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

Thomson Reuters StreetEvents

Q2 2017 Liberty Global PLC Earnings Call

LONDON Aug 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Liberty Global PLC earnings conference call or presentation Tuesday, August 8, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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

* Dana M. Strong

Liberty Global plc - Chief Transformation Officer and SVP

* John Reid

* Lutz Schüler

Liberty Global plc - CEO of Unitymedia

* 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

* David Antony Wright

BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director

* David Carl Joyce

Evercore ISI, Research Division - MD and Senior Fundamental Research Analyst

* Henrik Herbst

Crédit Suisse AG, Research Division - Research Analyst

* James Ratzer

New Street Research LLP - Founding Partner

* 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

* Jose Maria Quintana

Scotiabank Global Banking and Markets, Research Division - Associate

* 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 - Former MD

* Michael Bishop

Goldman Sachs Group Inc., Research Division - Equity Analyst

* 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 & Entertainment & Cable & Satellite Research & 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 Second Quarter 2017 Investor Call.

As a reminder, the first portion of the call will focus on Liberty Global European results. And the second portion to begin at approximately 10:30 a.m. Eastern 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, August 8, 2017.

Page 2 of the slide details the company's safe harbor statement 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 facts. 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 the conditions on which any such statement is based.

Also note that nothing stated in today's call constitute an offer of any securities for sale.

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 our Q2 results call. As usual, I'm joined by my management team in Denver and London and Amsterdam. And we will spend the next hour focused on Europe. And then right after that, at 10:30 Eastern, we'll jump on a similar call for LiLAC.

The structure of this call will be familiar with you. I'm going to start with some highlights and operating results, and Tom Mockridge will spend a few minutes on Virgin Media, and then Charlie will hit the financials, then we'll get straight to your questions.

As usual, we are talking from slides, and we have a lot to go through today, so I sure hope you can get those. I'm going to begin on Slide 4 with what I think are 5 key takeaways from this call. Number one, I'm going to hit the scorecard for -- in a minute on Liberty GO, but one point that has perhaps been lost over the 12 to 24 months has been our ability to realize operational leverage throughout the business on the back of real and material cost efficiencies. Now these are efficiencies that are driving margins up and setting the stage for continued and sustainable OCF growth. And I'll show you some numbers on that in a moment.

Here's a second big takeaway. While we continue to report good subscriber growth, including 440,000 new broadband and voice RGUs year-to-date, an equally encouraging trend, in fact perhaps more encouraging, is our steady and massive improvement in video. We're now hanging on to 5x as many video subs every quarter than we did over the last year or 2. In the last quarter, we only lost 30,000 video RGUs in a base of 18.5 million. And this is related in large measure to our total commitment to innovation on the video platform, which I'll take you through in detail. We're also, of course, benefiting from strong video growth in the U.K., not only in Project Lightning but also in our existing footprint, which is a great segue to my third key message.

After a disappointing start to the year and some important changes in the team and the management structure, Virgin Media is regaining operating traction and momentum. And we'll talk about that on this call, including sub growth, which continues to accelerate every period; ARPUs, which have stabilized and are even ticking up on recurring revenue, as we more tightly manage discounting on the front book and retention on the back book; and we'll talk about our recent price rise, for which I can assure you we are well prepared and taking a much more deliberate and value-driven approach to implementation.

The fourth highlight should also be familiar to you. As we foreshadowed on prior calls, we have accelerated our share repurchase plan in the first half of the year by buying a total of $2.2 billion worth of stock. We've tapered off a little bit since June 30, as we spend the remaining $800 million of authorized buybacks over the remaining 6 months. And just to recap. We have now purchased $18.5 billion of our stock back. And even if you include the periods where our prices were a bit higher, we're still in the teens on a per-share price. On a cumulative basis, we're pretty committed to the levered equity growth model.

And then, lastly, we're confirming all of our guidance today. Our rebased OCF growth in the quarter was 6%, bringing the first half of the year to 5%. That's, of course, right in line with our full year OCF guidance of around 5%. So obviously, we are planning on similar growth in the second half, which is likely to be skewed in the fourth quarter as in previous years. And then, we still expect to deliver around $1.5 billion of free cash flow.

So 5 big takeaways. We're driving margins up with cost efficiencies. The video business is improving materially. Virgin is back on track. We are committed to our levered equity growth model. And our guidance is confirmed.

So on Slide 5. We thought it would be a good moment to step back and take stock of our Liberty GO initiatives now that we're halfway into a 3-year plan. So I've talked quite a bit, and we'll continue to be very transparent about those areas where we have not hit the very ambitious goal we set for ourselves, especially in the U.K., and what we've done in response to that. And again, you'll hear a lot about that today.

The 2 areas where we have met or exceeded our expectations are cost efficiencies and B2B. And they're laid out here on this Slide 5, starting with cost on the left-hand side and in the middle of the chart. Despite adding nearly 1.4 million RGUs in the last 18 months, despite launching new connectivity and entertainment products across Europe and despite building 1.3 million new homes in the last 18 months, with all of the costs associated with those activities, we have managed to keep our indirect costs flat, which has helped drive consolidated OCF margins up nearly 150 basis points to 46.5%. Remember, we already operate at very high system-level OCF margins, as high as 50% in some cases, on ARPUs that are 1/3 of the U.S. And that's the result of a culture of efficiency that we started embedding in this business 10 years ago.

This is not new for us. In fact, we keep finding additional opportunities to drive scale benefits in areas like technology and IT, procurement, supply chain, essential operations. And you can see that more clearly on the middle of the slide, which shows the 3 main components of our OpEx: labor; other external costs like network maintenance call centers and IT systems; and finally, sales and marketing.

When we launched Liberty GO, we said we would save money in those first 2 areas and put that money into growing our customer base, and that's what we've done. Spending on labor, which is a large bucket for us, is down 1%, and our other external spend has decreased 2% year-over-year. At the same time, our investment in marketing and sales, which also includes support for the launch of next-gen products and support for new build marketing, is up 4%. So as far as operational efficiencies are concerned, Liberty GO is working.

Now, the chart on the far right of this slide illustrates the second area where we have met or exceeded our ambitious goals. B2B has been right on track with our aggressive Liberty GO plans. We generated 14% revenue growth in the second quarter and 12% year-to-date. Our strategy to attack the SOHO and SME markets is paying off, right? These 2 segments now represent 42% of our B2B revenue. And they're growing leaps and bounds, including a 39% growth rate in the past quarter.

Now, we do pass over 4 million SOHO premises today. And the SME market opportunity, while smaller in units, is twice the size in revenue and supported by value-added services like security and storage and mobile. And remember, unlike the U.S., we were a bit late to this opportunity of SOHO and SME. Our business was really built on the enterprise business. So with single-digit market share in SOHO and SME today, we believe we have a long way to go in B2B.

Slide 6 highlights 2 other big programs for Liberty GO, beginning with our new build initiatives across Europe. And now, remember the logic here. First of all, these are high-return investments from a financial perspective, or we don't pursue them. We look at build costs, the penetration rates and ARPUs. These are all designed to deliver well above average IRRs regardless of how quickly we build since the fixed cost is really not that significant, and that remains the case today. By the way, if we ever reach a point where those 3 variables do not align for a particular market or a particular project, then we'll just put that money back into free cash flow.

And just as important, these projects, when they work financially, are strategically accretive. As we extend the reach and scale of our networks in a particular market or country, we gain even more ammunition to compete with incumbent telcos, and we end up with a better platform to drive fixed and mobile convergence over time. And as the chart on the left shows, through the first half of 2017, we added over 0.5 million new build homes in Europe, including 230,000 in the U.K. And Tom will provide a bit more color on Project Lightning, which has now added 800,000 total homes and is ramping back up. By the way, Q2 construction, up 25% sequentially and a record build month in June.

On the right-hand side, we show a few numbers for the mobile business, so I'll switch gears here, in which, as I've said in previous quarters, remains in transition in my view, right? On one hand, we are starting to see the very real and tangible benefits of converged fixed mobile offers in Belgium, where we're heading towards 250,000 WIGO customers who invariably spend more, churn less and have higher NPS. Look at Holland, same thing with VodafoneZiggo, where the initial loyalty offers to roughly 20% of the fixed and mobile sub did overlap, we're very well received and have helped to generate positive mobile net adds and a meaningful bump in NPS. And of course, both of these businesses are well into their integration plans, which together are expected to generate run rate, OpEx and CapEx savings of $0.5 billion by 2021. So there's a lot of good things happening in our mobile businesses.

On the other hand, as most of you know, mobile headwinds, including prepaid losses, regulatory changes, unlimited offers and handset accounting, are impacting reported top line results. Revenue was down for the group 6% in the quarter.

Now, like a lot of you, we would love to know exactly when the structural decline in mobile revenue hits bottom. But strategically, we cannot afford to stand still, and we're not standing still. Convergence is happening rapidly in Europe, and we are on it. We have launched mobile almost everywhere and are seeing real and tangible proof that the quad-play bundle lowers churn and improves NPS.

Now, how we execute on convergence will remain a market-by-market approach, and that's a great luxury for us. It allows us to be flexible and smart with our capital. As an attacker, we can build a good business on the MVNO model, and we're doing just that in markets like the U.K. and throughout Continental Europe. And where we have scale, we will evaluate opportunistically MNOs where that makes sense. So look for us to be smart and disciplined on this front.

Now by far, one of the most important objectives we set for ourselves with Liberty GO is profitable subscriber growth. And by any measure, we have ramped that up in the last 18 months. As you can see on Slide 7, net adds in the first half of 2017 are up 50% from the same period in 2015. Now, we're down a bit compared to 2016, but most of that decline were lower ARPU subs in Central and Eastern Europe. Now Western Europe net adds were up 16% in the first half, driven principally by the U.K, where Virgin continues to benefit from its broadband superiority, the addition of the V6 set-top box and, of course, the release of new Lightning homes. So the premise is proving out in the U.K. even if the pace is slower than anticipated, which means we'll be -- we have a sustainable source of growth in our minds.

And then note on the first slide, one of the untold stories is the steady improvement in the video business. You can see that graphically at the bottom. In fact, if you remove the small DTH business in Central and Eastern Europe, our video sub base was actually flat year-over-year in the second quarter and that compares to losses of 130,000 and 170,000 in the prior 2 years on a like-for-like basis.

