle of a non-discriminatory regime will be in place and part of that agreement.

Ulrich Rathe (Analyst)

Thank you. Thank you very much.

Operator (participant)

Thank you. The next question is from the line of Polo Tang with UBS. Your line is now open.

Polo Tang (Managing Director)

Hi. Thanks for taking the question. It's on Switzerland. Can you maybe talk through what you're seeing in terms of competitive dynamics in the Swiss market? And can you maybe comment on a few specific factors? So, for example, what's happening with promotional activity, specifically in the Swiss market? Also, is there still a drag on financials and KPIs from the retirement of the UPC brand? And then also going into Q3, Q4, should we expect your Swiss financials to see slower growth as you start to lap your 4% price rises from July 2023? Thanks.

Mike Fries (CEO)

I mean, I'll let Andrea address the competitive dynamics. And I think I mentioned in my remarks, Polo, that, you know, we believe the UPC migration will be done by year-end and will have an increasingly smaller and smaller impact on results. And I don't believe we've provided quarterly guidance, but you can take a look at where we are year to date, through the mid-year, and where we ought to end up to get to the full year guidance. So I think you can do that on your own. Do you wanna talk about the competitive dynamics, Andrea?

Andrea Salvato (Chairman of the Board, nexfibre)

Sure, yeah. Thanks for the question, Polo. So, I would describe the competitive dynamics as promotional intensity being high, but at the same time, we are seeing a bit of a wearing off effect.

... Meaning liquidity in the marketplace is somewhat reducing. I guess, customers are increasingly getting tired of the ongoing price promotions being the only argument being raised. On the back of that, I think our inflow was benefiting from two additional features that we have launched. One was the Flex Upgrade program on hardware, which is a very strong driver of our inflow at this moment. So that's perceived as a differentiating factor. And second to that, we have also announced that we are increasing our HFC speeds for 70% of the population in Switzerland to 2.5 gig. That's another differentiating factor.

A very relevant one, we believe, because, of course, there's only 40% of the country today covered with fiber, and all additional HFC coverage is having a unique situation, not only delivering one gig but now two and a half gig, which we think is also strengthening our position with customers when fiber rollout will increasingly get to areas where we have had been a unique selling proposition with HFC so far. So I think that's positive. Additionally, I think worthwhile mentioning, while we have seen good dynamics on our own inflow, and you've seen the 33,000 and 5,000 on mobile and broadband, respectively, on broadband, now the Q3 consecutively, where we have been in the positives.

That is not only on the back of strong inflow, but furthermore, we have a reduced churn, which is on the back again of increased retention activities, increased and improved service capabilities, and our ability to differentiate through the product additions that I mentioned. So I think overall, it remains an intense market, but we see some wearing off of promotional attractivity, I would say, to consumers. And on the back of that, we just recently also have seen that the amount of discounts being granted has been slightly reduced. So I think that's a positive indication going forward, and we'll continue to drive that trend.

Mike Fries (CEO)

As with other markets, having this dual brand strategy is making a world of difference, 'cause you can compete with Salt on one hand and Swisscom on the other hand, with products that match their offers and the customers they're targeting.

Polo Tang (Managing Director)

Just on that dual brand strategy-

Mike Fries (CEO)

Next question.

Polo Tang (Managing Director)

You only have one?

Mike Fries (CEO)

Go ahead, Polo.

Polo Tang (Managing Director)

No, just on the dual brand strategy, you don't have one in terms of the UK, because you have a premium Virgin Media O2 brand, so that's a different setup from other markets, no?

Mike Fries (CEO)

No, we have Giffgaff. Giffgaff is our, well, flanker brand, if you will, in the UK, and arguably one of the stronger elements of growth. No, Giffgaff is a really digital-first, incredibly popular mobile brand, which at some point could be a broader telco brand. But no, that's our brand in the UK, Giffgaff. You wanna say any more about that, Lutz?

Lutz Schüler (CEO)

Yeah, okay. Thank you.

Operator (participant)

Thank you. The next question is from the line of David Wright with Bank of America. Your line is now open.

David Wright (Managing Director and Head of Telecoms Equity Research)

Yes, hello, guys, and thank you for taking our questions once again. I guess, Mike, Lutz, just more of a question on UK potential consolidation. I'm just wondering whether this dynamic of the alt nets may be focusing the financial resources more on loading the network and provisioning rather than building. Does that create any potential sort of hurdles to consolidation? The fact that you might, you know, any of these businesses might have, you know, incumbent subscribers, maybe on discounted pricing, could that create any more regulatory challenges? And I guess, you know, there's an obvious kind of TalkTalk; I think even themselves have made it quite clear that there's an element of distress around their business at the moment.

