Liberty Global Ltd. Q2 FY2024 Earnings Call

Good morning, ladies and gentlemen and thank you for standing by. Welcome to Liberty Global's Second Quarter 2024 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 express written consent of Liberty Global is strictly prohibited. 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.

Okay. Hello, everyone. Thanks for joining the call today. We've got a lot of ground to cover, so I'm going to jump right into prepared remarks. My senior team is also on the line, as usual, so I'll be involving them in the Q&A when we get there. Starting on our Q2 highlights slide, on our year-end call in February, you'll all remember that we laid out what I think is a clear strategic plan which included three core elements: first of all, maximizing the intrinsic value of our FMC operations, which is critical; second, using the Ventures portfolio to create liquidity to support those operations and invest in strategic platforms; and then most importantly, putting all that together to create and deliver value to you, shareholders. At the top of this slide, we provide an update on each of these core initiatives, beginning with Switzerland, where the Sunrise spin, which we have talked quite a bit about, is on track for the fourth quarter of this year. The purpose here is to hand shareholders a significant and well-deserved dividend of what analysts are estimating is around $12 per Liberty Global share. As a reminder, Sunrise represents only about 20% of our proportionate EBITDA and that excludes, of course, the value that might be attributed to cash and Ventures in our stock price. Now those Sunrise valuations of $12 per Liberty Global share are supported by CHF1.5 billion of deleveraging that we will fund pre-spin and it's supported by a commitment for Sunrise to pay an annual dividend of CHF240 million beginning next year in 2025. So those two things are anchoring at $12 per share. Now we scheduled the Sunrise Capital Markets Day for September 9 in Zurich. Of course, there's going to be a live webcast and replays, and management is going to hit the road right after that. So hopefully, you'll have a chance to connect with Andre and his team. They are an outstanding group. You also should stay tuned for more deals on the spin mechanics and logistics as we finalize the SEC process and start working towards the shareholder meeting in the fall. So a lot of communication will be heavily engaged in making sure we understand everything that's happening there. Now we've got three key strategic updates in the U.K. as well along the same strategic path. Earlier this month, we announced a comprehensive agreement with Vodafone in the U.K. that strengthens and extends our mobile network sharing agreement, which we've had for some time and that's going to occur whether or not the merger with Three goes through. And it includes the right for VMO2 to purchase spectrum, should the deal be approved. Both of these address some of the concerns raised by the CMA, including rebalancing spectrum among operators but in either case, they are highly accretive to VMO2. Then on the fixed network front in the U.K., we've now reached five million fiber homes across VMO2 and next fiber, and that build-out and upgrade is ramping up and accelerating. Moving to the Benelux, we are also making meaningful strategic progress at the country level in Belgium and Holland, and that progress is going to support our ambition to create a general operating platform with scale, synergies, and strategic optionality. For example, in Belgium, we announced a preliminary agreement or MOU with Proximus to avoid overbuilding each other with fiber in about two million homes. Just as importantly, both of us can use each other's network in those areas so we can maximize utilization. In the Netherlands, the 5G spectrum auction finally occurred, and we recently acquired 100 megahertz of 3.5 gig spectrum well below the expected price we thought we'd pay. We could not be happier with the hiring of Stephen van Rooyen, who will become CEO of VodafoneZiggo in September. I've known Stephen for a very long time, and both we and Vodafone recognized right away his deep expertise, brand, and production and innovation that he's developed over 17 years at Sky. We are convinced he's going to bring the right energy, operational focus, and strategic direction to this critical market. Finally, we’re using our Ventures platform to provide a source of capital that we can rotate into other strategic opportunities and an investment vehicle for innovation and new skill-based businesses that align with our core value creation goals. We are delivering on that first objective, with $650 million of asset sales in the last six months, a large portion of which will support deleveraging of Sunrise pre-spin, and we remain focused on larger platform opportunities, as you can tell by our plans to increase our stake in Formula E and our increasing commitment to digital infrastructure. Moving from those strategic initiatives to our regular Q2 highlights, I'll start with our balance sheet and capital allocation model which are in great shape. Our debt profile is long-term, fixed-rate, and siloed with no debt at the parent company and no material maturities until 2028. We're also sitting on a cash balance equal to roughly half our market cap. We continue