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Edited Transcript of LBTYA earnings conference call or presentation 7-Nov-19 2:00pm GMT

Q3 2019 Liberty Global PLC Earnings Call

LONDON Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Liberty Global PLC earnings conference call or presentation Thursday, November 7, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles H. R. Bracken

Liberty Global Plc - Executive VP & CFO

* Lutz Schüler

Liberty Global Plc - CEO of Virgin Media

* Michael Thomas Fries

Liberty Global Plc - Vice Chairman, President & CEO

* Severina Pascu

Liberty Global Plc - CEO of UPC Switzerland

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Conference Call Participants

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* Carl Murdock-Smith

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* David Antony Wright

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

* James Edmund Ratzer

New Street Research LLP - Europe Team Head of Communications Services & Analyst

* James Maxwell Ratcliffe

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Jeffrey Duncan Wlodarczak

Pivotal Research Group LLC - Principal & Senior Analyst of Entertainment, Interactive Subscription

* Maurice Graham Patrick

Barclays Bank PLC, Research Division - MD

* Michael Bishop

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Nick Lyall

Societe Generale Cross Asset Research - Equity Analyst

* Robert James Grindle

Deutsche Bank AG, Research Division - Research Analyst

* Ulrich Rathe

Jefferies LLC, Research Division - Senior European Telecommunications 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 Third Quarter 2019 Results Investor Call. 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. At this time, all participants are in listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. After today's formal presentation, instructions will be given for a question-and-answer session.

Page 2 of the slides 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 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 in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed forms 10-Q and 10-K, as amended.

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

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

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [2]

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Great. Thanks, operator, and welcome, everybody. I appreciate you joining the call today. We've got plenty of ground to cover, as usual. So we're going have to try to keep our prepared remarks a bit shorter today so we can spend more time on Q&A. And as usual, I've got a number of execs on the call with me, who will be sure to get engaged as needed in that conversation. So I'll kick it off with some Q3 highlights.

By now, you've combed through our financial and operating results, no doubt, and Charlie is going to dig into those in a moment. From my point of view, there were 3 key takeaways here. First, we're tracking to guidance, in particular, free cash flow. And as we've discussed all year, that's a function in part of resetting our capital intensity levels.

With P&E additions down considerably, we've reported 40% rebased OFCF growth if you include Switzerland and 80% if you don't year-to-date. Again, that's a major step-up from prior years, and it's happening across all of our key opcos.

And then third, we are absolutely descaling central costs, both at corporate and in our centralized T&I operations. Several of you have asked for clarity on this point, and Charlie has an entire slide on it coming up.

The punchline, though, is that the costs we incur to fulfill the service agreements we've signed with Vodafone, Deutsche Telekom and our Dutch JV will more or less equal the revenue we're generating from those agreements as they rise and fall. So there will be no significant mismatch in those costs, which means the additional costs to support our remaining operations, which is largely allocated to our opcos, will not be impacted by these TSA agreements and should, in fact, be flat to down as we move forward. More on that in a moment.

And as our largest operation, Virgin Media naturally follows much of this same narrative. Despite continued investment in network expansion through Project Lightning, we've seen declining CapEx year-over-year and significant operating free cash flow growth year-to-date.

Operationally, Virgin subscriber growth and financial results continue to be impacted by competition and the macro picture. I think we foreshadowed that all year long, and I've got a slide on Virgin coming up.

So let me turn to Switzerland briefly. I'm sure you all followed recent developments on our transaction to sell our business there. Obviously, we were disappointed that Sunrise was unable to secure a favorable vote for the rights offering that would have financed the deal. We knew there was resistance from their largest shareholder, but we were not expecting ISS to publish such a misinformed and flawed report. It's unbelievable, really, and that just pushed it over the edge. So you may have noticed that both the regulatory approval and the stock purchase agreement are still valid until the end of February. You can infer from that whatever you want.

Switzerland is rapidly becoming a converged market. There is no question that our gigabit networks and advanced TV platform are the most important link in that chain. As you know, we've already witnessed over $100 billion in fixed-mobile mergers in Europe, nearly all of which involve cable assets, and there are more to come. I'm pretty sure of that.

Two textbook examples of that convergence are our operations in Belgium and Holland, both of which are delivering on the promise of synergies, reduced churn, greater customer satisfaction and strong free cash flow. So the model works. And the backbone of that model, the backbone of these combinations in Europe, is fixed broadband. Just like in the U.S., it is the killer product that drives our bundles everywhere, but it remains very competitive in Europe. You know that. We are adding data RGUs and expanding our lead on speed with gigabit broadband launched in all of our markets. In Switzerland, for example, we're marketing our 1-gig networks now to about 75% of that country. In the U.K., we're launching giga cities as we speak, and we'll reach over half the country with gigabit broadband in 24 months. And that's the same for Holland and Belgium, essentially.

And then finally, in an environment like this, we feel awfully privileged to have options when it comes to our financial position. I mean Charlie will spend a minute on the balance sheet, but we're sitting on about $10 billion of liquidity today, which includes $7.4 billion of cash. The net proceeds from the Vodafone deal of around $11 billion plus were obviously reduced by the $2.7 billion we spent on buying back 14% of the shares in September. That was a Dutch auction tender. And then there's some other factors that Charlie will run through.

I'm sure we'll get a few questions on this topic, so I'm simply going to say that our focus with this liquidity remains the same. We're evaluating opportunities in core markets, core sectors and of course, our capital structure.

The next slide provides a bit more background on Virgin Media's results. We know that's a major focus for analysts and investors. I'm just going to highlight a few points here in the interest of time. As you know, our financial results, in particular our free cash flow, have been mixed year-to-date, and they reflect the headwinds we identified at the beginning of the year like broadband network taxes and increased content costs.

In addition, we've seen increased competition, discounting at the lower end of the market and general macro factors, and that's resulted in slower RGU growth and stable revenue year-to-date. Lutz and the team are focused on a host of initiatives in the consumer business, from fixed-mobile convergence to 1-gig rollouts and digitization, all of which are well underway and should underpin performance going forward. But they take time, and I'm happy to get into that during the Q&A, and I know Lutz would be as well.

