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Executives

Michael T. Fries – President and Chief Executive Officer

Charles H.R. Bracken – Senior Vice President, Co-Chief Financial Officer

Diederik Karsten – Managing Director, European Broadband Operations

Balan Nair – Senior Vice President and Chief Technology Officer

Frederick G. Westerman III – Senior Vice President-Investor Relations and Corporate Communications

Mauricio Ramos – President and Chief Executive Officer, VTR GlobalCom S.A.

Analysts

Jeff Wlodarczak – Pivotal Research Group LLC

Hugh I. McCaffrey – Goldman Sachs International Ltd.

James Maxwell Ratcliffe – Barclays Capital, Inc.

Ryan Fiftal – Morgan Stanley & Co. LLC

Matthew J. Harrigan – Wunderlich Securities, Inc.

David C. Joyce – Miller Tabak + Co., LLC

Vivek Khanna – Deutsche Bank

Will N. Milner – Arete Research Services LLP

Vikash Harlalka – ISI Group, Inc.

Liberty Global, Inc. (LBTYA) Q1 2012 Earnings Call May 11, 2012 9:00 AM ET

Operator

Please standby. Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global’s Investor Call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the 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 www.lgi.com. Following today’s formal presentation, instructions will be given for a question-and-answer session. As a reminder, this conference call is being recorded on this date, May 11, 2012.

I would now like to turn the conference call over to Mr. Mike Fries, President and CEO of Liberty Global. Please go ahead, sir.

Michael T. Fries

Thank you, and good morning or good afternoon everybody. As usual we have a relatively large group on our call from various time zones. But I’m going to introduce Charlie Bracken and Bernie Dvorak of course our EVPs and co-CFOs. Diederik Karsten, is on, who is our EVP and Head of European Operations; Balan Nair, on a cell phone somewhere in the world, our EVP and Chief Technology Officer; Bryan Hall, EVP General Counsel, and of course we’ve got Rick Westerman, on as well from our IR and Communications Group. So we’re going to do the Safe Harbor and we’ll jump right into it.

Operator

Thank you. Page 2 of the slides detail the company’s Safe Harbor statements 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 for 2012; 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 from time-to-time in Liberty Global’s filings with the Securities and Exchange Commission, including its most recently filed Forms 10-K and 10-Q. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectation or in the conditions on which any such statement is based.

I would now like to turn the call back over to Mr. Mike Fries.

Michael T. Fries

Thanks. So as she said, we are going to be working of the slides today. And as I usually do, I’m going to kick it off for some highlights on slide 4. I want to say upfront, our remarks are probably a bit longer than they usually are, but pretty much everything we want to tell you or we want you to take away from this call was right here on this slide.

Beginning with perhaps the most important storyline, and that’s our subscriber growth which totaled 445,000 net RGU adds, our best quarter ever in the history of the company. I’ll provide a little more color on this number in a minute, but 11 of our 13 markets are up year-over-year. We continue to exceed even our own internal expectations on sales and churn in most markets. Our recent RGU growth acceleration underpinned rebased revenue growth of 5.5%, which was our best results in six quarters. I know I’ve said publicly that we believe revenue growth in 2012 should exceed 2011 and we’re off to a good start.

And on the cash flow front, we generated rebased operating cash flow growth of 3.1%, a pretty good number given the isolated impact of our 4G rol1out in Chile, and an increased sales volume in Europe. And then free cash flow growth of 15%, which is right in line with our full-year guidance.

As most of you would know, we have effectively closed sale of our Australian business Austar, and should be receiving net proceeds of $1.1 billion before the end of this month. And we are right on track with the integration of our German businesses Unitymedia and KBW, and should be receiving net proceeds, sorry and I’ll give you a snapshot of that market in just a minute, no net proceeds out of Germany.

Sitting back for a moment, it’s worth pointing out that in case you were not following it, that our publicly listed European peers KDG and [DIGO] continue to trade pretty well in the market, certainly at a premium to us which on one level validates our own business and on another level, it shines a light on the left side in our own stock.

And then lastly, our balance sheet remains as usual in very good shape. Pro forma for the Austar sale, our total liquidity will be nearly $5 billion including $2.8 billion of cash. Our debt remains fixed, hedged and long-term with 95% of our debt due in 2016 and beyond. And we’re on pace to complete $1 billion of buybacks this year.

So all of our core value drivers are working today, we’re growing the business organically in a rapid cliff, our M&A and rebalancing initiatives are on track and delivering results, and our capital structure management including liquidity, leveraging buybacks continue to set us apart from our peer group.

The next slide, slide five is one of my personal favorites, and without even studying it closely, I think illustrates for you the steady uplift in subscriber growth we’ve generated over the last five quarters. Each of the four corners of the slide, you’ll see net adds by product over that period.

Again, just a quick glance of the charts, across the top tells the story of how our quarterly broadband and voice net adds have picked of sequentially with over 530,000 combined new subs in the first quarter.

At the bottom left you’ll see quarterly video losses over the same period, which have remained fairly stable despite having a significantly larger video base with the addition of KBW in the first quarter.

And then the bottom right just shows total net adds of 445%, that’s up 71% year-over-year. And now a big part of our growth is attributable to the addition in Germany, which is fantastic of course, but the improvement in subscriber growth is not limited to Germany. As you can see on slide six, which simply compares Q1 this year to Q1 last year, pro forma for acquisition of KBW. If you focus on the bottom of the chart which is the green portion of the bar, you’ll see that Germany alone generated nearly half of our net adds in the quarter with $219,000, and that’s up 12% organically.

Again, I’ll drill down into the German market in just a minute. Just as importantly that the blue portion of the bar, just above that represents the rest of Europe, which is actually is actually up 55% from 124,000 net add last year to 193,000 net adds in the quarter.