Do you think, given the kind of going concern risk, that the UK regulator could even consider customers from TalkTalk possibly even being acquired by the two biggest network operators, yourselves and BT? Thank you.

Mike Fries (CEO)

Well, I'm not gonna speak about TalkTalk. You know, you can read about their situation, and you know, it's premature to determine or even guess to what the regulator may or may not do, and what they may or may not do. We're not assuming TalkTalk is doing anything but competing with us until they're not. So, not much to add to that. On the alt net question, I mean, you are seeing what you described, which is a slowdown in build as financing and capital slowly dries up, and I think that will continue. There will be winners and losers in that game. Some will continue to raise capital, others will consolidate, and others will stop building. And so inevitably, you know, one way to improve their prospects is to start selling more directly and perhaps more competitively.

It's still very early days. You know, it's too soon to tell whether this will have an impact on the broader market, whether it will have an impact on their, you know, their futures and or our ability to consolidate or not in this market. But I think the trend is the same, and I'll let Lutz, if he wants to, or Andrea, if he wants to speak to it. You know, the trend is the same. There are, you know, companies like nexfibre, which is fully financed at GBP 4.5 billion, that we own a piece of, that is going to be building full stop, and is, you know, gonna get to 5-7 million homes, no question about it. There's VMO2, which is gonna...

You know, already at 16 and 3.5, 4 million of which are fiber and is gonna get to full fiber, full stop. So there's gonna be platforms like ours, with 21-24 million homes, and that's a certainty, and BT is a certainty. And the rest, you know, we'll see how it shakes out. I think it's, you know, the writing's on the wall, so to speak, but that doesn't mean between here and there, it's a straight line. There will be puts and takes. We look at M&A prospects along three or four levels. First of all, what's the overbuild with us? If we can upgrade at GBP 100, you know, what's it worth it to us to acquire an existing fiber home that somebody spent GBP 500 to build?

Secondly, you know, the quality of that network, obviously, what it would cost us to get to our sort of level of sophistication. And thirdly, is there a customer base? And maybe your main question is, does the existence of a customer base on an altnet change that dynamic materially? And I would say, no. If there are customers, then we would look to see how those could be integrated or acquired or, or, or migrated. That, in and of itself, doesn't change the principal analysis. It's more about where they've built, how much they've spent to build, and, you know, and how it fits with our broader strategy. I'll maybe pass to Andrea. Do you have anything to add to that, Andrea, as the chairman of nexfibre?

Andrea Salvato (Chairman of the Board, nexfibre)

No, I think you summed it. Yeah. Thank you, Mike. I think you summed it up, you summed it up well, Mike. I would, you know, I would simply say that, you know, there's also a certain amount of value expectations, I think, that need to get reset in the market before we can start to see material consolidation. So I think that's one of the other, the other issues that people are struggling with at the moment.

Lutz Schüler (CEO)

You just put the infrastructure multiple out there, haven't you, guys, in one of your early slides? I think you've given the market its price point.

Mike Fries (CEO)

Well, I would say those are pure NetCos with scale and cash flow. So it's a little different, metric and a little different market.

Yeah.

Yeah, and, and existing customers, but fair point. Yeah, there you go.

David Wright (Managing Director and Head of Telecoms Equity Research)

It was, it was said a little tongue in cheek, but appreciate the answer. Thank you, guys.

Mike Fries (CEO)

Yeah. Okay. Thank you, David.

Operator (participant)

The next question is from the line of Joshua Mills with BNP Paribas. Your line is now open.

Joshua Mills (Executive Director and Sector Head of Telecoms Research)

Hi, guys. Thanks for taking the question. It comes back a bit to the cable versus fiber debate. And my question is: How do you, can you talk a bit about how you're testing DOCSIS 4.0? And then going back to Andrea's comment earlier about the improvement in speed in the Swiss cable network, can you maybe give any stats about the kind of commercial benefits you're seeing, where you do upgrade cable to faster speeds? And maybe just give us a sense of how much the network, longer term, will go to that. And maybe if I could tack on one small question. One of the points of the Proximus deal today is they're now going to be wholesaling from you on cable in 700,000 homes.

I think in the past, when you've talked about your cable versus fiber strategy, one of the points about the U.K. was a benefit of upgrading to fiber gives us that opportunity to wholesale. Now, you're doing that just on the cable network, so you don't need to make that investment. Do you think this could be a template for other markets in the future as well? And how should we think about that? Thank you.

Mike Fries (CEO)

Yeah, that's a good question, and, Josh, and, you know, I'm not sure we have enough time to answer it, but I'll take a quick crack on it, and maybe Enrique can chime in here, too. First of all, we have been wholesaling cable or a hybrid fiber coax in Belgium, John, I don't know, five years, something like that. We were regulated in Belgium and obligated to open up the cable network in Flanders, and we did, and Orange Belgium is a very happy customer on our cable network and has hundreds of thousands of customers and will be and has already committed ex- you know, exclusively to our fiber build as we do that through Wyre.

