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Liberty Global Claims UK Turnaround

Alan Breznick

Despite losing gobs of money and shedding video customers overall in the second quarter, Liberty Global Group posted strong next-gen video subscriber gains across most of Europe during the spring, especially in the UK.

As previously reported, Liberty Global Group, the European division of US-based cable giant Liberty Global Inc. (Nasdaq: LBTY), registered a net loss of $637 million in the second quarter on a slight bump in revenue. That reversed a net gain of $204 million a year earlier. Over the first half of the year, the European operation posted a net loss of $930 million, as opposed to net income of $126 million in 2016. (See Eurobites: Slow Going for Liberty Global Europe in Q2.)

Yet, even against the backdrop of such a depressing bottom line, Liberty Global executives crowed about their cable subscriber gains in both the second quarter and the first half on their earnings call with analysts this week. They also crowed about the progress they claim to be making in revamping and re-starting Project Lightning, the company's ambitious $3.9 billion cable buildout initiative in the UK. (See Liberty Global 'Reboots' Project Lightning.)

In a story early last month, the UK's Daily Telegraph reported that the network expansion project by Liberty Global's Virgin Media unit in the UK had fallen well behind schedule. The report said Virgin managed to complete work on just 27,199 premises in June, against a target of 69,278, according to internal documents the newspaper reviewed. The documents also show that Virgin added just 15% of the 16,467 connections it was targeting in apartment blocks, and that work on the "infill" of areas near existing cable lines reached only 43% of target. (See Virgin Media's Cable Expansion Lags Targets Report.)

Liberty Global executives, however, presented a much more glowing picture of Project Lightning's progress in their earnings presentation after having overhauled the initiative's management team and operations earlier in the year. They reported passing another 127,000 premises in the second quarter, up from 102,000 in the first quarter and 86,000 in the year-ago period. As a result, they have now built out the network to more than 800,000 new premises over the first two and a quarter years of the program, still well shy of the eventual goal of 4 million homes and businesses by 2020.

Company officials also said that they now have connected more than 150,000 active Project Lightning customers 27 months into the network expansion program, with 24,000 of them added during the second quarter. "As shown, we have an active penetration of 33% after 27 months and we're on track to our 39% goal after 36 months," said Virgin Media CEO Thomas Mockridge, according to a Seeking Alpha transcript of the company's earnings call. "So overall, Project Lightning is delivering and we're confident to further ramp the program."

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Turning to the company's total subscriber results, Liberty Global Group reported mixed results for the historically weak quarter, cutting its video customer losses from the previous year while adding fewer broadband and voice subs than a year earlier. Specifically, the company shed 16,100 video subs while gaining 100,100 data and 77,900 voice subs in its legacy footprint. Overall, it added 161,900 "organic" revenue generating units (RGUs), down from a gain 269,000 in 2016.

But Liberty Global fared much better on the next-gen video front, picking up 302,000 subscribers for its Horizon TV, TiVo and similar platforms during the second quarter. As a result, it now boasts 7.2 million next-gen TV subs, representing 41% of its total cable video sub base.

The pan-European MSO did particularly well with next-gen video sub gains in the UK (78,000 additions), Belgium (69,000 additions) and Poland (53,000 additions). Further, it reported that nearly 10% of UK video subscribers are already using the new 4K-enabled Virgin TV V6 set-top-box.

In fact, Virgin Media enjoyed a record-setting second quarter in the UK and Ireland, adding 78,000 RGUs and 21,000 overall customers. Breaking down the RGU totals, Virgin added 33,000 video subs, 31,000 broadband subs and 14,000 voice subs. compared to a prior loss of 17,000. Company officials credited the video customer growth to the relaunch of Virgin TV and the rollout of the new V6 set-top box.

These improved subscriber figures come as Virgin executives, seeking to boost customer ARPU, aim to impose an average 4.7% price hike on UK cable customers in early November. Plans call for mitigating the rate hike with increased broadband speeds and new TV services, after the MSO ran into backlash from two price hikes for many customers last year.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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