Again, nearly all of our markets are performing better year-over-year. Switzerland continues to improve with their best quarter in four years, we had a record quarter in Ireland. Our Central and Eastern European operations added 54,000 RGUs, that’s up nearly 70% from last year, driven by a two-fold increase in voice additions, and importantly an improvement in our video churn across markets like Romania, Czech and Slovakia. And when you have Latin America to the mix, we’re really hitting on all cylinders as I say, and reaping the benefits of a superior network and better triple play bundles.

Obviously a major component of those bundled offers is our digital TV services, which we summarize on slide 7. Never shown you this chart in a while, but we certainly speak to it regularly. It simply depicts the evolution of our video cable sub base over the last twelve quarters, which through acquisitions like Unity and KBW, and organic growth has moved from 11.4 million subs just under 18 million in that time frame.

Just three other key points that I want you to take away from this chart. The first is the continued growth in our in our digital video base, which is shown in green now totals $8.4 million or roughly 47% penetration. So we’re consistently adding over $1 million digital homes organically every year. The second point is that, roughly half of our digital base now subscribes to an HD and/or DVR service, and these are not only chiller video apps for us but important sources of gross margin.

And then finally, we still have 9 million homes that are not yet connected or traded up to a digital TV platform. So digital is and will continue to be a major source of revenue and absolute margin growth in our business for sometime; along with of course our core broadband services, which form the foundation of our triple-play bundles, consistent with our approach of capitalizing on our network investments. The average speed delivered to our customer base today is approaching 30 megabits. And most of our newer packages feature our 50 megabit product.

The goal is to win back broadband share from the incumbent telcos. We continue to dominate our markets, but have been slow to invest in next-generation networks. Germany for example has less than 1% coverage of fiber-to-the home.

Slide 8 is shedding the spotlight on how we’ve been dealing on that front in two of our largest markets, the Netherlands and Germany. So in both charts, you’ll see broadband adds over last five quarter for our operation and for the incumbent telco. On the left, you’ll see that our Dutch business has added over 130,000 new broadband subs over the last five quarters, our KPN has lost 60,000.

Couple of key points here. All of KPN’s figures include fiber-to-the home additions. So in the first quarter for example, they lost 45,000 DSL subs and gained 23,000 fiber-to-the home customers for a net loss of 22,000 and apparently their worst quarter ever. And a 130,000 nets adds occurred just on our footprint, which represents only one-third of the total Dutch households. So obviously, we’re gaining share and taking all the net adds in our footprint.

On the right, you’ll see the same chart for our German operations compared to Deutsche

Telekom. The first thing you’ll notice is that both we and Deutsche Telekom are adding customers since the German market is less mature than Holland, which has 90% broadband penetration. But just like the Netherlands, we only reach about a third of German households. So on a much smaller footprint, we’ve added over $0.5 million broadband subs through this period, compared to a national gain of 280,000 consumer adds for Deutsche Telekom.

What’s not shown here is the other national operators like Vodafone and O2 who are actually going backwards. So it’s largely a two-horse race, but we estimate we’re winning 80% of all new broadband subs in our footprint. As I said, these are the two of our largest markets, but we are seeing similar trends in many of our other operations, given the low level of current fiber construction at our markets, together with the fact that we have nearly $30 million [through already homes], we believe we have considerable runway to keep taking share across Europe.

This is our first full quarter with KBW, we decided to provide a bit more color on our combined driven operation on slide nine, focusing on our core key areas. I’ll just hit the highlights, and say there’s a lot of information on this slide. Starting and not surprising, with subscriber growth in the top left, I put simply the business is firing on all cylinders with record RGU growth on a pro forma basis, and 10% rebased revenue growth.

I’d also point out that thus far any impact from the remedy package we agreed to in order to secure approval for the merger has been in line with, if not better than our expectations. Our subscriber growth in Germany is being driven by our superior triple play bundles, which we continue to simplify and add value to it. We recently raised fees to 50 megabits in our core bundles alongside of three year old price increase and while 70% of our sales are triple play, only 25% of our existing sub base takes three products. So we’ve got a ton of upside left.

On the content front, we announced last week a new multiyear agreement with Sky Deutschland, which gives our customers access to sky’s full HD bouquet and gives us the incentive to market sky products while preserving our current economics. It’s definitely a win-win deal for both sides and a very positive outcome for our customers, we’ll also start bundling Sky’s content with some of our services later this year.

And in April we signed a deal with RGU, which further expands our HD lineup so that now we’re queuing all the key free air broadcasters in high def. When you add in Sky Services, our total HD line up is now over 40 channels and with the launch of VaD and Unity and KBW’s growing wide library we feel really good about our video competitiveness in Germany

Now this re-branding also as I have to put on the middle of the slide there, we’ve re-branded under the Liberty Bloom there, Unitymedia, KBW keeping their name, but also incorporating a common brand and that rebranding helps us pave the way for our launch of Horizon, which we’ll provide a quick update on slide 10.

The punch line is that we are full speed ahead for a Q3 launch of Horizon in NL and Switzerland at a slight delay from what we told you in March, but we have the luxury of time on our side as I said before and there is no reason not to use that time to perfect every last element of the platform. We continue to believe Horizon will be financially and strategically accretive product and we’ll redefine cable in the home, video and entertainment space.

We’ve also provided a quick mobile update here; you will see in Chile we are ready to launch our 4G wireless network later this month. We now have over 10,000 paying trial subscribers with no marketing. The network is stable and our coverage reaches 100% of the country. And we’re getting great feedback from customers and so we’re really excited about this commercial launch and [resource] actually on the call, we have questions about that.

Finally, as many of you probably know the rest of our European markets, we’ve been taking a capital like approach to wireless, which means continually improving our MVNO deal that we’ve done in Belgium and investing in a common wireless platform to support our MVNO agreements in Germany, the Netherlands and Switzerland. We will evaluate very carefully the need to invest in spectrum really for the option value, but in principle we believe that this approach is going to get the job done wherever a quad playoff there might be needed.

