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Edited Transcript of LBTYA earnings conference call or presentation 8-May-17 1:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Liberty Global PLC Earnings Call

LONDON Aug 12, 2017 (Thomson StreetEvents) -- Edited Transcript of Liberty Global PLC earnings conference call or presentation Monday, May 8, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Balan Nair

Liberty Global plc - Chief Technology & Innovation Officer and EVP

* Betzalel Sergio Kenigsztein

Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations

* Charles H. R. Bracken

Liberty Global plc - CFO and EVP

* Christopher Noyes

* Eric J. Tveter

Liberty Global plc - CEO of Liberty Global Central Europe Group

* John Porter

* Michael Thomas Fries

Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd

* Thomas Mockridge

Liberty Global plc - CEO of Virgin Media

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Conference Call Participants

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* Amy Yong

Macquarie Research - Analyst

* Benjamin Daniel Swinburne

Morgan Stanley, Research Division - MD

* David Carl Joyce

ISI Group Inc., Research Division - Research Analyst

* Jeffrey Duncan Wlodarczak

Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst

* Jonathan Dann

RBC Capital Markets, LLC, Research Division - MD and Head of the European Equity Telecoms

* Julio Arciniegas

RBC Capital Markets, LLC, Research Division - Analyst

* Kevin Michael Roe

Roe Equity Research, LLC - President and Founder

* Matthew Joseph Harrigan

Wunderlich Securities Inc., Research Division - MD

* Michael Bishop

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Simon Weeden

Citigroup Inc, Research Division - MD and Head of European Telecoms Research

* Soomit Datta

New Street Research LLP - Founding Partner

* Stephen Paul Malcolm

Arete Research Services LLP - Senior Analyst

* Ulrich Rathe

Jefferies LLC, Research Division - Senior European Telecommunications Analyst

* Vijay A. Jayant

Evercore ISI, Research Division - Senior MD, Head of Media and Entertainment and Cable and Satellite Research, and Fundamental Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's First Quarter 2017 Investor Call. As a reminder, the first portion of the call will focus on Liberty's European results, and the second portion to begin at approximately 10:30 a.m. Eastern Time, will focus on the results of the LiLAC Group.

This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the expressed written consent of Liberty Global is strictly prohibited. (Operator Instructions) Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.libertyglobal.com. (Operator Instructions) As a reminder, this call is being recorded on this date, May 8, 2017.

Page 2 of the slides details the company's safe harbor statements regarding forward-looking statements. Today's presentation materials may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact.

These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K, as amended.

Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.

I would now like to turn the call over to Mr. Mike Fries.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [2]

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Thank you, operator, and welcome, everyone, to part 1 of our Q1 investor call for Liberty Global. The next hour or so, we'll be focusing on our European operations for Liberty Global Group shareholders. And then as a reminder, right after this call, we'll be rolling into a similar call for LiLAC shareholders, which of course, you are all welcome to join even if you don't own shares yet. I've got a lot of folks on this call today, and we've got a lot to talk about, so I'll do a quick overview of the results. Charlie Bracken will drill down into the financials briefly, and then we'll get right into your questions. We're both speaking from slides today, so I hope you've been able to access those. There's quite a bit of information that we're going to be covering. Always easier if you have those in front of you.

Now I'm going to begin on Slide 4 with some key European highlights. There's good news in this quarter, but as you'll see, we have work to do in a number of areas which I'll talk about. I'll start with the positive, which is that we continue to experience accelerated subscriber growth, with a 40% increase in quarterly RGU additions in Q1 versus last year. The major driver of that growth was Virgin Media in the U.K., which represented 163,000 or 2/3 of our 244,000 new RGUs. That's the best quarterly result for Virgin since we bought the business 4 years ago. We'll talk quite a bit about the U.K. on this call, both in prepared remarks and I suspect in Q&A. I'll just say upfront that we remain highly confident in this market, which has delivered an average of 6% annual OCF growth since 2013 under our management, and has a great runway of opportunity. We're tackling our recent operational and commercial challenges head-on, as we always do. The Project Lightning reboot is underway with a new team and a new reporting structure, and we have already seen improvements in churn and ARPU with new bundles and marketing plans.

As you've already surmised, some of those challenges contributed to financial results that did not meet our expectations, and trust me, I'm not happy about it, and neither is anyone else from Liberty on this call. Rebased revenue and OCF growth came in at 2% and 4%, respectively, impacted by softer ARPUs and RGU growth than we had forecasted, and the mobile business across our 2 largest markets was negative year-over-year. That didn't help. You can see the revenue growth broken down by product in the right-hand side of the slide. Our core fixed residential business was up 2%, which was lower than expected, as subscriber growth was offset by lower ARPUs, mostly in the U.K., and B2B had a great quarter, with 9% revenue growth in the back of a robust and rapidly growing SOHO and SME sector that we support with faster and faster broadband speeds and better products and increasingly mobile. And mobile itself, across the group, was down 5%. We had a good quarter on postpaid mobile adds of 90,000, but prepaid losses, the effect of split contracts, lower usage in some markets, and importantly, regulatory headwinds conspired to drive ARPU and revenue down.

Now more in the mobile business in just a second. It's still very early days in the Dutch JV with Vodafone in the face of some challenging mobile market conditions. We hit the ground running with a converged offer to existing Ziggo subs, who are also Vodafone customers, and the response so far has been very good. And then soon, we'll start marketing to Ziggo fixed-line subs who, use someone else's mobile product, and that's about 3/4 of the Ziggo fixed base. So we've got a deep pond to fish in when we launch a targeted quad-play product later this year. Good news is the Ziggo fixed line B2C and B2B business continued its turnaround, with 11,000 broadband net adds and stable revenue. And as the JV establishes a longer track record, you can bet we'll keep you posted on how things are going.

Lastly, we're updating our guidance for the full year on this call. First of all, we're confirming P&E guidance of 29% to 31% of revenue and expect to be closer to the low end of that figure, and we're confirming our adjusted free cash flow forecast, which calls for 1.5 billion for the full year. On OCF, however, we're now targeting around 5% rebased growth for the full year, reflecting lower ARPUs and customer volumes, primarily at Virgin Media and the mobile headwinds I described. Listen, from our point of view, we are building and growing this company for the long term. So this is a bump in the road, by no means a detour or direction change, and the growth outlook continues to look very good to us. Now we just need to keep blocking and tackling, as we'll talk about on this call. And while it's not on this page, we bought $1 billion of our own stock in the first quarter, which leaves us with $2 billion available for the remainder of the year. We'll see how things unfold, but you should expect us to be aggressive buyers as and when appropriate.

The next couple of slides, we'll dive into 3 business lines: fixed residential, B2B and mobile. Now beginning with the fixed residential business on Slide 5, and the left-hand side of the chart shows subscriber growth for Q1 in each of the last 3 years. And I've already hit some of these points, but the first quarter net adds were up threefold from 2015 and 40% from last year, mainly driven by the U.K. but also supported by stronger first quarters in Germany over the last 2 years. One additional factor is the consistent improvement in our video retention.

You can see that on the slide from a loss of over 100,000 in Q1 last year to just 15,000 in this past quarter. We added 46,000 new videos subs in the U.K. in the first 3 months of the year, supported by new bundles, the launch of our 4K-enabled Virgin TV V6 box, and also marketing, of course, in our new build territories, but pretty much all of our markets are doing better year-over-year. And with now 40% of our video base on some version of our advanced digital platform with access to our go services and multi-device capabilities, we expect that trend to continue. You'll see that broadband additions were up 6% at 154,000, and over half of those over were from Virgin, which had its best broadband quarter since we bought the business. Customer ARPU on the right-hand side of the page, however, is more of a mixed story.

On the positive front, both Germany and Belgium delivered good growth with a 4% bump in ARPU per customer in the first quarter in each case, driven roughly 50% by price increases and 50% by net volume or bundling growth. And just so you know, we've now taken price increases in 9 countries through the end of April. On the other hand, Switzerland and Austria, or as we call it, CHAT, that region saw ARPU erosion of 1% in the first quarter. I think it's important to point out that most of the price increases have not yet hit in Switzerland since over 70% of them just kicked in last month, but we did experience some pressure on top line as a result of tier mix, discounting, and to a lesser extent, VoD usage. And the game plan in Switzerland and Austria is straightforward. We're planning a refresh of our Connect & Play portfolio. We launched a new mobile product in April, with unlimited voice and increased data buckets, up to 10 gig. And we're preparing for the launch of our new sports channel, called MySports, in the third quarter, which will include exclusive content, like ice hockey, think Ziggo Sport. And we'll talk about U.K. ARPU again in a few slides. You see it here. The punchline is that while price increases and headwinds were just as we expected them to be, we pushed a bit too hard on discounts and not hard enough on tier mix, which led to ARPU growth of just 1%. More on that in a moment.

Slide 6 lays out the other key growth drivers for us: B2B, mobile, and of course, Liberty GO and our OpEx efficiencies. Beginning on the left-hand side, B2B is a good news story all the way around with another strong quarter of 9% revenue growth, mainly driven by SOHO and SME, where growth is 30-plus percent. All markets are performing well. And with new SOHO bundles in the U.K., Switzerland and Belgium that are promoting 300 megabit speeds, new products, and as well as mobile where we can. As I alluded to a moment ago, the mobile business itself, however, is more challenging right now. There are good explanations for the recent negative performance. In the U.K., it's largely a handset revenue issue as we grow total usage but account separately for devices which should lessen going forward, and Charlie might explain that. And Belgium has been impacted by the new requirement to register prepaid SIMs. So while quad-play WIGO product continues to penetrate well, and postpaid growth is good, the prepaid losses were larger. In both the U.K. and Belgium, I think it's important to point out, we have not yet reaped any of the material benefits we're anticipating from network migrations. In the U.K., that means moving to a full MVNO with our new 4G pricing, and in Belgium, it means moving Telenet subs over to the base network. So there are big synergies in product innovations around the corner. The rest of our markets in mobile are chugging along actually with very substantial growth, albeit off small bases. And then lastly, we are tracking right on target with our operating efficiency plans. Indirect costs in the first quarter were flat year-over-year despite higher sales volumes, the additional costs associated with our new build activities, et cetera, and we expect this trend to continue through 2018, supported by centralized functions like T&I, and greater scale benefits in procurement and other Centers of Excellence. In my view, we have hit the mark on our indirect cost structure, and there is more to come. I'm going to finish with 2 slides on Virgin Media, then hand it to Charlie.

Now Tom Mockridge and Balan Nair are both on the line. So in the interest of time, I'm going to hit the high points on the U.K. and then we can dig deeper on whatever you'd like to talk about during Q&A. I'm starting on Slide 7 with a Project Lightning update. I'm not going to repeat what you've already reviewed in the 8-K that we filed in late March. That 8-K was precipitated by our discovery of irregularities in the reporting of the completion status of certain premises in the fourth quarter by a small group of local managers. We're happy to dig into the why during Q&A, but most of it comes down to a few people, and a few key program elements, which faltered as the pace ramped up. It's that simple. I'd much rather focus on what we've done to reshape and restructure the project in preparation for a long-term acceleration and construction over the coming quarters. That includes, most importantly, a new leadership team and a new operating model, with oversight of the construction program, moving to Balan Nair and his central team in our network division, in addition to installing new management, adding resources and expertise from our other European operations and bringing in more consolidated and sophisticated project rigor. Balan and Tom are focused on 3 major initiatives. The first is to ensure that our 31 construction partners who are managing over 800 bill crews are better supported and have greater transparency around build schedules so they can scale up with us. This was a weakness with the prior team, and with a more collaborative approach, our suppliers tell us they are confident they can double and triple construction levels. The second priority is to better align way leaves and permits with network planning and resource allocation, so there are fewer delays. It sounds simple, yes, but it requires a much more sophisticated level of support, as you accelerate the quantity of projects and the pace of construction. And third, the group is working much more closely with local authorities, who need to be involved with us and aware of our plans and their communities much farther in advance, so we don't end up with construction delays.