to shrink our market cap through an aggressive buyback program which saw us repurchase 5% of our shares year-to-date, towards a planned 10% of shares through year-end. We continue to both invest in growth and execute at the core FMC operating level amid headwinds. We talk about this as do our peers every quarter; we are facing an increasingly competitive marketplace with consumers who continue to feel the stress of inflation and macro challenges. While our fixed ARPUs are rising or stable, we're feeling pressure in the mobile sector from promotions and from flanker brands. Despite that, we confirm all of our 18 different guidance metrics, with the exception of one which is revenue growth at VMO2. We are lowering that as a result of slower hardware sales in the mobile business. These are low-margin revenue sales at best. So we're still going to hit our EBITDA and free cash flow guidance in the U.K. In this slide, we emphasize that we are also seeing some tailwinds, in particular, as we begin to reap the benefits of our investments in fiber and 5G, the growth in our flanker brands, our access to new revenue streams and new homes generated by our fixed network strategies, and the hidden value of our digital infrastructure assets. Overall, we believe we have a solid strategic toolbox to help us work through this transition and ultimately deliver value to shareholders. Next, we provide our traditional KPIs on this slide for the big FMC OpCos. Starting at the top left, Sunrise had a really strong quarter leading into the spin. Broadband and postpaid mobile ads were 38,000, nearly double the prior year and up around 20% sequentially. This is also the third straight quarter of broadband growth improvement in Switzerland driven by reduced churn on the main brand and continued strong inflow. We're benefiting from progress on the migration of the UPC base, which should be largely completed by year-end. Those factors, along with the price rise last summer have helped deliver four straight quarters of fixed ARPU improvement. Sunrise also delivered another strong quarter of mobile postpaid growth, supported by improved churn and our flanker brand, Yallo. The market continues to be highly competitive, and this is a theme everywhere with budget brands heavily discounting, which is adding pressure to mobile ARPUs. Moving to Belgium; Telenet's results were largely consistent with prior quarters and up from Q2 and Q3 last year when the company was managing through IT challenges. We lost around 5,000 broadband and postpaid mobile subs in the quarter in a very competitive Flemish market, with intense promotions ahead of the anticipated mobile launch from DIGI. To combat that, we are executing a multi-brand strategy, and most importantly, we now have a nationwide FMC flanker brand available not only in Flanders but also in the South of Belgium, where we've just launched and are targeting a modest 10% market share. Everything is off to a good start there. Finally, fixed ARPUs at Telenet continue to grow in the mid-single digit range, helped by last year's price rise and this year's price rise of 3.5% taking effect early June, landing well. Moving to VodafoneZiggo, while it was a challenging quarter in the Netherlands operationally, the financial results were outstanding. Charlie will cover those numbers. VodafoneZiggo delivered a steady quarter on broadband with slightly improved losses of 23,000 in a highly competitive market. The good news is churn is declining on the back of extensive programs that provide more value to customers, which include speed increases and entertainment, customer experience improvements, and fixed ARPU continuing to grow in the mid-single-digit range in Holland, supported by the retention of last year's 8.5% price increase. Looking forward, Ziggo implemented a 2.5% fixed price rise in July which is landing well. This is supported by our exclusive UEFA broadcasting rights and a strong FMC proposition. Finally, in the U.K., despite a tough trading environment, Virgin Media O2 delivered its fourth straight quarter of improved fixed ARPU results with 3% year-over-year growth in the second quarter reflecting our focus on value over volume and the retention of price rise benefits. We continue to take a higher share of gross adds in the broadband market as broadband growth in the nexfibre footprint remains steady and is expected to ramp in the second half. However, as with any price rise quarter, we have seen a moderate increase in churn with overall broadband losses of 12,000, broadly in line with the prior year. The postpaid mobile market in the U.K. continues to soften. You're hearing that from all the operators, especially at the premium end, with weakness in the handset market continuing. While O2 churn remained stable, Lutz and the team are implementing a series of measures to rebuild postpaid mobile momentum in the second half. This includes proactive campaigns to drive retention, strong offers around new hardware launches from Samsung, Google, and iPhone later this year along with renewed energy in our FMC packages and better performance in the indirect channel. Overall, 2024 is a transition year, as we've said in the last few quarters here, and the team is focused on preparing VMO2 for a strong 2025. Again, each of our team members is on the call, so we can dig into any of these