So there are situations where, whether it's HFC or fiber, wholesalers are happy, as long as they're getting the speeds they want, the service, the quality, it works fine. We haven't done it anywhere else. We haven't been obligated to do it anywhere else. Doesn't mean we couldn't do it elsewhere, but I think when you step back and ask the question, why wouldn't we do it in, say, the UK? Principally, it's because the cost to upgrade the fiber and the cost to upgrade to DOCSIS 4 in the UK is about the same, within, you know, spitting distance, so to speak.

When you have the choice of upgrading to DOCSIS 4 or fiber in a market like the UK, where you own your own DOCSIS, it's pretty clear that fiber makes more sense for the long term, you know, when you might need to look at DOCSIS 5, DOCSIS 6. But more importantly, when the entire wholesale market is working off of a fiber platform, beginning, of course, with Openreach and even altnets, then to be competitive, to be in that marketplace, you're gonna need to go fiber. So there's a market check, you know, what's needed at the commercial level, what's the rest of the sector doing in that market around access, what kind of technology? So that's driving the decision in that market.

And Belgium, you know, we are happy as HFC wholesalers, and we'll continue to do that for some time. But slowly and over time, we'll migrate that network to fiber, as we discussed and clarified today with that MOU. And in Switzerland, we're taking an even different approach, which is let's use the best technology for the particular customer in the particular region. And so in that market, we have a complete option, you know, a menu. We can access our 2.5 gig HFC platform. We can access the Swisscom's fiber platform. We can build fiber. You know, we really have the best of all options there.

Clearly, we'll migrate as many customers as we can to our own infrastructure because that benefits margins, but we really have the flexibility to be competitive from a retail point of view with whatever technology makes the most sense. So there's not one size that fits all in this equation, but it typically revolves around the cost to upgrade, the market realities of the competitive environment, the wholesale environment, the revenue opportunity in wholesale, and, you know, whether or not regulators are requiring us to do one thing or another, as they did in Belgium, for example. So I think we're taking the right approach. It's, if you dig into each and every one of them, you'd see that they are the correct way to attack the economics, the technology, the customer opportunity, the competitive environment.

And it's great to have that ability to be flexible. So I'm, I hope that's addressing your question, but if there's anything further, maybe follow up and let's see, make sure we've, we've done it.

Joshua Mills (Executive Director and Sector Head of Telecoms Research)

Yeah, no, that's very clear. And I'm guessing any detail on how faster broadband speeds on the cable network in Switzerland compared to the old cable network might wait for the CMD now.

Mike Fries (CEO)

Okay. Yeah, they'll dig into that for sure. Operator?

Operator (participant)

Thank you. The next question is from the line of Luigi Minerva with HSBC. Your line is now open.

Luigi Minerva (Senior Telecoms and Digital Infrastructure Analyst and Director of Equity Research)

Yes. Hello, everybody. Thanks for taking my questions. It's about the Netherlands and your pricing strategy. You know, if I think about your broadband price increase last year, I think you just did exactly what KPN did back in July 2023. Now, this year, KPN is going for 3.8% growth, and VodafoneZiggo is going for 2.5%. And I was wondering, what is the rationale behind this, and how you see competitive dynamics in that market? Thank you.

Mike Fries (CEO)

Yeah, we've got Ritchy on, who's our interim CEO. I think it's as much as anything to do with the fact that we're trying to remain competitive in a declining inflation market, which doesn't call for the same sort of increases. But Ritchy, do you want to provide more color on our price increase level?

Ritchy Drost (Interim CEO)

Yeah. Yeah, for sure. Thanks, Mike. The two things, first and foremost, we do a price increase both on the backbook and frontbook, that's not similar to the others-

Mike Fries (CEO)

Right

Ritchy Drost (Interim CEO)

... in the Dutch market. But also keep in mind that the inflation in the Netherlands is falling. Last year, we had about 10% inflation, and, and we did an 8.5% fixed price increase. This year, the inflation is 3.8%, and we're doing a 2.5%. The price increase in itself is, I would say, not a reflection of the competitive position in the market, but it's all about price value perception. We do see that customers who decide to leave us use cost of subscription as a main reason for them to churn, and hence our decision to go slightly below the inflation level to make sure that the price, so the value perception, stays in balance with market expectations.

Last year, as you recall, KPN took a price increase on their backbook and lowered their frontbook. So-

Mike Fries (CEO)

Mm-hmm.

Ritchy Drost (Interim CEO)

Some of this is signaling too, perhaps.

Mike Fries (CEO)

Right.

Ritchy Drost (Interim CEO)

You know, we've always taken price increases on both frontbook and backbook, so hopefully there's a more rational market here.