Now I think it's important to remember, with all that said, that a lot of things have gone very right so far. In 24 months, we've managed hundreds of bill projects in dozens of cities, and delivered nearly 670,000 new homes, 130,000 new customers and over 300,000 new RGUs. But even more importantly, the fundamental economics of the program have not changed and remain, in our view, compelling. We are still targeting 4 million premises by project completion, although to be conservative, that completion date is likely to be pushed out a bit from 2019, albeit with the benefit of extending the strong growth that results from that build and the key drivers of our returns, this is important, mainly, bill cost, penetration rates and run rate ARPUs are on track to deliver the sort of return on investment we have been anticipating. Charlie will dig into the phasing of cash flows but this is still the best use of capital we have in front of us. Now as I mentioned, Virgin has delivered steady and consistent growth for 3 straight years and we're confident that the investments we're making in products, video platforms, broadband speed and network expansion will ensure we're able to continue growing at that pace and even higher for years to come.

And you can see the early impact of these investments on Slide 8, my last slide, beginning with subscriber growth on the left-hand side. Both customer and RGU growth are clearly accelerating in Virgin Media. RGU net adds in the first quarter in purple there were up 70%, with about 1/3 of that growth coming from Lightning homes and the balance from our existing footprint. That means we are winning hearts and minds of U.K. consumers with great products, like the new V6 box, which is a much higher NPS among video subs, like new broadband bundles of 200 and 300 megabits speeds, which are 2 to 4x faster than BDSL.

As you can see in the middle of the chart, however, revenue growth was mixed at Virgin. Mobile revenue was down 9%, impacted primarily by how we account for airtime in handsets, what we call our Freestyle product, which should taper off in the second half of the year. B2B was up 5%, with SOHO and SME growing leaps and bounds, while the larger wholesale enterprise business was up 1.4%, and the core residential cable business grew 3%, with good volume growth, as I just discussed, but that was offset by lower ARPU. Now we break the residential ARPU down in the U.K. on the right-hand side of the slide with an illustrative bridge for the last 12 months. We started -- we start with ARPU of just under 50 pounds a year ago, the 2 green boxes show our price increases, big uplift, and the headwinds that we anticipated, like voice usage, and all of those were just in line with expectations, right in line. The challenge is the 3 red boxes, where discounts and customer tier mix over the last 12 months have negatively impacted ARPU more than we anticipated.

Now both of these reflect the competitive market we operate in, for sure, and the uptick in churn we saw at the end of last year and the early part of this year as a result of things that really are inside our control, like the price increases we took in the promotions. The good news is that we've already course-corrected here, and are seeing better results. Our new bill bundle as of April reflect meaningfully lower discounts. Triple play sales in the first quarter were 63% of the total sales versus 47% in the prior year, and then, finally, we're enhancing our customer segmentation and retention tools, more closely linking price rises to product and service enhancements. Doing the things that we know matter, the little things. But perhaps, the most significant change we've made was moving Dana Strong into the business as President and COO about 6 weeks ago, and she's now in charge of all consumer operations. Dana, as you know, is a longtime Liberty executive. I've worked with her for 20-plus years, with deep operating expertise and a strong familiarity with both the U.K. and Irish markets, given her prior roles with the company. She's a fantastic addition to Tom's team and has already made an impact.

So summing it all up, we are accelerating volume growth in our fixed consumer cable business, with a renewed focus on ARPUs, retention and tier mix, principally in the U.K. and Switzerland. That's going to bear fruit throughout the rest of the year and beyond. Our B2B business is right on track with 9% to 10% top line growth. Mobile I described as being in transition, as we fight some sector headwinds that are impacting all mobile players, at least, for now. But we continue to execute synergies and prepare to launch the real quad-play benefits that we're shooting for. OpEx is stable, and providing a lift to OCF growth. And the new build program on the continent is on track, while we quickly, and I think aggressively, retool Project Lightning in the U.K. which had already delivered, actually as of April, 700,000 new premises and will now scale up with more certainty and predictability.

And then lastly, we are investing in our own story. We have 2 billion left to purchase this year. We purchased 1 billion of stock in the first quarter. You should expect us to be aggressive on that. Charlie, over to you.

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Charles H. R. Bracken, Liberty Global plc - CFO and EVP [3]

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Thanks, Mike. So turning to Slide 10. We present the Q1 financial results for Liberty Global Group. Now 2 quick reminders before I start. First of all, our results include BASE in Belgium from a year-over-year gross perspective as of February 11, 2016. And secondly, Ziggo's not at all consolidated in our financial results, effective from the beginning of 2017 as well. So for the purposes of computing rebased growth rates, we've also excluded Ziggo from our prior year results, while including the estimated prior year revenue from the framework services agreement with the Dutch JV. Kicking off with revenue in the top left chart, we reported $3.5 billion of revenue in Q1 2017, which is a 2% rebased increase over Q1 2016. Meanwhile, our rebased OCF grew 4.1% to $1.6 billion in Q1, as softer OCF growth of Virgin Media was partially offset by stronger OCF growth at Telenet.

Now I'm going to provide a bit more color on our country results in a minute, but let me turn to our capital spend. This increased to 25% of revenue in Q1, totaling $884 million. In terms of breaking down our property and equipment additions, 1/3 of the additions in Q1 were related to CPE, which includes the incremental spend for the Connect Box, which is the next-gen TV boxes, with the balance in our other categories of new build and upgrade, capacity baseline and product enablers. For the full year, we expect our property and equipment additions to be at the lower end of our guidance range of 29% to 31% of revenue.

Moving to the bottom left. Our adjusted free cash flow was negative $333 million during Q1, and this is in line with our phasing expectations. When comparing our adjusted free cash flow from Q1 2016, keep in mind that Ziggo's positive adjusted free cash flow is included in the prior year, but obviously, excluded this year. Going forward, we expect to receive distributions from the Vodafone-Ziggo JV that we will include in our adjusted free cash flow. And with respect to our 2017 adjusted free cash flow guidance, we still expect to deliver $1.5 billion or so this year. Our European balance sheet remains solid with total third party debt and capital leases of $38 billion, of which 90% is due in 2021 or beyond, and we had cash and cash equivalents of just over $2 billion at the end of Q1. After excluding the $2.2 billion of debt, backed by shares that we hold in ITV, Sumitomo and Lionsgate, our consolidated adjusted gross and net leverage ratios were 5.3x and 5x at quarter end. Net leverage was up sequentially from 4.8x at the end of 2016, mainly related to lower absolute OCF in Q1 versus Q4, which we annualized in our calc, and it's a phenomenon that we've experienced last year as well. For certain refinancing activities during the quarter, our average tenure remained at 7.5 years, and our blended fully-swapped borrowing cost was 4.6% at March 31, 2017. With regard to our $3 billion buyback program this year, we were very active during the first quarter, and bought back approximately $1 billion of stock, and of course, we plan on buying the remaining $2 billion by year-end.

On the left-hand side of Slide 11, we present the Q1 financial performance of our European operations. Starting with the U.K. and Ireland, Virgin Media reported rebased revenue and OCF growth of only 2% and 1%, respectively. Now Mike's already covered Virgin's 2 key top line issues, which were the lower customer ARPU growth, and the mobile revenue decline in the U.K. At the OCF level, 2% rebased revenue growth was partially offset by slightly higher direct expenses, but Virgin's 70% gross margin in Q1 2017 was in line with our expectations. On the indirect cost front, expenses were up year-over-year, largely due to our investments in sales and marketing, mainly related to our Virgin TV V6, Virgin Fibre and Virgin Mobile campaigns. Now it's not on the slide, but sequentially, Virgin Media's reported OCF declined by GBP 60 million due to 3 factors: a 12.5 million-pound decline in seasonal revenue, including mobile handsets, TV usage and advertising; a GBP 24 million increase in marketing costs related to the phasing of our brand marketing campaigns; and thirdly, increases in staff, programming and network costs.

With regard to Project Lightning, I want to expand on what Mike already mentioned in his earlier comments regarding the reboot of the program. The new build is slowing in the near term, as the new management team takes over. Despite this near-term slowdown, as we entered the year, we didn't expect Project Lightning to contribute much to Virgin Media's OCF during 2017, given the subscriber acquisition and marketing costs that we incurred in the new footprint. We expect to see -- begin seeing a more meaningful OCF contribution from Project Lightning, starting in 2018, with increasing benefits in subsequent years. Although we are behind in our previous expectations for the pace of the build, it's important to note that we continue to believe that Lightning will deliver sustainable growth and attractive returns over the medium term. And of course, we'll provide you with an update on the project in Q2.

As an aside, we are moving away from providing annual forecasts of our new build and upgrade activities for all of our markets. Now turning back to operations in Continental Europe on this left-hand side of the page. In Belgium, Telenet's revenue growth was impacted by mobile headwinds, as expected, but they delivered robust rebased OCF growth of 8%. This was partly driven by $6 million favorable adjustment to recognize expected VAT recoveries in Q1 2017. Unitymedia in Germany delivered solid 6% rebased revenue growth in the quarter, primarily higher staff-related costs and higher direct costs, largely due to increased mobile handset sales contributed modestly lower rebased OCF growth of 5%. And turning to Switzerland and Austria, where the competitive landscape has intensified, we reported a rebased revenue contraction of 1%, and have a slightly negative OCF in Q1.

Now revenue was negatively impacted by adverse trends in subscriber volumes and a slight decline in ARPU per customer. But the rebased OCF result benefited from indirect cost controls and lower SG&A expense that more than offset the revenue decline. And then finally, our CEE segment started the year well, with 5% rebased revenue growth but delivered slightly lower rebased OCF growth of 4%, mainly due to higher content costs.