markets during Q&A. I'm moving to the next slide now. We've talked a lot about our fixed network strategies, particularly our fiber build plans. More recently, our efforts to delineate some of our businesses by separating our fiber and HFC networks from the service platforms. We've already achieved this in Belgium with the formation of a partnership that now owns and controls the Telenet HFC network passing 4 million homes, with a commitment to deliver fiber to 80% of those homes over time. The partnership is already wholesaling the network to Telenet and other operators, achieving about 50% utilization. They've also recently announced an MOU with Proximus to share the fiber build-out in around two million homes to buy access from each other, which would bring utilization of the partnership network in those areas to over 80%, among the highest in the world. Similarly, we've announced our intention to create a NetCo from our 16 million fixed network passings in the U.K., with 3.8 million already upgraded to fiber. Together with our JV, nexfibre, VMO2 will ultimately have access to between 21 million and 22 million fiber homes in the U.K., covering about 80% of the urban market. The combined network would be available to third parties, driving utilization and newfound wholesale revenue. So why are we doing all this? What is the rationale for what appears from the outside to be a relatively complicated restructuring of operations into NetCos and ServCos in these two markets? I think the answer is straightforward. On the NetCo front, isolating the physical infrastructure within these platforms allows for the generation of stable, high-margin cash flow primarily driven by fixed monthly wholesale payments for utilizing the network. As utilization rates climb, cash flows improve, ultimately driving long-term returns to financial and strategic investors. These platforms also allow us to attract new capital which helps accelerate our network upgrade and extension plans and facilitates in-market consolidation of both network and operating platforms. The remaining ServCo can also benefit from the separation, which offers an asset-light, typically digital-first business model that prioritizes customer experience to differentiate from retailers. There's more focus on innovation to drive new revenue streams, as well as the opportunity for end-market consolidation of other B2B and B2C service providers. On the far right-hand side of the slide, we demonstrate the hidden value in our network assets. We've shown nine recent fiber transactions concluded in Europe where the median EBITDA multiple in those deals was about 18x. Of course, there's a wide variance of valuations, which reflects factors like the CapEx profile, overbuild in the market, forecast utilization rates, and wholesale revenue opportunities. We compare this with integrated telco multiples of mid-single digits where most of us are trading, suggesting a significant premium. These are not easy transformations; execution risk can be high, but we're focused on two markets where this can be achieved most easily and where the dynamics will generate significant value creation for shareholders. Stay tuned. Before handing it over to Charlie, I will spend a moment on some developments in our $3 billion Ventures platform. In October last year, we cited our goal of achieving $500 million to $1 billion of noncore asset sales before mid-2024. Good news, we’ve achieved that goal with over $650 million of proceeds through Q2 and we are targeting another $100 million to $150 million before year-end. This is consistent with our strategy of rotating capital out of Ventures and other noncore holdings into higher growth or higher return opportunities. The sale of All3Media and using the $400 million to deleverage Sunrise pre-spin is an excellent example of that. We also remain focused on building larger positions in scale businesses like Atlas Edge in the digital infrastructure space where our portfolio now totals $1 billion and Formula E, where we just announced our intention to increase our stake from 38% to 65% at what we believe is a very attractive valuation. Interestingly, I haven't talked much about Formula E. Here, we've provided a short update of this platform. After just 10 seasons, this is one of the fastest-growing motorsports in the world, with over 400 million global fans, races across four continents, and revenue growth of nearly 20%. We have an exclusive license with the FIA for electric racing that runs for another 15 years. We’re capitalizing on the trends in vehicle electrification with support from car brands like Porsche, Jaguar, McLaren, Maserati, and Nissan. Next season, the Gen3 EVO car will be 30% faster than an F1 car in terms of zero to 60 miles per hour, with massive potential for speed and performance improvements moving forward. The racing format is extremely exciting, with nearly twice as many competitive overtakes per race as F1, and every champion typically being decided on the final weekend of the season. Notably, Formula E has been net-zero since day one, which is a major selling point for sponsors and fans. We have work to do regarding global media rights monetization, but we believe that with future investments, the upside prospect is significant and we are committed to realizing that potential. Now Charlie, over to you.

