Earnings Call Transcript
Liberty Global Ltd. (LBTYA)
Earnings Call Transcript - LBTYA Q2 2022
Operator, Operator
Good morning, ladies and gentlemen. Thank you for standing by and welcome to Liberty Global's Second Quarter 2022 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. At this time, all participants are in a 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 facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed 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. Please go ahead.
Mike Fries, CEO
Hello, everyone. Thank you for joining us for our second quarter results call. We have a lot to cover today, so we’ll dive right in. Charlie and I will present using the materials we posted, and then we’ll take your questions. I’ll start on Slide 3, which outlines five key headlines from the quarter. First, these are tough times for everyone. Every market is facing inflation, increased energy costs, supply chain challenges, and concerns about a recession. We are not immune to these macroeconomic conditions. To be clear, we are experiencing headwinds, especially in energy costs, and there are signs that consumers are becoming more fatigued and price-sensitive. However, having navigated similar situations before and considering our strong performance during the pandemic, we believe we are well-equipped to manage the current environment. The demand for both fixed and mobile connectivity is stronger than ever, and we don’t foresee anything altering that long-term trend. In fact, we anticipate more positive factors for consumption moving forward, whether through smart 5G solutions in the B2B sector, the continuation of hybrid work, the rise of gaming, the growing adoption of streaming services, or developments within the new metaverse. Secondly, alongside these long-term drivers, we have some inherent advantages that bolster our operating and financial momentum. As we’ve reported, in nearly every market, we have adjusted our prices to reflect rising inflation relative to the quality of our connectivity services. We are also on track to realize significant merger synergies in the UK and Switzerland, which, combined, will ultimately yield annual cash flow benefits of nearly $1 billion. Furthermore, we continue to foster volume growth and improve average revenue per user with innovative offerings across our fixed-mobile converged platforms, which I will discuss further in a moment. Third, in alignment with our plans to innovate and compete, we remain focused on enhancing both our fixed and mobile networks. Recently, we have made strategic decisions that we believe will strengthen our status as champions of fixed-mobile convergence in our core markets. This includes the establishment of a new infrastructure company in Belgium that will gradually migrate Telenet's HFC network to fiber, achieving a 60% utilization rate on day one, supported by smart financing. Additionally, we have announced a new 50-50 joint venture in the UK with InfraVia, which will construct 5 million and potentially up to 7 million greenfield fiber homes, extending Virgin Media O2's coverage to over 80% of homes and creating new wholesale and strategic opportunities. While these network expansions and upgrades will have varying impacts on free cash flow in the medium term, we anticipate that Telenet's retention of the full 67% of the Flemish NetCo will consolidate capital expenditures and lead to a decline in free cash flow, as they have clarified. In contrast, the joint venture with InfraVia in the UK will deconsolidate our current new build capital expenditures, effectively boosting Virgin Media O2's reported free cash flow. As we indicated on our last results call, we have accelerated our stock buyback activity in the first half of the year. As of today, we have achieved our goal of repurchasing 10% of our outstanding shares. To capitalize on what we believe is a growing value gap in our stock, we are increasing our buyback commitment by $400 million, bringing our total for the year to $1.7 billion—or about 14% of our shares outstanding. Finally, we are confirming our guidance for fiscal year 2022, and Charlie will discuss that next. Turning to Slide 4, we present our recent connectivity results in broadband and postpaid mobile across our four fixed-mobile converged operations. Starting with Virgin Media O2, we achieved 16,000 broadband net adds and 13,000 postpaid mobile adds, both figures representing increases from the first quarter yet falling short of last year’s performance. In broadband, we implemented a 6.5% price increase in the first quarter, aligning with our expectations amid a slowdown in the overall sector. The market remained subdued in the second quarter, with nationwide broadband sales declining approximately 7% sequentially. Despite this quiet period, our share of broadband net adds reached over 20% nationally, a new high for us, translating to around 40% share within our footprint, where average speeds are now at 250 megabits per second—five times the national average. While broadband churn remains low, we are observing some pressure on acquisition average revenue per unit and retention discounts as the market responds to a worsening cost of living. Nonetheless, we are confident that we have the right products to maintain our momentum and provide customers with better value when they need it. Our mobile growth strategy in the UK is centered around value creation through convergence. We are well-positioned to leverage the market through our VOLT initiative, which is performing beyond our expectations, assisting us in acquiring new VMO2 customers. This initiative is converting O2 mobile subscribers to Virgin broadband customers, and importantly, it is transitioning Virgin Mobile customers to our premium O2 brand. The combined movements resulted in 13,000 net postpaid adds, though this figure somewhat understates the organic growth of the O2 base due to considerable migration and losses in the Virgin Mobile segment. In Switzerland, we have reached a significant milestone with the introduction of a new single brand under Sunrise, accompanied by an inspiring promise to dream big and do big. This rebranding has generated exciting energy, although we anticipated some short-term pressure on broadband sales as we phase out the UPC brand. We saw a stable broadband base this past quarter, while the rebranding