So Turning to Slide 12 and the conclusion. To sum up, we reported very good volume growth and solid B2B results. Our indirect costs were flat as a percentage of revenue in Q1, and are expected to remain that way for the remainder of the year, which we still expect will support higher OCF growth in the second half of 2017. And while we're disappointed to have to lower our OCF guidance so early in the year, we remain convinced of a much better growth profile in the not-too-distant future. As something of a silver lining, we bought $1 billion of stock in Q1, and expect to repurchase $2 billion more before the end of the year. And with that, operator, we're ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Ben Swinburne with Morgan Stanley.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [2]

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Mike, when you look at -- think about the new team you put in place on Lightning. What are the things that you're expecting them to be able to execute on for the remainder of this year? So give us a sense to help us track sort of their performance as you guys have reset expectations here. And maybe you could put into context also how much of the ARPU pressure and sort of tier mix, you think, was competitive versus sort of execution based on sort of what the call centers were doing or what policies they had in place, if there's any way to quantify how much you chalk up to the competitive dynamics in the U.K. versus some of the things you think you guys can do better.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [3]

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Sure. Thanks, Ben. And Balan and Tom are on, so I'll let the chime in here. On Lightning, it's all the things I described just a moment ago in my remarks, which is mostly coordinating with our build teams and our local communities, but also getting the planning, the engineering and the design and the construction to sync up appropriately. So it sounds simple. You might say, "What the heck happened?" And the truth is that the business was doing well, and we were building at a pretty reasonable clip. It's really when we decided or not decided, but planned to increase the pace of builds that these sorts of issues arose or that they became discovered by us, I would say. And things to look for are just the clip -- the pace at which we're building. It's -- we're -- it's going to take some time for us to get all the right people, processes in line and lined up, so it's not going to be an immediate bump in the build project, but this is a massive investment and a massive construction program. So it's more important for us to retool, reboot and get it right for the next 3 years than to worry too much about quarterly adds. I mean, I know it's an important metric for you and for others, how many homes have you built, what's the penetration rate. Those are things we'll continue to report. I'm much more concerned and much more focused on the next 3 years and the next 3 months. And I feel really good about the change we've made. I think Balan and his team have stepped in immediately and effectively. And Tom, of course, remains in charge of all of the business as a whole. But I think it's a good partnership and one that we think will bear fruit. Balan or Tom, do you want to add to the Lightning point at all?

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Balan Nair, Liberty Global plc - Chief Technology & Innovation Officer and EVP [4]

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I think just to build on what you said, Mike, we are retooling the whole organization as well, a lot of the processes, the workflows. And we're doing, I think, a really good job working with our construction partners as well. And we're feeling pretty good about where it's headed, and it will take a little bit to retool the whole organization there, but we're feeling pretty good about where this is going to go.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [5]

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And just as a quick follow-up, are you guys changing the construction partners that you have? Or have you -- are these the same folks you've been working with from the beginning? And one thing out of your control, Mike, is sort of the municipalities and how they're helping or not helping. I know that's a lot of red tape, so how are you feeling about that?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [6]

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Well, they're not out of our control. They're squarely in our control if we manage the process properly, which we were doing in the limited amount of construction that we've been conducting here in the last 24 months. But as we ramp up construction, we had to be and need to be much more proactive, much more thoughtful, much more engaged. And with those organizations and those local municipalities and that's exactly what Balan and Tom are focused on now. You guys want to add to that, please?

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Balan Nair, Liberty Global plc - Chief Technology & Innovation Officer and EVP [7]

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We are going to be using a lot of the same construction partners. We are being a lot more clear with them on the allocation of activities to each one of them. We'll be adding maybe one or two to it. And the -- one of our key managing directors here, Rob Evans, is working a lot closer with the local authorities as well to clean up some of the previous changes that we've had and issues. And I think our partners would say that the relationship is getting stronger, and the guidance to them around the jobs are getting a lot more clearer.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [8]

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Tom, you want to speak to the ARPU tier mix issue?

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [9]

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Yes, Mike. Thank you. To be direct, I think we can tag it on the team as our execution wasn't good enough. I think people are aware that we took 2 price rises last year. We saw an opportunity late last year, particularly, our competitors have done this in the past. And frankly, the second price rise is just proving a bit too aggressive that has driven churn and spin down over and above our expectation. Now of course, there's competition out there, and this market is always competitive. But I think, in this case, there were internal issues with the double price rise. At the same time, problems emerged, so those living in the U.K. might be aware on our Compass box, the historic TiVo box we've had in the marketplace that we deployed. The functionality of the box slowed up. That's now been addressed with the help of Balan and the T&I group, but that was clearly a point of friction with our customer base. And we had network congestion, as we're adding customers and adding Lightning, and we had to overcome that, and we're progressively overcoming that. So I think there were issues within our agreement that exacerbated what was a natural market reaction.

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Operator [10]

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We'll take our next question from Jeffrey Wlodarczak with Pivotal.

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Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst [11]

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I was hoping you could provide additional color on your previous post '17 EBITDA guidance in the wake of the move to 5%. Do you still anticipate being able to get to the high single digits? Then I have a follow-up.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [12]

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Yes, Jeff. I think in our minds, that range is achievable. What we've learned is saying it means nothing. I mean, I think, as you'll -- as you would know, you know us well, we have historically set aggressive internal targets. That's how we manage our business. That's how we manage each other. The difference and then, perhaps, the mistake we've made is we started talking about those targets. And in the end, we appreciate guidance is important for those who follow the stock, and it's important for a number of reasons. And as you've taken on ambitious programs, like Project Lightning and things of that nature and Liberty GO, you're inclined you want to give transparency and visibility to the things that you're doing and the things that you're trying to achieve, which we did. And I mean, the punchline is we believe that range is achievable. We prefer to perform and get there, then talk about it. Certainly, all of the things that we're doing in our minds allow us to get to that point much more effectively, much more predictably in a much more competent way. The truth is that Q1, here, which we appreciate is a welcome disclosure for those. It was a bump in the road, not a change in direction or detour. And we've discussed what the reasons are and what the issues are, and we've made appropriate changes to personnel and management, where needed, and we're off to the races. So I think the answer is yes. We think it's achievable, but we're going to start focusing a lot less on guiding folks, and a lot more just on getting our business done, if that makes sense to you.

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Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst [13]

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Fair enough. And then if you could provide more color on Switzerland. It's a market that's been getting more competitive. It's fully penetrated. Is there any danger that market could turn into the Netherlands? In your opinion, is that a market you think there's reason you'll be able to generate EBITDA growth over the medium and long term?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [14]

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Eric's on. I'll let him chime in. My personal view is no. It's not -- it doesn't have the same characteristics of the Netherlands, and the biggest difference is the main telecom actor itself. Swisscom, I would describe as, of course, competitive, effective and aggressive, but highly rational, focused on certain market share approach, and maintaining balance in the -- in that market. So all the things that we're doing we believe will continue to have the benefits in the second half of the year, principally changing the Connect & Play portfolio, launching more aggressive mobile products. We've got a sports channel coming out. So I think, no, it doesn't appear to us to be that kind of market, but we have a lot of work to do to keep the growth engine moving there. We had a good fourth quarter. First quarter, not as good as we'd like, but we haven't yet seen price increases kick in there. That just happened in April. We haven't launched the new portfolio yet. That's happening shortly. We haven't launched the new sports channel yet. We've just launched the mobile bundle. So it's still early days in terms of how we're responding to market pressure. It would have been more of -- in the receiving mode in the first quarter. Eric, do you want to add something to that?

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Eric J. Tveter, Liberty Global plc - CEO of Liberty Global Central Europe Group [15]

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No. I mean, I think, Mike, you touched on all the major points. I think the market is rational. We've seen our competitors in Q1, in particular, really go aggressive on promotions, Sunrise with free TV and Swisscom with 50% to 75% deep, deep promotions, and you've seen it in the Swisscom results. They had one of their worst quarters in history, minus 5% in sequential quarter, and I think approaching minus 3% on prior year quarter. So I think that the remaining part of the year will improve because the price increase, going effective in April, April 1. One other point, the tier mix in Q4, we saw more at the low end of this -- the Connect & Play bundles, and we've improved the acquisition ARPU from 71 in Q4 up to 81 in Q1. And the new portfolio coming into play in May will also improve volume, we believe as well as the ARPU through the rest of the year.

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Operator [16]

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And we'll take our next question from Simon Weeden with Citi.

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Simon Weeden, Citigroup Inc, Research Division - MD and Head of European Telecoms Research [17]

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Just on the guidance, I had a question relating to the status of your midterm OCF guidance that you gave last quarter, whether you're reiterating that or putting that on in the filing for later in the year perhaps. And on the same sort of theme, the 15-month penetration level through Lightning seems to be declining a bit, so I wondered how that makes you think about your longer-term penetration ambition toward the new build areas.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [18]

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I just answered the guidance question, which was we believe we can see that range, but we're focused on execution, not conversation. But do you want to, Tom, discuss the penetration ranges?

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [19]

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Yes. Look, I think the penetration charges we've shown, we've adapted from the previous earnings releases. We are now showing our net penetrations, so I think that's better understood. I think the 15-month period you see there is a moving base as a greater number of premises built move into that 15 month or 15-month period, as we've obviously progressed for the build. And if we go to -- and so that will move the base around, I think, in particular, this case, it's pulled in some homes in a relatively lesser demographic, but still good building penetration. And if we look at the quarterly penetration rates in -- from the premises built into sales in '15, 2 of those quarters were already above -- comfortably above 30%. So I think we see that trend line of the penetration continuing towards our target.

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Operator [20]

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And we'll take the next question from Michael Bishop with Goldman Sachs.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [21]

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Just 2 questions. Firstly, maybe stand back on Project Lightning, and think about the comments you made around the potential returns still being very attractive. I just wanted to dig a bit deeper to see whether those potential returns are now lower because of some of the issues you've had, but also the recent Ofcom decision to regulate BT's fiber. Potentially, if you take slightly longer to deliver Project Lightning, then BT might be further along with G.fast in those areas as well. And then secondly, just digging deeper onto some of the comments you made around the second quarter in the U.K. being better with the new offers. It seems like you're giving the mid-tier bundles more value with higher speeds. So I was just wondering how this is improving the mix.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [22]

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On Project Lightning, there were 2 -- when we calculate returns on an investment of this size and that requires as much capital, of course, we're looking at over a period of time. And as we -- when you spend the money is when the clock starts ticking. So remember, if we're not building as many homes in a quarter as somebody thought we should build or we might have originally hoped to build, we're also spending less capital. So the clock starts ticking when you spend the capital. You can imagine that we aren't discussing it. There will be free cash flow impacts if you don't spend as much capital, a positive impact. So the returns from our point of view are a function of when you spend that capital, how much, in fact, it costs you to achieve a construction of a certain number of premises, and then the ARPU and penetration rates you can achieve over a reasonable period of time. As we look at the project, the pace of the build does not impact the overall return because as we slow down pace, if we were to do that, we spend less capital. So the returns in our minds are the same even if you flex those returns, which you can expect that we do regularly. If you reduce ARPU, if you reduce penetration rates by certain amounts, the returns are still incredibly good and still support investment. I'm not giving you specifics, except to say that there is room in this particular project to achieve great return on capital even if you flex some of those assumptions and some of the execution we've already been achieving. In terms of the competitive environment, we don't believe that the Ofcom announcements or BT's approach to G.fast materially impact our ability to achieve the overall project objectives. Clearly, I can't predict the future, how quickly will they roll out their networks, what will happen to pricing. But based on what we understand today and based on the fact that there is flexibility in the assumption that you can make that still support investment in the project, it's not going to change our position or quite frankly, how confident we are in continuing to spend the capital. You want to hit the Q2 issue, Tom?

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [23]

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In Q2, in terms of the offers, we're seeing continued good sales. Early days, obviously, and we are seeing a moderation in churn from what we had in Q1, and of course, the period when we had the price rise. I think we had pulled back a bit on the discounts, as we discussed earlier, so we're trying to address that issue. But broadly, we are positive about the immediate growth prospects.

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Operator [24]

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And we'll take our next question from Vijay Jayant with Evercore ISI.