So what's driving this improvement in video? Four things jump out. First of all, just like Comcast, we are seeing the payoff from our investment in next-gen and cloud-based video platforms. They call it X1; we call it Horizon, same RDK software stack. And these platforms offer killer UIs, integrated OTT apps and the ability to push out massive amounts of content to any device at any time. When our customers get it and use it, they are seriously happy. And today, that represents only 40% of our total cable video sub base. But that is growing rapidly, including a nearly 1 million added in the last 12 months. Then you combine that with slower-than-anticipated adoption of OTT services in Europe, that's a positive for us due to a fragmented content market, the strength of broadcast networks and a very inexpensive cable or pay TV video offering when you compare it to the U.S.

Third, in several markets, we have launched very tactical and relatively inexpensive sport services. We've talked about Ziggo Sport, which has grabbed the attention of Dutch sports fans overnight. In Belgium, we have Play Sports, which has also benefited from great rights and a premium audience. And now, we're launching MySports in Switzerland, which is a new basic and premium offering exclusive to cable, that will host Swiss Ice Hockey, which is the #1 sport in Switzerland; along with international soccer; the German Bundesliga; car racing, et cetera.

And then lastly, the video base is obviously benefiting from new build. As we release homes to the marketing department, they are pushing the big bundles, which include video. Just in the U.K., we've added 150,000 new customers and nearly 350,000 new RGUs on the Lightning footprint since we started.

And that's a great segue to the next couple of slides on Virgin Media, which I've asked Tom to walk us through. As you know, we made some swift and important changes when it became clear that the business was off plan, and those changes are working. So Tom, over to you.

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [3]

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Thanks, Mike. And hello, everyone.

Before we get into the detail, I want to say while I recognize at Virgin Media we haven't yet met the ambitious goals we set for ourselves, we have taken action to ensure the strong volume growth we are now delivering produces future revenue and OCF improvement. In particular, after the problems we identified in Lightning early this year, we've undertaken a full reorganization of both the Lightning and commercial teams to sharpen execution.

Turning to the slides. A strong Q2 in the U.K. delivered an RGU increase in the first half of 239,000, up 36% on growth the year before. 55% of this came from within existing footprint, with Lightning delivering the rest. We estimate 112,000 broadband RGUs added in the first half accounted for 100% market share of all additions in our footprint. Mix improved markedly. 64% of installs were triple-play in the first half compared to 47% the year before. Video net adds were up 81,000, including our strongest ever Q2, in contrast to a 14,000 loss last year. Undoubtedly, the Virgin TV V6, which was the first launch of the Liberty Global universal set-top box, is delivering great results in NPS.

Turning to ARPU. Q2 was down slightly by 0.4% year-over-year, with just under GBP 50 per month. Our strong volumes are effective, as introductory pricing in the short term reduces the average. However, clearly the benefit of our November 2016 price rise significantly offset our retention discounts and downspin to lower tiers.

We are intensely focused on returning to ARPU growth, and a number of factors will support this. Price management is the priority. We've enhanced our customer service systems with market-leading digital tools to support agents in preserving ARPU and improving the precision of customer insights. This means we can take a more targeted approach, ensuring we target discounts to mitigate downspin and churn. This will be assisted as the impact of last year's retention discounts continue to unwind as the year progresses. We are also proactively offering customers better CPE, with nearly 10% of our video base now on the V6 and nearly 1/3 of broadband customers on the new Hub 3.

Another way of looking at the ARPU trend is by splitting it into recurring bundled ARPU and the out-of-bundle ARPU, which is mainly related to voice and TV transactional revenue. Bundled ARPU, recurring subscriptions minus discounts, is up nearly 1% year-over-year, but out-of-bundle is down 17%, and although it contributes only 5% to overall ARPU, reduces the average. So we are focused on improving this with revised voice offers, increased capacity for pay-per-view and next year targeted advertising.

Underpinning all of that product and service enhancements, we're investing more than GBP 200 million this year in network capacity and other upgrades to meet the ever-increasing demand for data consumption.

And we have recently announced a 4.7% average price rise effective November 1. Of course, the decision to increase prices was considered very carefully. Dana Strong, who rejoined Virgin Media as President and Chief Operating Officer early this year, is leading this crucial program supported by a new team. Most importantly, it's a single price rise this year, not 2.

We're smoothing the operational impact, with customer notifications now spanning 12 weeks in advance to help spread incoming calls. Our improved digital base management capability means we can know better target offers, which for many customers means a more-for-more" approach with the speed boost upgrade and new CPE. We're also conscious that at the time of the price rise last year NPS was under pressure due to a poorly implemented upgrade on set-top boxes and network issues, which have now been addressed. All in all, we're confident we're better organized to achieve a much better result.

Before Lightning, a quick comment on retransmission fees. The U.K. government has been clear. New fees should not be paid on mainstream channels. Our TV signed a 10-year public service broadcasting license in 2014 that didn't envisage it receiving additional carriage fees. It is already fully compensated through its prominent position, audience reach and additional advertising revenue this delivers. It is carried for 0 fee by all U.K. platforms, and there's no reason why that should not continue to be the case at Virgin Media.

Turning to Lightning. We are making good progress after much better integration with our European peers across Liberty Global. It's now led by Rob Evans, jointly reporting to Balan and myself, which has strengthened project management build and delivery capability.

Q2 delivered 127,000 new premises, totaling 800 since launch across the U.K. and Ireland, with June our strongest build month yet. We've established a new structure of 10 regions, a new wayleaves team and, critically, a new partnership model with local authorities. As shown, we have an active penetration of 33% after 27 months, and we're on track to our 39% goal after 36 months. Lightning has now added more than 150,000 customers in the U.K. since launch, with 24,000 in the second quarter. So all in all, Project Lightning is delivering, and we're confident to further ramp the program.

With that, I'll hand over to Charlie.

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Charles H. R. Bracken, Liberty Global plc - CFO and EVP [4]

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I'll provide a high-level overview of our financials for the second quarter and then provide more color on our segment performance and then, finally, wrap it up with some concluding remarks.

So starting on Slide 11, we present the Q2 financial results of the Liberty Global Group. Now I'll start with our revenue performance on the upper left of the slide. And this shows that we grew our revenue by 2% on a rebased basis to $3.7 billion for the quarter. Breaking that down further. Our residential fixed business grew 1% in Q2, while our B2B operations had very strong growth of 14%, which was offset by a 6% decline in residential and mobile.

On the OCF front, we generated $1.7 billion in Q2, which represents 6% rebased growth for the quarter. This result includes a $32 million number-clearing benefit associated with a telecom operator's agreement to compensate Virgin Media for prior periods' contractual breaches. This benefit more than offset regulatory drags on Virgin Media's 2017 results, including higher network infrastructure charges of $9 million. Of note, our Eastern European, German and Belgian businesses reported 7%, 6% and 5% rebased OCF growth, respectively, in Q2. So on a year-to-date basis, we delivered rebased OCF growth of 5% in Europe, which is consistent with our expectation for the full year.

Our capital spending in Q2 increased to $1.2 billion or 33% of revenue and on a year-to-date basis, our capital intensity stood at 29% of revenue. The main driver for the year-over-year increase in both absolute terms and as a percentage of revenue was higher new build activity, particularly with respect to Project Lightning in the U.K, as well as higher CPE spend, partly related to the continued rollout of our next-generation video and WiFi boxes across Europe. For the full year, we expect our property and equipment additions to range between 29% to 31% of revenue.

Our adjusted free cash flow, as shown on the bottom left, was $325 million during Q2. And as expected, we finish the first half of 2017 near breakeven. For the full year, we continue to target $1.5 billion of adjusted free cash flow, which we expect will once again be weighted towards Q4.

Our European balance sheet remains in great shape. Our total third party debt and capital leases at quarter-end were approximately $41 billion, and we had liquidity of over $4.5 billion. The sequential increase in debt from Q1 was largely related to the weakening of the U.S. dollar versus the euro and the pound. After excluding $2.2 billion of debt backed by shares that we hold in ITV, Sumitomo and Lionsgate and adjusted to reflect the EUR 600 million redemption of certain UPC senior notes on July 7, our consolidated adjusted gross and net leverage ratios in Europe stood at 5.2x and 5.1x, respectively, at quarter-end. Taking into account recent refinancing activities during the quarter, our average tenor stood at 7.5 years; and our blended fully swapped borrowing cost decreased to 4.5%, which is down from 4.7% in Q2 of last year.

Finally, with respect to our share repurchase program, as Mike mentioned, we've been very active. We bought back $37 million or 4% of our outstanding shares in Q2. We remain committed to repurchasing another $800 million this year to complete our $3 million -- $3 billion purchase plan for 2017.

Now on Slide 12, I will provide more details on the financial trends of our segment reporting. Our combined Virgin Media business in the U.K. and Ireland reported Q2 rebased revenue growth of 1%. Virgin Media's top line remain impacted by flat ARPU growth and mobile revenue headwinds in the U.K., which we -- both of these we expect to abate to some degree later this year. Our OCF at Virgin Media grew 4% on a rebased basis in Q2, driven by higher marketing and programming costs and the factors I explained on the previous slide.

Unitymedia in Germany posted 5% rebased revenue growth on the quarter, while rebased OCF grew 6%, as the increase in revenue was further supported by cost containment in our indirect costs.

In Belgium, Telenet's rebased revenue growth of 1% in Q2 was mainly driven by strong growth in B2B, partially offset by mobile headwinds and lower cable revenue. Despite a tougher comp due to a positive $8 million benefit related to an MVNO settlement in the prior year period, Telenet's rebased OCF increased 5% in Q2. This result was largely driven by a lower amount of mobile handset subsidies and indirect cost containment, including low sales and marketing costs.

In Switzerland and Austria, we reported rebased revenue contraction of 1.5%, while rebased OCF increased 2% in Q2. Revenue was negatively impacted by lower ARPU per RGU, which is primarily related to a weaker tier mix and competitive pressures, which are only partially offset by a higher contribution from B2B. However, the revenue decline was more than offset by lower direct and indirect costs across various functions.

Now I wanted to give a bit more color on our operation in Switzerland. We have experienced some ARPU pressure at UPC Switzerland from Q4 through Q2, as we're getting too much traction with our lower-end bundles with the introduction of our Connect & Play portfolio in late September last year, which ended up more than offsetting the benefit from the price increases that we'd implemented on our video products in January and April of this year. We've addressed this ARPU issue by refreshing our Connect & Play portfolio mid-May, and the new portfolio is resonating well with consumers, and we're seeing some early signs of better incoming ARPUs as a result.