Thanks, Mike. The next slide sets out the quarterly revenue in EBITDA for each of our four key markets: we saw similar trends to Q1 with broadly stable reported revenues across all our OpCos in the second quarter. Sunrise delivered stable revenue in Q2, supported by the July 2023 price rise and continued growth in mobile subscriptions and B2B. Because there's no price rise this year, the second half of the year will benefit from this price rise. Telenet too posted stable revenue in Q2 despite slightly weaker mobile performance. Virgin Media O2 reported broadly stable revenue, but excluding the impact of the nexfibre construction, it saw a revenue decline of around 4%. The key driver of this decline continues to be lower year-on-year hardware sales, which are only very low margin and have a limited impact on the EBITDA of the company. However, overall mobile service revenue and fixed subscription revenues did grow. Encouragingly, as Mike noted, in fixed, we saw improved ARPU trends supporting fixed revenue growth. At VodafoneZiggo, revenue was up 1.5% this quarter, supported by price indexation and continued growth in mobile and B2B fixed revenue. Q2 was another record quarter for mobile service revenue growth. Moving on to adjusted EBITDA performance this quarter; Sunrise posted stable adjusted EBITDA growth, including costs to capture driven by the revenue increase in the quarter and lower operating expenses, particularly in labor costs and marketing spend. Telenet's EBITDA was down around 9% year-over-year, reflecting a tough comparison base against Q2 of last year, which included a EUR 10.5 million one-time benefit. Additionally, the decline was due to higher staff-related expenses following mandatory wage indexation and growth in our overall FTA base. This quarter showed increased sales and marketing expenses, including spending on the FMC launch in the South of the country compared to the same period last year, when spending was scaled back due to IT platform migration issues. Virgin Media O2's adjusted EBITDA decreased 1%, including nexfibre construction, as the quarter saw a reduced contribution from B2B fixed. Additionally, in Q2, VMO2 continued investing in future growth drivers, largely in IT and digital efficiency programs. VodafoneZiggo delivered around 8% EBITDA growth driven primarily by reversing energy cost headwinds and lower consultancy service costs. This was partly offset by wage increases due to the new collective labor agreement. Turning to the next slide, we give an update on the key metrics underpinning our capital allocation model. In the first half of 2024, we saw consolidated free cash flow and central spend on track. As is the case in previous years, cash distributions from the JVs are anticipated in the second half of the year. In relation to our cash position, our consolidated cash balance was $3.5 billion at the end of Q2 2024. The quarter saw cash inflow related to operations of $0.3 billion. We realized net cash from our Ventures of $300 million, and share buybacks were around $170 million during the quarter, consistent with our guidance for up to 10% buyback in 2024. On Ventures, we closed Q2 with a fair market value of around $3 billion following the All3Media disposal. We made net investments of around $100 million in Ventures, focusing on AtlasEdge and EdgeConneX, both part of our infra pillar, where we see strong growth potential and are dedicated to creating new unicorn assets. Finally, regarding our sum of the parts, we highlight the key value drivers of our stock on a per share basis. We believe the current share price of $18 to $19 per share still does not reflect the inherent value of the business, and we're committed to resolving this valuation gap, beginning with the Sunrise spin. The current average analyst valuation for Sunrise is CHF8.4 billion, which is up from CHF8 billion in Q1, now implying a $12 per share contribution to the current Liberty Global stock price. As we navigate the Sunrise spin-off execution, our goal is also to unlock the remaining value in cash Ventures and the other FMCs, with Sunrise running trade separately. By factoring in the book value of cash, listed stakes, and unlisted Ventures, which sums to around $14 per share, and combining it with the Sunrise $12 per share, the implied value of a Liberty Global share is around $26 per share. This is even without assigning any value to the remaining FMCs. The current average analyst target price of $25 per share implies a substantial upside, particularly from a preferred value range from $7 to $13. Turning to our debt stack, we maintain a strong position with a long-term fixed debt profile of around five years. We continue to hold cash and liquidity at the parent company with the debt stack siloed at the key FMC assets. Our debt silos do not face material maturities until 2028, and we remain proactive in extending the tenure. This is facilitated by our extensive swap portfolio, which is independent of the underlying bank debt. Importantly, this allows us to act opportunistically and strategically in the market while strengthening our attractive debt position. We are proactively deleveraging Sunrise ahead of the spin to ensure an initial leverage range of 3.5x to 4.5x. The CHF1.5 billion deleveraging, approximately $1.7 billion, will be funded by Liberty Global corporate cash, 2024 free cash flow, and proceeds from the All3Media sale received in Q2. Lastly, I will provide an update on our 2024 guidance. At VMO2, the company expects a low- to mid-single-digit decline in revenue excluding nexfibre construction. This decline is a result of lower margin hardware revenue, which continues to be a headwind. However, other revenue streams are expected to remain stable, and adjusted EBITDA, adjusted free cash flow, and all other 2024 guidance is reiterated at VMO2 as the company continues investing in its growth drivers. To underpin this, VMO2 has had a solid start to the year with a slightly better than 2% EBITDA decline. I also want to reconfirm all other guidance at Telenet, Sunrise, and VodafoneZiggo. That concludes our prepared remarks for Q2 2024, and I would like to hand over to the operator for Q&A.

