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Liberty Global Makes Digital Push

Liberty Global Inc. (Nasdaq: LBTY) is seeking to roll out digital cable services more aggressively throughout Europe to stave off IPTV deployments by its leading telco rivals.

Fresh off a strong quarter and a year of growth, Liberty Global executives today outlined plans to launch or expand digital video services in the Netherlands, Ireland, Austria, Hungary, Poland, and other countries during 2007.

"We believe the window is very wide open for digital," Liberty Global President and CEO Mike Fries said. "We will have a digital product in all our markets this year, although not throughout each entire market."

Liberty Global is focused on introducing advanced digital video services in its European and Japanese markets this year, including high-definition TV (HDTV), digital video recorders (DVRs), and video-on-demand (VOD). For instance, plans call for rolling out HD in the Netherlands in August and in Ireland possibly sooner than that.

"Our view is that HD is a killer app," Fries said. "It's a huge advantage for us related to the telcos. You can expect us to push it."

The Denver-based MSO, which now counts more than 12.9 million cable and satellite video customers in 16 countries around the world, reported that it finished last year with 2.2 million digital cable subscribers. The company added 979,000 "organic" digital customers through its continuing operations in 2006, including 416,000 in the Netherlands and 312,000 in Japan.

Thanks to that surge, Liberty Global closed out December with a digital penetration rate of 19 percent, nearly twice as high as its year-end 2005 penetration rate. But that rate is still far lower than the company's North American MSO peers, which typically have digital take rates of 40 percent or higher.

Liberty Global officials are also scrambling to complete upgrades of older cable plant in several European markets to bring them up to two-way service capability. Fries said the company -- which has about 10.1 million of its 13.2 million homes in 10 European nations updated for two-way service -- will upgrade another 1 million homes to two-way capability this year.

"We won't upgrade all 3 million [one-way] homes," Fries said. But, he and other officials noted, the MSO will roll out digital even to some homes that aren't upgraded.

For the fourth quarter, the MSO picked up a record 540,000 organic revenue generating units (RGUs), up 23 percent from the year-ago period. The gains included 225,900 digital video, 222,800 high-speed data, and 167,400 VOIP subscribers, partly offset by the loss of 125,800 analog video subscribers who were largely converted to digital service.

Similarly, for the year, Liberty Global added 1.63 million organic RGUs, up 45 percent from its 2005 increase. That total includes the 979,000 digital video customers, as well as 759,000 broadband and 609,000 VOIP customers, partly offset by the loss of an undisclosed number of analog video customers.

Liberty Global, which introduced VOIP service in Europe two years ago, said it now offers IP phone service in 12 markets. With the service now available to 13 million homes and 2.7 million customers signed up, company officials boasted that they increased the number of triple-play subscribers to more than 1.6 million at the end of 2006, up 45 percent from more than 1.1 million at the close of 2005.

With this subscriber growth, Liberty Global reported $1.79 billion in revenue for the fourth quarter, up 12 percent on a pro forma basis from the year-earlier period. But the company still recorded a net loss from continuing operations of $31.2 million, reversing a gain of $150.2 million in the year-ago period.

For all of 2006, Liberty Global generated $6.49 billion in revenue, up 11 percent on a pro forma basis. Operating cashflow rose to $2.34 billion, up 16 percent on a pro forma basis. Yet the company still racked up a loss of $334 million from continuing operations, much steeper than its $59.6 million loss in 2005, because of much higher interest expenses and losses on derivative instruments.

— Alan Breznick, Site Editor, Cable Digital News

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