From a volume perspective, the Connect & Play portfolios have stabilized the RGU trend over the last 3 quarters. And we expect the launch of MySports to improve both the RGU and top line trends, but Swiss and Austria's OCF in the second half will be negatively impacted by an increase in programming expense due to the launch of our MySports channels.

And then, finally, our CEE segment delivered 6% rebased revenue and 7% rebased OCF growth, largely driven by B2B and residential cable subscription revenue growth.

So turning to Slide 13 to summarize. We delivered solid subscriber additions as well as 5% rebased OCF growth in the first half of the year. Project Lightning is gearing back up, and we've made a number of improvements that should have a positive impact going forward. And meanwhile, our next-generation video and broadband products are still resonating well with our customers as we continue to develop our converged services. Our B2B business is performing very well. And finally, we continue to see efficiency benefits within our indirect cost base.

So with that, operator, we're ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take the first question from Ulrich Rathe with Jefferies.

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Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [2]

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My first question would be on Germany, please. On the RGU intake in the quarter, there's a comment in the report say you're highlighting that you focused resources on the analog TV switch-off; and that's created a bit of a backlog, I think, in the broadband area. Could you comment on that a bit? Is that measured in the thousands, on the tens of thousands? And then, what time schedule do you think you would work off that backlog?

My second question is on the U.K., in particular the marketing costs. In the first quarter, you highlighted the step-up in the marketing costs, and you quantified that. Would you be willing to do the same for the second quarter? It seems that costs have come down. It's -- I'm not entirely sure whether that is now sort of a normal run rate compared to elevated marketing costs in the first quarter or whether that is still [aberrated] even in the second quarter.

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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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Yes, thanks Ulrich. And we're fortunate to have Lutz Schüler, who runs Germany, on the call today. Lutz, do you want to handle the analog switch-off question?

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Lutz Schüler, Liberty Global plc - CEO of Unitymedia [4]

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Yes, of course. Thank you. This is Lutz. In the second quarter, we have really shifted 600,000 analog subscribers to get digital. That worked very well. Now we need truck rolls for that. And these are also partially the same truck rolls we need to insulate broadband with our customers. So therefore, the backlog has increased. We have a lot of orders, so the demand is there for high-speed broadband. But the backlog has increased. It's more in the 10,000s. And we will overcome that in the third quarter.

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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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Tom, you want to handle the U.K. marketing cost question?

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [6]

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Yes. Tom here. On marketing, look, it is quick. We were up slightly year-on-year on Q2. Typically, we have tended to drive marketing in the first half, where we do need to push a little bit harder to get volume in a market. Where in the second half, with the start of football season and then as you get into the seasonal upturn in the run-up to autumn and Christmas, there's more natural demand in the market. So you will see us actually restrain marketing through the second half as we continue through the year.

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Operator [7]

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We'll take the next question from James Ratzer with New Street Research.

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James Ratzer, New Street Research LLP - Founding Partner [8]

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Two questions, please. I mean, most -- both of the U.K. business. Firstly, I mean, you had very strong KPIs in the U.K. business during H1, but that seems to have coincided also with ARPU weakness in the business. So what can you say to give us confidence that actually as the ARPU trends improve, as you suggest, in H2, that's not actually going to lead conversely though to a slowdown inside the KPIs. And secondly, it seems like for this an overall phenomenon that the U.K. broadband market is saturating a little bit quicker than expected. I was wondering what you could say about that. Is that something you are seeing as well? I mean, do you think that's going to lead to more price competition between the operators to drive subscriber growth looking into 2018?

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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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Yes. I'll say a couple of things about that, Tom, and then I'll turn it over to you. Remember, on the KPIs on the subscriber side, there's a number of things that are impacting that. It's churn, it's discounting, et cetera. And there's a lot of moving parts that are -- that come together to form the ARPU. So in our opinion, what I've seen happen very successfully in the recent past, what I see happening second half of the year, is a much smarter approach to discounting on the front book. So that means looking at segments and products and being more clever about how you discount at the outset of a customer relationship. And then I think just as important, managing churn and seeing the ability of Dana and the team to be very much more sophisticated, I would say, in how they're managing retention and offering discounts and other products and services. So a lot of moving parts impacting both volume and ARPU. And I don't think it's -- you can draw straight lines from the first half to the second half because there's a new team, a new approach, I think a much more sophisticated and, I think, profitable approach to maintaining customer volumes. And on the broadband side, Tom, I'll let you chime in here. We continue to see good demand on our footprint. And we're getting, as Tom said, 100%, we think, 100% of net adds where we operate. And that's a pretty big result for us. It hasn't been that high in the recent past. Part of that could be a slowdown in overall volume, but more importantly is the fact that were offering speed 2x to 3x faster than BT and the other DSL guys. And from our perspective, we expect to see that volume continue. The market as a whole will, obviously, at some point reach maturity. That's the nature of every broadband market in every European country. But I think the key for us is getting more than our fair share of net adds, and product superiority will make that happen. You want to add some color to that, Tom?

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [10]

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The part I just would add is that I think what we continue to see in this market is broadly rational pricing. Of course, from time to time, there's promotions by each of the major operators in the marketplace. But broadly, we've got a sensible operating environment where the competition is not unduly discounting against each other. And we benefit from that point even if in the broader broadband market there might be a topping out. But from our point of view, we have the superior product. So we absolutely believe we can continue to grow across a deeper penetration. And this is a product which still has appeal to households that don't have it and businesses. But in addition, we're definitely taking share.

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James Ratzer, New Street Research LLP - Founding Partner [11]

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Do you feel kind of confident that in the Q4 trends, the ARPU can improve and we still see the KPI momentum maintained?

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [12]

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Look, I think Mike, of course, handled the ARPU point there. And I'd reinforce the point. There's no question we have to execute better in the second half than we did through last year's price rise. But I think we're very well positioned to do that. He mentioned that Dana, who's on the call today, has joined. We have changed out that team. We've implemented a range of digital initiatives. We've enhanced the product both in terms of the broadband capacity, in terms of the continued improvement in TV, the V6 box. In addition, the TV offer, we have TV enhancements coming through the second half. And we have made a further decision to take a price rise a bit more moderate than last year. Key difference, we're not jumping ahead this time. We're doing it at the 12-month time frame. And we're much better organized to our implementation because this is a more natural process to do an annual price rise. We're well prepared. We announced it last week. Early reaction has been fairly moderate. But that's a week, so we'll obviously be keeping a close eye on that. But we do believe we are well organized to execute better than last year and also to build on the increase in reoccurring revenue that we have seen and arrest the kind of non-reoccurring revenue and in combination get an ARPU increase.

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Operator [13]

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(Operator Instructions) We'll take our next question from Jeff Wlodarczak with Credit Suisse.

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Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst [14]

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Questions, a follow-up on Germany. Can you provide more color on sort of the latest competitive environment in Germany? I mean, DT's obviously gotten a bit more aggressive. And did the analog shutoff have any effect on Q2 Germany revenue and EBITDA? And I've got one 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 [15]

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Listen, Lutz, you'll prepare the Q2 revenue effect, I believe, the German market. And I'll also let you provide color on the German market. I think, Jeff, you've been following it a long time. It is certainly more competitive, say, than it was 2, 3 years ago. No question about it. Everybody's moving speeds up, launching video services. The one thing I'd say is we haven't seen a very successful quad-play market there, and that's been advantageous for us since our quad-play business there is still evolving, in very early stage. There's still a major focus on broadband. It's not really a video or pay TV market. And our broadband market share continues to be very, very substantial where we're marketing on footprint. So like the rest of Europe, sure, they're -- DT is getting better at what they do. No question about it. But they haven't built fiber. They're unlikely to build fiber. Our ability to have superior broadband speeds, I think, has great longevity to it. And I think we've really just started to tap the video opportunity in Germany. I mean, we haven't really pushed video as aggressively as I think we can. And I think you'll see those things come together over the next year or so. And we'll continue to get our fair share. Lutz, you want to add some color on the revenue side? Or any other -- yes.

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Lutz Schüler, Liberty Global plc - CEO of Unitymedia [16]

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Yes. I think concerning the market, I think any -- the only point to add is you've seen -- if you sum up over net adds, you see that the speed of penetration broadband has gone down a bit, right? And that is also leading a bit to the fact that the promotions are getting more aggressive on the broadband side, right? So we haven't followed that trend in quarter 2. So we were without promotion because we were focused on video, and also, we don't want to follow every promotion. And for that, we've done a fairly good business. The second question. The focus was definitely analog shutoff. And therefore, we acquired a bit less broadband customers. And also, we have activated a bit less broadband customers. And the only revenue effect you see from that is that we have generated less OTCs from these new customers. The rest, the overall video churn was not affected at all by the analog shutoffs. So we had 8,000 video churners. That is very, very low, also compared to the previous year. And also, cancellation requests have not increased yet despite aggressive competitor offers to steal our customers. So therefore, we are very satisfied with that.

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Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - CEO & Senior Media and Communications Analyst [17]

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And then one follow-up, Mike, can you talk about your latest thoughts regarding -- broadly regarding M&A? There is some consensus out there you may look to sell some assets.

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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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Well, I mean, we're not, as you know, Jeff, going to speak about those opportunities here on this call or publicly. I will say that there's a pretty wide gap between public and private market values. And so -- and there are many -- more than 12 countries in Europe, and so we are always evaluating whether we are a buyer or a seller in certain of those markets. Because we believe, as we've said several times in the past, that most of the markets, if not all of them, at some point will have 2 -- maybe 3, but certainly 2 fixed mobile players in them. We think we should be one of them. We think we can be one of them. And -- but in markets where we're a bit subscale or where we think perhaps the growth profile or the mobile entry opportunity in the long run isn't quite as attractive, we might look at exiting a market here or there. And that shouldn't be a surprise to anyone, and I'm certain that the private market value of the assets we might choose to exit will be materially higher than the implied public market value of our stock. So it wouldn't be the first time, as you recall, and you've been around a long time, we've done that, whether it's Austria -- Australia or Japan or other markets. So we're always going to be looking at value creation. And certainly, one of the main elements of value creation for us is smart and appropriate M&A activity. And that should normally include exiting as well as buying in markets where we think we don't have a shot at being a scale -- a scale player.

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Operator [19]

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And our next question is from Henrik Herbst with Credit Suisse.