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Vijay A. Jayant, Evercore ISI, Research Division - Senior MD, Head of Media and Entertainment and Cable and Satellite Research, and Fundamental Research Analyst [25]

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So Mike, based on your comments, it looks like it's an execution blip in the U.K. But one of the questions we keep getting, given your guidance over the last couple of years and what the performance has been, is that there is a structural difference in Europe in terms of customers not really willing to pay for much faster speeds or really willing to pay up for more advanced video products. And this mix shift that we're seeing is, despite your admission that maybe an execution could be more structure-related. Can you just help us sort of differentiate between those 2 because you're implying that this is sort of a road bump, and then that things are going to get better, so that will be really helpful. And second, obviously, every time there's a headline about ITV, Liberty Global's name comes up as a potential buyer. Obviously, you can't talk about M&A, but just strategically owning advertising assets in the U.K. and any synergies or strategic advantage of having that, can you sort of help us think through that?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [26]

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Sure. It's a good question, and on the first one and the second one. On the execution point, I think as Tom mentioned, and as we've tried to be clear, all of the things that have occurred are explainable, and they're explainable principally by decisions or action or inaction that we have taken or teams working for us have taken. In the case of Project Lightning, we've identified those issues. We've rectified those issues. We've put new leadership and management in place that we have confidence in can turn those particular problems around, and we are now sort of at a new level of execution, and time will tell, we'll have to prove to you that that's the case. But in terms of Project Lightning, it's on us, as Tom said. And when you look at the penetration rates we're achieving, the ARPUs we're achieving, the build costs that we're achieving, this was merely a matter of blocking and tackling on the construction end of the project. And now I feel like with Balan's support and the team from Europe diving in, we've got the right sort of folks working on that. In terms of the other matters, and what Tom referenced around the hangover from Q4, the manner in which we dealt with customer churn in Q1 and the competitive factors in Q1, those are decisions we make. But we are in a competitive business, don't get me wrong. We are in a competitive business, but we rely on the teams on the ground and Tom's team and his marketing team and his customer operations team to make decisions quickly on the fly around retention, around pricing and discounts, and we've been doing this a long time, decades. So sometimes, you get it right. Sometimes, you don't get it right. And I think in the first quarter, we didn't get it right in the sense that we were probably a bit too aggressive on volume, and since then, we've learned what those particular problems were. We've rectified those as well. We put new management in. I think Dana is going to be an extremely positive influence on how we're managing end-to-end customer relationships and customer operations. Now back to your main question, is there something structural about Europe? I don't think so. I mean, remember, 2 or 3 important things. First of all, in Europe, we're starting from $30, $40, $50 ARPUs, not $150. And in our minds, this has been a major and important narrative and thesis for our business. We believe we have customer ARPU growth ahead of us, and we've shown you that. Even though we only grew 1% in the U.K., we're growing ARPUs 4% in not some of other bigger markets, and historically, in that range, 2% to 3% to 4%. So it's our view that we have incredible products to sell our consumers. We have great relationships with those consumers, and we're in the business of getting more products into the home. And so far, we've been able to do that, so I don't believe there's something structural happening in Europe. I wouldn't say the same thing about the mobile business. I think what's happening in Europe in the mobile business is not only structural, it's global, and you're witnessing that here in the U.S. as well as. The mobile business is clearly one that can come under pressure relatively quickly, and it's not always in your control how and when those moments occur. And in the case of a couple of our markets, in particular, Holland, and even the U.K. and sometimes even Belgium, you have to react to competition, and you have to be quick and on your feet, but it's a very highly competitive market and highly competitive product. What we haven't yet seen are the real advantages that come from combining fixed and mobile. We haven't seen the real synergies that come in a place like Holland or Belgium from putting those 2 businesses together, and we've only just started becoming aggressive on mobile in the U.K. now that we have a new 4G deal and better pricing from BT. So we're still sort of, I would say, at the starting gate when it comes to quad-play in these markets. We've inherited some challenging mobile businesses in their own right, but we haven't yet converged them to the point where we can start showing you the benefits of quad-play. So that's why I described, the mobile business for us in slightly a transition phase. In terms of ITV, there's no change in our posture on that business. We think Adam Crozier was a great CEO. His departure, pending departure doesn't change our view one way or the other. We are not in a position at this point to say anything about ITV. It's not a transaction we're working on. I think that should be clear to you. But in the end, content is not unimportant to us. I mean, it is important to us over the time. Look at what we're doing in Switzerland with the sports channel. Look at the success of Ziggo Sport. We'll talk more about the success we're having in Belgium and Ireland with our free-to-air assets. But we're also smart, we think, managers of capital. If ITV was trading at a much lower multiple, it might be interesting. Where it's trading today and the premium required, it's not interesting. So I think you need to, hopefully, trust us that we are going to try to make decisions in terms of capital allocation that reflect a desire to create accretive combinations, not dilutive combinations, despite what we might think as strategic opportunity here or there. So that's the position of ITV, which is really no change at all at this point.

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Operator [27]

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We'll take our next question from Ulrich Rathe with Jefferies.

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Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [28]

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And I'd like to ask Tom a question on the U.K., first of all, if that's all right. You just sort of described the first quarter as a bit of an execution blip, trying to contain the churn on the price rise. Just wondering, have you changed tactics compared to what you've used in the past in the first quarter? And is there really an alternative rollout, an alternative scenario that would have led to a much better outcome? In other words, is it really the execution of the churn mitigation in the first quarter that's the issue or is it the price rise in the fourth quarter and the way that has been executing that's at the heart of the issue? And that then leads into my sort of additional question. How much room do you really see in the U.K. to continue the price inflation? I mean, there's major consumer advisor organizations out there that provide you with haggling scripts. They publish success rates for the different operators, and it just sounds as if the environment, given the price inflation over the years, has become such that it's increasingly more difficult to push these things through. So those would be my 2 questions, please.

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [29]

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Well, a couple of points there. I think the -- clearly, the change was we took an early price rise, having taken 2 price rises in '16. That was the big change we took. In hindsight, that's proven to be too aggressive. And as I said, we had the -- in conjunction with that, service issues, which were impactful, which have been fundamentally correct, but were impactful. I think, going forward, yes, there are things to do different. We have increased the top speed for consumers here to 300 meg. We're actually selling at a minimum speed, 100 meg. We're progressively rolling out the new Liberty Global Group EOS box, which we have branded as V6, and the NPS performance of that box is just incredibly positive compared to our historic Compass box, and we are progressively improving on our TV upgrades. It's been a long project, and frankly, behind where we had hoped it to be in terms of additional VoD and additional capability. So the product continues to improve and as we pass through some of these jobs. All these things do give us a degree of confidence in terms of what we're offering the customer. I think the point you made about our customer base digitizing is completely true, and I think we have a job in front of us to make sure we keep pace with our customers. We have investments in place now. We're rolling out a new contact center system, right across our contact centers to give call center operators a better ability to make the best offer and making retention offers, and using the digital knowledge we have in our own business to help them make positive decisions for the business and for our customers. So I think it's a whole range of those things, which come together. And in the medium-term, going forward, we're going to continue to offer increased value to our customers if we're going to expect to get modest, but worthwhile rental increases going forward. So we'll be focused on all of those things.

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Operator [30]

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And we'll take our next question from Stephen Malcolm with Arete Research.

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Stephen Paul Malcolm, Arete Research Services LLP - Senior Analyst [31]

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I had a couple of questions. First of all, just some Lightning-related questions. I just wanted to get your sense of what you thought current broadband penetration in the Lightning footprint is, and also what you think churn is and where you think that has to get to, to get your 40%. Because for now, the numbers, it looks to me like churn would have to double to get enough gross adds to get up to the sort of 40%. And then just a question on the central cost, I think at the Q -- at the full year results, Mike, you said that the -- sort of bringing in the service charges from Ziggo would depress OCF growth by a couple of hundred basis points. In Q1, it seems to add 100 basis points. Was that just phasing, and how should we think about the impact of those service charges from VodafoneZiggo to the rest of the year?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [32]

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Yes, the impact of the service charges, and I'll let Jason or Charlie chime in here, have been rebased. So what we've assumed is when you look at -- when we show our growth rates year-over-year in OCF, we assume we received those service charges in the prior year as well. There might be some changes here or there in terms of how much we are, in fact, receiving, but we aren't benefiting from those service charges or those framework agreement payments. They're essentially in both quarters, this quarter and in the prior year quarter on a pro forma basis. But Tom, you want to hit the Lightning point?

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [33]

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Yes. I think on that point, we're finding typically the penetration of broadband in the new build areas is not atypical to the rest of the U.K. So it's 80%-plus, maybe fractionally low because there's been less competitive intensity in those areas, but all those people in these Lightning areas are today serviced by BT in one form or the other, so either BT directly or by Openreach. And therefore, they're all limited to a maximum product of 76 meg. But yes, we have to turn them out from existing supply. There's no question about that, and that often they are in contract and they want their contract to come through. And they might be buying other services, particularly TV, so we got to turn out the bundle. I think we are proving we can turn them out. If you compare it with marketing outlets, it's -- you've got to have the negotiations. You've got to offer more product. I think we are showing we can get those penetrations and offer them a better service at the same time.

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Operator [34]

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And we'll take our final question today from Jonathan Dann with Royal Bank of Canada.

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Jonathan Dann, RBC Capital Markets, LLC, Research Division - MD and Head of the European Equity Telecoms [35]

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If I -- I mean, basically, on convergence, the ratios are relatively low even in the U.K. Is the takeaway that you're expecting sort of the attachment rate of mobile to broadband and TV to go up across your markets?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [36]

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Well, it's early days for us. Well, a lot of market -- a lot of companies but certainly early days for us if you're talking about fixed mobile convergence penetration rates. I mean, we're averaging about 14% in Europe. Some markets are higher. The U.K. is about 20. Belgium is in the 30s if you include the Telenet business as well as the BASE business. And I think Holland starts out, lies somewhere in the 20% range, 20-plus percent range. So it's early days in terms of products in overlap of fixed to mobile customers. But the magic happens when in a place like Belgium, you start to converge, not just the customer accounts, but the actual products and services you sell. We haven't really done that anywhere else yet. I mean, in Holland, we simply are offering 3 or 4 different benefits to overlapping customers to keep them happy and sticky. We haven't yet launched a true quad-play product where data bundles and unlimited voice bundles and services are truly converged. We have done that in Belgium with WIGO, and we've got -- going on 200,000 subs there, almost 190,000 subs, I think. And that has become a very sticky, very attractive product, where -- it's where we all need to head in terms of making this particular investment in mobile payoff. The payoff, of course, is reduced churn in the fixed business. The payoff is additional margin, and the payoff is having your finger on that connectivity pulse, so that you're always able to understand where your customers are, what their needs are, what their data consumption is, and you can monetize that across multiple platforms. That's where we're going, but we are -- it is a little bit of a wake-up call in mobile business, as you all know, because I'm guessing most of you are investors in the mobile business. It's not an easy business. There's a reason why we haven't bought mobile assets everywhere in Europe because I think that, that business is still in transition, and the mobile sector itself is still in transition, and we'll pick our spot. In the meantime, our MVNO deals give us the ability to compete, create stickiness and churn reduction without, in most cases, a massive investment. So we're all in it, but we're also, as we've told you all along, very opportunistic and taking a one-size-does-not-fit-all approach to mobility in Europe. Does that answer your question?