So again a really strong operating quarter for us, we feel great about our ability to keep subscriber growth steady, cash flow is optimized and as usual the capital structure geared towards equity returns for all of us.

With that I will turn it over to Charlie.

Charles H.R. Bracken

Thanks Mike and hello everybody. I am going to recap our first quarter results; starting on slide 12, which really builds on what Mike said already. As the chart highlight, we increased our reported revenue by 12% or $279 million to $2.54 billion and our OCF expanded similarly by 13% or $134 million to $1.2 billion for the first quarter of 2012 compared to Q1 2011. Now our reported growth in both revenues and OCF was driven to a large extent by the contribution from acquisitions strictly KBW. And this is the first full quarter of the consolidation of KBW’s results. But the remaining increase was attributable to organic growth, which was fueled by the volume gains that we generated over the last 12 months.

And for that maybe good acceleration in revenue growth from both broadband and telephony. Offsetting the M&A and organic growth was foreign currency, which is a bit of a headwind for us this quarter. Besides the strengthening Swiss Franc all of our other key currencies actually depreciated against the U.S. dollar on a comparative basis to the first quarter of 2011. And that includes the euro, which depreciated a prior 4%.

You know as Mike mentioned our result for that rebased revenue growth of 5.5% and rebased OCF versus 3.1%. Our rebased revenue growth was the best absolute result in six quarters. On the other hand our rebased OCF growth of 3% was tempered and caused by the effects of subscriber acquisition and marketing costs, which include cost associated with our Go-for-Growth strategy at Unitymedia, as well as the impact of the Chilean wireless project and Belgian football rights.

Though rebased OCF growth was slower than revenue, our 40 consolidated OCF margin for the quarter was consistent with the prior year period of 47%, as the positive contribution of KBW’s higher margin business helped to offset the negative factors, I just mentioned.

If we turn our slide to 13; this breaks down our first quarter consolidated results geographically. So excluding publicly traded Telemat, our European distribution operations generated $1.7 billion in revenue and $882 million in OCF, for an OCF margin of 51.7%. These results reflect year-over-year reported growth of 17% in revenue and 19% in OCF, as well as a 90 basis point improvement in OCF margin. Adjusting for both M&A and FX we achieved 4% revenue growth rebased and 4% OCF growth, and that’s led by our combined German operations.

Rounding at Europe, Telenet posted revenue and OCF of $478 million, and $236 million and that corresponds to rebased revenue and OCF growth of 10% and 6% respectively. And particularly impressive for Telenet, our top line growth was its best result in over three years, and that’s driven in part by higher ARPU, and also by mobile revenue.

And on OCF, 6% rebased OCF growth was a very good start for the year given that Telenet incurred roughly $13 million in cost with Belgium triple rates. These are costs that we start to lap in Q3.

Outside of Europe, our Chilean produced $225 million in revenue and $75 million of OCF. VTR revenue reflects rebased revenue growth of 7% as we continue capitalizing on our strong market position adding nearly 120,000 RGUs in just the last 12 months. And on OCF, VTR reported a rebased decline of 10%, but most of that was related to the incremental costs of Chilean wireless, which were roughly $9 million higher in Q1 of 2012 as compared to Q1 of 2011.

If we adjusted LGI’s rebased OCF growth rate for the VTR Wireless and Belgium total costs, the growth rate for the quarter would be meaningfully higher year-over-year.

Turning to our OCF base into the remainder of the year, we currently expect that our consolidated rebased OCF growth rate for Q2 will be lower than Q1’s reported OCF growth rate. And this is largely a function of the continuation of the factors that adversely impacted our Q1 OCF growth rate.

So those are: Chilean wireless, which we expect the costs to ramp substantially in the second quarter in connection with our commercial launch; subscriber acquisition and marketing activities particularly in Germany; Telenet’s triple rates as well as some other factors such as M&A integration costs. We therefore anticipate that rebased OCF growth will be significantly weighted to the second half of 2012, and yet, we’re still confirming our mid-single-digit guidance target for the full year.

Please turn now to slide 14, core strategic focus of ours has been to improve top line growth. So we thought we would on recent trends in our four largest markets, which together represents 66% of LGI’s consolidation revenue in Q1.

The upper two quadrants highlights our two largest businesses Germany and Belgium, both of which posted over 9.5% rebased revenue growth in the first quarter. As it relates to Germany, both Unitymedia and KBW each delivered roughly 10% rebased growth in Q1, moving up with a nice trend line from 8.3% revenue growth in Q3 last year.

Turning to bottom left, our Dutch business has shown an improving year-over-year trend over the last three quarters, moving from the 4% level up to 4.5% in Q1. And over the same three-quarter period, UPC Netherlands has added over 130,000 net adds including 42,000 in Q1 2012, as well as over 100,000 bundled customers.

Moving to our Swiss business on the lower right, the recent trend demonstrates steady improvement. Our quarterly rebased revenue growth of 2.8% was our best result in 3.5 years and doubled from the 1.4% rebased growth Cablecom reported in Q3 of 2011.

And in the first quarter, we added 29,000 RGUs in Switzerland more than tripling net adds from a year-ago and continue to show strong results in digital TV take up helped in par by an increasing array of HD TV channels. So as it’s evidenced by the channel, we clearly feel that business is moving in the right direction.

Overall, these four operations generated 7% rebased revenue growth in Q1 2012, up from 5% in the third quarter of 2011, and that’s largely on the back of our bundled products growth.

Slide 15, recaps our consolidated capital expenditures and adjusted free cash flow for Q1. We incurred $521 million of CapEx in Q1 of 2012 or 20.5% of revenue as opposed to $490 million or 21.7% of revenue last year. Now growth in absolute CapEx was in due to in part to the inclusion of KBW, which accounted for about $38 million of CapEx or 7% of the total.

Now together with the Unitymedia, Germany accounted for $134 million or roughly 25% of our total spend in Q1. The volume also played a role, as we added roughly 825,000 organic digital television, broadband, internet and telephony RGUs in the quarter, as well as nearly 300,000 HD and DVR subscribers. These results were higher in Q1 2011 that was more than 170,000 and 500,000 respectively.

