Liberty Global Grows Subs in Q3
LR Cable News Analysis Alan Breznick, Cable/Video Practice Leader, Light Reading 11/14/2006
Liberty Global, which sports slightly more than 13.1 million cable and satellite TV customers in 17 countries around the world, reported that it added 356,600 homegrown revenue generating units (RGUs) in the summer quarter as its three main products all scored healthy gains. The multinational MSO added 28 percent more RGUs than it did a year ago and more than twice as many as it picked up in 2004.
Thanks in part to this surge in subscribers, Liberty Global generated $1.62 billion in revenue for the quarter, up 47 percent on a year-over-year basis. Taking into account its various cable system acquisitions over the past year, the company's revenue rose by a much more modest 10 percent.
Likewise, Liberty Global generated $599 million in operating cash flow (OCF), up 50 percent from the same period a year earlier. Assuming the company owned the same properties in 2005, its operating cash flow climbed 15 percent.
"It was a great quarter for us on all fronts, operationally, strategically, and financially," Mike Fries, Liberty Global president and CEO, told analysts in a conference call late last week. He also noted that the MSO is off to an even better start in the fourth quarter, with more than 150,000 new RGUs added in October.
In spite of this strong growth, the Denver-based cable operator saw its losses from continuing operations jump to $173 million in Q3, up from $123 million in losses in the previous period. The MSO blamed the steeper losses on higher interest expense payments and sharply higher "realized and unrealized losses on financial and derivative instruments."
Overall, Liberty Global did register a net profit of $445 million for the quarter, a big improvement from its net loss of $128 million in the third quarter last year. But it would have run up a bigger net loss than last year had it not received $625 million for the sale of its cable systems in France over the summer.
Turning to another key financial metric for cable operators, Liberty Global reported $14.4 million in negative free cash flow for the quarter. That represents a sharp reversal from the $48.5 million in positive free cash flow that the company recorded in the year-ago period.
Putting the emphasis on robust subscriber growth, Liberty Global executives said they're not too concerned about the declines in earnings and free cash flow. But they pointed out that, thanks to gains in the first two quarters, the company is still generating positive free cash flow for the first nine months of the year.
Focusing on their operational triumphs, they stressed the company's digital video gains as it signed up or converted 230,000 organic digital cable and satellite customers, with Japan and the Netherlands leading the way.
In Japan, Liberty Global's J-COM Broadband subsidiary added 79,000 digital cable subscribers, boosting its total digital customer count to 842,800, or 47% of all video homes. At the same time, the MSO's sprawling UPC Broadband division netted 77,600 digital video subscribers in Holland as it continued its nationwide rollout of all-digital service to Dutch cable subscribers -- raising its customer total to 425,000.
On the broadband end of the business, Liberty Global signed up 175,400 organic cable modem subscribers, up 26 percent from the year-ago period, to record its fourth straight quarterly increase of more than 150,000 customers. The MSO registered the most data gains in Japan and Chile, while lifting its European broadband customer count above 2 million.
In the telephony area, Liberty Global picked up 142,000 organic subscribers, up 41 percent from 101,000 a year earlier, as it continued its rollout of VOIP service across Europe. With the gains, it now has just over 1 million phone customers in Europe, along with another 1 million in Japan and nearly 450,000 in Chile.
Finally, Liberty Global reported steady progress in signing up customers for bundled services. As of the end of September, the company said 3.5 million subscribers, or 27 percent of its total customer base, were taking at least two main products and 1.5 million, or 11 percent, were taking all three.
The MSO is enjoying bundling success in its two most advanced triple-play markets, Chile and Japan, so far. "From our perspective, the triple-play is working," Fries said.
— Alan Breznick, Site Editor, Cable Digital News