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Liberty Global Ratchets Up Capex Again

Alan Breznick
2/16/2018
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After ramping up its capital spending by 20% in 2017, Liberty Global plans to boost its capex again this year as it sprints to upgrade both its cable HFC networks and customer premises equipment for new broadband, video and voice services.

In its fourth-quarter earnings released Thursday morning, Liberty Global Inc. (Nasdaq: LBTY) reported that it intends to spend $5.1 billion on new plant and equipment in 2018, up about 6% from last year's total of $4.8 billion. A good portion of that total, $1.2 billion, will be lavished on new and upgraded networks, while the rest will be spent on a mix of new CPE, software, products, customer experience and other types of improvements.

The lion's share of that spending will be in the UK, where Liberty Global is furiously pushing forward with its ambitious Project Lightning new-build program. Under this multi-year initiative, the cableco's Virgin Media unit is extending its HFC footprint to 4 million new homes in the UK and Ireland. Despite running into major construction snags with the program in early 2017, Virgin has now extended its services and marketing reach to 1.1 million homes, including some 536,000 homes last year, since launching the program in 2015. (See Liberty Global Claims UK Turnaround and Virgin Media's Cable Expansion Lags Targets – Report.)

The planned capex increase for 2018 comes after Liberty Global -- which now encompasses just Liberty's European operations after the spinoff of its Latin American unit at the end of last year -- boosted its capital spending from $4.0 billion to $4.8 billion in 2017. Just like it plans to do this year, the company spent heavily on both new CPE ($1.16 billion) and network new-builds and upgrades (also $1.16 billion) last year as it built new cable plant, extended fiber deeper in its networks, installed advanced V6 set-tops and Connect Box WiFi routers in millions of subscribers' home and prepared its networks for forthcoming DOCSIS 3.1 rollouts, among other moves. (See Liberty Latin America Completes Spin-Off From Liberty Global.)

"We are purposely investing capital into long-term sustainable growth," said Liberty Global CEO Mike Fries, speaking on the company's earnings call Thursday. "This level of spend is not the new normal for us … We are choosing to lean into our customers for all the right reasons."

With Project Lightning still ramping up, Virgin Media now has about 500 tech crews out in the field working to connect an average of six homes each day. "We've learned some lessons, maybe the hard way," said Virgin Media CEO Tom Mockridge. "We have really reorganized ourselves and we are much, much more confident about our ability to execute."


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Turning to its earnings results, Liberty Global reported a healthy fourth quarter overall to end the year on a bright note, thanks in large part to Virgin Media's continued gains in the UK. The company netted about 149,000 revenue-generating units (RGUs) and generated nearly $4 billion in revenue, up 2.9% from the year-earlier period. Operating cash flow (OCF) rose to $1.9 billion, up 4.3% from a year ago. (See Eurobites: Nokia Gets a Case of the Shakes Over Digital Health Market.)

For the entire year, Liberty Global netted 760,000 RGUs, boosting its total to 45.8 million, as hefty cable subscriber gains in the UK, Ireland, Germany and Central & Eastern Europe more than offset minor customer losses in Belgium, Switzerland and Austria. Thanks largely to such growth, the company reported $15.0 billion in rebased revenue, up 2.3% from its 2016 results, and rebased operating cash flow of $7.1 billion, up 4.5% from the year before.

Because of Liberty Global's $4.8 billion capex bill, its capital intensity climbed to 31.7% of revenue in 2017, well above the MSO's historic average in the low to mid 20%s. While its capital intensity will be high again this year and likely next year as well, company officials said they expect the intensity to drop back to historic levels as Project Lightning winds down in 2020. "Once our new-build program subsides, we would expect to see our capital intensity to fall back into the low 20% of sales," said EVP & CFO Charlie Bracken.

Despite the recent sale of its Austrian cable systems to DT and its reported discussions with Vodafone about further asset sales in Europe, Fries insisted that Liberty Global remains committed to playing in the broad European cable market, as long as it can be a dominant player in each nation. "We are not 'dismantling' our European business, as one paper noted," he said. "Quite the contrary. In today's competitive world, scale matters more than ever and we are committed to the core markets we're in, where we see a pathway to becoming a national champion." (See Vodafone in Talks to Acquire Liberty Global Assets.)

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

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Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
2/19/2018 | 10:58:03 AM
CapEx Can't Be Ignored
Companies that try to ignore necessary CapEx expenditures continue to fall behind their competitors, not only in telecom, but in other industries as well. Numerous financial analysts say many of Sears problems come from years of not investing in the business.
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