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Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [20]

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I had a question on -- I just want to follow up on the U.K. It sounds like your Project Lightning build-out accelerated a bit towards the end of the quarter. Should we expect that to accelerate further as we go into the second half of the year and then into 2018? And then also just going back to the question about ARPU in the U.K. If you look at your ARPU on new sales, if you strip out the discounts because it does seem to move around quite a bit, how does that -- the ARPU or the bundle size compare to your existing base ex the discounts?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [21]

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Yes, Henrik, we're not going to provide any guidance or give you any insight into future Lightning build activity, as I think we made clear on the last call. I'll simply say Tom and the team and Balan are very focused on it. And the ramp-up that you can see in the slides is a ramp-up that's deliberate and purposeful. But we're not going to give you a quarter-by-quarter forecast of what will happen, except to say that we want to keep pace, and the opportunity continues to look really good. On the ARPU side, I'll just take it quickly. I mean, the ARPU that Virgin Media is realizing on new sales is at or slightly above ARPU on the back book. And I think, Tom, you can provide some color to that, but that I know for sure. And that's a deliberate -- also a deliberate attempt to be smarter about discounting on certain products and bundles and pushing certain bundles over others. But Tom or Dana, if you want to add anything that, please do.

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [22]

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Dana, I'll be happy if you want to come in.

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Dana M. Strong, Liberty Global plc - Chief Transformation Officer and SVP [23]

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Thanks, Tom. One thing I can just confirm is that when we see customers coming off of their discount offer they comfortably land on our average base ARPU. So they're not taking our average base ARPU down. They're elevating up to our average.

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Operator [24]

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And the next question is from Vijay Jayant with Evercore ISI.

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

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So Mike, obviously, the question was asked about possibly selling nonstrategic assets or subscale assets. And given your view that private markets are higher than public markets and, obviously, I think you think the stock is cheap, given you guys have bought back quite a bit of stock. But surprised to see that didn't sort of take up your buyback given you probably should complete that if you continue in the current trajectory in 3Q, your $3 billion authorization. So just any thoughts on that. And then second, your operating costs were down, I think, roughly 2% year-over-year on an organic basis. Is this the kind of trend we think is sustainable? And so when you talk about your 5% EBITDA growth roughly, what are you sort of thinking in terms of the cost side and on the revenue side to sort of get that, broadly speaking?

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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. On the buyback point, it would be unusual for us to ramp up buybacks within a year. I mean, we already took our buybacks from a stated $2 billion to $3 billion in this fiscal year. And I think we intend and we will implement that in full. It doesn't mean that we don't constantly think about what you're asking, and we do, but at this point in time, we think it's premature to make that sort of decision. And we'll have better visibility in the fourth quarter, our free cash flow. And we view that on a -- we look at that on a quarter-by-quarter basis. But clearly, we agree with you. Our stock is a very good rate of return for us. And so that's one of the reasons we bumped the buyback to 50% this year and are buying back almost 10% of the market cap. I think you can look out in the next 2 to 3 years, as I said in my remarks, and we don't see any change in our levered equity capital structure approach. And we think 5% to 10% or more of our market cap is something we should be reducing every year. And I think we'll look at buyback quantum on a quarter-by-quarter basis. At this point, we're happy with the $3 billion. And you look out over the next 2 to 3 years on the revenue and EBITDA growth or OCF growth, couple of things that are important to point out. And we haven't provided a lot of visibility on this. But we've been able -- one of the surprises to us is we've been able to maintain our gross margins. We always initially assumed that as we got more aggressive and pushed the video product and the video platform, as I discussed, we were going to need to expend a considerable amount more on content. We have spent more on content, but we've been able to maintain margins across video, really all the products, and B2B in particular, to the point where gross margins have really hung in there. And that's a positive thing, especially when you're keeping indirect cost, which would be the other element of OpEx -- basically all of OpEx, essentially flat, which is what I said at the -- earlier in the call. So it might be negative in certain quarters;, it might be slightly positive in other quarters, but we do believe that maintaining flat indirect cost, which is a very large number, does provide sort of a nice ramp for OCF over time because we know we're driving revenue and gross margin positively. So when we talked earlier on about $800 million or $1 billion of "savings" in Liberty GO, what we really meant was keeping cost flat, and this is taking -- this is when Ziggo was in the mix, but keeping costs flat and not driving OpEx up as you scale up volume, as you scale up new build, as you scale up marketing in new products. And that has not been an easy task, but it's one that I think we're good at, and I think will provide continued lift, if you will, to OCF growth over the next 2 to 3 years. So really good work on the gross margins, which is a nice to have and not something we necessarily anticipated. And I think even better execution on the cost side, which is a terrific result, given the momentum we're investing and the momentum we're realizing in both customers and products.

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Operator [27]

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

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [28]

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Just 2 questions. Firstly, on the CapEx. It seems that you're now not expecting Virgin CapEx to be lower than the 31% to 33%. So I think you explicitly cited an additional GBP 200 million for upgrades to ensure service level. So just 2 things, really, I was keen to work out if that sort of proactive CapEx or reactive CapEx? And then secondly, from a group perspective, should we think of group CapEx now at the top end of the 29% to 31% range? And if so, does that change the free cash flow mix if you're still reiterating the $1.5 billion for the full year, given the free cash flow in the first half was fairly limited? And maybe super quickly just on the really good video performance, how much do you think that's having a more open content approach versus the more direct investments in sports and things like that?

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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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Charlie, I'll let you pencil out the CapEx questions. On the video question, I think it's a combination of things, as I said. I think it's partially the fact that we do provide in almost every market all of the content that could be and is desired by customers. That's a positive thing. You don't have to give up or sacrifice anything. I think it's -- you combine that with a very low video ARPU, sometimes in the teens, versus, say, the U.S. or other markets that are quite substantial. You add on top of that targeted and smart investment in sports in the core markets where it matters and where we think we can do it efficiently and relatively inexpensively. And then you round it out with a OTT picture that is both fragmented and I think, depending on the market, not gaining a whole lot of traction. So you put all that together and you lay it on top of a platform that, for us, we call Horizon, that integrates those OTT apps, provides the ability to watch everything on every device. It doesn't force you to sacrifice any content. I mean, no broadcast content. You get all the sports content, everything everybody offers on all devices, that is unusual. Really, you won't see that in Europe. And I don't think you'll see it anywhere. So I think that gives us on the video side a big advantage. And I think it's certainly impacting numbers across the board. And I think it's something we will continue to invest substantial amounts in because we know that that's a big chunk of our gross margin, a big chunk of our revenue and it's our core competency. So I think it's a very encouraging sign, and we expect to continue to invest in that. Charlie, you want to hit the CapEx point?

Charlie? You must be on mute.

Well, I'll hit it. On the Virgin point, I think the GBP 200 million, yes, it was reactive or proactive. It's just what we do. We're constantly evaluating how to allocate capital in our markets. And we're constantly deciding what the best use of that capital is. As we slow down Lightning, clearly, there's a little more capital to be used. And we're focused on putting that to work on network quality and putting that to work on our video platform to make sure we have EOS boxes out there, the V6 box, as rapidly as we can. And I don't believe we're changing our P&E guidance or our free cash flow guidance. So that should be the answer to your question on mix.

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Charles H. R. Bracken, Liberty Global plc - CFO and EVP [30]

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Yes. Sorry, I got cut off. Just to confirm what Mike was saying. We're very comfortable with our free cash flow guidance at $1.5 billion. And I endorse his comments on the CapEx.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [31]

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Thanks, Charlie. Operator, I think one more -- I think we have time for 1 or 2 more, maybe, operator.

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Operator [32]

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Okay. Our next question is from Jonathan Dann with RBC.

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Jonathan Dann, RBC Capital Markets, LLC, Research Division - MD and Head of the European Equity Telecoms [33]

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It's a question on mobile, 2 prong. The first on the convergence ratio. It's still relatively light compared to Southern Europe. I recall you talking about some change in 4G access. And then secondly on the B2B side, I noticed you've started putting mobile into the B2B definition. Would we expect to start seeing some mobile sort of offers aimed at the B2B market as well?

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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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Yes, good question. Definitely going to start pushing B2B -- mobile in the B2B space where we have competitive products. I think that's the main thing. On 4G, we are live in, I think, 5 markets already, including the U.K., where we're roughly 30-plus percent of our mobile base has already switched over the 4G. And with our new MVNO with BT, we will push that increasingly. So we have 4G in the important markets. And you'll see us strive for low product parity and, I think, packaging parity where we can achieve that. The convergence numbers vary materially. We have fixed mobile convergence in Belgium, of course, where we acquired BASE in the 30-plus percent range. And we're lower in the U.K., where it's high teens or (inaudible). And we know that VodafoneZiggo is about 20% since we just put the merger together -- or the JV together. So it's going to vary by market. But I think the trend is discernible and I think important, which is every quarter, we are connecting the dots between fixed and mobile customers. Every quarter, we're seeing an improvement in NPS and an improvement generally in sales but also in ARPU, and that is where we're headed. So I think you're going to see a range of convergence figures, depending on the maturity of the market, where we are in terms of rolling out truly integrated products, our pricing capability. But we'll keep reporting on it. I think the trend is one direction, though.

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Operator [35]

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And we'll take a question from Jonathan Dann.

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Jonathan Dann, RBC Capital Markets, LLC, Research Division - MD and Head of the European Equity Telecoms [36]

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I already asked.

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Operator [37]

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Sorry. David Wright with Bank of America.

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David Antony Wright, BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director [38]

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Yes, just a couple of sort of U.K.-centric questions, please, guys. So many video sort of adds in the U.K., but you're not driving the revenue growth there. So I guess the question is, is that actually just more a retention tool than sort of revenue grower? And then I think you said at the end you did 24,000 adds in Lightning, but you only did, I think, 22,000 net adds in U.K. fixed. So does that tell us the fixed didn't grow at all organically? And I guess that just sort the feeds into the final point on the price rises. You obviously had to discount a lot less last year, sort of 6- and 12-months discounts, because of the churn risk to the -- or the churn reaction to the price rises. Are they not the same customers now rolling out of the discounts and straight into another price rise? It just feels like -- and you mentioned the U.K. wasn't -- it wasn't so competitive. Is that really what you're thinking right now? I'd be interested in those answers.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [39]

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I don't think we said the U.K. wasn't competitive. It is competitive. I think what Tom was saying is it's a rational market, meaning that -- and we operate in many European countries. I don't know how many you follow, but we can tell you, there are many more markets in Europe that are less rational when it comes to the nature of that competition. But I will let Tom, if you want to address those issues on video retention. And I think we did say that the net adds this year -- this quarter were about 2/3 Lightning, 1/3 growth as usual, so I think that number was provided. But do you want to talk about the price increases, Tom, further?