and new Sunrise UP portfolio drove increased mobile sales and improved tier mix, yielding a market-leading 47,000 postpaid adds. Our digital-first no-frills brand, Yallo, is also performing remarkably well, significantly contributing to growth in the second quarter. I’ve spent the week in Switzerland with the Board, and I am continuously impressed by the progress André and his team are making. The Swiss market is stable, and consumers there are relatively well-off compared to the rest of Europe, and Sunrise is successfully executing its strategy. VodafoneZiggo reported 49,000 postpaid mobile adds while losing 2,000 broadband subscribers, despite an average 3.5% price increase in July and relatively low churn rates. These results are robust; in the mobile segment, Vodafone retains the highest net promoter score in the market and leads competitors in mobile net adds. While our broadband base remained largely flat during this period, it was the best performance in eight quarters, attributed to the team’s proactive fiber response plan and innovative marketing campaigns. Fixed churn remains low, partially due to enhancements in broadband capacity and quality, with 1 gigabit services now available to 90% of homes. Telenet recently reported results indicating a stable broadband base with 8,000 postpaid mobile adds. The market is characterized by low fluctuation and churn. Telenet saw a 4.7% increase in prices, which should help alleviate competitive pressures on average revenue per unit. I will discuss Telenet’s recently announced deal to establish a new infrastructure company with Fluvius shortly. The key takeaway for us is that this will be a transformative step for the market, ensuring that Telenet continues to deliver the best, fastest, and most innovative services. In a landscape where differentiating broadband speeds and mobile platforms is increasingly difficult, the pace and quality of innovation are becoming essential drivers of success. Our evolution over the past 20 years—from relying entirely on video revenue to diversifying into mobile, broadband, entertainment, and B2B—has provided us with valuable insights into the importance of bundles, brands, and new services. Slide 5 briefly summarizes our current strategy in each market. Instead of going through the details by country, I'll highlight some key points. Merging fixed and mobile platforms to generate significant operational and capital expenditure efficiencies is the straightforward part; the real challenge lies in crafting converged services that enthrall customers, reduce churn, and boost average revenue per unit. We've successfully achieved this in each of our four countries and continue to increase our fixed-mobile convergence penetration to around 50% or higher. Generally, this success stems from offering faster broadband, increased mobile data, and additional connectivity features like WiFi pods, security services, or new entertainment options. Entertainment has become a crucial component of our bundles. Some have questioned the necessity of providing a video service, and the answer is yes—especially in Europe—where a significant percentage of customer subscriptions to our broadband service depend on it. We have been integrating streaming apps into our platforms for some time, and customers increasingly rely on us to access their preferred providers. Recently in the UK, we took another step forward with the launch of our new IP device, TV Stream, a compact device priced at GBP 35 with no monthly fees. It provides seamless access to top apps and offers 40 free channels, along with our premium VMO2 television services for interested customers. With this launch, we are appealing to a new digital-first segment of viewers and ensuring our best-in-class broadband remains a focal point. We are also undertaking various initiatives in our other markets, such as entertainment upgrades with Netflix and MySports in Sunrise, exclusive Flemish series offerings by Telenet, and VodafoneZiggo providing free access to Ziggo Sport. Additionally, rewarding customer loyalty is becoming increasingly important, and we focus on that. For instance, the O2 rewards program has helped O2 maintain the lowest churn in the market by offering prominent customers the chance for extra airtime or discounts on show tickets. The Swiss team has just introduced Sunrise Moments, a program similar to O2's. Similarly, VodafoneZiggo has initiated something comparable. Finally, we are establishing our brand with national champions by sponsoring entities like the national rugby team in the UK, the Swiss national ski team, and placing our name on the jerseys of Ajax, one of the most renowned football clubs in Dutch history. We want our customers to recognize that we stand for more than mere connectivity. We are champions of fixed-mobile convergence, and we treat our brand partners like champions. I mentioned earlier the progress on our fixed network development plans. Slide 6 outlines our recent partnership with InfraVia to initially develop 5 million greenfield fiber-to-the-home connections by 2026, with the possibility of extending that to 7 million. The chart summarizes the structure of the deal, which will allow Liberty and Telefónica to invest directly into the joint venture through a new holding company. We believed it was easier to use a separate vehicle and move this project off our balance sheet, preserving VMO2's capital structure and capital allocation framework. Virgin Media O2 will offer construction and managed services to the new NetCo and will also be the main anchor tenant on the wholesale side. This 50-50 joint venture is fully financed with committed equity and debt. Our share of the investment for the 5 million homes will be around GBP 350 million spread over the next four to five years—a reasonable capital outlay considering we’ve already developed 3 million new homes in the UK, providing us confidence in our ability to execute the build-out efficiently, penetrate new markets, and deliver strong returns—prior to recruiting additional ISPs as potential wholesale clients, which makes the deal even more appealing. There are numerous compelling reasons to proceed. First, we will effectively channel the Lightning build engine and the Lightning capital expenditures into this off-balance sheet initiative, resulting in improved free cash flow for VMO2 from day