The first question is from Carl Murdock-Smith at Berenberg.

I just wanted to ask about Virgin Media O2 and the fiber rollout. Fiber now passes five million premises. But of that, how many are actually ready for sale? And how many broadband customers do you have on the fiber infrastructure, particularly in upgraded cable areas? The reason I'm asking is there were a few reports a few months ago that you faced delays in being able to launch services to fiber customers in project Mustang areas, where there was previously cable network.

Well, I mean, I'll let Lutz dig into the details. I'm not sure we're disclosing that much information, Carl. But the five million breaks out into both nexfibre and about 1.3 million and the balance on our VMO2 upgrade or fiber up, as we call it. We're connecting customers on nexfibre. I'm not sure we've disclosed our penetration rate, Lutz. Charlie, jump in here if you think we have, I'm pretty sure we haven’t, and then we’re taking our time on converting HFC customers to fiber, just getting ourselves ready to do that more than anything. That’s as much around how we package and market products and services than where we build or where we don’t build. So in terms of homes ready for service, Lutz, I don't believe we're providing that detail. That's how the fiber homes break out. But clearly, we're gearing up to take advantage of these fiber homes or we wouldn't be building them in the first place. But jump in here if you think there’s more we’re going to say, Charlie or Lutz.

I mean, we are only selling ...

Next question is from the line of Maurice Patrick with Barclays.

It's Maurice here from Barclays. Sorry for the U.K. question. But I see in the financials, you lost, I think it was 12,000 broadband customers but you had growth in nexfibre. I'm just conscious of looking at the BT numbers yesterday, they saw a loss of 190,000 customers in Openreach. They said they were seeing increased loss to competitors but also a soft pull by markets. So just curious as to, given you presumably lost about 30,000 or 40,000 of our legacy footprint, are you seeing more impact from altnets? Is it a soft market? What's driving that shift? And should we see improvement in the coming quarters?