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Thomas Mockridge, Liberty Global plc - CEO of Virgin Media [40]

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Yes. Thanks, Mike. Just to touch on those couple of points. I think in terms of the video adds, because we have been growing that statement I have been coming in on the usual approach where there's a discount offer as people enter, and that progressively will come off. And that will, of course, give us an ARPU uplift, which you're not necessarily seeing at the initial entry point. And of course, we still -- once we get those people in on any video service, an opportunity to upsell them to additional video services, and ultimately, hopefully, the full premium packages. And we're very focused on that at the moment. You mentioned the breakdown of take-up in the quarter. I think we added 22,000 customers. In terms of RGUs, broadband RGUs, it was 31,000. So the customers -- the total customer count as opposed to the RGU breakdown. And in terms of the ARPU management, I think we've made the points there already that we're very focused. We've got new tool of value. We've got a as we got a new team in place. And we do believe we can turn that around.

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David Antony Wright, BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director [41]

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So the 24,000 Lightning adds, that compares to the 31,000 broadband adds. Is that what you're saying?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [42]

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He's saying you have to make a distinction between customers and RGUs. On average, we're adding 2-plus RGUs per customer. So I guess, I'm not -- we're not sure exactly what numbers you're referring to. But if it refers to the word customer, that is actually a household that you're connecting, where you are, on average, sell 2 to 2.5 RGUs per household.

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David Antony Wright, BofA Merrill Lynch, Research Division - Head of Developed EMEA European Telecoms Equity Research and Director [43]

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Okay. Just listen, maybe I'll take this offline. It just -- it seems you added 21,000 fixed customers and 31,000 broadband customers, and yet you're saying you added 24,000 Lightning. So...

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [44]

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Yes, you have to distinguish between RGUs and customers. So we'll do that for you offline.

All right, everybody. We got to hop to the LiLAC call. We'll be on that shortly. Appreciate everybody joining. And we'll speak to you in next quarter. Thanks very much.

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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 Second Quarter 2017 Investor call for its LiLAC Group operation. 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 investor call is being recorded on this date, August 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. Also note that nothing stated on today's call constitute an offer of any securities for sale.

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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Thanks, again, operator. And welcome, everyone, to part 2 of our results call today, where we'll focus on Liberty Latin America or LiLAC for about the next hour. To help dig into the operations and numbers, I'm joined by Betzalel Kenigsztein, President and CEO of our LatAm Group; John Reid, who runs Cable & Wireless, our largest operating unit; and Chris Noyes, Chief Financial Officer. And I've asked each of them to make some brief prepared comments, and then we'll get to your questions.

I'll kick it off on Slide 4 with some key takeaways here, beginning with some pretty strong financial results, namely just over 2% revenue and 10.5% OCF growth in the quarter. It certainly helps that Cable & Wireless is demonstrating some stability on the top line and has moved to a difficult comparison period on operating cash flow. And then also, we had another great quarter in Chile and Puerto Rico.

The second big point is that we are starting to see the benefits of scale as we leverage the know-how and expertise in Europe as well as our deep talent pool. At this point, we've added over 10 new executives to the LiLAC and Cable & Wireless teams from Europe in the last 9 months, including CFO, Chief Commercial Officer and General Counsel of Cable & Wireless. And the support from our treasury and M&A teams in London, alongside the global technology group, has been invaluable.

So we are committed to the spin-off by year-end 2017. That's for sure. We recently filed the S1 to get that ball rolling with the SEC, and we will continually update those documents as we finalize the leadership team, we set up the governance structure and clarify and, I think most importantly, the working relationship between Liberty Global going forward so that we can preserve the scale benefits that I just described as well as many others, like procurement and product development.

And then lastly, as Chris will flesh out, the team is confirming OCF and adjusted free cash flow guidance for the year. For adjusted free cash flow, this is a particularly good news story, given the roughly $100 million of additional pension contribution that was made.

And before I hand it over to the team, I'll just recap again the strategic plan that we believe will underpin value creation for LiLAC. And for those who have been investors in Liberty Global for a while, this will look very familiar to you. It begins with organic growth, which means capturing market share, growing ARPUs with better and faster products and, of course, driving margins, supported in part by $150 million of synergies. But it also means monetizing our unique subsea fiber network, which provides both strategic value and financial upside as we exploit huge growth in Latin American IP bandwidth demand and rebuilding plant and extending our reach on the fixed networks, just as we're doing in Europe.

The second driver is perhaps even more important in this region than in Europe, and that is smart capital structure management. It begins with putting in place a sensible balance sheet hedging strategy, in particular outside of the U.S. dollar or pegged markets, which represents about half of our revenue. And we've done wherever possible, including in markets like Jamaica. So that piece of the puzzle I feel great about. And that's going to support over time our levered equity model, where we optimize maturity profiles and liquidity to support a meaningful buyback program. Now Chris will cover some accretive financing results in the second quarter, where we've extended tenor or lowered coupons, and he'll take you through that.

Last but not least, the region is ripe for consolidation, and we are in a great position to take advantage of opportunities as and when they arise. We announced a few weeks ago that we are acquiring the 20% of the Cable & Wireless Barbados asset that we did not own at what we think is a great multiple. And we're carefully evaluating a large pipeline of deal flow. And our approach here, you can expect to be very deliberate and focused on relative values and accretive opportunity.

So a lot of good things happening in LiLAC. The strategic opportunity looks terrific. Our balance sheet capital structure is improving every day, with Charlie and his team's great work. And then of course, growth and stability are the foundation of this opportunity, and those seem to be in the right direction as well.

So with that, I'll hand it over to Betzalel to talk about Chile and Puerto Rico. 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 provide an update on progress in Chile and Puerto Rico over the last 3 months. But before I get into details on the market, I'd like to highlight some of the many operational initiatives across the whole LiLAC footprint, which should benefit us all in the medium term.

First, we are integrating Cable & Wireless into the LiLAC and Liberty Global product development. This will lead to exciting new products offering for our customers at Cable & Wireless. The Connect Box has already been launched in a number of Cable & Wireless markets. And Horizon TV, with all its benefits, will follow swiftly in the future.

Second, we are focused on sharing Liberty Global best practices across LiLAC. And as Mike mentioned, we are attracting talented colleagues from our sister businesses to join the LiLAC team, which should bode well for the future.

The last point to mention is that we are reviewing our supply chain strategy to ensure we manage inventory as efficiently as possible across LiLAC. This will drive costs, service delivery and working capital improvements.

Moving to Slide 6, in VTR, our Chilean business, which represents approximately 25% of LiLAC revenue. Pulling a strong Q1, we maintained our operating momentum, adding 34,000 RGUs and 15,000 postpaid mobile subscribers in the quarter.

For mobile, this was a record performance. We got there by successfully targeting our fixed subscribers base with data-led packages. We now have nearly 200,000 mobile subscribers in total, a good number, but less than 10% of our fixed customer base will leave us plenty of opportunity to grow. You will all be aware that these growth has been achieved in the context of a very competitive mobile market, following the entry of WOM in 2015.

Our speed leadership continue to be key to our fixed services. And during the quarter, we increased entry-tier speeds to 30 megabit per second and launched a 200 megabit per second high-end package. This compared very favorably with our main competitors who offered much lower entry speeds.

As well as market-leading speeds, we have a sharp focus on customer experience. As talked before about the importance of our advance WiFi Connect Boxes, which are also used across Europe, we now have over 260,000 of these premium boxes installed across Chile, including 60,000 added in Q2. The resulting product offering continues to gain traction in the market, with broadband subscribers addition of 26,000 in the quarter and over 60% of new sales taking packages with speeds of 120 megabits per second or higher. We've also built a strong video offering and delivered our strongest net adds for 8 quarters in Q2, as our best-in-class HD channel lineup and cutting-edge VoD platform resonate in the market.

In addition to targeting the Chilean consumer market, we've also been making great progress in SOHO. We generate really good returns through offering faster speed and higher levels of customer service, such as dedicated 24/7 support. During the quarter, we added 8,000 SOHO subscribers and now at 45,000 in total, with double-digit revenue growth sequentially. Beyond SOHO, which still has plenty of growth potentially, we plan to explore expansion opportunities in the SME segment using products and best practices from Cable & Wireless.

Finally, in terms of our footprint, we added or upgraded more than 50,000 homes in Q2, taking the year-to-date total to over 100,000. Overall, VTR performed strongly in Q2. And we aim to continue this operating momentum in the second half of 2017, building on subscriber gains from our main selling season in Q2.

On Slide 7, I'll now review Puerto Rico in more depth. As you know, this is a market where we face a challenging macroeconomic environment but that still managed to perform strongly, particularly at the OCF level, through excellent execution in our product offering and a keen focus on cost. However, it was a mixed quarter in terms of volume results. We lost 3,000 subscribers across video and telephony, but we had the most stable trend in customer numbers compared to the previous year quarter.

In video, subscriber trends were relatively stable compared to the previous year quarter, as churn across our base was partly offset by take-up of new Big Bundles, which continues to grow. These bundles provide the basic package of channels and connectivity, with options to add mini-tiers such as sports, kids, entertainment, movies, et cetera, for an additional fee. This flexibility is proving very popular, with the majority of our customers with U-Pick choosing at least one minor tier. We continue to improve our HD offering, adding 25 channels this year as well as launching a new EPG guide at LCPR in the second quarter.

Moving to broadband. Our subscriber base was stable in the quarter, as we continued to deliver leading speeds and a differentiated in-home experience. We're also rolling our Connect Boxes at Liberty Cablevision, and we added another 20,000 in the quarter to give us a total of 90,000 or about a quarter of our RGU base.

In what has been a theme across LiLAC, B2B had another good quarter, with revenue up 6% year-over-year. Given our top line challenges in Puerto Rico, costs are a key lever for us as we look to drive OCF growth. In Q2, we continued to generate savings, particularly through lower content costs, as we actively manage our portfolio relative to local demand.

Finally, we continue to expand our network and added 7,000 homes in Q2, taking our first half number to 10,000. We see strong returns from targeted expansion projects in areas of the island that don't currently have access to high-speed connectivity. Overall, given the challenging macro backdrop in Puerto Rico, this was another good quarter from our team at Liberty Cablevision. However, as we mentioned in our last earnings, we will continue to monitor developments closely and remain nimble so we can react as needed to any changes in the operating environment.