one. Second, we will expand Virgin Media O2's converged offerings to reach between 21 million and 22 million homes or 80% of the market. Complementing the announced upgrades of our existing HFC infrastructure to fiber, we are solidifying our position as the second national fiber network in the UK, and this joint venture is strategically positioned to capitalize on further consolidation in the fixed sector whenever that occurs. We are enthusiastic about finalizing this agreement and look forward to a fruitful partnership with InfraVia. While upgrading networks, I want to provide a quick update on Ireland where we have successfully upgraded our first 100,000 homes to fiber, and everything is progressing well. This is a cost-effective build, costing around EUR 200 per home, which facilitated the decision to opt for fiber over DOCSIS 4. Additionally, we are making excellent strides toward securing our first wholesale deal in the market. Slide 7 features details on Telenet’s new joint venture with Fluvius. From our standpoint, it's essential to note that this represents a long-term upgrade strategy, offering management the flexibility to utilize different technologies or fiber sourced from third parties. While it is a EUR 2 billion commitment on paper to achieve 78% coverage, this is contingent on generating favorable returns throughout the process. The strategic advantages created for Telenet are as crucial as the operational benefits. This NetCo will commence with a 60% utilization rate and moderate build costs for at least the first phase. It’s highly likely that financial or strategic investors will be interested in this opportunity, particularly given the attractive current trading multiples for such ventures. Moreover, it allows Telenet to collaborate with strategic partners in the market, ensuring optimal capital utilization while prioritizing consumer innovation and investment. This also positions Telenet advantageously to retain and expand its significant wholesale revenue base. Lastly, it is crucial to point out that the situation in Belgium does not apply to our operations in the Netherlands, whether in terms of strategy or costs. Our management team in the Netherlands is focusing on DOCSIS 4, which offers reasonable costs of EUR 150 to EUR 200 per home. Meanwhile, we are currently delivering 1 gigabit services to 6 million homes, approximately 86% of the market, and we expect to reach 100% coverage by year-end. In conclusion on Slide 8, we are increasing our buyback commitment for 2022 from $1.3 billion to $1.7 billion. This reflects our strong belief that the current market value is not reflective of our company’s inherent worth and the strategies we are pursuing. By December, we will have repurchased about 14% of our shares this year and over 50% since 2017. This commitment is supported by our solid financial position, which includes $1.7 billion in distributable cash flow generation this year and a robust balance sheet. Our debt is long-term, fixed rate, and largely insulated from current market conditions, and we have a sizeable cash balance of $3.3 billion today, projected to increase to $3.6 billion by year-end following the expanded buyback commitment. We believe this cash reserve is a tremendous asset in times like these. While we continue to prioritize stock repurchases, as today’s announcement clearly shows, we will also remain opportunistic and proactive in our core fixed-mobile converged operations, where we serve as a pivotal platform in every market, driving change, fostering innovation, and creating long-term value for our shareholders. Charlie, I’ll turn it over to you.
Charlie Bracken, CFO
Thanks, Mike. The next slide sets out our revenue performance in Q2. Broadly, we've managed to deliver stable revenues despite a true economic climate as price rises across our portfolio begin to feed through into increased revenue growth. Because of its price rises, Virgin Media O2 has returned back to overall revenue growth this quarter, showing, in particular, strong revenue growth in mobile. Although fixed subscription revenues were broadly stable, a decline in install revenues from circuit installations in our B2B division compared to last year meant overall fixed revenue showed a small decline. In Switzerland, stable revenue growth in the quarter was a mix of continued strong mobile growth driven by strong volumes across our brands combined with the decline in fixed revenues. Fixed revenues declined due to ARPU pressure, with some softer volumes in part because of the brand migration from UPC to Sunrise in the quarter. In the Netherlands, we saw a modest revenue decline year-on-year driven by ongoing declines in the B2C fixed base, partly offset by strong mobile and B2B revenue growth. The business introduced our blended 3.5% price adjustment in fixed this month, which we expect to improve fixed revenue growth in the second half of the year. And in Belgium, Telenet's top line growth continued, driven by the 2021 price adjustment on subscription revenue, strong handset sales, and roaming visitor revenues. Given the price adjustment of 4.7%, which landed in June, we expect further support to the top line in half 2 as it lands across the majority of the base. Moving on to our adjusted EBITDA performance in the quarter. Virgin Media O2 delivered around 4% EBITDA growth in Q2. This included a $19 million OpEx cost to capture within the quarter. EBITDA performance was driven by the price adjustment and early synergy realization. We continue to expect EBITDA growth to trend upwards in half 2 as the impact of the price rises continues to land as well as the realization of further merger synergies. Sunrise saw EBITDA growth moderate after a strong Q1, with Q2 broadly stable. This was due to higher cost to capture operating costs compared to Q1, and a big part of the $19 million of cost to capture in the quarter was due to the Sunrise rebranding. Excluding the cost to capture, the EBITDA growth was supported by the ongoing benefits from the MVNO migration executed last year. VodafoneZiggo witnessed an EBITDA decline of over 2%, driven by the top line decline and cost inflation, including energy. The business also stepped up promotional activities for the Ziggo Sprinters campaign in the quarter. And finally, Telenet reported a modest decline in EBITDA driven by the continued impact of energy