A few positive takeaways here. Operating free cash flow, as I mentioned earlier, was up over 30% through 9 months as capital intensity declined. Secondly, customer ARPU was up modestly in the third quarter driven in part by the recent price increase, which just started accruing in September. In fact, Q3 rental ARPU was up 1.7% year-over-year, while total ARPU, as we tell you each quarter, was impacted by declining voice usage and lower pay-per-view revenue. So it was up about 0.5%.

On the mobile front, we had a great quarter in the U.K. with 107,000 net postpaid adds as Virgin's foray into fixed-mobile converged bundles continues to pay off. Now to fund that -- to fuel that and to complement that, we just announced a new MVNO deal with Vodafone that will result in significant savings on MVNO fees, hundreds of millions of pounds, in fact, over the life of the contract and provides us guaranteed access to 5G services. This is a good contract for us.

And then lastly, Lightning is rolling on. We're closing in on 2 million homes built. We had our best customer and RGU net add performance in 4 quarters. Revenue and operating cash flow are growing, and the negative impact on free cash flow gets smaller and smaller every quarter, just as you'd expect it to.

Now there's plenty of speculation about our possible moves in the U.K. market when it comes to network expansion, and I'll just repeat what I've said before. First of all, with only 5% fiber penetration in the U.K., you're going to see a lot of activity by altnet and even BT on this subject of next-gen networks. That's to be expected and, in our opinion, as much as anything, validates the broadband opportunity. But most of it is talk. And as you know yourselves, these brands are slow and expensive. And while everyone's busy raising capital or talking to regulators, Virgin Media is making it happen. We're bringing 1-gig broadband to half the country over the next 24 months. By the way, that's without digging up streets or disrupting premises. And I promise you, that matters to politicians and customers. And it makes us the most important new story today, in my view.

U.K. is ranked 41st in the world in broadband speeds. If Virgin Media was a country, we'd be ranked fifth, right behind Singapore, South Korea, Taiwan and Hong Kong and well ahead of the U.S. So we really are the secret weapon in this market, and I think it's smart for us to consider how best to exploit that position, but to do it efficiently and economically. And I'm sure you have plenty of questions on that.

So let me move on to the last slide here, which provides some operating highlights for Belgium, Switzerland and our 50-50 JV in Holland. We'll start by pointing out right up front, you'll see a lot of similarities here. All 3 countries experienced fixed RGU losses in the quarter, but very positive and strong mobile postpaid net adds. And while each operation is reporting flat to down revenue growth, they're either delivering or projecting significant operating free cash flow margins and growth.

Telenet operating free cash flow was up 45% in the quarter, and they're now guiding to EUR 380 million to EUR 400 million of free cash flow for the full year. They also announced that they intend to dividend a large part of that out to shareholders, obviously, including us.

VodafoneZiggo has returned to positive revenue and OFCF growth and operating cash flow growth and announced that they will dividend out around EUR 600 million to us and Vodafone this year.

And Switzerland is hitting on all cylinders. The turnaround plan is working. Our new advanced TV set tops and user interface are rolling out right on plan, with the upgraded platform expected to represent 50% of all boxes by year-end. FMC penetration is nearing 20% with NPS at an all-time high. And the 1-gig network we're building there has helped improve fixed RGU losses for the third straight quarter this year.

So I'll just wrap with a few thoughts. First, we are extremely well positioned in all of these markets to take advantage of fixed-mobile convergence financially, operationally and strategically. We've shown you how we can do that. Stay tuned for more.

Second, we're focused on profitable subscriber growth, at least with our current premium brands, and that's going to impact volumes in competitive times as it has this year.

Third, fourth and fifth, we are committed to free cash flow margins, yields and growth. This year's step change is going to be hard to replicate, of course. 80% operating free cash flow growth is extraordinary, but that's the long-term metric that matters to us.

And then finally, just a reminder, we have considerable scale in our core markets in Europe. 45 million fixed and mobile subs, $7 billion of operating cash flow if you include the Dutch JV, and we have considerable financial flexibility with $10 billion of liquidity to opportunistically create long-term value.

With that, I'll turn it over to you, Charlie.

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [3]

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Thanks, Mike. For those following, I'm now on the slide titled Group Overview. Revenue in the quarter was broadly stable excluding Switzerland at minus 0.2% and with Switzerland at minus 0.6%.

Telenet continues to be impacted by the loss of the Medialaan MVNO contract. And we also started to recognize TSA revenues from the assets we sold to Vodafone in the quarter, which contributed $26 million of incremental revenue, but we don't include that in our rebased growth rate.

OCF declined 4.1% including Switzerland and 2.9% without it. This was in line with our expectations for the quarter. The U.K. was impacted by the year-on-year increase in network taxes, which will continue to increase but at a lower rate over the coming years. We also saw an increase in programming costs related to prior year renewals, such as BT Sport and UKTV and the recent multiyear Sky agreement.

Swiss OCF was impacted by cost saving and continued investment in key revenue and growth initiatives such as the EOS box rollout and the 1-gig upgrade of the broadband network.

OFCF continues to grow strongly and was up 63% excluding Switzerland and 35% with it. Remember, the Swiss numbers are impacted by the investments in those initiatives such as EOS set-top boxes and the 1-gig upgrade, which we would expect to normalize over time, resulting in a lower CapEx figure.

Liquidity remains very strong with cash sitting at $7.4 billion. Now when we completed the sale to Vodafone in July, we reported net cash proceeds of $11.3 billion, which, together with our Q2 cash balance of $1.3 billion, came to $12.6 billion. The $5.2 billion difference is made up of the $1.6 billion UPC term loan repayment, the $2.7 billion Dutch auction tender completed in September as well as a combination of items, including a negative free cash flow in Q3, FX movements on the proceeds of around $200 million and an escrow payment of EUR 300 million in relation to the TSA with Vodafone. Together with the revolver capacity available, that means around $10 billion of liquidity.

Leverage remains around 5x gross and 3.5x net. We were able to take advantage of very strong financing markets, completing over $6 billion of financing, which means that virtually all our senior secured debt is now repriced and extended.