I'll now hand over to John who will run through Cable & Wireless performance.

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John Reid, [4]

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Thanks, Betzalel. And hello, everyone. I'm keen to tell you right at the outset that transformation of Cable & Wireless continues, and our efforts are showing a payoff. Starting on Slide 8, you'll see that our markets remain competitive, with some of the pressures that I've highlighted previously in parts of our consumer operations continuing through the quarter. But our financial performance in Q2 was more stable, with good year-over-year OCF growth, which Chris will cover in his section.

In terms of our top line performance, I spoke about pricing opportunities during the Q1 earnings call as a key lever to drive performance through to the second quarter and the rest of the year. I'm pleased to say that these were executed well, and we've since made some additional targeted changes in a number of markets, which will also support our second half financial performance.

I'd like to focus on how we're confronting the competition or in many cases leading them. Let's start with residential. The key here is our network expansion and upgrade program. We're rolling out superfast broadband to areas that have, frankly, been underserved and often where our competitors are not present, whether through our BDSL program in Jamaica or HFC upgrade and expansion program in Panama. This new build program is ambitious and is on target. 80,000 homes were passed or upgraded in H1. I'm confident we will deliver our full year ambition of 250,000 new and upgraded homes in 2017.

In total, we have upgraded and expanded our footprint in 7 markets this year, with 2 further markets to go live in the next quarter. This is great for our customers but it's also good for us and, of course, for investors. The upgrade and expansion of our fixed networks is driving some encouraging video and broadband revenue growth and helping stabilize our financial performance.

In Panama, broadband and video revenue was up 5% sequentially. In the Bahamas, we grew this revenue by 2% versus Q1. In both cases, we're gaining share against our cable competitors. And while we're stuck from a low base in this markets, we have a tremendous opportunity to grow share and revenue.

The second key strength of our residential strategy is a relentless focus on customer experience. This is a core driver of retention and lifetime value growth, clearly critical in increasingly competitive markets. The teams are doing some brilliant work to improve our customer experience through the basic foundational network improvements that are at the heart of great service in our industry delivered through an initiative we call Project Platinum.

Project Platinum work stream involved identifying 40 performing modems and using our network optimization teams to address the problems. The results speak for themselves. We have seen a 9-point increase in NPS in those areas which have benefited from this kind of surgical network improvement. Then there's the contact centers, where we've invested in new workforce management and collaboration tools and which has led to service levels exceeding 85%, along with a 34% reduction in call volumes.

Added to this are the benefits of being part of the largest international TV and broadband company in the world. Since the adoption of Liberty best practices, we've seen lead time to install fall 25% and lead time to repair fall 30%. Across the organization, we're building a culture of superior service. And there's a determined focus to drive significant improvements to our customer experience. And the good news is that this is showing today in our overall NPS scores, with our group NPS continuing to improve quarter-on-quarter and with big increases in our broadband NPS in particular, up 8 points year-to-date overall and up 15 points in both Trinidad and Jamaica, 2 very important and competitive markets for us.

Beyond the basic blocking and tackling though, we're also innovating. For example, the introduction of the Connect Box, developed by Liberty into our markets, is greatly enhancing the WiFi experience for thousands of customers, and deployment is growing at a double-digit rate each month to 7 of our markets.

We've also recently introduced our new iSubscribe feature, which lets customers enhance their video package by immediately adding new content via their remote controls. This drives self-service and increased ARPU. These and many more innovations will form part of exciting and enhanced future offers for our customers. Value propositions are the final component of our residential strategy, and a newly revamped commercial team has been introducing new triple-play packages in Trinidad and Barbados, which are driving up sales in our products.

So while the residential market continues to be competitive, we're absolutely focused on making CWC the obvious choice for customers through our network investments, product development and focus on end-to-end experience. I'm confident that this strategy will feed through into continuing financial momentum.

Now let's look at mobile, and starting in Jamaica, where it continues to be a great driver of growth for us, with revenue up 26% year-over-year on a rebased basis. On a group basis, this growth was, however, more than offset by the revenue pressure we expected in the Bahamas following the entry of a new mobile competitor in November of last year. We've recently made some management changes in this country, with the infusion of new Bahamian leadership talent and a new team that's focused on revamping our value propositions, experience and overall company efficiency.

Our focus on the mobile segment is firmly on leveraging our LTE investments, where we are cost effectively driving SIM and handset swap-outs to incentivize heavier data usage. And in key markets like Panama, we're already seeing a material uplift in ARPU off the back of this strategy, with similar investments and initiatives in place across other markets where LTE has been launched.

And now the B2B. And I'm pleased to say this was a real bright spot for the quarter. We talked about the strength of recurring B2B business, and this was really obvious in the second quarter, with overall management -- managed services rebased revenue growth up 4%, including networks in LatAm up 13%. Our leading network support of continued customer growth and spend, with our IT solution seeing double-digit growth. We've also recently successfully launched a new hospitality product which brings together our best-in-class managed services solution, covering TV, connectivity, managed WiFi and IT security. We have big ambitions to penetrate the significant hospitality segment in our region.

Finally, as part of our continued transformation of CWC, we're also continuing a relentless focus on cost efficiencies. And you can see that starting to come through in the OCF performance that Chris will discuss.

So all in all, a good quarter and one that ultimately is illustrative of the journey that we're on to transform CWC and drive greater performance as well as efficiency. I'm confident that we have the right strategy. And while there's clearly much more to do, I'm pleased to date with how we're executing.

With that, I'll pass you over to Chris who will take you through LiLAC's financial performance.

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Christopher Noyes, [5]

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Thank you, John. My remarks start on Page 10, with a high-level summary of our financial results. And let me say at the outset, we delivered much improved growth as compared to the first quarter.

We reported rebased revenue growth of 2% year-over-year to $921 million in Q2 2017, led by our strongest performance in Chile in 6 quarters. Meanwhile, our Q2 rebased OCF increased by 10.5% to $368 million, supported by double-digit performances at both VTR and CWC and our best reported LiLAC result in more than 12 months, a good result despite the much easier comparison that we have this quarter versus Q1.

Turning to P&E additions. They totaled $171 million in Q2 or 19% of revenue as compared to $201 million or 22% of revenue last year, adjusted to reflect CWC in their pre-acquisition period in order to make it an apples-to-apples comparison. On the bottom left of the slide, we show adjusted free cash flow of $114 million for Q2 2017 as compared to negative $35 million in the prior year period. Our second quarter result was driven in part by higher cash provided by OCF and related working capital items, lower interest and tax payments and a reduction in cash CapEx. With this improved performance, we generated adjusted free cash flow of $56 million for H1, with each of our 3 business units, VTR, LCPR and CWC, generating positive free cash flow.

Moving to our balance sheet. We remain in good shape with approximately $1.6 billion of liquidity, consisting of roughly $600 million in cash and $1 billion in available credit lines. Reported gross and net leverage stood at 4.2x and 3.8x, respectively, at the low end of our target leverage range of 4 to 5x.

Since our last earnings call in May, we have further improved CWC's capital structure. For example, in May, we refinanced our $1.1 billion term loan, extending its maturity by 3 years to January 2025 and reducing the margin by 125 basis points. Then in July, we raised an additional $700 million under that facility, with the proceeds earmarked to refinance part of the Columbus 2021 notes, again extending tenor and reducing our cost of capital.

We anticipate refinancing of the remaining approximately $600 million of Columbus notes in the near term. And you can see that we've repurchased just over $60 million of LiLAC shares since launching our buyback program in November 2016, including $22 million during Q2 at an average purchase price of approximately $21.45 per share.

Turning to Slide 11. Rebased revenue growth improved to 2% across LiLAC in Q2 compared to a 1% decline last quarter. We delivered another strong result in Chile, with 8% rebased revenue growth, primarily driven by strong fixed line performance in terms of both ARPU and volume. This was complemented by continued momentum in mobile, where we posted a record quarter in terms of postpaid subscriber additions.

In Puerto Rico, our rebased growth rate of 1% was in line with the prior year's result, driven by RGU growth over the last 12 months and B2B. This is a very good performance given the difficult macro environment on the island.

CWC reversed its 4% rebased revenue decline in Q1 to deliver growth of 1% year-over-year in Q2, helped by rebased revenue growth of 3% in the Caribbean region and double-digit growth in our networks in LatAm B2B operation, which included $6 million in payments from a significant customer.

Turning to OCF. We generated a rebased OCF growth in excess of 10%, with VTR and CWC each posting gains of 11% and LCPR delivering 7%. Operating leverage across our businesses continue to come through at LiLAC, particularly at VTR and LCPR, as we delivered a year-over-year increase of 170 basis points in our OCF margin to 40% in Q2.

In terms of CWC's OCF growth, we benefited from higher integration and bad debt expenses in Q2 2016 as well as a $4 million positive impact resulting from the reassessment of certain accruals in Q2 2017. These factors, along with improvements in revenue mix and cost management, helped offset the impact of our Premier League rights, which were not included in our prior year numbers.

We're confirming our full year OCF and FCF financial guidance targets for the year, and we are lowering our expectations for P&E additions, which is a good news story. Specifically, we continue to target approximately $1.5 billion in OCF for 2017, which implies continued momentum in H2. It is worth reminding everyone that our reported rebased growth rates in H2 for LiLAC and even more so for LCPR will be adversely impacted by $13 million in nonrecurring benefits that we recognized in the second half of 2016 in Puerto Rico.

We still anticipate limited adjusted free cash flow for 2017, with phasing of our second half free cash flow generation weighted to Q4. Important to note that our adjusted free cash flow will be impacted in Q3 by a pension contribution in CWC of approximately $130 million, which results in pension-related cash payments being approximately $100 million higher than we have anticipated for 2017. But as a result of this larger contribution in 2017, we have agreed with the pension trustees that there'll be no further material top-up contributions through April 2019.

In terms of capital intensity, we expect P&E additions to ramp in H2. But given our year-to-date spend, which in part reflects the impact of a more disciplined capital allocation process and efficiencies beginning to come through, we are reducing our full year target for total property and equipment additions to a range of 19% to 21% of revenue from our previous range of 21% to 23%. The reduction is driven by a 300 basis point lowering of CWC's 2017 range from 21% to 23% to 18% to 20%.