Due in large part with RGU growth, CPE and scalable infrastructure accounted for 57% of our total additions for property and equipment during the quarter. And as well as, the decline in CapEx as a percent of revenue was added by a $30 million increase in vendor financing and capital lease additions as we continue to focus on optimizing our working capital as it was driving higher subscriber volumes.

And that’s a perfect segue for the right hand chart. So for Q1 2011, our adjusted free cash flow, which adjusts primarily for the impact of our Chilean wireless project, is $279 million for Q1 2012, as compared to $243 million for Q1 2011. And this 50% year-over-year growth was in line with our mid-teens guidance target for the full year and was driven by a 9% increase in cash provided by operating activities, offsetting par by a 6% increase in CapEx and a modest foreign currency headwind. The increase in our cash from operations resulting from higher OCF, which offset more than $100 million increase in total cash interest and related derivative payments.

And turning to the facing of our adjusted free cash flow, we would anticipate our adjusted free cash flow will be substantially weighted for the fourth quarter as compared to Q2 and Q3, and that’s similar to the quarterly patterns that we’ve seen in the last couple of years, which are impacted by the timing of our cash interest payments in our debts, as well as working capital movements.

Turning to slide 16, I will touch on our capital structure and cash position. At March 31, we reported $25.2 billion of total debt in capital lease obligations and that’s up $400 million from Q4 largely due to FX translation. During Q1, we completed a number of refinancing transactions at our UPC and Telenet funding pools and these transactions further improved our maturity profile and as a result only 5% of our debt is currently due before 2016.

And as we completed the debt exchange and redemption transactions, whereby be combined our two German business into one much larger and more liquid German credit pool. Due to both Unitymedia and KBW’s strong financial performance, we were able to undertake this combination much earlier than we had initially contemplated.

Now looking at the left hand chart, our adjusted leverage ratio remains at 5 times, which is the upper end of our target range, but netting out our cash position on March 31, our ratio falls to 4.7 times.

Moving to the right hand chart, our consolidated liquidity position in Q1 was $3.7 billion and including the $1.1 billion in expected proceeds from the sale of Austar, our pro forma position would increase to $4.8 billion. And besides the $1.1 billion from Austar, our pro forma liquidity consisted of nearly $1.7 billion in consolidated cash including roughly $850,000 at the parent level as well as maximum borrowing capacity of $2 billion under our credit lines, of which we’ve expected to be able to borrow nearly $800 million upon Q1 reportings.

Our substantial liquidity position provides us with plenty of flexibility to buyback our equity. And through March 31, we’ve repurchased 5 million shares for approximately $230 million leaving us with about $780 million of authorization. And as Mike mentioned earlier we remain on track to complete our $1 billion 2012 repurchase target.

[To pick] on the conclusions on slide 17, we obviously feel very good about the state of our business and our outlook for the balance of the year. We are reconfirming all of our 2012 guidance targets and we reported the positive RGU development has continued in April and coupled with the upcoming launches of Verizon and Chile-Mobile. We feel we’re very well positioned for a very good second half performance. And that competes our prepared remarks, so operator come here up, and announce the questions, please.

Question-and-Answer Session

Operator

(Operator Instructions) We will take our first question from Jeff Wlodarczak with Pivotal Research Group.

Jeff Wlodarczak – Pivotal Research Group LLC

Hi, good morning guys, congratulations on the results. I wanted to get some more granularity around the second quarter rebased growth. Do you have an absolute number you can give us around the heat you are expecting from the Chilean wireless launch and then when do you expect that to go EBITDA positive. And then in Germany the amount of the potential M&A integration costs would be helpful and where there any integration costs in Q1 and I have one follow-up?

Michael T. Fries

Well, I’m not sure that we can provide a whole lot more color on the actual number for the second quarter Jeff, but and Rick you have to remind what we said publicly about Chile operating cash flow, should we give that number out...

Frederick G. Westerman III

Yeah. We haven’t given specific granularity around that.

Jeff Wlodarczak – Pivotal Research Group LLC

Okay, fair enough. Then I’ll jump to my next question. There has been a lot of noise recently out of the Netherlands, the Senate recently seems to have picked up we’re off to a kind of left off around analog video plan net neutrality, any more color on that? Is that some thing that you can take to the code system, or that you – and how long do you expect it to play out.

Michael T. Fries

Yeah, I mean that’s some thing we do expect will take some time to play out and we can use both European Union and their regulatory frame work as well as the code system to challenge it. It really is a head scratcher, Jeff. It’s hard for us to understand. The regulator sells few on that market about two years ago, that is plenty competitive and only more competitive today. So I guess I would say politics does that play here and we have to stay vigilant in terms of getting support from EU commission who will likely start infringement proceedings on our behalf.

And having said that, what ever occurs, it will probably take some time and last time as you will recall, we had pretty good economic solution even if it did come about but we’re not too worried about as we sit here.

Jeff Wlodarczak – Pivotal Research Group LLC

By the way is it true that they put after charge of setting the pricing which seems kind of odd because (inaudible) is competitive?

Michael T. Fries

Well, yes, it’s very strange. It means in fact that they would put the same regulatory body that concluded, there was plenty of competition in video, in charge of implementing or at least hope kind of presiding over disputes. And that’s one way to think about it. There as to be a dispute really for this to rise to their level. So and also pointing out that very few people ever expressed an interest in using our analog video spectrum for video because of course the market is rapidly moving digital and it’s all about broadband. So it’s a head scratcher, but from time to time, we’re going to have these sort of moments in European national politics and we just broke right through them.

Jeff Wlodarczak – Pivotal Research Group LLC

Great. Thank you very much.