Our weighted average cost of debt is now 4.1%, and our average life after all that refinancing activity that happened after September 30 is up from 6.8 years to 7.3 years. And again, all the debt is fixed and swapped back to the underlying currencies.

On the next slide, we give further detail on our central costs. In total, we spent around $200 million of OpEx and CapEx in Q3. And as we've discussed on previous calls, we would divide that into 2 buckets. And then on top of the page, we set out our corporate costs, which includes costs such as centralized finance, development, HR, strategy and the like, which was $44 million for the quarter. We remain on track to reduce this to around $230 million for the year, down from $260 million last year. We continue to target around $200 million in 2020.

Next is our centrally incurred technology and innovation costs, which represent network and product development spend. All this spend is attributable to our retained operations and our affiliates, whether they've been sold or ventured. And as suggested on the last quarterly call, we estimate total T&I OpEx and CapEx of $700 million for 2019. That number is now expected to be closer to $650 million in 2019 and well on track for $600 million in 2020. And just to put that in context, total OpEx and CapEx for T&I was $800 million in 2018. So there is some substantial progress descaling our central cost structure, with more improvement coming.

As you know, we do [now] collect revenue from Vodafone, T-Mobile in Austria and Liberty Latin America to offset some of our T&I spend, and the slide breaks those numbers out quarterly. But to simplify it, we're currently collecting around $80 million per quarter against the total spend of roughly $150 million to $160 million. The balance is on net T&I costs and is fully attributable to our retained assets, including Switzerland. Over time, we anticipate that revenue from these agreements will largely match our cost to service these contracts. So the net spend attributable to our retained assets should be at least flat, if not down.

On the next slide, we try to break out the OFCF margins and the profitability of each key component of our group to allow you to compare it to our peers and also to give you more clarity on the Virgin OFCF and, in particular, the free cash flow distinction between Lighting and non-Lightning operations.

This slide is entitled Divisional Overview, and we show the key financials for our operations before T&I attributions, which we've labeled as OFCF precentral cost allocation, and after the T&I attributions, which we've labeled on the slide as pro forma OFCF for the year-to-date. We've also split out Lightning from the core Virgin operations. Now although Virgin as a whole has reported $811 million of OFCF in the first 3 quarters of the year, we estimate the core Virgin operations generated over $1 billion with a net $241 million invested in Lightning year-to-date.

Belgium delivered $649 million of OFCF at a 30% margin. Despite its investment program this year, Switzerland has generated $228 million of OFCF at a 24% margin. And the group as a whole made $1.6 billion of OFCF including Lightning or $1.9 billion excluding Lightning. The Dutch JV is also generating strong OFCF with $800 million generated year-to-date. Its OFCF margin of 24% should increase going forward as it completes the acquisition integration investments with Telenet's 30% OFCF margin showing what is achievable for converged assets.

On the next slide, titled pro forma adjusted free cash flow, we show how the OFCF converts into free cash flow. On our guidance basis, free cash flow for the quarter was in line with our expectations of minus $16 million. Now remember, Q3 and Q1 are where we make our semiannual interest payments, and we expect no meaningful interest costs in Q4.

We remain on track to spend around $2.7 billion of CapEx for the full year, excluding Switzerland. Our cash tax in Q4 will include a payment of around $70 million relating to U.S. cash taxes paid. But despite this, we remain on track to meet our original free cash flow guidance, excluding Switzerland, for around $550 million to $600 million.

Switzerland has generated around $90 million of free cash flow year-to-date, and we expect a full year number of around $150 million. Meaning, even after Lightning, we should generate around $700 million to $750 million of free cash flow for the year.

So moving to the final conclusion slide, our key focus remains OFCF and free cash flow delivery, and we're pleased with the year-to-date progress on both metrics. We're seeing strong cash flow generation despite our net OFCF investment of around $350 million in Lightning this year, which, if excluded, means our retained assets, including Switzerland, should generate $1 billion to $1.1 billion of free cash flow this year.

We're also focused on long-term value creation and have a significant cash position to support opportunities, including share repurchases. We are reinforcing our speed leadership across our footprint with 1-gig developed deployments. The Swiss turnaround is on track and gathering momentum. And we're providing guidance both with and without Switzerland at the bottom of the page, but we confirm we are on track to meet our key targets, particularly free cash flows.

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Unidentified Company Representative, [4]

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And with that, over to you, operator, for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll go first to Michael Bishop with Goldman Sachs.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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Just 2 questions for me, please. Firstly, on the U.K. RGU growth and the wider performance. Mike, I think you said it was the best quarter in 4 quarters for Lightning net adds. So sort of backing that out, given the relatively weak overall RGU trends, particularly TV, I was just wondering if you could give us some comments on what was happening in the existing footprint outside of Lightning. And then secondly, on the free cash flow guidance. It looks like if you broadly take the $700 million to $750 million, removed Switzerland and then sort of removed the higher dividend from VodafoneZiggo and the Telenet free cash flow, you're basically at 0 free cash flow. So as we look ahead to 2020, I was just wondering if you could walk through the moving parts to give us a bit more color on how effectively the ramp, including Virgin Media, could improve cash flow generation and where you think the group might be able to head to in 2020.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [3]

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Sure. Thanks, Michael. Charlie, you'll, I'm sure, prepare an answer to the free cash flow question, make sure we understand that correctly -- we understand that one correctly. And I'll ask Lutz to chime in, of course, on the U.K. But in principle, as you correctly said, and as I pointed out, the RGU growth in Lightning is pretty steady. If you look at total net adds, broadband net adds, telephony or video, we've been pretty consistent in the last 4 or 5 quarters, and this was a better quarter than we've had in the last few, marginally better. But I think it demonstrates that the product matters, the Lightning project is delivering the sort of penetration rates, ARPUs and returns that we expect. And we do understand that people like the detail of Lightning. We were just trying to make the slides a little shorter today, but we weren't avoiding any disclosure on that. Lighting continues to be a terrific program for us from almost every perspective.