Go ahead, Lutz.

Yes. Thank you for the question, Maurice. In the net add development outside nexfibre, we are a bit better this year in a price rise quarter compared to last year. So therefore, yes, I agree altnets are increasing their activities, right? They build less but they try to sell more and therefore, you see aggressive promotions. But in the scheme of things, we managed to keep our base stable in the price rise quarter. We have also managed to increase the ARPU and the fixed service revenue first time in three years. This is a result of a completely different way of working, right? We understand every household we are serving. We run 25,000 campaigns in parallel. Therefore, we are able to maximize retained revenue. This is something we have achieved for several years, and it starts to really pay off since Q3 last year. In the nexfibre area, we haven't disclosed any numbers but it is fair to say that we are a bit behind in our ambition. The reason for that is that fiber is a new product. We had to deliver the video product, which is a different sales process, provisioning process, but we are getting better and better. We stick to our ambition that by the end of this year, we have sold so many fiber customers in the nexfibre area that it turns into a growth driver for 2025. I think it is simply a ramp time, and we lost a couple of months there. Month over month, we faced record months in sales and provisioning. We want to sell and we will sell much more in the second half. I hope that answers your question.

Yes. Just maybe on the phasing, sorry for a quick follow-up. If you look at the cadence of net adds and ARPU, it should be maybe different this year given the way the price increases were put through?

I mean, it could be but the majority of our customers are in contract. So we know exactly how many will be out of contract. We don't expect a massive different phasing there; a little bit, it could be.

The next question is from the line of Ulrich Rathe with Bernstein Societe Generale Group.

I wanted to ask a little bit about the Belgian memorandum of understanding. Could you just confirm that's at the active for the passive level? Also, when you envisage an agreement eventually, will the terms differ from those offered to other takers?

Yes, that's an important question. Just to remind everybody, the contract is under review by regulators. We hope they'll see it as a constructive development for the market and for the operator. John, do you want to address the specific issue around wholesale rates?

Yes. For clarity, it is a passive reciprocal deal ultimately with Proximus, where Telenet will be building 60% and Proximus 40% in the collaboration zone, passing about two million homes in Flanders. The principle of being open and nondiscriminatory has already been articulated by the regulator. We have a regulatory process that will be underway very shortly. The principle of a nondiscriminatory regime will be in place as part of that agreement.

The next question is from the line of Polo Tang with UBS.

It's on Switzerland. Can you maybe talk through what you're seeing in terms of competitive mix in the Swiss market? What's happening with promotional activity? Is there still a drag on financials and KPIs from the retirement of the UPC brand? Should we expect slower growth as you start to lap your 4% price rises from July 2023?

I'll let Andre address the competitive dynamics. I think I mentioned in my remarks, Polo, we believe the UPC migration will be done by year-end and will have an increasingly smaller impact on results. I don't believe we've provided quarterly guidance, but take a look at where we are year-to-date through the midyear, and you can figure out the full-year guidance on your own. Do you want to talk about the competitive dynamics, Andre?

Sure. I would describe the competitive dynamics as high promotional intensity, but at the same time, we are seeing a bit of a worrying off effect. Meaning liquidity in the marketplace is somewhat reducing. Customers are increasingly getting tired of the ongoing price promotions being the only argument being raised. Our inflow is benefiting from two additional features that we have launched. One was the Flex upgrade program on hardware, which acts as a strong driver of our inflow at this moment. The second is our announcement of increasing HFC speeds for 70% of the population in Switzerland to 2.5 gig. This is a differentiating factor, relevant because only 40% of the country is today covered with fiber, and the additional HFC coverage provides a unique situation. We're delivering 1 gig but now 2.5 gig, which we think enhances our customer position as fiber rollout progresses in areas where we have previously had a unique selling proposition. Overall, it remains an intense market, but we see a reduction in promotional activity from consumers. Recently, we have noted that the number of discounts being granted has slightly decreased, which is a positive indication moving forward, and we will continue to drive that trend.

