Earnings Call Transcript
Liberty Global Ltd. (LBTYA)
Earnings Call Transcript - LBTYA Q3 2023
Operator, Operator
Good morning, ladies and gentlemen, thank you for standing by. Welcome to Liberty Global's Third Quarter 2023 Investor Call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission, or re-broadcast 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 statements regarding forward-looking statements. Today’s presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the Company’s expectations with respect to its outlook, 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. Fries.
Mike Fries, CEO
Thanks, Operator, and welcome everyone to our third quarter results call. Now, Charlie and I have tried to shorten our prepared remarks a bit to allow more time for questions, so I'm going to jump right in on Slide 3 with what we think are the three key points—the key takeaways that characterize both the quarter and our strategic position today. Number one, you'll see that our operating and financial results are generally positive, especially in our largest market, the UK, where volumes picked up in the quarter and growth is steady year over year. But while mobile and B2B continue to perform well, our fixed B2C business remains challenged. As we've discussed in the past, despite good broadband revenue growth, we continue to feel the impact from a combination of broadband competition, cost of living challenges, and secular headwinds in voice and video. Like our peers, we've been implementing a number of strategies to address the fixed B2C business, including price increases, digital platform development, converged bundles, broadband speed boosts, and investments in our networks. Long term, these strategies will work, but we anticipate continued pressure going into next year. Here's a second big takeaway. While we continue to maintain a levered balance sheet in this environment, it's critical to remind folks just how strong our capital structure is, with no material maturities for five years, siloed in fixed-rate credit pools, and a significant cash position. At the same time, we've allocated over $14 billion to our buyback program since the beginning of 2017, and if you include our announced increase today, we will have bought back nearly 60% of our shares over that timeframe, which leads me to the third takeaway, something we stress on every call but needs repeating. We are absolutely 100% committed to bridging the value gap in our stock price and delivering that value to shareholders. We believe our narrative and strategy are clear and the inherent equity value of our core FMC operations is substantial. But despite our long track record of crystallizing that value and allocating most of that capital to shareholders, the market seems to be in a wait-and-see mode and not really appreciating our own sense of urgency. We get that, and in order to clearly communicate our plans, we've decided to extend our upcoming Q4 results call to provide a more detailed strategic update on the concrete steps we are taking market by market and with our ventures portfolio. Now, Charlie and I are going to provide a bit more color on all of these core points in the slides that follow. Beginning with some operating highlights on Slide 4, which shows broadband and postpaid mobile ads for our FMC markets over the last five quarters. By the way, you'll find more detail market by market in the appendix. I'll start with Virgin Media O2 on the top left, where you'll see that postpaid mobile returned to growth with 50,000 net ads after two quarters of losses, and that was fueled by our Volt bundle and, of course, our dual brand strategy. And despite a softer broadband market in Q2 with estimated market sales down 5%, VMO2 share of gross ads was up, and together with more normalized churn following our double-digit price rises last quarter, we delivered 41,000 net broadband ads—our strongest result in the last seven quarters. Now, with average customer speeds five times the national average and one gig available across 100% of our footprint, we expect these trends to continue, supported over time by our aggressive fiber upgrade and expansion plans. Now moving to Sunrise, postpaid mobile ads were steady at 29,000 in the quarter, with both our Sunrise and flanker brand yellow performing well despite some price-related churn. But we continue to experience tougher broadband results in Switzerland following our recent price increase and a challenging gross head market. Our loss of 7,000 subs was also impacted by our structured migration of UPC subscribers to the Sunrise brand. The good news here is that we see improving trends quarter-over-quarter and light at the end of the tunnel. By year-end, for example, we'll have migrated nearly half the UPC base, and importantly, the most value-sensitive segment of that base. The Belgium market remains relatively rational, with price rises offsetting inflationary pressure, but Telenet continued to be impacted by a reduced marketing spend as it managed through some IT issues in Q3. As a result, both postpaid and broadband ads were negative in the quarter. On a positive note, though, September saw a recovery in subscriber volumes, and the marketing machine has ramped back up in