and labor costs. Overall, in line with guidance, we expect EBITDA growth to be largely half 2 weighted supported by the mid-June price rise. The next slide has an update on the key inflation and macroeconomic challenges that we discussed last quarter. Firstly, on our energy costs, which typically constitute a low single-digit percentage of operating costs. For 2022, we're now around 90% hedged in terms of our exposure across our operating companies. And we also continue to hedge opportunistically for 2023 and are looking to be fully hedged for 2023 by the end of this year. Secondly, wage increases have largely been agreed across our businesses, in line with the budget. However, we continue to monitor the impact on our workforces given the tight labor markets. Thirdly, although we continue to see some macro-driven pressures on our supply chain, we have managed to leverage our scale and long-standing supplier relationships to manage them well. In response to higher inflation, generally, we've implemented a number of price adjustments across our markets, which are generally higher than in prior years. Despite these higher increases, our internal trends currently show that our price rises in the UK and Holland have landed successfully with limited churn impact. Finally, we continue to see our integration efforts in the UK and Switzerland support profitability, which differentiates us from our competitors given the multiyear synergy runway ahead in 2 of our biggest markets. Moving to free cash flow and the key drivers. We delivered $564 million of full company free cash flow on an adjusted and distributable basis in half 1. The second quarter was a strong quarter for the distributable free cash flow. It was over $400 million and was supported by dividends from Virgin Media O2 and VodafoneZiggo. Turning to our capital allocation slide, and starting with capital intensity on the left-hand side. We're on track relative to our CapEx guidance across the 4 major OpCos in the first half of '22. As you can see, capital intensity varies across the businesses. And Mike's already covered a number of our updated fixed line network investments, which is a major driver, depending on the local strategy. On mobile, we continue to progress well with 5G, with the OpCos at different stages, often driven by the release of spectrum. Swiss coverage is the highest at around 95%, the Dutch are at 80%, with the UK and Belgium now starting the rollout. On a consolidated basis, our CapEx split continues to be around half on product enablers and CPE and the other half on baseline capacity and new build upgrade. On the right-hand side of the slide, we give an overview of our debt complexes. We believe that these are well hedged and provide significant value to our shareholders. The interest expense on all our debt is 100% fixed. For any variable debt that we raise, such as term loans, we swapped to fixed rates to maturity. For any debt not raised in the currency of the local company, the debt is swapped back into local currency. And our debt is solid across various debt complexes. That means that even if one company gets into distress, it will not affect the other companies. Virtually all of our loans don't have any covenants. We've also locked into a long-term debt structure with an average life of 7 years. Our Swiss franc and euro borrowers have all locked in fixed rate debt below 4%, and in the UK, where there are higher underlying interest rates, we've locked in 7-year debt at 4.6%. Lastly, turning to ventures. The fair value of the portfolio fell slightly to $3.2 billion driven primarily by the continued decline in the ITV share price during the quarter. Now you can find additional detail around our portfolio and the key quarterly movements in the appendix. Turning to our guidance. We're now confirming the guidance of each of our key companies set out on the left-hand side of the page. We're also reconfirming our group guidance of $1.7 billion of distributable free cash flow. This is based on guidance FX. And since we guided, there's been pressure, particularly on the pound/euro relative to the dollar. Despite this, we continue to track well on free cash flow, as highlighted by the strong Q2 free cash flow performance. Now, as a reminder, distributable free cash flow was a new metric we introduced in 2022 that includes both our free cash flow as historically defined and additional cash that we received from our joint ventures from any recapitalizations. Our distributable 2022 free cash flow forecast includes cash that we expect from a debt raising at Virgin Media O2 as part of the GBP 1.6 billion overall shareholder distribution guidance. Now despite the market volatility, we successfully arranged attractively-priced financings to fund the distribution, not least as we have pre-hedged interest rate exposures last year before the rates started rising. We've continued to execute on our buyback commitment, having already almost closed on a 10% buyback floor that we've been publicly targeting, having bought back 50 million shares year-to-date. As Mike mentioned, we're looking to execute another $400 million for the remainder of 2022 and take advantage of what we see as a large value gap in our stock. Our balance sheet position remains strong, with total liquidity of $5.6 billion, including $4.2 billion of consolidated cash, which does include a large cash balance at Telenet coming from the tower proceeds that they made. Given the increase in the buyback by $400 million, we now expect to end the year with around $3.6 billion of corporate cash. So that doesn't include the Telenet cash, the corporate cash, which we can obviously use to support returns for our shareholders. And with that, operator, let's go to Q&A.
Operator, Operator
It was just a question on the UK joint venture and the decision to relever it. Have you considered the possibility of not doing that? It doesn't seem to have positively impacted the shares, especially as we approach tougher economic times. This raises the argument that the business might be better off having slightly less leverage than it currently does. This would provide more options for the future. I would like to hear your thoughts on leverage going forward and whether you plan to increase it towards the 5x ceiling or if a lower level might be more suitable in these challenging economic conditions.