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Jonathan Dann, RBC Capital Markets, LLC, Research Division - MD and Head of the European Equity Telecoms [37]

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Sorry, it does. Yes.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [38]

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Okay, great. All right. Well, thanks, everybody. Appreciate you being on the call today and hearing us out. Clearly, as I said earlier, and I think as Tom mentioned too, the ball is in our court here. We take it on the chin, and it wasn't the best quarter. But having delivered, I don't know, 46 straight quarters of growth, we know we're not going to be perfect in every particular operating period, but I have confidence in the team. On this call, I also, especially given the changes we've made to management in some of the core areas in the U.K. and so leave it to us. We're focused on growth. We're incented around growth, and we have high optimism and confidence so that we can achieve that growth, and we look forward to showing you that through the rest of the year. Thanks for being on the call.

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Operator [39]

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Ladies and gentlemen, this concludes Liberty Global's first quarter 2017 investor call for its European operations. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.libertyglobal.com. There, you can also find a copy of today's presentation materials. The first quarter 2017 investor call for Liberty Global's LiLAC Group will begin shortly.

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's first quarter 2017 investor call for its LiLAC Group Operations.

This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the expressed written consent of Liberty Global is strictly prohibited.

(Operator Instructions) Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at www.libertyglobal.com. (Operator Instructions) As a reminder, this call is being recorded on this date, May 8, 2017.

Page 2 of the slides details the company's safe harbor statements regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact.

These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K, as amended.

Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based.

I would now like to turn the call over to Mr. Mike Fries.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [2]

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Thank you, operator, and welcome everybody to part 2 of our results call where we'll focus on LiLAC, our Latin America and Caribbean business unit. I'm joined again by senior leadership in Denver, Europe and Miami. In particular, Betzalel Kenigsztein, President and CEO of LiLAC; John Reid, CEO of Cable & Wireless; and Chris Noyes, CFO of LiLAC. Each of them will present in just a moment. I'm going to give a quick overview of the quarter. Betzalel will talk about our operations in Chile and Puerto Rico. John will cover Cable & Wireless, and Chris will close with the financials, and then we'll get to your questions. We are talking from slides, so we hope you can get those, will certainly help you follow along here. And I'm starting on Slide 4, which provides some group highlights. I think it's first -- firstly important to point out that we had another great quarter from our businesses in Chile and Puerto Rico, which together represent about 40% of LiLAC revenue, while Cable & Wireless is showing signs of stabilization as we make progress, changing up the team, investing in growth and executing on our synergy plans.

Q1 saw strong RGU growth across the group, with 81,000 positive net adds, including mobile, now compared to a loss of 75,000 a year ago. Broadband net adds were 39,000 compared to 34,000 last year, so that's a 15% uptick. While mobile net adds of 39,000 compared to a loss of 106,000 last year, so a big turnaround in mobile, essentially all of it coming from Cable & Wireless. OCF results were mixed, and Chile and Puerto Rico delivered double-digit OCF growth, as I just alluded to. While Cable & Wireless, as we foreshadowed, had a tough comparable period since calendar Q1 last year was we believe somewhat inflated now prior to closing the deal, and Chris will lay that out. And again, we're seeing signs of stabilization in Cable & Wireless, and are confident we can get the business to where it needs to be. Part of that story is the synergy plan that's underway, which is on track and still forecasts $150 million of synergies by 2020 as we bring our scale and best practices to LiLAC. As I indicated, we are investing for growth across the business. We've got new build and upgrade programs underway across B2B, consumer fixed and the mobile business. And I'm really encouraged by the talent we're attracting to LiLAC and Cable & Wireless, much of it from our European operations. And then lastly, we are preparing for a hard spin of LiLAC towards the end of this year. That's a right move for strategic and financial reasons, and we're on our way.

Slide 5 lays out some of the bigger picture just to continue to set the scene for new and current investors alike. The first point to make is that LiLAC represents a highly diversified set of operations across a region that we believe will experience tremendous growth over the next 5 to 10 years. We're not the biggest operator there, but with 5 million fixed RGUs, 4 million mobile subs, $3.6 billion of annual revenue and market-leading positions across 20 countries, we're in a great position to grow, expand and consolidate. The chart on the left-hand side of the slide lays out revenue by country and by product. You'll see geographically at Chile and Panama, 2 investment-grade countries, are our largest markets and together represent over 40% of revenue. The balance spread across the Caribbean, about 17 markets, where we're typically #1 and #2 in the fixed broadband and mobile business. And you can also see that no single product dominates this business, with video, broadband and mobile each contributing about 20% of revenue, and the balance coming from B2B and the subsea fiber business as well as fixed voice.

Also important to point out that we have limited currency risk versus our regional peers, with the majority of our revenue in dollar-based economies and nearly all of our debt hedged across the platform. With that strong foundation, we see a number of opportunities to drive value creation here. First, we have a tremendous opportunity to grow our customer base, capturing both organic growth and market share with better, faster products in most of our markets. Second, we have a huge opportunity to leverage scale benefits throughout the organization. In LiLAC, we now have a group with sufficient scale to drive synergies and cost benefits within the region, and that's part of what will be captured in the $150 million in synergies. And we continue to benefit both groups by sharing best practices in treasury, M&A, technology and products across Europe and LiLAC. And lastly, we have a coherent strategic roadmap in place. We have put a lot of effort into the foundational work that's required in things like T&I and customer experience, and we're going to see the benefits of that as we move forward. Our buyback program continues to progress with $40 million of $300 million spent through the end of March. And we're always looking for opportunities to grow the group inorganically through acquisitions in what remains, I'm sure you know, a highly fragmented region. I'll just point out that we are carefully evaluating a large pipeline of deal flow. But I want to remind you, our approach is to be very deliberate and focused, squarely focused on relative values and only on accretive opportunities. So to conclude, we're hard at work building the foundations for a business that we expect to be a consistent grower in the medium term. We're leveraging greater scale over time, and we're generating strong cash returns for shareholders.

With that, I'll hand it over to Betzalel who will update you on our businesses in Chile and Puerto Rico, and then we'll get to your questions at the end. Betzalel?

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [3]

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Thank you, Mike. I will now update you on the progress we have made in Chile and Puerto Rico during the first quarter. Before I dive into the markets, I'd like to provide an update on progress with operational initiatives that we have started across LiLAC, which should benefit us in the medium term and drive some of the synergies Mike mentioned in his introduction.

First, we are centralizing our procurement functions, enabling us to reduce our cost by leveraging our scale and reducing our vendor counts. With respect to scale, we are in the process of outsourcing areas such as network and technical activities on a regional basis, resulting in better quality of service while managing the overall cost down. The last point to mention is that we keep focusing on sharing best practices across LiLAC, and we are seeing benefit of this already reflected in cost reduction while improving customer experience and commercial results.

Moving to Slide 6 and VTR, our Chilean business, which represent approximately 25% of LiLAC revenue. We had a strong start to the year, adding 24,000 new customers, 25,000 fixed-line RGUs and continue to build our mobile base where we have now added a total of 50,000 postpaid subscribers over the past 12 months. We pride ourself in delivering the fastest broadband speeds and providing best service quality in the country. This begins with the strength of our HFC network, which passes 2.8 million homes on a two-way basis at the end of Q1 and then culminating our leading customer proposition, including a rich HD video offering as part of our attractive bundles. An example of how we deliver differentiated service in the home is our advanced WiFi connected box that are widely utilized by Liberty Global in Europe and by LiLAC in Puerto Rico, and soon to be at CWC. At the end of Q1, we had deployed about 200,000 of these boxes at VTR, representing good progress from just over 100,000 at the end of Q4. To conclude on the fixed side of VTR business, we had a good track record of increasing prices, and you'll see part of this in the higher ARPU we have reported year-over-year, following a 1% price rise in January.

As you can see, our fixed business in Chile has been performing strongly for some time, and here we have an example of sharing best practices, which I mentioned earlier, where members of our Chilean commercial team have used their experience to support the creation and rollout of the go-to-market strategy for our Master fixed bundle in Cable & Wireless Panama, where we are starting to see some good traction.

Moving to mobile. As I mentioned, we have seen a continuation of good momentum adding new prepaid customers in the quarter. With only 7% year-to-date of our fixed customers taking a mobile product from us at the end of Q1, there's clearly much more potential here for growth. Last, for our product suite in Chile, we have continued to push our B2B and, in particular, our SOHO product where we offer superior speed and dedicated 24/7 support. We now have a base of 37,000 subscribers built over the last 12 months from a standing start. In terms of our footprint, we added our -- or upgraded nearly 50,000 homes in Q1. So we have had a very good start to the year at VTR and we aim to keep this momentum going.

On Slide 7, we will now look at Puerto Rico in more depth. Liberty Cablevision saw another positive quarter with 7,000 RGUs additions, driven by broadband growth across our leading network, which offers speeds of up to 400 megabit per second and our main bundles featuring a speed of 60 megabit per second. Given the challenging macro backdrop in Puerto Rico, this was a particular good performance. However, we will continue to monitor developments closely and remain nimble so we can react as needed to any changes in the operating environment.

Moving back to our Q1 performance. In our Video business subscribers were relatively stable as take-up of the U-Pick bundles that we launched in Q3 last year partly offset churn resulting from macro headwinds. As with our other LiLAC businesses, we manage our value proposition closely. And on February 1, we increased prices by an average of 3% to 4%, driving improved customers ARPU without a significant increase in churn. Our cost base also continues to be a focus, and we reduced direct cost year-over-year through changes in our content mix as we removed some channels with low viewership levels. On the fixed residential side of the business, as we have done in Chile, we are rolling out Connect Boxes in Puerto Rico and now have a total of 70,000 deployed, nearly double the number that we had at the end of Q4. I have talked about our focus on B2B previously and this continues to drive top line growth for Liberty Puerto Rico. In Q1, we saw strong double-digit revenue growth in B2B and anticipate this will become relevant as we combine our product offering with Cable & Wireless expertise in this area, another example of sharing best practice across LiLAC. Finishing with our network, we continue to provide the fastest speed in the island, passing 1.1 million homes with 2-way HFC technology, and we are increasing this footprint in 2017.

I'll now hand over to John who will run through CWC performance.