Q4. Strategically, we are really excited about the formal launch of Wire, our 70% owned network JV that serves Telenet and Orange, and we'll have roughly 70% network utilization. Of course, Wire is going to build fiber to just under 80% of Flemish homes over time. It's worth mentioning, though, that we always anticipated optimizing CapEx spend in this NetCo. So we welcomed the recent comments by BIPT regarding potential fiber network cooperation in Belgium, and we're working to understand how this could further improve our already strong economic model for Wire and Telenet. And then finally, the Dutch market remains competitive with KPN continuing to be aggressive on front book pricing. Our strategy has been to prioritize value over volume, which resulted in another quarter of broadband losses, but importantly, solid growth in both fixed B2C revenue and ARPU. In addition to broadband speed and some select front book propositions, we continue to differentiate our entertainment service in Holland with unique offerings like Champions League football and an exclusive deal with the new Sky Showtime service. Meanwhile, VodafoneZiggo continues to grow postpaid mobile ads supporting our 10th consecutive quarter of mobile service revenue growth, and we just announced a 10% mobile price rise from October, which should support the full-year outlook as well. Now, I'll close on Slide 5 with a teaser for what we'll be sharing with you on our next call. Namely, the core initiatives that will drive value creation moving forward and shrink the gap in our stock price. That strategy falls into three pillars, beginning with the most significant, our national FMC champions. I've already provided an operating and strategic update by market, and Charlie will round out the financial picture. But suffice it to say that we are squarely focused on ensuring that these businesses remain clear market leaders with the scale, talent, products, infrastructure, and cash flow margins to support strong equity returns in what we believe are Europe's best markets. Now, if you give full credit to our ventures platform and cash, you get to roughly $16 to $17 per share. That's our current stock price, which means the entirety of our proportionate interest in these 85 million fixed and mobile subs, 25 billion of aggregate revenue, and 9.4 billion of aggregate EBITDA, as well as the 1.6 billion of distributable cash flow will generate at Liberty Global this year is essentially valued at zero. Here's another way to look at it. If you simply add one EBITDA multiple to our current trading values, which would be about 6.5x that one additional multiple, and apply that to our proportionate EBITDA in these operations of roughly 5.6 billion, and that's net of our corporate cost, you get to $30 per share. Now, anyone can do that math. It's all public knowledge, but sometimes it's helpful to lay it out plainly. So what are we doing to help bridge this gap? You should assume we're working on multiple alternatives, many of which will be easier to achieve once we re-domicile to Bermuda later this month, and all of which we will provide greater detail on together next. The second pillar includes the strategic moves we're making in our ventures portfolio, including our increasing exposure to infrastructure investments like European data centers, energy services, and fiber networks. The goal here is simple: take advantage of our existing asset base, market knowledge, and deal expertise to create and/or invest in unicorn or multi-billion dollar businesses, AtlasEdge, our edge data center business, is the best example of this. And while the tech vertical continues to return cash and invest small amounts in scale-up companies that are strategically aligned with our cooperations, we're taking a hard look at our media and content portfolio. As you know, we're well underway with the sale of all three media, and we just announced a sale of a partial stake in VMO2’s Tower Holdings that should return 435 million to the joint venture and ultimately to shareholders. Conservatively, and including the two deals I just mentioned, we're targeting around 500 million to a billion of proceeds to the parent company from asset sales by H1 2024. The third pillar in our value creation strategy is well understood by now. We remain committed to our levered equity model characterized by smart debt structures and an aggressive buyback program, which has only gotten more potent with our stock trading off this year. We started, for example, with a commitment to buy 10% of the shares this year, and we raised that to 15% on our last call, and we're now targeting between 18% and 19%. There are few, if any, companies buying back nearly 20% of their stock every year and at historically low or arguably ridiculously low prices. It's probably also worth mentioning, as I close here, that everyone on this management team, myself especially, holds a sizable equity stake in our company. My stock position is public knowledge. I own around 1.5% of the economic value, just under 10% of the vote, and nearly 15 million options, pretty much all of which are currently out of the money. So I am motivated. The team is motivated, and the Board is motivated to get this done. Over to you, Charlie.