Mike Fries, CEO
I'll attempt to address that, and Charlie or André can add more if needed. Thank you for the question, Steve. The margins on these NetCo structures are very high, as you may know. This particular NetCo is a light NetCo, meaning that many activities are being outsourced to Virgin Media O2. We believe the funding structure we've established is quite standard and not overly aggressive for these platforms. The combination of equity and debt provides all the necessary capital, aligning with the leverage structure we've used in other parts of the organization that have lower cash flow margins. Therefore, it feels appropriate to us.
Stephen Malcolm, Analyst
Mike, I apologize, I was referring more to VMO2 leverage instead of the NetCo leverage.
Mike Fries, CEO
You mentioned NetCo. Sorry.
Stephen Malcolm, Analyst
Sorry, sorry. My bad...
Mike Fries, CEO
No problem. No worries. Charlie, do you want to address leverage overall? Go ahead.
Charlie Bracken, CFO
Yes, absolutely. First, I want to highlight that we've consistently been comfortable with a leverage ratio of 4 to 5 times. Additionally, we've successfully secured some very attractively-priced financing for this recapitalization. Borrowing at rates below 5% is quite favorable for our shareholders, allowing us to distribute cash back to them while also enhancing returns for long-term investors. Moreover, we have a robust free cash flow cushion, and we could further increase it by scaling back on new capital expenditures if needed. I don’t believe these companies are over-leveraged. I understand that there is a tendency for lower leverage in Europe when it comes to IPOs, but I don’t foresee an IPO for Virgin Media O2 in the near future, especially given how well the story is coming together. I must commend the off-balance sheet joint venture that André has executed; it is truly impressive. In our view, there’s no reason not to leverage up if the financing is available at an attractive price. Regarding Telenet, we considered it crucial to have arranged favorable financing given the market dislocation. They currently maintain a strong debt structure with a fixed rate of just over 3% for more than six years. In this context, I didn’t find it sensible to commit to a dividend policy while recapitalizing the business, as we cannot predict debt pricing or the market’s behavior. I think it’s important to clarify this, particularly in the UK.
Stephen Malcolm, Analyst
Can I just ask one quick follow-up on the NetCo and just how the anchor tenancy works? Do you commit to certain volumes? Or is it just best efforts?
Mike Fries, CEO
There's no minimum volume commitment. We shouldn't get into too many details here, but Virgin Media O2 will be an exclusive anchor tenant and will use that network.
Stephen Malcolm, Analyst
There will be a minimum volume that you will have to deliver onto the network. Is that right?
Mike Fries, CEO
There will not be.
Operator, Operator
And our next question comes from the line of Luis Lecaroz.
Luis Lecaroz, Analyst
How quickly do you think you can start rolling out and getting customers on board given the complexity of planning and supply chains in the UK?
Mike Fries, CEO
Lutz, do you want to address that?
Lutz Schüler, CEO of Virgin Media O2
Yes. We have built 3 million homes, establishing strong relationships with several vendors to support our network. Currently, with Liberty Global, Telefónica, and the joint venture, we can provide long-term commitments to these partners and suppliers. We have leveraged this to secure additional Tier 1 suppliers, allowing us to sign contracts. As a result, you will see us move quickly into a higher level of operation following the closing of the joint venture.
Operator, Operator
And our next question comes from the line of James Ratcliffe of Evercore ISI.
James Ratcliffe, Analyst
I'll continue on the topic of NetCos. I mean you've done one now in Belgium, and for the expanded footprint in the UK. I can certainly understand the benefits of giving investors the opportunity to target an infrastructure play, who might not find an OpCo particularly attractive. How do you balance that against the fact that this is creating a wholesale NetCo that would certainly ease competitive entry for alternative providers rather than owning the network potentially entirely yourself and with the OpCo and having quasi-monopoly status, particularly in those additional areas of build out?
Mike Fries, CEO
In the UK, the situation is straightforward. This is completely new territory for us. Similar to our experience with Lightning, when we establish a network in the new markets that Virgin Media has been entering for years, we achieve an initial penetration rate of 25% to 30%, even with competition already present. We are confident in our ability to effectively reach this new greenfield network, which spans up to 7 million homes. Most parties that partner with us on this NetCo infrastructure will already have taps into these territories and other entry options, so we're not conceding anything. Other operators likely have access to multiple networks, if not at least one, in the areas we are targeting. If they choose to collaborate with us, it reduces our costs and enhances the return on the infrastructure we plan to build regardless. Therefore, pursuing this in the UK is an obvious choice. In Belgium, Telenet has already taken steps by opening their network and being a wholesale provider on HFC. They will transition to being a wholesale provider on fiber gradually, while maintaining and increasing their wholesale revenue that already supports their business, making it a logical move as well.
James Ratcliffe, Analyst
Just a follow-up, if I could. When you think about the other parts of the footprint, both JV and wholly owned, does it make sense, structurally, for the NetCo and the OpCo to be separated if you're not talking about footprint expansion? Or are those 2 pieces still classically better together?