Michael T. Fries

Mike, I’ve got a couple of figures on the VTR wireless loss in the first quarter. The negative EBITDA there was $16 million compared to a negative $6 million in Q1 of 2011. So obviously with the commercial launch, we’ve got a significant amount of cost and it’s really at this point we can’t predict the absolute number of subscribers, the gross ads that we’ll have in Q2 and for the balance of the year for that matter and that’s obviously a huge swing factor with the handset subsidies, with each new handset.

Charles H.R. Bracken

And also we haven’t given guidance on the future of VTR (inaudible) I think you can assume it’s negative EBITDA this year at least. So that will be a drag on our growth

Jeff Wlodarczak – Pivotal Research Group LLC

Okay, thanks.

Michael T. Fries

We did communicate well in the Q4 call, guys I think a $150 million in negative free cash flow for the year, Jeff.

Charles H.R. Bracken

That’s right.

Jeff Wlodarczak – Pivotal Research Group LLC

That hasn’t changed.

Charles H.R. Bracken

Up to that, yes. That hasn’t changed.

Jeff Wlodarczak – Pivotal Research Group LLC

Okay, thanks.

Operator

We’ll take our next question from Hugh McCaffrey with Goldman Sachs.

Hugh I. McCaffrey – Goldman Sachs International Ltd.

Thanks guys and I was just wondering, if you could update us on your thinking around the pricing environment in Germany, do you see scope for price inflation in your broadband and triple-play offers there?

Michael T. Fries

Well, I mean if you look we have taken some modest rate increases in that market. I mean we have along with improving the product, I’ll let – I can let Diederik to address it more fully, but as we ramp speed and improve our bundles in that marketplace. We’re taking some more rate increases to the tune of €2 or €3, where we can. So while we’re not, well, it’s still competitive market. It is still very much a growth market in terms of raw organic growth. And so we’re finding opportunities as we improve the bundle, which really needs improving speeds and adding more HD to take small, modest rate increases and to do it in a way that doesn’t affect our demand curve. Do you want to add anything to that Diederik.

Diederik Karsten

No, Mike that’s pretty much – the only other category could be alignment of tariffs between KBW and Unity where we are also aligning products and from here on we’ll, we not only look at acquisitions but also at so much of pricing amongst the base, but it did hit the radar and I think that’s the key strategy to see how we can move up ARPUs in Germany.

Michael T. Fries

Our main product proposition is to be faster have more features and content in our bundle at or below the price of incompetent and that what’s driving our market share, it’s still very, very profitable growth for us in these markets. It’s not as if we were racing ahead on volume without being very cognizant and careful on returns, so still very positive growth for us and we’re trying to optimize that in this moment because I think we’ve got a good opportunity.

Hugh I. McCaffrey – Goldman Sachs International Ltd.

Okay, great and just have a very quick follow-up on speed, you’ve talked about obviously people paying for higher speed, are you still seeing strong demand from the consumer to go up the speed curve not just in Germany but across Europe, your European operation does that right?

Michael T. Fries

Absolutely, it’s only going one direction, I think we’ll also find that our consumption levels are close to 1 gig a day, up from what was it, 200 or 300 just a few years ago, 200 megabyte, so speed and consumption are traveling along the same curve and we spend a lot of time looking at our network infrastructure and our ability to stay ahead of that speed and consumption curve, and we feel really good about that. But there is no question, well two years ago, we were probably talking to you about 25 megabits of bundles being sort of the sweet spot that’s rapidly becoming 50 megabit. That’s an important number though remember, because you really can’t do 50 meg on a VDSL footprint, and in a place like Germany, there might be 20% VDSL coverage, but only 1% fiber-to-the-home coverage. In place like Holland, there might be 40% or 50% VDSL coverage and 25% fiber coverage.

So the point is, we have to keep ahead of our competitors in taking advantage of our 3.0 footprint, not pushing it too far, but definitely staying ahead of competitors and telcos are going to hit a wall, right about there if you’re trying to do video as well. So it’s a perfect spot for us to be in.

Hugh I. McCaffrey – Goldman Sachs International Ltd.

Okay, that’s helpful. Thanks, Mike.

Operator

We will take our next question from James Ratcliffe with Barclays.

James Maxwell Ratcliffe – Barclays Capital, Inc.

Good morning. Thanks for taking my question. Two if I could, first of all, can you help us quantify year-on-year what the impact of the factor RGU growth was on EBITDA in terms of what the incremental inflation costs, or what growth would it look like if you had, had the 180,000 few RGU adds that you did in 1Q ’11?

And secondly, I know it’s early, but are you seeing any impact of the German housing associations that were able to end their contracts early as part of the KBW deal and any movement on their part? Thanks.

Michael T. Fries

So, on the second one, we’re trying to be careful because a lot of these processes are unfolding in Germany and on a confidential and negotiated basis. But as I said in my remarks, the process thus far is in line with our expectations, if not a little better. So we’re going to compete for these contracts. And we’re going to compete appropriately and fairly and on the basis of a superior product. And our confidence level is high, as these contracts are opened up and people are given the opportunity to bid and provide alternative infrastructure and pricing to these customers of ours, now we’re going to be on very good footing given the quality of our networks and the quality of relationships.

So we already made some assumptions James that over time, we wouldn’t keep every single contract. And this is again, is just a 300 – roughly 40,000 homes that we’re talking about in Germany. But at the same time, we’re going to compete for every contract. And I'm very, very encouraged and proud of the team and what’s been accomplished thus far. I don’t want to give any more than that at this stage.

And on the RGU growth, we’ve been – one way that I look at it and Rick and Charlie and Bern may have a different spin on it, it is roughly half of the difference between the 5% revenue growth – 5.5% revenue growth and the 3.1% EBITDA growth, it is attributable to incremental marketing in customer acquisition costs associated with higher volume. And then the other half, you can roughly attribute, and most of that’s in Germany, which we like. In the other half, you can attribute to the Belgian football rights or the mobile launch in Chile and things of that nature. Beyond that guidance, if you want to provide more quantification, you can do it.