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John Porter, [4]

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Thank you, Betzalel, and hello, everyone. Q1 was a challenging quarter, both in terms of our underlying performance and in particular, given the very difficult year-over-year OCF comparison, which Chris will address later in the presentation. I am confident, however, that we have and continue to make the right moves to transform the business and position ourselves for sustainable growth. To expand on this, first, we're seeing some encouraging progress with our fixed service offerings across the region. We are actually overhauling our entire operating model, given the heightened competitive landscape in a number of key markets. To this end, as Betzalel commented, we are leveraging LiLAC's and the broader Liberty Group's expertise in generating synergies. We're also revamping our customer value propositions, driving service improvements and transforming our go-to-market approach, all with the aim of first stabilizing and then growing our customer base. Our broadband NPS overall rose 8 points, and our video NPS rose 2 points in the quarter as these initiatives gained traction. As noted previously, fixed services are one of the largest areas of opportunity for C&W, given the company's historic lack of focus in this area. While it's early days, our quarter-on-quarter growth in fixed net adds is encouraging. And in fact, in Q1, we saw our best quarter of broadband additions as a Liberty company. Panama's success with its Master offering was promising, with an upward trend in customer additions, culminating in March where we added nearly 50% more customers than the previous 3-month average. Jamaica was another market where while we're still seeing some challenges in video, we have generated good momentum in broadband and voice adds as we continue penetration on wireless, an unmatched footprint. It was also encouraging that we posted our best quarter for video RGU growth in the Bahamas. In the mobile segment, we saw a decline in revenue during the quarter, driven by the Bahamas, where, as expected, we saw year-over-year revenue 24% lower due to a new mobile competitor as well as a fall in contractor rolling rates. However, in Jamaica, we once again delivered double-digit growth in Q1 with price higher year-over-year, and we expect the launch of LTE in Barbados to help our performance in that market. We saw a good net add growth in Panama, our largest mobile market, driven by Carnival there, and we're also seeing strong migrations to our LTE network with excellent ARPU uplift. Obviously, ARPU management is critical in mobile. And to this end, we continue to innovate our product set, looking to drive greater convergence of our fixed and mobile assets. We experienced strong uptake of our FlowToGo video app in the Bahamas during Q1, using this value-added services as a retention tool for our mobile customers. Late in the quarter, we launched a unique Flow Kids app, offering cartoon and video content, and we're also seeing a strong take-up of our award-winning Flow Lend app. This service has, to date, provided prepaid top-up microloans to nearly 150,000 different customers, resulting in a 7% ARPU lift and 25% lower churn relative to subscribers that did not use the app. We will launch this service in the Bahamas in the second quarter, providing us with another competitive advantage in that market. In B2B and wholesale, which includes our subsea networks business, we saw a steady performance in the quarter. And in Q2, we plan to introduce new suite of products to attack the highly attractive hospitality segment, including an advanced video product as well as a managed WiFi service. Finally, we are building for the future through a series of upgrade and expansion efforts of our fixed line networks in various markets. We delivered just over 50,000 new homes in Q1.

On Slide 9, I will now cover some of the areas that we've been working on to establish a platform for long-term growth. High performance starts with having the right team in place. And to that end, I am pleased to confirm that we now have all of our key management positions filled, completing the transformation of the executive team with new appointments of a CFO, a Chief Commercial Officer and a General Counsel, with all of these new joiners from the wider Liberty Global family. In addition to these roles, we've also announced several important leadership positions across our regional operations with new executives in key commercial and finance roles in Jamaica, Panama, Trinidad and Barbados as well as in some of our other Caribbean markets. This new team is absolutely focused on getting us back to growth. Of course, one of the levers that we can use is pricing. In the first quarter, we increased prices in several markets, including mobile in Barbados and in our fixed products in Jamaica. Additional price increases are planned in several countries in the second and third quarters of 2017, and we expect this to help drive improved performance through the year.

Beyond this, growth of fixed services, as I mentioned, represents a big opportunity for C&W. We have a great runway to drive penetration in market share in Panama but also in Jamaica and in the Bahamas. We are seeing good uptake of our fiber-to-the-home service as well as the number of our smaller markets where we're increasing speeds and service quality. Mobile remains the largest part of our business, and here growth is all about driving data consumption and revenue through upgraded networks, devices, applications and content. On this last point, we've recently introduced richer bundles through including content from our FlowSports app to higher value data plans in Jamaica, enabling our mobile customers there who watch Premier League football, CARIFTA Athletics and Indian Premier League Cricket. And we're excited about how initiatives such as these and, for example, our FlowToGo app, can drive relevance, consumption and spend. Given our leadership in fixed services and content, this represents an important competitive advantage and a point of differentiation. Ultimately, C&W is a complex organization, given our geographic spread and long history, and the key to our success is transforming the business, driving speed to market and greater efficiencies. We've made great strides during the past quarter, including a new operating model, which collapsed our B2B and customer operations into a single structure, new leadership, headcount savings targeting approximately 150 positions across the company and the creation of a transformation office, which will drive both commercial and broad operational improvements over the coming quarters and ensure that we're on track to achieve the synergy targets, as Mike mentioned earlier. There's also a tremendous amount of work being done on broad foundational initiatives that will enhance the customer experience, drive NPS and increase lifetime customer value. Examples include a new preventative maintenance program reducing truck hauls and outages, initial work on the predictive churn model and focused product development of our broadband video and mobile customer segments. On that latter point, we are now fully merged into Liberty Global's product roadmap, and we're deploying the Connect Box with game-changing WiFi capability across our larger operations beginning in the second quarter. All of these initiatives will ultimately drive customer responsiveness and was promising that our overall NPS rose by 2 points in the quarter. To sum up, our objective is to transform C&W by improving the efficiency of our cost base but also establishing operating structure that will enable us to drive improved financial performance through better management of our business as well as a more comprehensive commercial approach to create top line momentum. While there is clearly much to do and when we do acknowledge it will take time, we have made good progress in Q1, including raising prices, reducing headcount and improving our go-to-market approach, which we expect to drive better performance going forward.

With that, I'll pass you to Chris, who will discuss LiLAC's financial performance for the first quarter.

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Christopher Noyes, [5]

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Thank you, John. My remarks start on Page 11 with a high-level summary of our financial results. We reported a rebased revenue decline of 1% year-over-year to $911 million in Q1 2017, while our rebased OCF contracted 10% to $354 million for the same period. Both of these rebased growth rates were adversely impacted by the difficult preacquisition comparison to Q1 2016 at CWC, which we have discussed over the last several quarters, and I will touch upon it again in the next slide. P&E additions totaled $139 million in Q1 or 15% of revenue as compared to $207 million or 23% of revenue last year on an as-adjusted basis, including CWC in the preacquisition period. The adjusted year-over-year decrease in both absolute and percentage terms, was due to much lower spend at CWC in the quarter, largely reflecting the phasing of various projects. Importantly, the reduction in P&E additions did not hamper our investment plans in new build and upgrade as CWC delivered 50,000 homes in the quarter. Over the rest of the year, we would expect to see higher P&E additions as a percentage of revenue as we accelerate our new build and upgrade plans across the group. On the bottom left of the slide, we show an adjusted free cash flow for Q1 2017 of negative $58 million, a decline over our prior year's adjusted free cash flow.

The reported year-over-year decrease was due to the net impact of higher cash provided by OCF and related working capital items, higher interest and tax payments and higher CapEx, all factors which were influenced by the inclusion of CWC in this year's Q1. From a phasing perspective, it is important to note that our bond interest payments at CWC and VTR on collectively $3.6 billion of bond debt occur in the first and third quarters of the year, significantly impacting the timing of our quarterly free cash flow generation. Moving to LiLAC's balance sheet, we remain in good shape with approximately $1.5 billion of liquidity consisting of $500 million in cash and $1 billion in available revolvers. At quarter-end, we had approximately $6.1 billion of debt and a fully-swapped borrowing cost of 6.6% and net leverage of 4x. Additionally, we have remained active in the capital markets so far this year. For example, we recently expanded our revolving credit facility at VTR by 22 billion Chilean pesos or $33 million. We raised $100 million of third-party debt in Panama and used the proceeds to repay a shareholder loan held by CWC. And subsequent to Q1, we refinanced $85 million of expensive second lien debt in Puerto Rico at an interest rate roughly 325 basis points lower. And finally, on the bottom right of the slide, you can see that we have repurchased $40 million of LiLAC shares since launching our buyback program in November 2016, including approximately $20 million during the first quarter, and we remain on track to purchase over $250 million of additional equity by year-end 2019.

On Slide 12, we take a deeper dive in the CWC's quarterly results and add some color on the year-over-year CWC rebased OCF comparison. First, CWC generated $576 million of revenue in Q1, a decline of approximately $31 million year-over-year or 4% on a rebased basis. The performance decline was due to a combination of factors, including lower mobile revenue in the Bahamas of approximately $14 million following the implementation of reduced international roaming rates over the past year and a worsening competitive landscape, a reduction in managed services revenue in Panama of roughly $10 million relating in large part to lower onetime and/or non-recurring sales in the period and continued declines in the fixed voice revenue across the group of $5 million. On the bright side, we've been able to gain positive momentum year-over-year in our networks in LatAm businesses, managed services excluding Panama and in Jamaica where mobile continues to perform very well. In terms of operating cash flow, we generated U.S. GAAP OCF of $213 million in Q1 2017, which reflects a rebased decline of 19% or a year-over-year reduction of roughly $55 million.

Looking at the upper bar chart, the first item you can see is that Q1 2016 OCF was clearly an outlier when compared to previous and subsequent quarters, and no doubt this preacquisition quarter created a difficult comparison for us this Q1 and will for 2017 as a whole.

The year-over-year decline can best be addressed from looking when at the following buckets: first, revenue performance, whether onetime or not, explains a reasonable portion of the decline; second, the positive impact of onetime non-recurring items benefiting Q1 2016 OCF, including the $8 million vendor credit; third, the impact of higher programming cost in Q1 2017 relating to the Premier League, which we began incurring starting in Q3 last year; fourth, the negative impact in Q1 2017 from Hurricane Matthew and overall higher bad debt expense; and finally, lower network and marketing expense in the prior year period. These items were partially offset by lower bonus costs in Q1 2017. To put our current quarter in context, the OCF result of $213 million was consistent with the average OCF over the last 3 quarters. Looking ahead to the rest of the year, we anticipate improved OCF performance at CWC on the back of the operational steps that we have taken, including implementation of our efficiency plans.

Turning to Slide 13. As Betzalel discussed, we had a strong start in both Chile and Puerto Rico. These operations, comprising 37% of LiLAC's total revenue, delivered a combined 6% rebased revenue growth, with VTR at 7% and LCPR at 3%. In Chile, our fixed line results were driven by both ARPU and volume as we increased price, improved tier mix and added over 85,000 RGUs in just the last year alone. Additionally, our fixed line performance was complemented with continued momentum in mobile where we passed 175,000 subscriber mark during the quarter, having added 13,000 subscribers in Q1. In Puerto Rico, our top line performance reflects our best quarterly rebased growth since Q1 2016, led by subscriber and B2B growth and supported by price increases across our fixed portfolios. As evident from the macroeconomic news last week, Puerto Rico remains a challenging business climate, but our management team, through smart bundling and innovative video offers, has been able to maintain market shares.

Turning to OCF, we generated 11% rebased OCF growth for these combined operations, with VTR at 12% and LCPR at 10%. Operating leverage in both businesses is coming through as we delivered year-over-year OCF margin increases of 170 basis points of VTR to 40% and 300 basis points at LCPR to 48%.

Moving to the bottom left of the slide. We're confirming all of our full year LiLAC financial guidance targets. Specifically, we continue to target approximately $1.5 billion of OCF, which implies higher quarterly OCF over the next 3 quarters. Additionally, we expect our capital intensity to ramp through the rest of the year as we continue to target total property and equipment additions in the range of 21% to 23% of revenue, reflecting further new build and upgrade activity as well as investments in LTE coverage and in our video and broadband products. And finally, we still expect limited free cash flow for 2017 with phasing heavily weighted towards the back end of the year, Q4 in particular. With that said, we remain laser-focused on improving our cash flow generation with better capital allocation and working capital management, and we're in the early days of implementing optimization strategies.

To sum it up on Slide 14. First, we saw another quarter of robust performances in Chile and Puerto Rico. Second, as John touched upon, we've taken a number of actions to improve operational performance of CWC and expect to show continued progress as we move through 2017. And third, the execution of our synergy plan's in full swing and together with our investment in new build and upgrades, we're well positioned to deliver our 2017 full year financial guidance targets. With that, operator, we are ready to open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Matthew Harrigan with Wunderlich Securities.