Mike Fries, CEO
There's pros and cons. The pros, or what we're leaning on here in both instances, the pros are you're bringing in typically higher leverage, outside capital and an infrastructure focus to an asset class, if you will, that's generally highly valued, and in recent times, materially higher multiples than our own business. So there's financial reasons, strategic reasons, and ideally operating reasons for those separations. It doesn't mean it works in every case. Certainly doesn't work in every case. And for example, in Switzerland, we're not doing this. In Ireland, we're building fiber but retaining control of the asset, because it's a relatively small investment in a relatively inexpensive build. And it's unclear we would be able to attract interest in something that small. So I think, yes, it's horses for courses. And I think that's the smart and agile way to run a business. You don't come at it with a blocked view. 'It's only going to look like this.' You look at the market and the variables in the market, and you make the decision that creates the most value. I think that's exactly what we're doing.
Operator, Operator
Our next question comes from the line of Sam McHugh of BNP Paribas.
Samuel McHugh, Analyst
Just sticking on the UK, sorry. You mentioned a bit more impact from dilution and discounting. So when we think about ARPU trends through the year, should we think about them as being pretty similar to this quarter and maybe getting a tiny bit worse? And I think in that context, we're also in the headlines around TalkTalk. I'm pretty sure you can't comment on it. But strategically, do you think it makes sense to get a bit more exposure to a discount market at this juncture in kind of the macro cycle?
Mike Fries, CEO
Answering your second question would be doing just that, commenting on it. So no comment. But do you want to handle the first question, Lutz?
Lutz Schüler, CEO of Virgin Media O2
Yes, sure. I mean we have done the price rise in Q1. Our customers had done a 30-day cancellation period, and we have applied 6.5%, right? I mean other market participants have used a different mechanic, meaning a higher price rise, no immediate cancellation, right? And they have applied the price rise also for customers who are within their existing promotional period. So therefore, you can, from our side, say price rise has landed in Q1 as planned, and there's more customers coming off the promotion period over time, and will therefore get the price rise during the year. The other thing, and Mike has mentioned that, we see both in the acquisition market and also in the retention market a bit more pressure, yes? And we think that it's partly coming from the cost of living crisis. So meaning that when you look at sales for acquisition, it's more focused around 50 meg products circling around GBP 20, GBP 25. And then obviously, when there's a lot of advertising of these products in the market, the appetite of existing customers to reduce their monthly bill and the cost of living crisis has lowered. So we see it a little bit, and it's hard to predict how this will develop during the course of the year. But we are not seeing a destabilization of ARPU, if that helps.
Operator, Operator
Our next question comes from the line of Robert Grindle of Deutsche Bank.
Robert Grindle, Analyst
Sticking with the UK. How would it work if there was M&A in the fiber JV footprint? Is it that you'd swap CapEx for an acquisition and not build in those areas? Or could the footprint grow by more than the 7 million by M&A? And if, say, VMO2 bought more customers onto the JV, you're more successful in getting the penetration up. Do you just get the value of that through the equity stake? Or do you get sort of an earn-out as penetration moves up?
Mike Fries, CEO
Yes, that's a good question, Rob. In response to your first question, we could consider various options in terms of M&A within the structure. This joint venture could definitely pursue acquisitions of existing alternative networks if it aligns with our interests and makes strategic sense, provided there are no regulatory hurdles and adequate financial backing. We are well-positioned to do this with our three partners who possess both capital and a strong understanding of the business. We will see how things develop, but this is certainly one of the exciting prospects we have. Regarding your second question, there aren't many customer bases available for purchase, so I wouldn't want to speculate too much. Most alternative networks do not have retail operations, and if they do, those operations are fairly small, which means this would likely not be a significant factor for alternative networks.
Operator, Operator
And our next question comes from the line of David Wright of Bank of America.
David Wright, Analyst
Perhaps just a little more top-down, Mike. We've talked about strategy over the last few years. Very clear that you guys executed deals to build the FMC champions. And then there was always a potential to consider local listings to open up the asset and investment opportunity to guys who maybe can't sort of acquire the U.S. holdco. It does feel like that opportunity has perhaps been moved on a little. And I know the NetCo-ServCo question earlier. Is that perhaps a better route now to sort of unlocking value is to start bringing some of the infrastructure assets together? And I know you didn't go into this JV with VMO2. You went in test as equity shareholders. And then I guess just a part 2 on the sort of NetCo concept. The one thing we are noting is that a lot of telcos are doing this. You mentioned it's similar to other deals. But what it is tending to do is bring complexity into the equity case, which is bringing increasing conglomerate discount. And of course, you are essentially shifting away from NetCo to ServiceCo because you are selling part of your infrastructure. And that means ultimately a derating of your multiple. And I know that you very often talk about the market disconnecting your share price from the value of your company, but is this not compromising that to some extent? I'd be interested in your thoughts.