In terms of the -- in the BAU or GAU, depending on how you define it, and I think Lutz will dig into this and I made comments in my remarks, it's a competitive market. That's for sure. Particularly, we are focused on more of the premium product and the higher-end product, especially in video. So we're trying to retain customers that we view as profitable customers and the kind of Virgin customer that means a lot to us, which means you're going to lose some customers at the lower end. And that clearly happened in the BAU market, in particular in video. It was not a great quarter for us in video. I think -- I'm not sure we're disclosing the details of that, but you can probably do the math. And in broadband as well. We did lose broadband customers on that footprint. We have lost customers on this footprint in the past. I would say that this isn't an extraordinary occurrence. The GAU or BAU market has always been a bit lumpy depending on what's happening in the competitive environment. And I think our reaction to what we see as a softer environment in total for broadband and video, just based on consumer confidence and impacts of Brexit, combined with competition at the lower end, is going to have an impact on our product mix. But I think Lutz can dig into it. I think we're focused on the right things here and focused on profitable subscriber growth, which is, in our mind, the right thing to be pursuing in this kind of environment.

Do you want to add to that, Lutz? And then Charlie can say something on the free cash flow question.

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [4]

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Yes. I can give some more numbers to it, Mike, if you want, and Michael. So the swing in RGUs, you can clearly see that it's 150,000 RGUs, right? So we had a win of 100,000 RGUs a year ago and now we have lost 50,000. Half of that comes because we have pulled the price rise forward by a month, yes, so it's a phasing. Half of it is phasing. 25,000 of that is we had a year ago the launch of our voice over IP service. It was a one-off in telephony, which doesn't come again. And then 25,000 is we are continuing our high-value video strategy. So we are not winning low-end player customers anymore, which we have used to charge the same price than dual customers. That was not a very good use of our capital, and you see that in our high CapEx. So that is 25,000, a deliberate decision, which will come again. And only 25,000 is due to the market, yes? So therefore, make up your own mind, but I would say 2/3 are really just because of a phasing. 1/3 is -- half of that is a conscious strategic decision of use of our CapEx in our video. And 25% -- 25,000 is just the market.

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [5]

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Just on the free cash flow -- and I appreciate your numbers. If I just break it out into the key groups. I think your point is, essentially, if you take out Switzerland and use the $600 million number and then you subtract Telenet, you'd probably end up with only around $200 million and then you're saying that the $200 million effectively equates to the dividend. I think what I would point out is when we talk about shareholder distributions from Holland, which are about EUR 600 million, remember that EUR 200 million of that -- or EUR 100 million are our share. So EUR 300 million is our share. EUR 100 million of that comes in the form of a loan repayment that isn't a hit into free cash flow. Next year, we're not probably making a loan repayment so that kind of repayment will be cash available to fund the dividend. So that's one point.

I think the second point is a point we've tried to emphasize on a number of occasions. The U.K. on a net basis isn't generating a lot of free cash flow. But there are 2 very distinct businesses. You have the Lightning business, which, depending on how you look at the allocation of debt, is a negative $450 million free cash flow business, whereas you have a core business that is generating something like $600 million, $700 million, $800 million of free cash flow. And that is why there's a distinction.

So if we stand back and think about our assets, we've got a highly generative asset in Belgium, very generative asset with upside in the Netherlands. Switzerland actually is a depressed level at 24%. Traditionally, it's been a lot higher, but we're high in the investment cycle. And then you got this Virgin business that splits between a very generative business as usual, but a highly investing Lightning business. And then the delta is clearly Eastern Europe and corporate. Eastern Europe is slightly positive on an aggregate basis, and the corporate net number is this $200 million that we've been talking about, which we tried to explain in the slides. I hope that's helpful. If you have any other questions, maybe we could follow up off-line with [Matt] and the guys.

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Operator [6]

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We'll move next to Jeff Wlodarczak with Pivotal Research Group.

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Jeffrey Duncan Wlodarczak, Pivotal Research Group LLC - Principal & Senior Analyst of Entertainment, Interactive Subscription [7]

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It sounds like the price hike accounted for most of the U.K. RGU result. Do you feel comfortable you'll be able to return to maybe modest RGU growth in the fourth quarter? Or is that too high of a hurdle? And then how interesting is it -- there's a lot of competition at the low end. How interesting is it to potentially launch a flanker brand targeted at lower-spending users to boost RGU growth?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [8]

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Lutz, do you want to get this?

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [9]

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Yes. So right, I said that 25% is due to our conscious decision on video strategy. You can expect that somehow to continue. And then I wouldn't say that the market will repair itself from one quarter to the other, right? So competitiveness is still high. I mean we are not making a guidance for next quarter. But I think when you look at the numbers to -- you come -- I'm sure you'll come to the right conclusion.

Your question on second brand, well, let's put it that way, right? So the more we invest in our network, the more also we want obviously to leverage that network. We have with Virgin Media a high-value brand. So I think everybody else in the market has also low-value brands, Plusnet, Now broadband. So you can be assured that we are working on that, yes, but we want to have this surprise on our side.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [10]

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The one thing, Jeff, you will see in the fourth quarter is the ARPU itself should be better. So ARPU and revenue should be better because we'll have a full quarter of that price increase.

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Operator [11]

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And we'll move next to Vijay Jayant with Evercore.

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James Maxwell Ratcliffe, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [12]

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James Ratcliffe for Vijay. Can you hear me?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [13]

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Yes, we got you, James.

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James Maxwell Ratcliffe, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [14]

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Okay. It's James Ratcliffe for Vijay. I just wanted a couple of questions, one on the operations side and one on the strategy side. Can you talk about what your thinking is around the Dutch JV? I know some of the put/call options are starting to come up. And whether it makes sense for that to be stand-alone or potentially become a closer or more distant part of Liberty Global?