Charles H.R. Bracken

No. I think that's a pretty good summary.

James Ratcliffe – Barclays Capital

Great. Thank you.

Operator

And we’ll take our next question from Ben Swinburne with Morgan Stanley.

Ryan Fiftal – Morgan Stanley & Co. LLC

Good morning. It’s Ryan Fiftal on for Ben. So a question on Switzerland, we’ve seen a couple of quarters of revenue acceleration there. And if I’m doing my adjustments correctly, I think it was the best RGU quarter in quite a while. so could you give us a little more detail on that environment, what’s going on in the market, what you’re doing differently that’s starting to get some traction? And then, can that market start to look more like some of your other developed markets like the Netherlands and Belgium?

Michael T. Fries

Yeah. So I think – I’m going to let Diederik to answer this. But I will tell you just from a general point of view, that we do think this market can look like (inaudible) and we put in place probably several years ago a strategy focused on bringing the customer, the customer experience, the competitiveness of our products and our brand. And that is what’s basically and we change the management team. That is what’s proving out today. And in a place like Switzerland, the secret of our success is just having better products. Our bundles would be of 2.5 times the broadband speed for less money. We are offering comparable video, we are going to launch Horizon, we rebrand it. So it’s just blocking and tackling and most importantly improving the churn.

I’m really proud of the way we reduced churn across all of our products in that market. The sales are going to be what the sales are to some extent. It’s a mature market, and largely just us and Swisscom. But in the end, if we keep our churn lower and get it down to really, really very low levels. We are going to retain more customers and that those sales dropped down, so I’m really proud of what’s happening in that market. Diederik, do you want to add to that, please?

Diederik Karsten

Thanks, Mike. And you’re proud of what we are trying to achieve and outdated in detail things are all coming together. We also have quite a competitive portfolio now versus Swisscom, with like you said almost 2.5 times than the broadband speed for kind of 15% less, and if you add to that team improved operational pieces like [Arthur] in our sales service customer care like you said, I think we are talking about kind of a stepwise and step-by-step going to the right direction. It’s tough market. Swisscom is a tough competitor, but we feel that we are kind of exactly where we’ve to be.

I think that the reduction in churn will appraises to the stickiness and the strength of the bundles, it might be an one kind of plan. Do not plan to speed versus competition, where do you go. After having kind of discovered out products, so we feel pretty strong about kind of further developments in Switzerland, [Jamie] like you said big Horizon, which is they’ll do opening for the end of the year like you said. That’s it.

Ryan Fiftal – Morgan Stanley & Co. LLC

Okay. Thank you.

Operator

We will take our next question from Matthew Harrigan with Wunderlich Securities.

Matthew J. Harrigan – Wunderlich Securities, Inc.

Thank you. Moving back to your comments on VDSL, I think Mike you talked – you were at a panel at the Cable Congress that talk somewhat about some of the new protocols that you’re trying develop like (inaudible) you still think that with reasonable loop length, the physics of the copper are going to sufficient that your DOCSIS network is going to retain in advance of what the telcos were able to do with the copper.

And then secondly, in your [queue], I think you’ve got 7% of your German revenues from payments for the broadcasters for programing carriage. I know there’s some offset to that on the programing cost side, but could you talk a little bit how you see that evolving on a net basis in Germany over a longer period of time particularly as you got more video revenues from your advanced customers?

Michael T. Fries

Sure. I’ll start with the second one and Balan, I hope you’re still on, you can talk about the first one. But as you point out, the carriage fees in Germany where we are paid by broadcasters to deliver their broadcast signals essentially is part of the tradition and history of that market. And by the way we are not the only people who are paid, Deutsche Telekom is paid €100 million a year to deliver content on their IPTV platform to roughly 5% of consumers.

So in the end price per sub that cable operators are paid is relatively small compared to what they are paying other operators. But having said that, we’re also very realistic that these broadcaster, in particular the commercial broadcaster and very anxious to expand into either digital tiers or into HD content. And so we are finding ourselves for example with RLT and others able to construct arrangements where we’re sharing the upside of their investment in more content. So we’re not fundamentally changing the nature of our carriage fees, but we are creating win-win arrangements where they can essentially offset some of those fees by putting out better content and HD content, and digital content.

So I think the way we’re handling this is, is the way we should be handling it, and in the long run we’ll see how it all unfold, but whatever that percentage of revenue is represented today, like carriage fees ultimately the complexion of that relationship and the complexion of those revenue streams are going to alter over time as we incorporate more and more HD content, more and more catch up TV content and broad content, and more and more digital channel. So we’re not classified, and the status of the dialog we have and the quality of the dialog we have with broadcasters in that market including Sky of course who we just announced a major deal with is very, very good. So I’m not too worried about it. Balan, are you still on?

Balan Nair

On the VDSL, I’d say it’s probably reached the peak, but it’s going to get through, and then mind as well that we have the share to spend with the video platform, which needs not very much band that’s lost broadband, no matter how high video itself will go, we’ll be able to outpace it at least 5:1.

Matthew J. Harrigan – Wunderlich Securities, Inc.

Good to hear, thank you.

Operator

We will take our next question from David Joyce with Miller Tabak and Company.

David C. Joyce – Miller Tabak + Co., LLC

Thank you. I was wondering if you could provide some more color on the early strong growth of net adds in Germany. What sort of tiers or customers coming in at on the Internet speeds, voice adds also are very strong, so it doesn’t seem like there is any wireless new voice substitution, if could comment on that a bit. And then also beyond another one, it’s broader for Horizon, what are the sorts of network upgrades, are you going to look acquire as that rolls out? Thanks.

Michael T. Fries

Sure, Diederik do you want to handle the German question.