And as with other markets, having this dual-brand strategy makes a difference because you can compete with Salt on one hand and Swisscom on the other hand with products that match their offers and the customers they’re targeting.

Just on that dual-brand strategy, you only have one.

Go ahead, Polo.

On the dual-brand strategy, you don't have one in terms of the U.K. because you have a premium Virgin Media O2 brand. Essentially, that's a different setup from other markets now.

No, we have giffgaff. Giffgaff is our flanker brand in the U.K., and arguably one of the stronger elements of growth. Giffgaff is a really digital-first, incredibly popular mobile brand which at some point could be a broader telco brand. But that's our brand in the U.K., giffgaff. Do you want to add anything more about that, Lutz?

The next question is from the line of David Wright with Bank of America.

I'm wondering whether this dynamic of the altnets maybe focusing the financial resources more on loading the network and provisioning rather than building. Could that create hurdles to consolidation?

I'm not going to speak about TalkTalk. You can read about their situation. It's premature to determine or even guess as to what the regulator may or may not do. We're not assuming TalkTalk is doing anything but competing with us until they're not. Not much to add to that. On the altnets question, I mean, you are seeing what you described, which is a slowdown in build as financing and capital tighten, and I think that will continue. There will be winners and losers in that game. Some continue to raise capital. Others will consolidate and some will stop building. One way to improve their prospects is to start selling more directly and competitively. It's too early to tell whether this will have a broader market impact or affect their futures or our ability to consolidate. The trend is somewhat the same; there are companies like nexfibre, fully financed at GBP 4.5 billion, that we own a piece of, that is going to be building, no question about it. VMO2 is going to get to full fiber, and that's a certainty. The rest, we'll see how it shakes out. The writing is on the wall, so to speak, but that doesn't mean it's a straight line from here to there. There will be puts and takes. Overall, we evaluate M&A prospects along four levels. First, what's the overbuild with us? If we can upgrade at GBP 100, what’s it worth to acquire an existing fiber home that someone spent GBP 500 to build? Secondly, what's the quality of that network? What would it cost to get it to our level of sophistication? Third, is there a customer base? Your main question might be, does the existence of a customer base change the dynamic significantly? I would say no. If there are customers, we’ll look to see how those could be integrated or migrated. That in and of itself doesn't change the principal analysis. It’s mainly about where they built, how much they've spent, and how it fits our broader strategy.

No, I think you've summed it up well, Mike. There’s also a need for value expectations to be reset in the market before we can see material consolidation. I think that’s one of the other issues people are struggling with at the moment.

Just to put the infrastructure multiple out there, you’ve given the market its price point.

Well, those are pure NetCos with scale and cash flow. It's a different market. And yes, existing customers matter; but that's a fair point.

The next question is from the line of Joshua Mills with BNP Paribas.

Can you talk a bit about testing DOCSIS 4.0, and regarding the improvement in speed on the Swiss cable network, what kind of commercial benefits are you seeing? How much will the network go that way in the long term? Also, with the Proximus sale, why wholesale on cable now, rather than needing to invest in fiber?