And secondly, I just wanted to understand on the corporate costs and make sure I'm getting this right, that it looks like you're saying that once the existing TSAs fully roll off, you're looking at a net cost of around $500 million a year for corporate plus T&I as allocated to the currently ongoing businesses.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [15]

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Charlie, you work up an answer to the second one. I don't know if those numbers are right. But with respect to the Dutch JV, James, we're happy where we are in the current situation. Both parties do have rights with respect to [listings] and then down the road, other sorts of liquidity provisions. But I would say -- and I'm pretty sure Vodafone said the same thing. We're very pleased with the performance and the progress that the joint venture is making. As I mentioned in my remarks, it's returned to growth on the top line and the OCF line. It's got great OFCF and free cash flow margins and a business that's generating dividends to us. So we're pleased with the progress of the venture. We had the whole Board there just a month or so ago. And I think Jeroen and the team has done a terrific job, and they're proving out yet again, in yet another market, the benefits of fixed-mobile convergence. Synergies are on track. There are some outstanding strategic matters around spectrum and wholesale access, but the fundamentals of the business look terrific.

At this point, I would assume we are going to own our 50% stake. There doesn't appear to be any huge momentum either direction to drive a change in that. Charlie, do you want to address the corporate costs?

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [16]

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Yes. So just on Page 8, James, I mean, you have it right. So just to summarize, the T&I costs, we do cost on behalf of the companies we've either sold or ventured and then for the retained operations. And as you correctly point out, the retained operations were $69 million of T&I costs. $70 million in Q2 and $75 million in Q3. We're saying to you that we think that number should be flat to down over the next 4 or 5 years. And the reason is because we're able to flex the cost as the other TSAs roll off because a large amount of that spend is actually not internal labor. It's third-party contractors, and it's a sort of a variable cost model.

And then you're also correct that the net spend, which is the classic corporate overhead, which is HR, finance, strategy, development, et cetera, et cetera, that was $55 million in Q1, $53 million in Q2, and it's $44 million in Q3. And we're telling you, that's going to be around $200 million in 2020. It'll probably stay flattish thereafter. But certainly, we wouldn't expect that to increase, and maybe there's opportunities for savings.

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Operator [17]

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We'll hear next from Nick Lyall.

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Nick Lyall, Societe Generale Cross Asset Research - Equity Analyst [18]

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This is Nick from SocGen. Just 2, please, on the U.K., please, Mike. It's -- you mentioned again the U.K. plans on fiber maybe for the next 7 million to 10 million. So it looks like BT is probably going to have to wait about 12 to 18 months before it launches its own full plans, if at all. So how quickly could you launch for these -- for the 7 million to 10 million? Is this something where you'd prefer to wait to see what BT does, what the regulator says? Or is it something that you think is maybe a bit more imminent?

And then secondly, that means that U.K. -- it's already quite a complicated business with Lightning and non-Lightning anyway. It becomes more complicated. So do you think you'd have to think of different structures, different disclosures so that the market could value it properly?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [19]

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Good questions. In terms of what BT will or won't do, I think when Phil speaks to the market, he's quite determined that it -- that he needs to invest in fiber. I think his challenge is the amount of time and capital it's going to take doesn't sync up particularly well with his financial position today, whether it's EBITDA, free cash flow or dividends or pension plans. So I think he's got a bit of a challenge in front of him to accelerate and rapidly roll out fiber. So I think you're right. It's going to take time for them to get any kind of momentum. But we do assume, for what it's worth, we do assume that BT will build fiber over some period of time. If you're looking at a 5- to 10-year time frame, we do assume that they'll reach some measure of critical mass. Certainly not the entire market, well south of that. But they'll pick up speed, and they will build fiber. They'll need some regulatory relief to do it, and they'll need some financial relief on some basis to do it. But we assume, just to be clear, that they're -- that BT will build some fiber in some portions of the markets.

As you point out, there are 7 million to 10 million homes that are -- we could possibly go out and build more quickly and potentially more efficiently. And while we're pleased with Lightning at the 400,000 to 500,000 home a year clip, we are unlikely to do that through Lightning on balance sheet and impacting our free cash flow and taking a fair amount of capital to do so. So I don't anticipate that you'll see Lightning on steroids, where we take the -- at least not in its current structure. We take the current team and ask them to double or triple the amount of activity they're undertaking.

We are exploring, as I said a few times now, how to do that perhaps in an off-balance sheet manner, potentially with partners, that would have 2 or 3 benefits. Number one, outside capital. Number two, 2 teams working, if you will, if it makes sense. And three, the ability to potentially keep it off-balance sheet and to finance and value it separately. Now those are a lot of requests and asks on our part. And I'm not suggesting here that they're all going to happen or any of them are going to happen. But when you read press reports that we might be looking at this or we might be looking at that, it shouldn't surprise you. Nobody is achieving what we're achieving in that marketplace when it comes to gigabit-speed networks and rollout of new network. So for us to not be part of that conversation when fully 95% of the country is on copper, 95% of the country is on copper, is insane. There's no reason why we shouldn't be looking at it because we've proven we could build faster, build more efficiently and penetrate markets with new build better than anyone else in the footprint. But we have to balance that ambition with our desire to ensure that we're generating profitable growth in our core business, that we're delivering, as we promised, greater and greater operating free cash flow and free cash flow. So we're trying to juggle those objectives. But I think they're achievable, and we want you to stay tuned.

It might be complex. But I think in the end, we should be able to make it clear if it's something we choose to do. If we don't do it, remember, we -- there's no reason why the Virgin brand couldn't be marketed elsewhere in the country where we don't have network, and we've obviously looked at that. If we can assemble the rights, certainly, everybody -- we have a nationwide mobile platform. Certainly, everybody in the country knows Virgin, whether you can get it or not. So expect us to try to drive scale in that market. I'm not saying we're subscale, but our objective should be to drive scale with our brand and with networks, owned or leased.

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Operator [20]

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We'll move now to Ulrich Rathe with Jefferies.

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Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [21]

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One short. I have one question and maybe just one short -- very short clarification. The question is, what is the hurdle? What are the decisions that need to be made or what's the evidence you're waiting for to move forward on the shareholder return decisions at this stage? You're sort of repeating for quite some time now that it's all a question of sort of generating value, and I think that's fair. But in terms of sort of trying to understand what the time line is and what it depends on, it would be interesting if you had anything in mind that you can point to, what needs to happen or what you're waiting for or what you still have to decide.

