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Liberty Global Grapples With Revenue Slump

Alan Breznick
5/13/2019
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Even as it moves forward with the big selloff of a portion of its cable and satellite TV properties on the European continent, Liberty Global is scrambling to combat a revenue slump among the cable systems that it still holds dear.

Liberty Global -- which has struck deals to unload its German and Eastern European cable assets to Vodafone and its Swiss cable system to Sunrise by the end of the year -- is moving to resuscitate growth in its remaining European systems at the same time by introducing a slate of fresh broadband, video and mobile products, services and features. These moves include the addition of Amazon Prime Video to its video lineup in the UK, the deployment of next-gen digital set-top boxes throughout its markets, upgrades to 500 Mbit/s speeds and a cloud-based WiFi service in the UK, the launch of 1-Gig speed trials across several regions, the expansion of its next-gen wireless gateways to more broadband homes, and the rollout of new fixed-mobile convergence bundles in the UK and Belgium.

"There's no substitute for being first or being best in all of these particular products and services," said Liberty Global Vice Chair and CEO Mike Fries, speaking on the company's first-quarter earnings call last week. He boasted that the company is particularly "pushing the envelope" on "the innovation front" in its UK home market, where Liberty's Virgin Media unit is also extending its HFC network to 400,000 to 500,000 new homes each year under the Project Lightning initiative.

These moves come as Liberty Global -- which has struck deals to sell its German and Eastern European cable assets to Vodafone and its Swiss cable system to Sunrise in the past year -- reported last week that revenue from continuing operations shrank by 0.6%, to $2.87 billion, in the first quarter. In addition, the company's operating income slipped from $117.6 million in the year-ago period to $105.5 million in the first three months of 2019.

The biggest revenue and operating income falloffs came in Switzerland, a fiercely competitive market that Liberty Global aims to depart shortly after years of uphill battles against residential cable and mobile subscriber losses. In Switzerland, the company saw its Q1 revenue dip to $316 million, down 3.7% on a rebased basis, as it continued to shed more than 40,000 video, broadband and voice subs for at least the fifth consecutive quarter, despite some possible signs of a financial turnaround.

But, probably more troublingly for Europe's biggest cable provider, Liberty Global also suffered revenue reversals in Belgium (down 0.6% on a rebased basis, to $712 million) and even its home UK/Ireland market (down 0.1% on a rebased basis, to $1.66 billion), both of which are still considered integral to the company's future. So, with only their remaining central European holdings (Poland and Slovakia) posting gains, company executives can't just blame their financial woes on rotting Swiss cheese.

In fact, Liberty Global executives attributed their flagging financial figures to a few factors, including heavier video subscriber losses across the board, mobile subscriber losses in some key markets like the UK, and reduced revenue due to intensified price competition in others. On the pay-TV front, for example, the company racked up a loss of 60,500 subs during the quarter, compared to a loss of 45,200 video subs in the tear-ago period, mirroring the heftier video sub losses suffered by its North American cable counterparts in the cold winter months.

Still pumped about pay-TV
Yet, on their earnings call with financial analysts, Liberty Global executives said they still have high hopes for the pay-TV business and don't see the need to reduce their investment in video, as some North American MSOs like Cable One have been doing. With the integration of OTT video services like Netflix and Amazon Prime Video and the deployment of next-gen Horizon 4 digital set-tops, they are looking to stem their pay-TV sub losses and boost the retention of their most lucrative customers.

"We know that people aren't going to generally buy broadband if they don't have a video product and solution, as well, and we make lots of margin on our video products still, despite what's happening…in the US," Fries said. "Video for us is still a profitable product, and with a high rate of return, and that has to be part of our bundle."

Like just about all its North American cable counterparts, though, Liberty Global is clearly pinning its biggest hopes for growth on broadband. With the rollout of 500 Mbit/s maximum broadband speeds throughout the UK and the launch of 1-Gig speeds in pilot markets in Germany and the UK, the cable provider is seeking to foster that growth by hiking its speed edge over all other network architectures except for FTTH. In the first quarter, Liberty added 42,400 data subs, up from 35,500 a year earlier, despite losing 14,000 broadband subs in Switzerland.

"The fiber in the market today is 3% or 4% of homes and we're going to 1-Gig as quickly as we can, and... ultimately to 10-Gig," said Fries, referring specifically to the UK market. "So I don't want to say the race is over, but Virgin is running at a different race than the rest of the UK broadband providers."

On the mobile front, Liberty Global added a total of 26,800 subs despite the UK/Ireland losses, as it gained more postpaid subs than it lost prepaid subs.

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

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