Diederik Karsten

Yeah, sure Mike, (inaudible) product, best selling product is currently the 50 meg, where we came from 32 meg, broadband for €30 now selling to 50 meg for €33 that’s to who can do the bundle, and telephony as we see also not many other market this kind of movement on the way for the broadband. With respect to the telephony usage, I said it in the German market indeed you might not see kind of transfer from wireline usage to wireless, in my view it also has to do with somewhat traditional kind of nature of that market for example Cable, broadband penetration is also somewhere in the mid-teens compared to 30%, 40%.

In other markets, we have to say however that we do see the first signs emerging in other markets and that kind of a decline in telephony usage, wireline. It is not necessarily all going to wireless although we have very little experience, there is followed (inaudible) seems to wireless kind, see declines in telephony usage it maybe social media, what else type of application which kind of takeover the usage.

Michael T. Fries

Fortunately for us we don’t have, we never had a lot of telephony usage in our revenue streams, it’s principally comprised the rental fee and that comes along with the broadband connection, if you buy broadband bundles from us, you are going to get voice for very little incremental cost, and that’s what is generating our revenue mostly in that category. Balan, you want to address the network upgrades on Horizon?

Balan Nair

Sorry, I missed the question.

Michael T. Fries

I think the question was with respect to the world of Horizon, or any network upgrades required in what – what are we doing with the network?

Balan Nair

Well, absolutely no network upgrades are required for the Horizon platform.

Michael T. Fries

Yeah, some investment in the head-end infrastructure, but that’s it.

David C. Joyce – Miller Tabak + Co., LLC

Okay. All right, thank you very much.

Michael T. Fries

Okay.

Operator

And we’ll take our next question from (inaudible) with Deutsche Bank.

Vivek Khanna – Deutsche Bank

Hi, good afternoon. It’s Vivek Khanna. Can you hear me?

Michael T. Fries

Yeah.

Vivek Khanna – Deutsche Bank

Probably I just have a quick question to ask with you guys through CapEx, I mean clearly RGU growth is coming in very well and keenly ahead of our expectations. Can you just provide us maybe an update on CapEx guidance, and then also on what incremental vendor financing you’ll be applying on the back of that?

And then finally just on vendor financing, could you provide some color as to how it would work between the various entities like my understanding is, that’s going to come out of Germany to a certain extent, and then the facilities based out of Germany and then UPC will benefit from it also, so just some clarity on how that will work between the various entities, will be very great? Thanks.

Michael T. Fries

Charlie?

Charles H.R. Bracken

Yes. I think just to remind, the vendor financing issues is part of the general working capital efficiency project. So it’s not just a vendor financing, it’s things like optimizing your receivables, reducing prepayments et cetera, et cetera. So as part of that, we are working with our vendors trying to extend our payments from roughly an average of 90, to say 92, 93 days, and then two or three day pickup on the average to provide you cash flow benefit. But it do not illustrates the envelope, but we do disclose – just make sure it’s transparent about how we’re doing it.

Historically, the way we’ve done it is, is go to the big vendors, if this is going to be a good example strictly once in a very long cash. I just asked them under certain terms payment terms. Increasingly what we’re looking to do is – probably use a bank to intermediate which is a win-win for everybody. And so that program is underway. Because of that we’re not giving specific guidance as to who is getting what of vendor financing. It depends a lot on how much is spent by the Germans on, they stick to equipments or will spend by the opinions on (inaudible).

So I think it will be – wanting me to give me guidance, but in general you’re right. It is easier, it derives the vendor financing benefit from the CPE purchases, because clearly we’re using a smaller number of large vendors who are at this stage more (inaudible) to the program, although all the time we may optimize that further. So I think that I wouldn’t give you specific guidance on how we are (inaudible) with Germany or how we’re just going out to Europe, but it will play a role and I think the number we got in Q1 is kind of indicative of the cash flow benefit, usually expect to see going forward, we must have the right to tweak it up or tweak it down depending on the attractiveness of the payment terms of the vendors.

Michael T. Fries

(Inaudible) 30 million in Q1, and there is no change to our cash CapEx guidance which as a percent of revenue this year will be down. We expect 50 to 100 basis points compared with last year.

Vivek Khanna – Deutsche Bank

Thank you very much.

Operator

And we’ll take our next question from Will Milner with Arete.

Will N. Milner – Arete Research Services LLP

Thanks very much. My first question is just on the Chilean wireless project. I mean, obviously we’re talking about the drag to EBITDA and free cash flow from that project. It strikes me we’re going to be the fifth network operator in Chile. And I think we see next our launch quite recently were cheap price plans, we’ve also seen (inaudible) falling EBITDA, I mean in the last quarter. So it seems a pretty competitive market with falling prices. I wonder if you can just talk a bit more about yield prospects for generating a return on the mobile investments in that kind of environment, and what options you might have – what other options you might have to generate a return in that market including second part in consolidation? Thanks.

Michael T. Fries

Sure. I’ll kick it off and Mauricio Ramos is on, I’ll let him deal with the specifics. But I’ll tell you that certainly Chile, it looks different than many of our other markets from the point of view of the reach we have of that country in terms of physical reach in our networks, the brand, the position we hold, we’re really are the incumbent in many ways in that market, at least on our footprint in terms of video, voice and data market share. And the way Mauricio and his team had effectively and very inexpensively acquired spectrum, constructed towers and put in place nationwide roaming deals to allow us to have a nationwide launch in a relatively quick manner. So the beauty of that in this instance is we don’t need a lot of market share quite frankly to make this business work given the way in which we’ve constructed it and capitalized it, but I’ll let Mauricio to make the case. Mauricio?

Mauricio Ramos

Sure. There’s a couple of things that as Mike was pointing out are different and make us the unique new player in the mobile market place in Chile. Number one is, as Mike was saying, we’re number one in each one of the products that we offer within footprint. so if you will, we are extending that position into a new line of business. That’s different from any other player that’s entered a market in many locations in the world and certainly different from all the other places that are entering Chile. We’re doing it from the position of leadership in each one of our products, leadership in our brand, and we’re doing it, as Mike was saying, in a very cost-effective manner. The second big differentiator that we have precisely because of our position as a fixed broadband and telephony operator is the ability to offer fixed mobile integration, which we are in a unique position to do, none of the entrants – other entrants are and some of the existing players are not really in that position perhaps other than Movistar of Telefónica, which center on handicaps.