And then a quick question for Charlie for clarification. In Central and Corporate, there was a bit of a revenue pop. You highlighted the costs were more or less flat quarter-on-quarter. Was there a revenue pop? In the report, it said there were high CPE sales to the Netherlands. Is that all that is, this step-up? And then that looks a bit like a one-off. Could you just confirm?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [22]

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Thanks, Ulrich. On the buyback, I mean, I believe, and Rick will check this, with the $3.2 billion in shares we've repurchased this year, this is the largest amount of stock we've ever purchased in a 12-month period and not an insignificant amount of stock. So I think anybody who's looking at their own shares and trying to manage a buyback program wants to be measured and thoughtful about that. We did just complete a $2.7 billion Dutch auction tender at $27. We were fine purchasing at that price. And today, we're at $24, $25. So you want to be thoughtful about the timing of these sorts of things. That's point one. Generally, if you go into shares [a while], and you have, and follow them for a while, we provide some measure of guidance around buyback activity on our year-end call. And that's coming up, of course, as we finish the year. And so I think there's no particular science behind it.

And then thirdly, I suppose the last thing would be we're always evaluating opportunities to create value for the company on both sides of the spectrum, buybacks and investment. And we're looking at those in relation to one another with a fair amount of discipline. So that as we evaluate opportunities to put money to work in an industrial way, we want to be sure that we're able to demonstrate returns that would exceed what we could do just by buying our shares.

So I don't -- I wouldn't take our lack of a buyback program at this point in time or the fact that we haven't announced another Dutch auction as an indication of anything, really. Just that we're pacing ourselves as we should. And as we take measure of the year, we've put quite a bit back into the stock. $3.2 billion is not a small number. And I think we're taking a longer view of this, and perhaps maybe a bit more patient than other shareholders.

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [23]

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Just on the corporate side. You're quite right. Yes. Yes. So we do buy set-top boxes on behalf of VodafoneZiggo. The reason why we very specifically on our central update focus you on OpEx and CapEx is that is not in those numbers. So it's a cost of goods sold line is the way.

And then the second thing to say is that is essentially a 0 margin -- slight positive, 0 margin-type activity. And it's a hard number to predict because it's quite volatile because when you do set-top boxes, there's 2 things. One is you can refurbish existing set-top boxes and one is you can buy new. The reason they're buying a lot of new set-top boxes is they're rolling out the new EOS platform, which, by the way, has been a terrific success.

Generally, we see a lot of our boxes being refurbished because they have good average life and they work pretty well. In fact, that's one of the factors in the slight decline in OCF in some of the markets because we've shifted less from new box sales to refurbished box sales. Refurbished counts as OpEx under the magic of U.S. GAAP, whereas new box sales are CapEx, which is one of the reasons why OFCF is probably a more accurate metric of what the underlying cash flow is doing than the old OCF.

In terms of predicting how it will go, I can't really predict. I mean if they continue to sell like hotcakes, we might see an acceleration in EOS, we might not. But just to -- it may slightly distort the revenue. But on a cash flow basis, it's basically a breakeven number.

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Operator [24]

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Our next question comes from Carl Murdock-Smith with Berenberg.

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Carl Murdock-Smith, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [25]

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Just one question from me. I mean I track very carefully the churn, and I don't think you've reported U.K. churn this quarter. So I was just wondering if it was possible for you to provide an update. I think the 12-month trailing was 15.0% last quarter.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [26]

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Yes. I mean historically, we realized that none of our peers report that churn figure either, and so I don't believe that the lack of reporting -- and Charlie, you'll have to jump in here, and Lutz. I don't believe we're not reporting it because it's not a good number. I think we probably made a determination that the amount of detail we're reporting in our markets wasn't consistent and not consistent across the industry. But Charlie or Lutz, do you want to address that?

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [27]

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Yes. I said, right, when we -- when I was referring to the RGUs that 75,000 are due to the pull-forward of the price rise, right? So we are predominantly selling triple. So I think you cannot make up the number ourselves. On the other hand side, right, I mean, I try to get the intelligence from the competitors and I get less and less. And why would we disclose more and more?

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Carl Murdock-Smith, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [28]

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Okay. I suppose I'll just add on that, that BT does provide fixed churn every quarter. And I suppose just as a follow-up, it's interesting that you've lost TV RGUs. But at the same time, Sky this quarter has also turned to declining RGUs this quarter as well. So where do you think those TV customers are going? And do you think it's evidence of more cord cutting in the U.K. TV market?

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [29]

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I think -- or we know that these TV customers are the low-end customers. What do I mean with that? These are predominantly customers who have -- used to buy our triple-play entry product, right? So paying roughly, with time-limited discounts, GBP 30. And then after 12 months, when they get off the time-limited discount, it's a very high jump. And then they simply value the pure video product not as much then to pay more for it. And then you see high churn. And therefore, I can only speak for us. So therefore, you see these 25,000 on a quarterly basis are pretty much that. High level -- the high-end packages actually are very stable. So -- and they provide also obviously higher margin. So therefore, I would not really see the world turning very much to an app world, a pick-and-choose world. So I don't see that accelerating. But obviously, we have to watch that carefully. Over a longer time period, we will see that trend. But these numbers are not really referring to that.

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Operator [30]

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Robert Grindle with Deutsche Bank has our next question.

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Robert James Grindle, Deutsche Bank AG, Research Division - Research Analyst [31]

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Yes. My question is about the U.K. deal you've just done with Vodafone. Congratulations on that. You had another 2 years to run, though, on your existing MVNO with EE, so it seems very premeditative to strike a new deal so soon. So I wondered, what drove the time line on that? And what was the swing factor? Was it 5G access having Vodafone as a customer for Virgin business? Or was it the financial terms or something else?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [32]

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Well, I'll let Lutz dig into it. It was -- from my point of view, it was all of the above. There was no other strategic purpose to it. But to switch providers is not a simple thing, even though we have a core network that allows us to do it relatively seamlessly. From a consumer's point of view, you need to get prepared for these. So I think it was smart for the team to determine well in advance which direction we're going, to put that out to bid, if you will, and as a result, derive a fantastic contract that, as we pointed out, guarantees 5G access, which we were not getting in the other deal, and has much better economics. But I wouldn't read anything strategic into it. That would be my observation. But go ahead, Lutz, if you want to add anything more.