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Matthew Joseph Harrigan, Wunderlich Securities Inc., Research Division - MD [2]

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I had a couple of questions, just kind of ultimate high-level question. There's talk that -- obviously, you don't offer it in Mexico, but there's talk that Obrador might be the best next president and it could be indicative of some political changes throughout the region. I mean, you've always been very careful with markets like Argentina. You sold back in the old Liberty International days, but is there anything that would give you pause, politically, including how there'd be ramifications for the M&A side? And then secondly, what are you learning from the Bahamas' fiber-to-the-home experience in terms of cost and in terms of prospectively even for new services over a period of time?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [3]

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I'll take the first one, and then John, you might pick up on the Bahamas' fiber-to-the-home experience. You correctly pointed out that we have studiously avoided markets that represent significant macro political risks based on history, based on just how we view investment climate. And the markets we're in today we think are good ones for the most part, they're almost all good ones. As I mentioned, in my remarks, the vast majority of our markets are either dollarized or fully hedged in our balance sheet so we're not taking huge macroeconomic risk when it comes to the balance sheet or the business as a whole. Not an expert in Mexican politics, not sure what will go down there, but the markets we're in feel right to us. And as we look at the M&A pipeline, we're clearly bringing that same discipline, that same sort of market focus to the transactions and the geographies that we're evaluating. So I think it's going to be a strategy of ours. It wouldn't be surprising that to focus in geographies that are -- that provide synergies either because they're regionally contiguous or immediate opportunity, again, we know how to execute in those sort of opportunities but certainly, stability, if we can achieve that and that's the underlying goal. John, you want to talk about fiber-to-the-home in the Bahamas? You might be on mute, John. All right, Betzalel?

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John Porter, [4]

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(inaudible)

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [5]

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Well, there you go. John?

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [6]

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Mike, maybe John has a problem with connection. In Bahamas, we did around 30,000 homes, fiber-to-the-home. We get -- we are seeing some good traction on sales and mainly selling a triple-play that is having a very high speed and a good video offering. So it's too early to say but some good first signs of development of our fixed proposition in the Bahamas.

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Operator [7]

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And we'll take our next question from Soomit Datta with New Street Research.

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Soomit Datta, New Street Research LLP - Founding Partner [8]

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Question on wireless, please. Just trying to get a sense as to how that product category will play going forwards. And Panama looked a lot better this quarter. But Jamaica, I see there was a reference in the press release to losing 10,000 subs, I think, and some elevated promotional activity in Jamaica, which has been your best wireless market for a while now. And in the Bahamas, I was interested in getting a sense as to how much revenue share you think you may have lost so far to Cable Bahamas and how you think that plays over the coming quarters. And trying to pull it all together, is wireless ultimately going to get better sooner or is it going to take a little bit longer to play out?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [9]

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Okay. John, are you back on? Apparently not. Betzalel, you want to take that?

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [10]

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Yes. We can start with Panama. I think, in Panama, there is several actions that we are taking in order to stabilize. We had a difficult Q last year, especially on the prepaid mobile, and a lot of focus is now in Panama in order to reduce churn and manage the prepaid customer base better. Also, we are seeing some traction on the fixed with a new bundle that was launched in Panama. And both combined, I think that they are delivering beginning of showing the right stabilization and growth that we expected. In Bahamas, I think that it's as expected. It's not an easy situation where we were the only player. Now we have Cable Bahamas offering mobile. But with quite aggressive marketing effort and the right propositions in the market, we are still holding the fort. Of course, there is an ARPU effect on managing that RGU count. It's early to say. So far, the development is as we expected. We knew that there's going to be a drop, but it's tracking closely to our expectations. In Jamaica, it's a market that we are now struggling on maintaining our growth in mobile and at the same time to manage our fix base, but we believe that we have the right price increase and new propositions in the market that will stabilize the Jamaican situation.

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Soomit Datta, New Street Research LLP - Founding Partner [11]

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Just a quick follow-up on the Bahamas. Is most of the downside, of the 24% down we saw, is that roaming mainly or are we beginning to see the competitive threat as part of that? You mentioned ARPU was down a bit, but is it possible to split the 2 components?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [12]

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I think part of that is (inaudible) on the hurricane. The Bahamas is still struggling, has been several quarters with costs related to the hurricane. John, are you back on?

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John Porter, [13]

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Yes. I'm sorry, I lost connection here. Good to know I'm not in one of the countries in which we provide service though. That's a mix of roaming, contracted rates, of course, that we entered into new contracts, long-term contracts a couple of years ago to secure that relationship. And with the Live now getting up to in between 15% and 20%, we think of market share, so pretty much on track to what we thought they would -- what they would achieve after the first 5 or 6 months. And as Mike indicated, we still have some hurricane overhang on. So unfortunately, these developed markets have certainly taken a little time to get back on stream. So it's a mixture of all three, but certainly not as much on the roaming.

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Operator [14]

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And we'll take our next question from David Joyce with Evercore ISI.

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David Carl Joyce, ISI Group Inc., Research Division - Research Analyst [15]

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You had some strong OCF results in VTR and Puerto Rico. I was wondering if there are any synergies that are showing there as a result of the broader CWC deal. And just when should we then think of further synergies coming through? And if you could also talk about the B2B seasonality. I know it can be kind of lumpy, but was there any -- I know you did mention the proportion of the B2B revenue in the quarter, but is there anything we should think about as the year goes through?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [16]

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Yes. Betzalel, you want to hit the synergy point? I'll tell you, just -- from experience these things will take time to be implemented. I think that number of 150 was half CapEx, half OpEx. So certainly going to take some time, but Betzalel wants to provide you some color.

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [17]

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Yes. Definitely, as we expected, the synergy plan is taking off. It takes time. The first quarter is the beginning. So not a massive number reflected in the Q1 results, especially in Chile and Puerto Rico. But we see some of the initiatives that we start rolling now that will have impact that will be visible in Q2 and Q3 and Q4, especially as we -- as I mentioned before, we are visualizing some outsourcing of network activities. We have some good traction on improving our content negotiations. Procurement is bringing results all over, mainly in Cable & Wireless, but some of it also in Chile and Puerto Rico.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [18]

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John, do you want to hit the second question?

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John Porter, [19]

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Sorry, Mike, that broke up on my end. Well, I heard of the VTR question. Apologies (inaudible)

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [20]

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Yes. The B2B analysis?

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David Carl Joyce, ISI Group Inc., Research Division - Research Analyst [21]

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Yes, so you can provide some more color on that. How that should phase through the year, granted it's -- it can be fairly lumpy.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [22]

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Yes. It's largely a CWC question on B2B, John?

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John Porter, [23]

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Well, yes. It is lumpy and it comes in certainly -- it definitely comes in various quarters at various contract term likes. What we, of course -- the objective for us is to standardize and sort of regularize the recurring revenue so as not to see that lumpiness impact the performance, some of which kind of tends to go longer cycles and, obviously, you have quarters sometimes. So it will continue to sort of -- I mean, we've got great opportunities in the year to achieve our managed services, certainly targets for 2017. And as a matter of fact, we think we'll actually have a great year-over-year result. That being said, some of it does kind of slip from quarter-to-quarter, so we are focused. It is much on the recurring side of our business, as it is on the sort of onetime or lumpy B2B or complicated IT solutions or government revenue for that matter.

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [24]

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Mike, maybe, one word to add. When you look at the different type of B2B services that we're offering in Chile and Puerto Rico, is mainly SOHO and the SME, so it's much, much more stable. Given why there's a lot of big deals with the government, that seasonality -- there is a significant effect of seasonality there. There are -- there is more on volatility on the timing and the phasing but those -- at the end of those deals come through, but sometimes they are a bit delayed versus the previous quarter.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [25]

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David, it's also fair to say that in Chile and Puerto Rico, the focus is squarely on SOHO, and I think revenue growth in those 2 markets is 20%, 30%, 40%. So we have had good revenue growth. Similar to the European model of those 2 markets, Cable & Wireless has got a bigger managed services, wholesale, core subsea business. And I think if you take Panama out of the results, growth was closer to 4%, I believe.

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Operator [26]

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And we'll take our next question from Kevin Roe with Roe Equity Research.

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Kevin Michael Roe, Roe Equity Research, LLC - President and Founder [27]

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John, you highlighted many CWC initiatives and trends to help drive it to growth. And Chris, in your prepared remarks, you mentioned OCF at CWC will improve for the remainder of the year. I'd like you to bridge those 2 comments and maybe touch on the primary drivers of that OCF improvement for the remainder of the year? I know we've got the Bahamas drag easing, there is some seasonality, the project-related lumpiness. Maybe if you could prioritize that, that would be helpful. And my follow-up question is on Puerto Rico, if I may. ARPU was up 2% in the quarter, which was a pretty material reversal of some recent declines. Is this positive inflection point a new trend? Is it going to look more like Chile's ARPU progression going forward? How should we think about that?

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John Porter, [28]

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Okay. I'll kick it off on Cable & Wireless. And Kevin, you're certainly familiar with the company and the transformation project or, I guess, the initiatives that we've undertaken. So where we see the -- I guess, some of the "start this, "get some traction" is, one is on, obviously, on the urban network activity, and that starts with the new build in Panama or upgrade in Panama, a new build, greenfield opportunities in Jamaica, smaller extensions through the region and launching new services over those new platforms. So Panama, obviously, is a big focus for us, they're our biggest asset. So converting those one-way HFC customers to two-way on that plant, extending out the network to a greenfield part of the country, which we think we'll, obviously, have some great success at. And Jamaica, Jamaica's footprint is very wide compared to our competitors, so we have an HFC plant, and we also have a pretty robust upgraded DSL plant that we've been focusing on. So we're with our plan to launch video and high-speed Internet over that network as well. So I think, certainly, from a new build expansion perspective, you get that. Obviously, all the other network upgrade work that's been done throughout the region is sort of stabilizing the network either wireless or wireline. And obviously as well as we upgrade these networks, we launched new products, we also were -- we've got pricing as a big part of our plan for the rest of the year as well. We have -- using some pricing in some markets in the first quarter. We've actually kicked off the second quarter with some new pricing in some markets, and the plan there, obviously, is to continue that. But to do that as the networks are upgraded or new products come to market such as the new WiFi Connect Box that we're introducing in some larger markets throughout the course of the year. So it really is a plan of stabilizing the network, upgrading the network, expanding the network using pricing and also bringing new products to bear in the region. And of course, that's really the consumer business, the B2B business benefits from that by just upgrading and expanding the network and expanding our footprint as well for that part of our business. And network seems to be -- it's steady as -- I guess, it's a steady ship, pardon the pun, and we expect to see it hit its objectives throughout the course of the year and continue the successes we've had for the past 10 or 12 years. So I think, really, the focus for us, as we all know in the pressure force, is on the consumer business. And (inaudible) I think the strategy is going to take hold in the second, third and fourth quarters.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [29]

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John, I think, you've also got, of course, headcount reductions and the benefits from the broader synergy plan taking effect there as well for OCF.

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John Porter, [30]

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Absolutely.