Mike Fries, CEO
Yes, those are excellent questions, David. Regarding your second point, I don’t believe it undermines our goal. Take the UK as an example; this is an additional investment on top of our core FMC business, which we see as having significant growth potential, whether through synergies, branding, or operations. We firmly believe in this, and while you may assign a lower multiple, we think it's higher, and we have reasons to support that. This expansion of our network is supplementary, and as you mentioned, it could lead to higher multiples if we decide to involve additional financial partners or pursue roll-up strategies. It’s a scenario where we're enhancing our core FMC business, validating its value by allowing it to grow in a cost-effective and beneficial manner. Now, Belgium might look different, as it involves splitting a business and how that will be valued. However, Telenet is currently trading at a low multiple as an integrated company. Over time, we’ll see how these strategies develop. We’re optimistic about John's approach, and we believe that the ServCo will be valued based on its customer retention and growth abilities. I have confidence that the Telenet management team will ensure Telenet remains the leading brand for consumers, regardless of which network they’re on or who owns it. I trust this team to ensure the NetCo and its partners become the most important network in that marketplace. We had to collaboratively work with Fluvius to achieve this structure, as they had no interest in public stock. So, while some of this was due to market circumstances, I believe it’s a solid strategic outcome. Each situation is unique, and, as I mentioned earlier, we won’t follow this approach everywhere. Our role is to evaluate each market individually to determine how to create and demonstrate value and ultimately strengthen the core business over time. How the market perceives it is uncertain, but we know these transactions significantly enhance our core business. We believe the structures we're using will positively impact today’s values or multiples and should yield positive results over time. As for listings, now isn’t the best time to discuss IPOs. While we’re not ruling it out entirely, given the current environment, we’re not making it a priority. Our core businesses, particularly in the UK and Switzerland, need time to mature and showcase their synergies and growth potential. We’ll revisit the IPO question when it becomes relevant. For now, we’re understandably focused on other strategies. You mentioned infrastructure as an asset class, and we have some compelling investments in that area. Telefónica has its own infrastructure platform. It’s possible that we could explore combining ownership of these infrastructure businesses in the future. We evaluate every opportunity because our primary goal is to maximize value for our shareholders. That could be a possibility we investigate down the line.
Operator, Operator
Our next question comes from the line of Polo Tang of UBS.
Polo Tang, Analyst
Maybe just fixing onto Switzerland. Can you maybe talk through the competitive dynamics in the market and what has been the reception to the new tariff portfolios from all the operators? And you flagged softening trends in terms of fixed line, but how optimistic are you that this can improve going forward?
Mike Fries, CEO
Sure. And André is on the line. So André, why don't you take that?
André Krause, CEO of Sunrise
Yes. Thanks for the question, Polo. So firstly, I would say the competitive dynamics in the first half of the year has been changing a bit but restoring to recent levels based on the, I would say, portfolio refresh that we have seen. Why is that? We have seen that in the first quarter throughout the second quarter up until beginning of May, promotion intensity was reducing, and we were following that trend. Then with the new portfolio of Swisscom, we have seen that while the promotion intensity has come down, Swisscom has introduced drug discounts, like, for example, the online benefit, which customers could sign up for, which has increased their competitive position on the front book. As such, we look forward to also bring up our promotional intensity again a bit in order to keep the pace in the market. So I would say that we have been at the beginning of the year, which is not what we have hoped for, but it's a reality, and we are not giving up on that. The fixed softening that you are referring to is very much driven by the consolidation of the brands, and that starts with sunsetting of the UPC brand, which obviously we have started to reduce our commercial activities on that brand a bit earlier and are now ramping up again the full fixed intake on the new portfolio. And I can say I'm pretty happy with the performance that we are seeing on the new portfolio. It does exactly what it should. It drives more bundled sales. And of course, we will continue to fine-tune it in order to get back to the initial momentum that we had at the beginning of the year on fixed. And on mobile, we are continuing to doing well as you can see from the numbers.
Mike Fries, CEO
I'll quickly reiterate what I mentioned earlier: the Swiss market is quite unique and feels almost insulated. Inflation remains in the low single digits, and interest rates have stabilized, now hovering around zero. Consumer confidence in Switzerland is stronger than in other markets, which allows it to perform exceptionally well even during challenging periods. It truly acts as a safe haven, and we are fortunate to have significant capital invested here. This situation is providing André and his team with strong support to effectively manage the business.
Operator, Operator
Our next question comes from the line of James Ratzer of New Street Research.
James Ratzer, Analyst
My question pertains to the buyback. I appreciate your decision to allocate more capital toward this initiative. However, when the Board discussed the additional $400 million commitment, I would like to understand the options that were considered. Specifically, did you consider investing in Telenet, especially since its price has fallen more than Liberty Global's? Additionally, regarding an earlier inquiry from Steve about no volume commitments from VMO2, could you clarify what commitments, if any, you are making to the new joint venture? You mentioned being an anchor tenant, and I would like to know what you mean by 'anchor' and what level of security that provides to the debt lenders in this venture.