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [33]

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Yes. Exactly. We've done an RFP in the market, and we wanted the best technology at the lowest price, and this is what we found. And we have the opportunity now to launch 5G as fast as we are able to implement it, yes? So we are not sticked to the end of the contract in the 5G world.

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Operator [34]

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We'll move now to 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 [35]

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A couple from me first. The first one follows on from Robert and the answer you've given. My understanding is that 5G services, you can migrate instantly away from the BT MVNO onto the Vodafone contract. I think you have like a clause that allows you to exit. So is it possible we could see customers coming before that year-end 2021 expiry? And then beyond that, I think you mentioned, Mike, a little earlier on that we could infer what we wanted on perhaps this Swiss deal. It's obviously something that I think the Sunrise shareholders maybe saw strategic value in, but didn't necessarily like the means to raise capital or the price paid. Is this possibly something where you could even sort of migrate to some kind of earnings earn-out clause so you potentially take less capital upfront? You're not exactly desperate for cash right now, of course. And maybe sort of lever into the strategic synergies of the merger and some kind of optionality further down the line. Is that a potential?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [36]

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Well, I'll take the Swiss deal question first, Lutz, and you can prepare on the first one. Listen, reasonable people can disagree on value and financing structures in any transaction. But I don't think many folks disagree on the industrial logic of putting those 2 businesses together. It's almost a no-brainer. The synergies are substantial and real.

And as I mentioned in my remarks, the ISS report was not anticipated and a bit of an embarrassment to them, in my view. And just so you know, shareholders were still voting for the deal 2:1 in favor. But we need a slightly larger margin in order to get the one shareholder, who I won't address their concerns or not, across the line. And so we felt it was the right thing to do to play that out. I'm not going to get into what we may or may not do now. I think we are obviously willing to engage in any discussion that appears to be accretive and smart for us, either with Sunrise or other operators in that market. And there's only one. So you should assume that we're not sitting still. You should assume that the industrial logic of fixed-mobile convergence in Switzerland is compelling. And that as I mentioned in my remarks, we are the most important fulcrum asset in that equation, whether the shareholder -- or Sunrise thinks so or not. This is where it's going.

So I think it's going to be an interesting period of time here. And the good news for us is the turnaround plan is working. We're able to do the things we need to do in the fixed-mobile space with our Swisscom MVNO, which is terrific. I think the team is executing on all of the things we asked them to execute on, whether it's 1 gig, rolling out new set-top boxes, driving fixed-mobile convergence. And if we have to own this business, we're happy to own it because we're on our way, as they say.

On the other hand, one of the most accretive aspects of fixed-mobile combinations are the synergies. They are real. In Sunrise's opinion, upwards of $3 billion of NPV of synergies. That's something worth talking about. And they would be substantial synergies with the other mobile operator in the market. You can do that math as well.

So I would -- you should expect that we're obviously opportunistic here in evaluating opportunities to look at alternative outcomes that drive value for all of us, in particular, shareholders. So I would stay tuned. Lutz, do you want to address the...

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [37]

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Yes. On the mobile MVNO deal, so obviously now, contractually, for new customers and for existing customers migrating to 5G, we could do that tomorrow. So therefore, obviously, now we have to put the technology in place. And then I think, right, the take-up of 5G, phones, usage, will take some time. But you can expect that we get all interested 5G customers, new and migrated, from the day we have launched, and this is a technical question.

And you can also, right -- I mean, for us, it's very important. We offer the highest speed in fixed. Now we are in the position to bundle that with the highest speed in mobile. And therefore, we have exactly the customer base for that. Look at our net add number this quarter. More than 100,000 postpaid, record quarter in the quarter. So we are going to take off in FMC. And therefore, we'll do everything to have 5G as soon as possible.

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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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If you don't mind me just following up, I wonder whether -- there's a reciprocal agreement on some network usage, backhaul, et cetera. Is this something you guys could ever even extend to reciprocal wholesale access to Vodafone customers or even any wider wholesale access to the VMED network?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [39]

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Well, the -- I mean, we have -- go ahead and address the first point, but not the second one. Go ahead.

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [40]

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Yes, exactly. Obviously, right, we have now really engaged in a closer partnership with Vodafone. And as we have said, right, Vodafone very fastly deploy 5G base stations, and they need a backhaul opportunity. So therefore, we have also closed a huge deal on dark fiber and mobile backhaul at the same time when we have closed an MVNO deal, and we are very pleased with that.

And in general, so dark fiber, IRU, mobile backhaul deals, this is an area which has huge growth opportunity in the future. And therefore, we focus more and more on this kind of business.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [41]

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I think with respect to the second part of your question, which is wholesale access of the end-to-end network from a fixed retail point of view, that is not something we've discussed with Vodafone. That's obviously a very different conversation and I think one that we'd have to take a longer view of. And at this point, nothing to add. I mean we don't think that's necessary in this market. It's certainly not legally or regulatorily required, and I don't see us jumping into discussions of that without broader considerations.

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Operator [42]

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We'll hear next from James Ratzer with New Street Research.

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James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [43]

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I had a question and a very quick clarification. Just regarding your -- in the U.K., customer growth on your BAU footprint. I was wondering if you could kind of talk us through what your strategy is to try to return that customer base to growth and actually, indeed, your strategy to return it to growth. Or are you going to be much more focused on trying to extract revenue growth there just through price rises alone? And then just a clarification on the churn point. Lutz, I think you said 75,000 from that. I want to check my math. That's around a 1.4 percentage point impact from churn in the quarter, which will be about kind of 5 points annualized, implying annualized rate of churn to step up to about 20%. Is that a fair assessment based just on the Q3 churn levels?

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [44]

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Lutz, do you want to address those 2 questions and I'll chime in also?

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [45]

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Yes. So I think on the churn number, right, I told you the RGU number. So you have to turn it into customers. But on an annualized churn, you get a bit like 0.5% on it. Then you're right, right? And in the quarterly churn, obviously, the increase was higher.

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [46]

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But it was the quarter of the price increase.

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [47]

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Yes, it was the quarter of the price increase.

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Charles H. R. Bracken, Liberty Global Plc - Executive VP & CFO [48]

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It's always moving higher.