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [31]

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Yes. In Puerto Rico, we did -- in the beginning of the year, we did a 3% to 4% price increase that was well-accepted in the market with a limited churn, lower than what we usually have -- we get from a 3%, 4%. And that was mainly through a value-added that we had in the markets, which still increases leveraging the superiority that we have on the network. So when we combined the price increase with adding value, we have a combination of the direct price increase and upgrades of the packages to higher fee. So it's working well in Puerto Rico. The other element that was helping a lot is the U.K. video product that we offered, where eventually what happened people are taking the bundle with, maybe, lower ARPU related to video, but they're transferring it into higher ARPU in broadband. So the overall combination is higher ARPU per customer.

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Operator [32]

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And we'll take our next question from Jeff Wlodarczak with Pivotal Research Group.

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Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst [33]

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There have been a number of reports, your primary competitor in the Caribbean, Digicel, is financially distressed having issues but relatively high leverage levels. As I understand, they're firing 25% of their employees. Have you seen any signs of -- in their markets that you compete with them -- of lessening competitive pressure, slowing build outs and/or focus on price hikes? Then I've got a follow-up.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [34]

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(inaudible) Jeff, we've got to be thoughtful about how we speak about competitors, of course. I think Dennis O'Briant and his team are quite effective and quite aggressive. So while we are #1 and/or #2 in pretty much every market we operate in, we try to take a cooperative approach to regulatory and other matters. We just brought some Champions League sports rights together with them. Having said that, of course, they have a different debt profile than we do. That's for sure. And while we are fully hedged, and we think, in many respects, protected on the currency front that they have not yet or not built a capital structure, that's sensitive to those matters. What they might be doing on synergies, we're not going to speak to. But John, you're welcome to talk about any local impacts that might be having in terms of the competitive posture, which I can guarantee, remains aggressive.

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John Porter, [35]

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Yes, I don't -- in terms of their actual build-out, I think they've pretty much done what they planned to do, certainly in the large markets of Barbados, Jamaica and Trinidad. I think they've -- publicly, they've indicated that they've pretty much done their build-out, which, obviously, their network is not as large as ours. But certainly, where they overlap with us, whether it's FTTH or HFC and in Trinidad and Jamaica. Now they are very competitive. They are rational, however. And so for the most part, their go-to-market strategy has been around sort of a discounted kind of first year or first -- actually first quarter of service. The product is pretty much the same. I think when you look at the product set whether it's the video product or the broadband product, there's always certain networks that you will have and the other guy doesn't have. It's normally out of choice, to be quite frank. And when it comes to the broadband speeds, we're kind of neck-and-neck. So in terms of competitive, it was the new guy on the block and we were the incumbent for many years. We knew we were going to lose some share. The good news, of course, is that they had foresight to be rational. And at the same time, as I indicated, we're not seeing any additional build-out from what they have -- what they did at the end of last year.

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Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst [36]

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Fair enough. And then broadly speaking, do you anticipate generating material free cash flow over the next 5 years? Or you are more likely to drive that free cash flow in upgrading your network, expanding your builds, RGUs?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [37]

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It's a good question, Jeff. I think, today, our free cash flow profile is, as you know, relatively light, and that's partially because we are putting a lot of capital into new build and positioning ourselves for longer-term growth. But we certainly do expect, over time, as the capital intensity declines to generate more free cash. We're not providing any free cash flow guidance, Chris, correct me if I'm wrong. But obviously, our internal profile shows improving free cash flow over time.

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Christopher Noyes, [38]

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Yes. 2017, we did indicate limited free cash flow. And as we look out, clearly, as Mike was mentioning, 2017 is a big investment year for us across the overall group with Chile, Puerto Rico and CWC on the new build and upgrade front. Certainly moving out, I think after 2017, we'll certainly be through a good chunk of some of our key builds in markets like Jamaica and Panama, and we'll be focused on free cash flow generation as we move out, but we're not going to give any guidance at this point in terms of development beyond '17.

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Operator [39]

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And we'll take our next question from Amy Yong with Macquarie.

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Amy Yong, Macquarie Research - Analyst [40]

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Two questions. So first on VTR, mobile penetration has been growing nicely but still kind of slow. What do you think needs to get done to push that penetration rate higher? And ultimately, where do you think it could land? And then I guess, my second question is on a hard spin? What are the next steps needed to accomplish a hard spin? And what are some of the options you think above M&A, I guess including M&A, that can open up once that's done?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [41]

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I'll take the spin question, and Betzalel, you can prepare the VTR question. I think the spin -- there's a couple of questions here. First of all, it's a process and I think I've talked about it before. It's a pretty regular process. It doesn't look different than most spins, meaning that we're getting all of our pro forma financials, historical financials sorted through, drafting a registration statement, clarifying, importantly, the legal and operating relationship between Liberty and LiLAC post-spin, getting all the tax and jurisdiction issues sorted. And I think the punchline is we're making good, really good progress on all of those matters. So -- but we still expect to be filing something with the SEC, mid or late this summer. And hopefully, by year end, we are -- it's really a split off, technically not a spin-off, but splitting off the LiLAC business. And the benefits, I think, are substantial. One, it will be, in our view, a healthy and valuable currency that we can use to go out and look at strategic expansion where it makes sense. It should trade better, we think, with greater focus, and investor focus and management focus. And it's important, I think, for both sets of shareholders to know that we've created, as we said we would, 2 different capital structures, 2 different currencies, 2 different investment opportunities with different risk and return profiles. There will be -- and I think this is an important point to make, we will retain some influence and coordination and collaboration between Europe and Latin America. That makes total sense to us. It doesn't make sense to completely cast away the one business or the other and not continue to take advantage of procurement benefits, programming acquisition benefits, technology and product innovation benefits, things of that nature. So I think we hope that the structure when finalized will still keep LiLAC in the broader family, if you will, so that it's getting all the benefits that become being part of a global MSO brings, but having, importantly, the independence, the capital structure, the strategic focus and the M&A focus to be independent. On the M&A side, I can't speak specifically about anything, but they fall under 3 buckets in the markets in which we operate today. Whether it's Cable & Wireless or others, there are opportunities to strengthen, solidify, build-out and increase scale in those markets or contiguous markets that we already operate in today, and those you can imagine are on the way. If you look at then smaller businesses, smaller opportunities in Central America or South America that we think easily bolt-on to a business like LiLAC, those are also under review. And then lastly, there are -- and it wouldn't be surprising to anybody on the call, there are obviously some larger scale M&A opportunities, which, of course, we're also reviewing very -- on a very preliminary basis, none of which are in any advanced stages whatsoever, primarily because we're not particularly interested in paying a premium when our stock trades where it does. So we've got some work to do. And I think you're going to -- as I said in my remarks, see us be very thoughtful, deliberate and focused on doing accretive deals. And so as those -- as our business evolves, as the stock trades, as opportunities come up, you'll see us take advantage of those where they make sense and where they make sense financially. Betzalel?

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [42]

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Yes. On VTR and mobile, if you track back, WOM is a new player that is not new, entered the market 1.5 years ago with very aggressive offering. So if you look at the overall market, mobile market in Chile, it's not an easy one when we have Entel, a very strong player, Claro, Movistar and WOM that entered the market last year. When WOM entered the market, there was a slowdown in our results. And our growth, we almost went to 0. Some operational and commercial activities on reshaping and focusing on our commercial operation, we are back on track on growth on our mobile customer base. Most of them is postpaid. In the last 2 quarters, most of them are SIM-only. Yes, at the end of the day, only 7% of our customer base, it's about 180,000 subs that takes the service from us. It's small on the bigger picture, it's still a good contributor to our revenue growth month-to-month. I cannot share now any strategic changes in our approach in the coming quarters, but if there will be, we will definitely update you.

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Operator [43]

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And we'll take our last question from Julio Arciniegas with RBC Capital Markets.

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Julio Arciniegas, RBC Capital Markets, LLC, Research Division - Analyst [44]

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My question is regarding the cable fiber deployment in the quarter. We have heard that basically deploying is a key angle in order to see subscriber growth. On Panama, of course, it's a market that is very relevant. However, I see that for example, in Panama, the new build this quarter has been 0. Can you give me an update of how should I think about the deployment in Panama? Are you currently more focusing upgrading your current homes or you are -- in the next quarter, we should see more new build in Panama? I mean, overall in Cable & Wireless footprint, what is the target of home passed of new build?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [45]

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John, you like to handle that?

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John Porter, [46]

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Yes, I'll take that one, Mike. Yes, you're absolutely right, Julio. In the first quarter, the priority is to, I guess, what I would say is to do the easy work, and that's to upgrade the one-way HFC network to two-way capabilities, and then the expansion work will continue. We actually started that upgrade work. It's about 285,000 homes. We started that last year, and we're at the tail end of that. So as we complete that, we will also -- actually, there will be a little bit of an overlap. We'll roll out the -- sort of start expanding our network out as the middle of the year kind of gets a little bit closer. But the priority was to focus on that one-way HFC plant because as well we have customers there who are underserved in terms of what products we're able to provide them. In terms of the homes passed, we had a target in terms of the total number of upgraded and rebuilded or expansion homes for the region. And that's about 250,000 we've been using for our annual operating plan focus this year. So there is a component of that, that's greenfield, and it is in couple of other countries as well as in Panama and Jamaica as I indicated and also I think just a little bit in Trinidad and some smaller Caribbean countries. Most of the work is upgrade, as you can imagine, with a company -- with the history that we have and the amount of copper that we have in the ground, but the total upgrade and expansion plan for this year is we'll see 250,000 new homes get positioned for high-speed broadband and the advanced video services by the end of the year.

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Betzalel Sergio Kenigsztein, Liberty Global plc - President of Latin American & Caribbean Operations and COO of Latin American & Caribbean Operations [47]

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Maybe one point to add on the upgrade plan in Cable & Wireless is also moving the legacy copper ADSL to VDSL. That's also a significant part of the overall upgrade plan on top of the HFC one-way to two-way and on top of the new build that will be part of the plan.

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Julio Arciniegas, RBC Capital Markets, LLC, Research Division - Analyst [48]

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Okay. If I may follow-up, just in that beat, from the 250,000, can you give us some indication of how much is going to be VDCL (sic) [VDSL]?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [49]

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At the top of my head, probably not. I mean I think if I try to reflect on how many homes we have outside of Panama, most of the upgrade work will be VDSL upgrade from DSL. In Jamaica, it's all VDSL, and that's about 75,000 homes. In Trinidad, it's HFC. As Betzalel indicated, actually in Barbados, migrating customers from DSL to FTTH. So it's a hodgepodge as you can imagine, with the number of countries that we have. But primarily outside of Panama, it's a DSL upgrade or migrate to an HFC or [FTT] -- fibre to the home plan.

All right. Well, listen, thanks for joining us on our second LiLAC call. We'll continue these, of course. I think they're helpful, especially for those who are -- who's been taking the time, which we appreciate, to understand the business opportunity. I would say, as I have in the past, it's early days still, but these are exciting times for LiLAC. We're getting the management team formed, we're in the process of integrating and getting the synergies we have talked about. We're eyeballing and evaluating expansion opportunities very carefully. And of course, we're preparing for the spin, all of that happening within the backdrop of a region that we know has fundamental organic growth and which we, in all of our markets, especially a handful of them that represents the vast majority of revenue, are starting to see the benefits of revenue and operating cash flow pickup. So we're excited about it. Hope you are, too, and we'll speak to you next quarter with results. Thanks very much, everybody.

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Operator [50]

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Ladies and gentlemen, this concludes Liberty Global's First Quarter 2017 Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.libertyglobal.com. There you can also find a copy of today's presentation materials.