Mike Fries, CEO
Yes. On the second question, and André, you can step in here if I miss any, but on the second question, we're basically agreeing to use this network and nobody else's. So remember, as we've rolled out the 3 million homes that we now have historically called Lightning, we have been exclusive, obviously, users of our own network in that context in getting 25% to 30% penetration. So in a sense, the lenders or our partners can, to some extent, bank on the fact that we are going to be aggressive marketers on this footprint as we have been on the prior 3 million homes, and they can take comfort that we'll get to a certain level of penetration, and we won't use anyone else's network. I think that's what anchor means in that context. On the buyback, we always look at different options and choices. It's never a singular decision. We're always allocating capital. Just in this announcement around the U.K., we will be putting capital into that joint venture. We've got the Ventures portfolio. We're always looking at the most efficient way to put our capital to work, and buybacks is one of many of those ideas, but it's always a fundamental approach that we take to both creating value and the capital allocation. We haven’t looked at Telenet as such, but I don't disagree with you. I think Telenet is poised to improve from here, no question about it. They've answered all of the outstanding issues, for the most part, around the JV and the NetCo they've created. I think they're not stressed about a potential fourth entrant. I think in their Capital Markets Day, they'll clarify many of these things. But I think Telenet certainly is undervalued, and for the first time, probably trading at a lower multiple than we are, but that's unusual and probably unlikely to remain, let's hope, for all of our sakes. So we look at all different types of things. I'm not going to comment specifically on what we might be looking at vis-a-vis Telenet.
Operator, Operator
Our next question comes from the line of Ulrich Rathe of Jefferies & Company.
Ulrich Rathe, Analyst
I have also a question on the UK, the operational side of things. It sounds like the fixed price rise was about a 2 percentage point tailwind, whereas the ARPU trend improved by 1/4 of that, roughly, painted with a very broad brush stroke. So question. Can that drop-through improve later in the year? What are the mechanics of that relatively minor drop-through of the incremental price increase versus last year?
Mike Fries, CEO
Yes. Go ahead, Lutz.
Lutz Schüler, CEO of Virgin Media O2
Yes. I'm not sure how much I can elaborate on this or if I understood the question correctly. As I mentioned earlier, we implemented the price increase in Q1. The cancellations from customers are no longer an issue, so the increase is effective. Customers who were on a promotional rate will also experience the price rise once their period ends. Therefore, throughout the year, we expect the average revenue per user to grow from this change. Additionally, if we continue to acquire customers at a lower average revenue per user, which we have been doing, that will be noticeable. The acquisition market has experienced pressure, and if we need to offer higher retention discounts, that will also impact the expected increase in average revenue per user. So, it's somewhat dependent on the cost of living crisis, primarily, though not exclusively. Hence, we are cautious when providing future guidance. The positive aspect is that we have several growth opportunities besides this. We are fully realizing the synergies, and by the end of this year, we expect to achieve 30% of our target. We are also digitizing our business for additional benefits. With the fiber joint venture, we have accelerated network expansion, allowing us to sell more broadband services for Virgin Media. Additionally, a potential wholesale partner will gain a speed advantage by reaching 1 gig speed in 60 million homes and will have a reliable, future-proof network covering 21 million homes by 2028. This represents another significant growth opportunity that we are confident about. Therefore, while the cost of living crisis may affect us, we can still demonstrate a growing top line. Furthermore, we have three concrete and solid growth opportunities that we are actively pursuing.
Operator, Operator
Our next question comes from the line of Mike W. of BTIG.
Mike W., Analyst
Can you just clarify whether you are seeing changes in churn and how you expect it to trend over the next couple of quarters given the potential for competitive pressures?
Mike Fries, CEO
We are seeing trends in churn, yes. We, I think, have demonstrated just how resilient we've been in our low churn businesses. I think Lutz mentioned earlier how competitive the environment has become, particularly in the UK, specifically around our budget customers. We feel good about our ability to keep churn relatively low across the broader base, but it will obviously be dependent on competitive pressures and how the cost of living crisis unfolds. But we're fortunate with so many quality products and a nominee set of high service customers that if we execute on our addition and retention strategies, the combination should keep our churn levels relatively stable. So we feel good about that. So we've addressed the macro concerns pretty directly. And if they improve, that will give folks even further comfort, so we've been working hard on that too. So listen, thanks for sticking with us. So we went a little bit over. Apologize for that. And I like Lutz' phrase, growth waves, because we've got those really in all of our businesses. I think, number one, we're able to power through this macro environment really well in the businesses that we're in. I think you know that. You've seen us do that in the past. We've got tailwinds in many markets around synergies or new brands or new products that I think are going to benefit us in the second half. And I think just as importantly, we're demonstrating to you again that we're good at optimizing capital and allocating capital, and our fixed network strategies that we've announced in the last couple of weeks are right in line with that approach and I think will be highly accretive to us operationally and financially today and down the road. And then lastly, we're all about buying our stock, and the increase shouldn't have surprised you because we've been sort of signaling it. And we're committed, of course, to the 10% next year as well. So it gives you some comfort that we're going to keep this program moving. So thanks for joining us, and we'll speak to you soon. Take care. Have a good summer. Bye-bye.
Operator, Operator
Thank you. Ladies and gentlemen, this concludes Liberty Global's Second Quarter 2022 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. We thank you for your participation and ask that you please disconnect your lines. Have a great rest of the day, everyone.