That's a good question, Josh. I’m not sure we have enough time to answer it all, but I'll give it a try and maybe Enrique can chime in too. First, we've been wholesaling cable or hybrid fiber coax in Belgium for about five years now. We were regulated in Belgium and obligated to open up the cable network in Flanders. We did, and Orange Belgium is a very happy customer on our cable network, with hundreds of thousands of customers. They have already committed to our fiber build as we do that through our partnership. There are situations where either it's HFC or fiber, wholesalers are happy as long as they get the speeds and service quality they want. We haven’t done it anywhere else. We haven’t been obliged to do it. But asking why we wouldn’t do it in the U.K. is because the cost to upgrade to fiber and DOCSIS 4 are about the same. When you have the choice to upgrade to DOCSIS 4 or fiber in the U.K. where you own your DOCSIS network, it’s clear fiber makes more sense for the long term. Moreover, the entire wholesale market is working from a fiber platform, which means for competitiveness, you need to go fiber. The commercial dynamics, competitive landscape, and revenue opportunities in wholesale determine our approach in every market. In Belgium, we're happy to be HFC wholesalers, but we’ll migrate that network to fiber over time. In Switzerland, we focus on utilizing the best technology for the customer in a specific region. We can access our 2.5-gig HFC, Swisscom's fiber platform, or build more fiber. We’ve got the flexibility to compete effectively with whatever technology is best suited. Overall, there isn't a single approach for each, but it revolves around upgrading costs, market competition, wholesale market structure, and regulatory requirements, which is dynamic based on each region’s market environment.

That response is very clear. Any detail on how faster broadband speeds on the cable might result in a significant commercial advantage?

Okay. Let’s move to the next question, operator.

The next question is from the line of Luigi Minerva with HSBC.

It’s about the Netherlands and your pricing strategy. If I think about your broadband price increase last year, I think you just did exactly what KPN did back in July 2023. KPN is going for a 3.8% increase this year, and VodafoneZiggo is going for 2.5%. I’m wondering what the rationale behind this is and how you see competitive dynamics in that market.

We have Ritchy on, our interim CEO. A lot of this is about remaining competitive in a declining inflation market, which does not call for the same increase levels. Ritchy, do you want to provide more color on our price increase level?

Yes, for sure. The two factors are that we do a price increase both for the back-book and front-book. It's different than others in the Dutch market. It's also worth noting that inflation in the Netherlands is falling. Last year we had about 10% inflation, and we did an 8.5% fixed price increase. This year inflation is 3.8%, and we're doing 2.5%. The decision regarding the price increase is more about price-value perception than market competitiveness. We see that customers deciding to leave us frequently cite subscription cost as the main reason for churn. Thus, our decision to go slightly below inflation this year helps to keep a favorable price-value perception aligned with market expectations.

The next question is from the line of James Ratzer with New Street Research.

If possible, I would like to return to the topic of TalkTalk in more detail. Are there any scenarios in which you might be interested in acquiring some of their assets, or does the decline rate of their customer base make it too risky to get involved?

James, I want to clarify that I can’t comment on TalkTalk today. We watch their business developments like everyone else but they remain a competitor. Should opportunities arise, we would naturally consider them, but I cannot provide insight on that issue today.

The next question is from the line of Matthew Harrigan with the Benchmark Company.

This is a conceptual question. Various industry organizations have commented on the significant equity value created in Silicon Valley and other sectors, while telecom networks have incurred costs without enjoying similar benefits. Is there something unique about the ServCo model that would enable better participation in sectors like fintech, entertainment, health care, etc.? Is that a rationale behind this restructuring?

Possibly, Matt. Both entities, Netco and ServCo, are better positioned to compete long term for a share of that ecosystem. You correctly noted that net neutrality has created a disparity between tech companies and those in infrastructure connectivity, especially as we face competition, high CapEx, and rising requirements. However, the emergence of new products and services like network-as-a-service, AI advancements for better network management, and the agility of a dedicated ServCo from our model will ultimately enable us to participate in new developments and effectively deliver these services.

There are no further questions. I will hand the call back to Mike Fries.

Great. Thanks, everybody, for joining. I hope you have an incredible summer, wherever you are. Please save the date for September 9 in Zurich for our Capital Markets Day. We are looking forward to moving the Sunrise process along in earnest in the fall. Thanks, and we'll speak to you soon.

Ladies and gentlemen, this concludes Liberty Global's second-quarter 2024 investor call. A replay of the call will be available in the Investor Relations section of Liberty Global's website, where you can also find a copy of the presentation materials.