To sum it up on Slide 12. First, CWC delivered improved growth in Q2, following a difficult comparison last quarter. Adding to the continued strong performances at VTR and LCPR, LiLAC as a group delivered a good quarter overall. Next, we've taken a number of actions to improve operational performance at CWC, and we're beginning to reap the benefits from scale efficiencies across the group. Third, we are confirming our 2017 full year OCF and FCF financial guidance targets and reducing our P&E ranges at CWC and LiLAC. And lastly, we're still targeting the spin-off of LiLAC from Liberty Global around the end of the year, which everyone is excited about.

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) We'll take our first question from Soomit Datta with New Street Research.

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Soomit Datta, New Street Research LLP - Founding Partner [2]

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Question please on CapEx or P&E additions. A reasonable cut to guidance for this year at CWC. I was wondering if you could give a bit more color on where that's coming from either by product or by geography. That would be very helpful.

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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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Chris, you want to handle that?

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Christopher Noyes, [4]

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Yes, sure. The change in guidance, obviously, was driven by Cable & Wireless, as we moved it down 300 basis points. If you look at year-to-date spend, we're obviously significantly low. But we are benefiting from improved capital allocation governance processes, which has been a real key for us as we have imparted a more disciplined framework into Cable & Wireless. In addition, we are benefiting from cost efficiencies across the group, primarily in Cable & Wireless. From an overall spend perspective, we are not -- we're still tracking very well to our overall build targets for the year, so we are not discounting or reducing, call it, revenue-generating CapEx. We are benefiting from lowest EPE as well in the system in part due to better inventory management. But it's not changing the direction of where we spend for the rest of the year.

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Soomit Datta, New Street Research LLP - Founding Partner [5]

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And a quick follow-up, if I could. And how does this fit in exactly with the synergies? So are we -- are some of this saving essentially part of the $75 million of annual CapEx synergies, which you've guided to? Or is this something we should think about in addition?

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Christopher Noyes, [6]

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It's part and parcel. I mean, we are, I think, tracking quite well on the 75 in terms of CapEx. And you're seeing that benefit in the lower number that we've guided to.

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Operator [7]

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

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Stephen Paul Malcolm, Arete Research Services LLP - Senior Analyst [8]

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I just had a couple of questions. One is on CWC and the Caribbean turnarounds in Q2. Can you just shed a bit more light on that improvement in revenue trends? Because it looks like the KPIs stayed pretty weak generally. Was that just a pricing move across most of your markets that drove that? And should we expect to improve in the KPIs over the next 12 months? And then just one more question, if possible, on Chile and just an outlook for the tax rate there and possibly an update as to how much cash you've been able to take out of that operation over the last 12 months will be very helpful.

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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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John, you want to handle the Caribbean question?

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John Reid, [10]

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Yes, sure, Mike. Yes, for sure, I think the Caribbean strategy had benefited from a, I think, methodical and targeted pricing strategy throughout the region, really country by country, product line by product line. New bundles are being introduced in some of our larger markets like Trinidad. And also I suppose you could also point to a significant effort on sort of broad network foundation work. So we're driving great performance in the network in terms of installation time frame, reduced repair work, better call center stats, which actually all drive higher NPS, which is also driving performance. In the second part of the year, we'll see the benefit of continued -- this pricing continue to come into the income statement and also, of course, with the expansion plans in multiple countries, including -- and primarily, I would say, in Jamaica. So you're absolutely right. As our upgrade plans continue, we'll see the net adds come into the country -- company. And at the same time, as I indicated, we'll see those continuous improvements come through the various CBP reviews, pricing reviews and I guess, just overall retention efforts that are ramped up across the region.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [11]

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And on the tax question. We continue to have pretty substantial tax loss carryforwards. But Chris, you want to address the repatriation issue on Chile?

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Christopher Noyes, [12]

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Yes. I mean, I think -- and Steve, is your question more perspective or historical?

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Stephen Paul Malcolm, Arete Research Services LLP - Senior Analyst [13]

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A bit of both, to be honest. I mean, I know withholding tax rates are changing there. So how much you've taken out the last years? And what the outlook is for the next couple would be great.

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Christopher Noyes, [14]

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Yes. I mean, I would say -- I mean, today -- at June 30, we sat with roughly $165 million of cash. Obviously, a portion of that will be -- was used in July for our semiannual interest payment, where we upstream up to the Dutch TV for interest payments. But net-net, we do have additional liquidity in the credit pool. So I would expect as we look at funding, we would move some cash up in the coming months up to the LiLAC level. And we can do that efficiently given our intercompany structure. And we'll continue to do that, obviously, for quite a while. Overall, on taxes -- cash taxes in Chile, in the second quarter, we did receive approximately $27 million from the government on a receivable that we had. So on a year-over-year basis, our Chilean cash taxes were quite favorable. If you recall, a year ago, we had higher cash taxes in Chile related to the mark-to-market of some of our derivatives.

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Unidentified Company Representative, [15]

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You can recap Chile outside -- offshore. So you can also technically increase the leverage of Chilean upstream without tax considerations.

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Stephen Paul Malcolm, Arete Research Services LLP - Senior Analyst [16]

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Okay, great. Can I ask one quick follow-up on CWC, which is just, as we think about our numbers for next year, is it right to look for the $224 million of OCF and take out essentially $10 million for the cash accounting benefit and the accrual reversal and say that the right starting point for '18 is more like $214 million?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [17]

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Chris?

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Christopher Noyes, [18]

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On the U.S. GAAP side, I would say the $6 million that we flagged was related to cash basis accounting, and we continue to work with certain customers on that basis. So I do expect we'll continue to have revenue that comes in where we account on a cash versus accrual basis. So I don't necessarily would say it's a one-off per se, but we are treating that when we do get in. In terms of the accrual reassessment, I think that's a reasonable approach to take.

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Operator [19]

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

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David Carl Joyce, Evercore ISI, Research Division - MD and Senior Fundamental Research Analyst [20]

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One of my questions is related to the pending separation and the shared services. How should we be thinking about what's currently in your financials and how things might change once you have these new agreements with Liberty Global set up?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [21]

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Yes. Good question, David. This is Mike. Listen, we are in the process of working all those details out. That's one of the reasons why the filing was confidential, among others. And I think we will -- we are trying to assess with real clarity and an arm's length approach to this what is required, number one, by LiLAC to continue to be hitting on all cylinders when it comes to the treasury activities, strategy, M&A, technology, et cetera, but also, most importantly, procurement. I mean, it's a good question that we need to be thinking through here. And that question is, with scale being such an important part of our broader strategy, we do not want to set LiLAC adrift without the benefit that we know global scale can bring. It won't be good for LiLAC shareholders, and then we have to demonstrate to Liberty Global shareholders why this makes sense as well. So there will be some obvious things like procurement and content and things that you'll say, this is -- this makes total sense. We should obviously be trying to find ways to this on a global basis. And there'll be things that we have to probably -- will have time frames associated with them. I can't give you a number today and say this is how you should adjust your forecast. But I can assure you you'll have plenty of detail when we finally do the split-off, if not, well before that. And we'll be really transparent about that issue.

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David Carl Joyce, Evercore ISI, Research Division - MD and Senior Fundamental Research Analyst [22]

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All right. And if I could, one -- another operational question. On Bahamas, about a year ago, you were working down some of your interconnect rates ahead of the competition coming in. Could you talk about the phasing on the mobile competition there? Has it been ramping up? Or has it been kind of steady throughout the quarter?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [23]

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I'll let John address that. Go ahead. But I think the punchline is it's been ramping, but go ahead though.

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John Reid, [24]

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Yes. It has been ramping. I mean, if I look -- when you look back at the, I guess, at the entry point of [Alive], which was about October and November of last year, so about 7, 8 months in, we had a -- I guess, we would say we would have more of the significant hit in the first quarter in terms of December, January period. But we're seeing sort of a leveling off; the porting in, the porting out, has leveled off a little bit in the Bahamas and sort of pretty much in line with our own internal expectations. And so I think in terms of looking ahead, the market continues to evolve obviously. There are still -- it's probably evolving a little bit into a dual SIM, dual-handset market in the short term, so we're monitoring that. And I guess, the other thing I would say is that it's certainly a market where the value propositions and how we kind of -- how we look at a possible alignment with our fixed play, our fixed-line products in terms of rolling out our fixed line networks, our mobile TV app that we've launched on -- for our BTC prepaid and postpaid customers. It's all sort of helped us, I guess, stave off our competitions. So I think it's probably played out about as where we thought we would be. The hurricane kind of interrupted, I guess, our own internal performance in terms of increasing our cost base. And it probably interrupted Alive market entry at the same time. I think overall we're kind of -- if we look ahead to next year and [our own planning], I think we're pretty much on our 3-year outlook in August of -- or certainly at the end of June 2017.

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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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Yes. But the punchline is it will provide a headwind. I mean, mobile is 70% of revenue there. And we should anticipate -- you should anticipate continued headwinds as they continue to penetrate the market, I think, is the punchline.

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Operator [26]

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And we'll take our next question from Jose Quintana from Scotiabank.

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Jose Maria Quintana, Scotiabank Global Banking and Markets, Research Division - Associate [27]

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Could you give us an update on how your -- the sale of your stake in TSTT in Trinidad is going?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [28]

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John, I'll let you address that. But slowly, I think, is the punchline.

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John Reid, [29]

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Yes, your bang on, Mike. Yes, the progress -- or the, sorry, I guess, the process continues. We've had an extension in terms of the process based on, I guess, a change in the market where Massy was bought by TSTT, so changed the market dynamics a little bit. We've been in constant contact with the regulator, obviously, who's part of the process and guiding us through that. So there is still an active process ongoing, as much as I will say, but it takes time. And we continue to sort of force through with possible opportunities with our external consultants, obviously, who are running that process. So no change in status except that it does continue.

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Operator [30]

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Our next question is from Kevin Roe with Roe Equity Research.

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Kevin Michael Roe, Roe Equity Research, LLC - President and Founder [31]

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On the CWC side, John, 2 key markets, Jamaica and Trinidad, have yet to show RGU growth in Internet and broadband. It looks like that could be a significant tailwind as it turns in the second half. Can you talk about your expectations for RGU growth in those 2 key markets and the competitive headwinds you may be facing?