Mike Fries (CEO)

Thank you.

Operator (participant)

The next question is from the line of James Ratzer with New Street Research. Your line is now open.

James Ratzer (Analyst)

Yes, thank you very much indeed for taking the question. So I wondered, if possible, just go back to talk about TalkTalk in a little bit more detail. I know you might be limited in what you can say, but are there any scenarios you can see in which you might be interested in acquiring some of the assets or the rate at which customer base is declining at the moment just makes it kind of too risky to get involved? Like, the assets you think you see now very firm when it comes to closing. So anything else you had on that particularly would be really interesting.

Mike Fries (CEO)

James, I wanna make sure I heard the first part of it. I got the gist of the question around M&A, but which entity are you referring to?

James Ratzer (Analyst)

The TalkTalk, in particular in the UK.

Mike Fries (CEO)

TalkTalk.

James Ratzer (Analyst)

Because, you know, you-

Mike Fries (CEO)

Yeah. Okay, I didn't hear that part.

James Ratzer (Analyst)

So just be interested to get your thoughts on whether it's too risky an asset to be looking at right now, given the rate which customers are coming down.

Mike Fries (CEO)

Yeah. No, I get you now. I just didn't hear that first part. You were coming in and out a little bit. I don't think we have anything to say about TalkTalk today. I mean, you know, we watch, as others do, you know, with great interest, of what's happening across the sector in the UK. But obviously, with TalkTalk, they're a competitor and you know, we certainly are watching what they're doing or what they're considering doing, and with their B2B, with their network, with their consumer business, it's really outside of our control. And if there were opportunities, you should assume we would be looking at them, but there's nothing I can say about that today.

James Ratzer (Analyst)

Okay. Thought I'd try and at least ask, but thank you.

Mike Fries (CEO)

Yep.

Operator (participant)

Thank you. The next question is from the line of Matthew Harrigan with The Benchmark Company. Your line is now open.

Matthew Harrigan (Equity Research Analyst)

Thank you. I think I'm the last American left in the draw these days. So conceptual question, really. ETNO and various other industry organizations, I'm thinking of some consultants, things like McKinsey, have really commented on how you've had, you know, trillions of dollars of equity value created in Silicon Valley and other places off silicon networks. And you've really obviously borne the cost without necessarily having that much impact. Is there anything that's different about a service co that would enable you to participate better in fintech, entertainment, you know, healthcare, et cetera? Is that like a, at least a complementary rationale for doing this relatively complicated structure?

Mike Fries (CEO)

Well, possibly, Matt. I mean, I think in, I think both entities, a NetCo and a ServCo are probably better positioned to compete long term and take their fair share of that ecosystem. I mean, you correctly point out that, you know, net neutrality as a whole created haves and have-nots, right? And the haves are anybody in the big tech space selling apps and access largely for free. And we in the infrastructure connectivity space have obviously experienced more competition, higher CapEx, and, you know, higher usage and capacity requirements. So with some ability to pass that along to consumers, but not as much as we'd like. So going forward, there's a handful of things the industry is doing. Network as a service, I'm sure you're following that.

New products and services in the home and how we might take advantage of that. AI, which is gonna give us a much stronger, some more sophisticated way to manage customers and our networks. But the NetCo, ServCo model itself certainly should create a more agile ServCo management team and product and brand, you know, looking at accessing the NetCo as well as perhaps other networks, to try to drive services into the home and into businesses. And the NetCo itself will become really a connectivity provider first, but also, depending on who the user is, a more sophisticated transport hub. So I don't think it by definition makes it easier to ensure that the next 10 years don't look like the last 10 years, but I think it certainly bends that way.

And I think in some instances, depending on how well we execute and kind of the structure we put in place and the capital we have, I think it could actually achieve that. But we've got things to do across the board, even in our integrated businesses, to make sure that the next 10 years look different than the last 10 years. And I think the toolbox, as I said at the outset, is pretty good to make that happen.

Matthew Harrigan (Equity Research Analyst)

Thanks, Mike.

Mike Fries (CEO)

You got it.

Operator (participant)

Thank you. There are no further questions at this time.

Mike Fries (CEO)

Great.

Operator (participant)

So I would like to hand the call back to Mike Fries.

Mike Fries (CEO)

Great. Thanks, everybody, for joining. I hope you have an incredible summer, wherever you are, whatever you're doing. And do please put in your calendar September ninth in Zurich or September ninth, wherever you'll be. Be connected, of course, to our Capital Markets Day. For Sunrise, we really look forward to getting that process moving in earnest in the fall. So thanks, and we'll speak to you soon. Take care.

Operator (participant)

Ladies and gentlemen, this concludes Liberty Global's Q2 2024 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.