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [49]

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Yes. And we are getting back to it. Exactly.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [50]

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And I think if you -- if we would disclose it, as you calculated it, it would be -- would not be an aberration. Go ahead, Lutz.

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [51]

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What was the first question again? Sorry for that.

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James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [52]

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Yes. So first question is about what the strategy is (inaudible) customer increase in BAU or whether it's more going to be focused about price on an ongoing basis.

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [53]

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Yes. Okay. So right, this is where our consumer strategy kicks in. So we started that a year ago, and we have 4 growth levers. One is fixed-mobile convergence, right? So we started that. We know that fixed-mobile converged customers have a substantially lower churn, 2, 3 percentage points. So therefore, we drive that. And when you see our mobile net add numbers or the accelerated number of fixed-mobile converged customers, you see that we will get an improvement from that over time, yes? So we have started at 19.6% a year ago, and now we're at 20.7% or something in that area. And that is the second quarter after we launched. So you can be assured we will push for much more, yes? And then take the MVNO deal with Vodafone into account. So that is a very strong weapon. That's number one.

Number two is the SOHO business, right? So we have put now the small office/home office business into the consumer machine. So we can leverage all sales channels, all marketing online, and it's huge -- it's much less penetrated areas. So our market share in SOHO is substantially lower. So therefore, we ramp up that.

Number three is do more regional sales, yes, so we are getting more data analytics in place. MDU as a segment we want to target more, and we are doing more and more on that. Get to higher market share in several regions. Greater London, our market share is 36%. Scotland, our market share is 60%. So we are focusing on that.

So therefore, I'm not -- we are not giving a forward-looking guidance, but you can be assured that we have put a strategy in place to get substantially better in the GAU business, but these things take time.

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James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [54]

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And you think that can be done without price discounting?

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Lutz Schüler, Liberty Global Plc - CEO of Virgin Media [55]

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I mean price discounting, I mean, that is in general, right? I think discounting has increased in that market, yes? So I think that's a factor of market saturation, right? So -- and also, more customers are within the minimum contract length. So that means everybody is discounting more to get a higher share on gross adds. And so therefore, simply, we need to offer value for money, right? And that means we are in a position that we need to offer discounts as well if we want to get a certain number of gross adds. I mean, obviously, we will see a game changer, an end-of-contract notification coming from February onwards, and let's see how the market is evolving there then in terms of discounting.

So if the market is then -- right. Because what is happening is you give a high discount within the minimum contract length. After that, the customer is then asked to pay more. What the customer does is calls in and asks for a retention discount to stay on that discount, right? So with an end-of-contract notification, obviously, we talk about that even more. So I think it's more customer-friendly and more market-friendly when we are getting a bit more rational here.

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Operator [56]

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We'll take our final question from Maurice Patrick with Barclays.

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Maurice Graham Patrick, Barclays Bank PLC, Research Division - MD [57]

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Maurice here. So quick question on Switzerland. I can see how you're clearly very disappointed about the deal failing. But you do sort of highlight in the release that you do see, I guess, early signs of a recovery there when you point to improving NPS trends and subscriber trends. I mean OCF remains pretty negative. I wonder when we'll start seeing the impacts on the financials and the improving operational trends that clearly you can see already coming.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [58]

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Sure. And Severina is online here, she's welcome to chime in. I mean we're tracking a whole series of operational metrics there. RGU movement, of course; ARPU, which is growing every quarter; the rollout of EOS boxes so that we can get our base to about 50% advanced set tops by the end of this year; 1-gig homes and 1-gig penetration and seeing the impact of the faster speeds in the marketplace.

Now we're investing quite a bit of money to achieve that. So on one hand, you've got some really positive metrics on customer -- on the customer front in terms of NPS and net add performance and ARPU. On the other hand, we're putting capital into products, into technology and also into digitizing the operations themselves. So this year, I think we were clear that this is a year of investment. But we want -- but we would want to see metrics improve that I've just described, and they have, and they are. And that through the course of next year, we'll start to see the pendulum swing the other direction. We're not providing guidance as we sit here. But I think we've always said that 2020 is an important year, an important inflection point for the business if you keep hitting on all cylinders. And so far, we have.

Severina, would you like to add anything to that?

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Severina Pascu, Liberty Global Plc - CEO of UPC Switzerland [59]

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No. Yes, Mike, you basically pointed in the right direction. As you said, this year was a year of investment, and we actually worked on multiple areas. Rolling out EOS, doing the 1-gig, investing in Simply Digital. And as the organization also mature, we expect to do all these activities faster and better as well as being that the efficiencies coming -- paying off from the investment we do on Simply Digital. Next year, we should see, yes, the organization getting more mature and benefits coming through to a greater extent than this year.

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Michael Thomas Fries, Liberty Global Plc - Vice Chairman, President & CEO [60]

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Maybe to wrap it quickly, I think there's 3 points. One, you can tell from the conversation today and from our remarks that we are focused, first and foremost, on pushing our operations forward with 2 primary goals: one is profitable subscriber growth; and secondly, free cash flow margins and yield. And all of these operations, even Switzerland, still very profitable on the free cash flow line. And our view is that each of the businesses, when you aggregate them together, are free cash flow machines, really. And that's changing the narrative a bit for you, and something we will continue to do a better job of is getting you to rethink the narrative of our operations. And I think you should expect more of that from us.

Strategically, we're always looking at ways of recognizing and crystallizing value, both in our operations and in maybe new operations. So you should expect that we are very busy and looking at ways to both crystallize and realize value in our existing markets and possibly others, but always doing that with an eye towards returns and value creation, nothing else.

And then lastly, we continue to look at our capital structure. And of course, I think our credibility on buybacks and the commitment to buying stock is a question. So it's just -- I can appreciate the need or the request for more disclosure on that, but just be patient. We're always looking at those things in parallel. And so we'll have probably have much more to say about that through the course of this year and the early part of next year, and we appreciate your support. Thanks, everybody.

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Operator [61]

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Ladies and gentlemen, this concludes Liberty Global's Third Quarter 2019 Results Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website. There, you can also find a copy of today's presentation materials.