The second thing that is very important to bear in mind is that unlike the U.S. and certainly unlike perhaps certain markets elsewhere in the world, the Chilean mobile marketplace remains a very healthy business with high ARPUs and low minutes of usage. Just to give you an idea, OCF margin is about 40%, operating free cash flow margin is about 20%, 25%. And only above 30% of the subscriber base is postpaid and being converted very, very rapidly.

Mobile broadband has exploded there and we are the fixed broadband provider of choice in a unique situation to complement our product with a mobile broadband offering, especially, because we are going to have like a lot of the other MVNO and new entrants, we are going to have an empty network advantage to do that over. So when you look at our marketplace and you look at our position, you realize that there is plenty of room for us to come under that price umbrella and enter that market which in Chile remains very healthy. The key in our mind is to do it in a manner in which – since we intend to be long-term players there and that’s where our business plan has been developed, to do it in a manner in which we maintained the healthiness of that market.

And coming back to the earlier question on – going back to the earlier question on this subject in terms of our ability to reach EBITDA break even, the important point to keep in mind is that since we believe we have the ability to drive volume here and need to do it and decide to do it in a very profitable manner. To some extend, we hold a certain degree of leverage to control our destiny, because we can control, we believe we’re going to have sufficient demand to control the level at which we want to bring in that volume into our business.

Will N. Milner – Arete Research Services LLP

That’s quite helpful, thanks. I have a second follow-up question actually just switching to Germany. and you mentioned the price increases earlier, but I think you put through at least a month or so ago now. and I just wonder if you could share, if there’s any thoughts to the most of customer reaction to prices being put up €3, and thinking specifically around churn levels since the price increase or customer intakes, since the price increase that will be helpful? Thanks.

Michael T. Fries

So the price increase was on new customers and I don’t think, correct me if I’m wrong, (inaudible) it’s a retroactive price increase on existing customers, but we haven’t seen a lot of spin-down or spin-up. and generally speaking, when we put these price increases in, we had some promotional period. but do you want to add any color to that, Diederik?

Diederik Karsten

No, you’re right. There’s no slowdown in sales, which we would expect as a positive or negative reaction. so it’s good news, I’d like to say that doesn’t (inaudible) because most of the base percentage is still in their promotional period, but we are considering obviously to lifting the price as well. Okay, got it, Will?

Will N. Milner – Arete Research Services LLP

Sorry, I just missed the last. but you are considering increasing prices for existing customers. Was that final comment?

Diederik Karsten

Yeah. We’re not ruling that out, but as I said most of the – let’s say most, the actual base is still in there, I’d say promotional period where we can’t just raise the price, but obviously it crossed our mind. So that will be the future event.

Will N. Milner – Arete Research Services LLP

Okay, thank you.

Diederik Karsten

Okay.

Operator

And we will take our – do you want to continue?

Diederik Karsten

No, no, I’m done.

Operator

Okay, perfect. We’ll take our final question today, Vijay Jayant with ISI Group.

Vikash Harlalka – ISI Group, Inc.

Hi, this is Vikash Harlalka in for Vijay. I was hoping you could help us to reconcile the fact that when I look at other Western Europe, the RGUs seem to have grown almost 50%, but when I look at the revenue [on abroad], that’s significantly lower than what you did last year?

Michael T. Fries

Vijay, we had hard time hearing you, but I’m going to try to translate a little bit. You correct if you can hear me okay whether I wrong. All right. I think you were asking about try to reconcile the acceleration in RGU growth in Western Europe, with the revenue in OCF result. And I’d tell you simply that obviously what we do in the first quarter in Western Europe, quarter-over-quarter isn’t going to impact, we are not going to get the real impact of that till the succeeding quarters or the following quarters. I’m not sure that’s sort a generic answer but – did we get the question right Vijay, because you are coming through very…

Vikash Harlalka – ISI Group, Inc.

Sorry, sorry. I was taking about other Western Europe that’s Ireland and Austria.

Michael T. Fries

Okay. Well, I mean in places like Austria, it takes more to move the needle there, but in a very competitive market like Austria, we’re finding of course that – to keep the business on course, we have to be competitive, and that some times means faster speeds and more effective the prices. So I think you’re going to – and you have been following us for some time, you realize that Austria is very mature and competitive market, relatively good cash flow yield, but it has always been a bit challenged on the top line and both in terms of subscriber growth and revenue growth indeed which won’t add anything to that.

Balan Nair

Probably ARPUs [are at the right] – where we also now see that ARPUs are stabilizing in Austria and some of the other competitors are also struggling with them, and – so the heated promotional environment which we’re facing out with [Novell Beta] three years ago, seem to be over.

Next then, moving to Ireland, it’s the only country where we do see declines in, particularly the premium market, premium DTV packages as a result of the somewhat I’d say lackluster economic conditions, and that is dampening the very healthy, and I’d say development in Ireland that particular market, people are downgrading, Sky must see it as well away from the premium market. We see that’s something temporary, but that’s an adverse revenue hit in Ireland.

Charles H.R. Bracken

Did that help, Vijay.

Vikash Harlalka – ISI Group, Inc.

Yeah.

Michael T. Fries

Okay, I hope that was a yes. So listen, I appreciate everybody joining the call, a couple of us are getting over a bad cold, but I do appreciate everybody checking in, and we had as we said a really great quarter. We feel extremely good about how the second quarter has unfolded. You know things are clicking in all fronts with our business so we feel very, very positive, and as always we appreciate your support. And you know where to find Rick and his team if you have follow-up questions, thanks for joining us.

Operator

Ladies and gentlemen, this concludes Liberty Global’s Q1 2012 Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global’s website at www.lgi.com. There you can also find a copy of today’s presentation materials.

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