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John Reid, [32]

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Yes, sure, Kevin. And I'll take Trinidad first. We actually saw some video growth in the last quarter. So that market admittedly was the one market in the Caribbean that we were certainly on our heels in terms of the competitive change and, obviously, the macro softening as well. And now we're starting to see some stability in that market. In Jamaica, another big market, obviously, where [DSL] entered. The key there is our ongoing upgrade and expansion plan. So we have a significant upgrade to the BDSL plant there, which is largely outside the footprint of any competitor. And so in many respects, launching a video product there as well as a -- as broadband will change the dynamics of that market for us. So I think in both those markets, my expectation is, first, stability and then growth. And I think we're seeing that in Trinidad, certainly with the new CBPs, new super bundles that are adding subs every month and actually taking triple-play. And with Jamaica, more importantly, I suppose, is more the network upgrade and expansion plan that should drive net adds in subsequent quarters.

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Kevin Michael Roe, Roe Equity Research, LLC - President and Founder [33]

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Great. And just a follow-up on the network expansion in Jamaica. Could you shed some numbers on that, what your expectations are for the remainder of the year and what you've accomplished to date?

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John Reid, [34]

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Well, the target for the entire group for CWC for the -- for 2017 fiscal year is 250,000 homes passed. A large chunk of those are upgrades in Jamaica and Panama, as you know. So our expectation is that we will hit those numbers, and that we'll again drive the performance. So no change in terms of our outlook on homes passed in terms of what our targets that have been communicated. And certainly in Jamaica, the expectation is that we will hit those numbers and see that underlying growth come through based on completion of that particular activity.

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Operator [35]

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

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Amy Yong, Macquarie Research - Analyst [36]

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Maybe 2 questions. So first on the B2B side. I think you mentioned hospitality. How big could this market be for the business on a whole? And what other investments are needed to actually penetrate that market? And my second question is on M&A. I guess, Mike, what characteristics are you looking for? And could you potentially look at vertical integration? Obviously, there's a huge content company out there that Liberty has expressed interest in. I was wondering if you could comment on sort of the M&A growth and characteristics that you're looking for?

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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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Sure. I'll hit the M&A question first. John, you can attack the second one. I think the approach we're taking is consistent with what we identified in the past for you, which is, number one, we're trying to build regional scale. So that means looking at either opportunities or markets where we know we've got an opportunity to get in there and become a sizable and an important player, either in the region by complementing something we already operate or in a market where we think we've got a foothold that can drive greater scale and greater opportunity in that marketplace. It's a big pipeline today. And I would be surprised if you couldn't come up with the same names that we've come up with. So I'm not going to address any of them specifically, except to say that we are super busy looking at opportunities that everybody wants to talk, as you would expect. And I think the spin-off, in particular, is creating some momentum and excitement around the platform that we're building and the opportunity to scale up substantially. In terms of vertical integration, it's a difficult question. I would say our interest level in the situation you referenced tangentially is low. LiLAC is focused on Latin America and the Caribbean, not on the U.S. Having said that, we have a great personal dialogue with Televisa on a number of fronts. And I consider them to be excellent operators. And who knows, down the road there might be things we can do within the boundaries of what LiLAC is attempting to build out. I don't see us chasing a business that's primarily U.S. based. That would be consistent with the strategic plan we've laid out. But I think the M&A business opportunity here is substantial. I will assure you that, as we have been for 2 decades now, we'll be smart and disciplined about how we go about building the opportunity. And if the opportunities aren't there, then we'll get on the other side of it and consolidate into somebody else. But I do think there's an opportunity here for us to bring the expertise, the capital, the ambition, the strategic approach of value creation that we utilize elsewhere in the world to this region that is highly fragmented and is looking for leadership, to be straight. So I think we got a really unique opportunity that we'll be thoughtful about executing. John, you want to get the first one?

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John Reid, [38]

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Yes, sure, Mike. I think a good opportunity to just really highlight how comprehensive this hospitality product is, and that's just probably one of the most comprehensive guest experience hospitality products in the entire industry. We offer managed WiFi security, unified communications, hospitality monitoring, hospitality TV, obviously, analytics service. And so it really is a full product suite, HDTV, sports, any kind of TV set, fully customizable, supports VoD mobile TV viewing. So I think it's good to understand why we think it's such a great opportunity. In terms of the footprint, it's not just the Caribbean, which probably numbers a couple of hundred thousand hotel, guest home, rooms, but also through Central America and Panama and also in Mexico, where we have connectivity through our subsea network and are looking at a partner in that particular market. So I think our enthusiasm is, I think, it's well -- it -- will be validated. We have already signed up customers in Central America and also in Jamaica. And I think it's going to change the perspective of how that product looks in the entire region. Important to note that we do have connectivity into probably 60% to 70% of the Caribbean hotel rooms, as it were. We might have fixed voice. We might have a video product deal, traditional kind of product that would be familiar to North American markets. So we do have connectivity, or we do have, certainly, customer relationships in some of these establishments but certainly not that robust opportunity that we see through this product. In terms of the investment, it's really already been made. It's been sort of homegrown as well as a partner with a number of specials throughout the industry, so -- again, to make it customizable for each of our potential customers. So really, the investment's been made. The opportunity is there. And actually, right now, the centralized -- most of the team would be mobilized to attack all these markets.

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Operator [39]

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(Operator Instructions) And we'll take our next question from Matthew Harrigan with Buckingham.

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Matthew Joseph Harrigan, Wunderlich Securities Inc., Research Division - Former MD [40]

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I was curious if you could contrast the IPTV experience in Latin America with Europe. I mean, it seems like it's an add-on for a lot of people. It's positive for Verizon. But I guess, in some markets, you might have less of a price power than over in Europe. And there are guys like Netflix who are [working] very hard in codex and compression ratios so that they can do a lot on mobile and maybe to put bandwidth requirements in place prohibitive -- don't requires as much jitters you would have had 3 to 5 years ago.

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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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Matt, I think Balan might be on. I'll let him chime in here too. I want to make sure I understand your question, but I'll address the OTT point first. Whereas Europe, I think, is a slowly evolving OTT market that looks very much like the U.S. in terms of rights and platforms and brands, let's say the situation at least in the Caribbean is quite chaotic, meaning that there are many illegal OTT platforms, some that you know and know well. And so we are battling, both in mobile and the fixed environment, that pressure when it comes to video. It can be a good thing on the mobile platform, providing data consumption for sure. It's quite a negative thing on the fixed platform where many of these products and services don't have rights and aggregating rights and, quite frankly, stealing rights. So it's a bit of a mixed bag. I don't think there's a technological differentiation per se. I mean, on the copper networks that Cable & Wireless managers we're appropriate upgrading, but mostly trying to build fiber or HFC. So I don't know, Balan, if you or John have any other -- or Betzalel, have any other thoughts on that? But I'm sure there's a great comparable there.

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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, I would agree with your comments, Mike. And remember, in that region, I mean, it build consumption caps which -- on the mobile side. So even with improvements in (inaudible), et cetera, you're still going to eat up a lot of it. And it's pretty much a prepaid market as well. And so people are very sensitive to our consumption there in that region.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [43]

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One of our -- this is an interesting comment though. One of our goals is to bring -- I think we could do it single-handed because we certainly can. But to bring some regulatory pressure to there in this region so that regulators start working together, to the extent they can, and our focused on the things, the big picture trends that we know will impact the business over the next 5 or 10 years; net neutrality, we think that's there; but certainly, these types of issues where copyright and platforms like this are being addressed with governments. So I think it's part of what we bring to this equation. Maybe it's a bit of a 30,000-foot deal what's happening elsewhere in the world and then bringing some real public policy energy to the debate. And that's, I think, going to bear fruit here in the medium term.

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Operator [44]

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And our final question will come from Julio Arciniegas with RBC.

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Julio Arciniegas, RBC Capital Markets, LLC, Research Division - Analyst [45]

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So my question is regarding the rebalanced CWC. The company reported some strong growth, 10%. The company also mentioned about this reassessments on certain accruals and additionally having better comps in Q2, the integration costs last year. Can you give us a little bit more color on the size of these reassessments? How should we think about it in the coming quarters? And also related EBITDA growth, wholesale and managed services trend was quite strong. How should we think in the following quarters about these 2 business lines? They should continue growing at this sort of rate?

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [46]

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Chris, you want to take the first one?

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Christopher Noyes, [47]

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Yes, sure. I mean, I think -- as I mentioned in the prepared remarks, the reassessment of the accruals was $4 million positive impact in the quarter.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [48]

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John, in terms of wholesale and B2B?

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John Reid, [49]

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Yes. Well, we expect, certainly, the -- we expect strong growth continuing. I mean, in the LatAm markets in particular, we are in the attack kind of mode, including Colombia. So our opportunity for growth there is significant. And as I indicated, the size, certainly, of the core services of connectivity and some IT services is growing up. The hospitality product will certainly support that growth as well. And obviously, consumption demands continue through the region. Bandwidth demands continue, which will certainly support the anticipated growth and steady growth of the networks business as well. We haven't seen that -- we haven't seen a deviation from that, certainly not since I've been a part of the Columbus CWC team. So our expectation of growth will continue for that network -- for that segment as well.

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Michael Thomas Fries, Liberty Global plc - Vice Chairman, CEO, President and Non-Executive Chairman of Austar United Communications Ltd [50]

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Okay. Thanks, everyone. Listen, I need to wrap quickly the 3 points I tried to make at the beginning here. Organic growth is something that's super important to this group, obviously, and that's the bedrock and the foundation of the opportunity here. And that's something we're going to be talking about regularly every quarter. How are we attacking what we know to be an inherent and very positive business opportunity in mobile and broadband, in particular, and pay TV in market by market. So stay tuned for more on that.

I think the balance sheet piece of the equation here is super important as well and perhaps underappreciated the extent to which we're ensuring that we're hedged, that we're not going to have any big gotchas here, that we're bringing a very sophisticated approach, and I think shareholders will appreciate that, to the capital structure over the long haul and the balance sheet. So that's a big driver for me. And I think the M&A opportunity will be quite interesting. We'll see. I think there are lots of, again, moving parts, but expect us to be smart and disciplined.

And then last point I'll make is, I feel really good about the management team that's coming into place here. We put a number of people from the broader Liberty Global Group into Cable & Wireless. And LiLAC, we will be announcing some more definitive structural changes around the broader LiLAC team over time. The integration between the 2 regions has been really, really positive. And I think we wanted to maintain some connective tissue there for both, but the shareholders really.

And so a lot more to talk about in the second half of the year, especially as the spin approaches, and appreciate your support. We'll speak to you next quarter. Thanks, everybody.

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Operator [51]

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Ladies and gentlemen, this concludes Liberty Global's Second 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.