Charlie Bracken, CFO
Thanks, Mike. The next slide sets out the quarterly revenue and EBITDA for each of our key operating companies. For the quarter, Virgin Media O2 on a reported basis delivered 7.1% revenue growth, but excluding the impact of Nexfibre construction revenues, Virgin Media O2 revenue growth was 1.2%, with our price actions supporting growth in service revenues. Revenues were also supported by a one-off benefit to a related party contract change in the quarter in the amount of $48 million. Now, this compares to a one-off benefit in the prior year at Q3 of around $35 million. VodafoneZiggo delivered stable revenues in Q3 as the Dutch business registered its 10th consecutive quarter of MSR growth, which was offset by a decline in B2B mobile. Despite pressure on fixed volumes, we also returned to fixed revenue growth, and Belgium delivered stable revenues as the impact of the mid-June price adjustment was offset by declines in production and advertising revenues. Switzerland saw further stabilization in revenues, with the July price rise of 4% supporting a recovery in fixed revenues. Moving on to our Q3 adjusted EBITDA performance. Virgin Media O2 delivered a sequential improvement in EBITDA of 5.1% growth, despite $28 million of OpEx costs to capture in the quarter. Excluding the Nexfibre construction contribution, EBITDA grew 4.5% in the quarter, and EBITDA growth was supported by our pricing actions and synergy realization, as well as the related party contract change, which I mentioned earlier. VodafoneZiggo saw an EBITDA decline of 4.1% as cost inflation headwinds from both energy and wages continued to weigh on performance, and Telenet reported an EBITDA decline of 2.6%, driven by cost inflation headwinds along with temporarily higher outsourced call center costs. Sunrise saw EBITDA decline by 3.4%, with high direct costs and continued headwinds from the UPC right pricing activity impacting the quarter. The Swiss business continues to work through right pricing the back book to set the basis for future growth. Turning to capital allocation on the next slide, we continue to have a strong liquidity profile and delivered capital intensity in line with the respective full year guidance ranges across all of our core markets. On a reported basis, we delivered distributable cash flow of $863 million during the first three quarters of 2023, including $815 million of distributions from VMO2 from our share of the recapitalization and distributions of $41 million from VodafoneZiggo. We continue to execute our buyback strategy, having repurchased 15% of the shares year to date to reduce our share count to just under $400 million. Finally, we continue to hold a substantial consolidated cash balance of $3.5 billion, topped up by a further liquidity of $1.5 billion from our revolving credit facilities. On the next slide, I wanted to provide an update on our debt position. Our debt across all silos is fixed in maturity, with an average tenor of around six years, and we fully fixed all our interest rates and swapped any currency mismatches. So all in, our blended, fully swapped cost of debt at the consolidated level today sits at 3.5%, 3.9% of VodafoneZiggo, and 5% of VMO2. And we continue to proactively manage our capital structure, recently completing two VMO2 refinancings, a $500 million tap on term loan Y and a €700 million tap on term loan Z. The proceeds will be used to further extend our debt windows whilst continuing to optimize our all-in cost of debt. And it's important to note that we can extend the maturity of our financings but still benefit from the pre-existing swap cost to original maturity, which is, of course, much lower than the current market. Now that Telenet is 100% owned by Liberty Global, Liberty Global intends to align Telenet's capital structure with Liberty Global's policy and revise it to 4x to 5x adjusted EBITDA. Lastly, we're in the process of extending all our revolving credit facilities to 2029 on comparable terms as they are today, which further underpins our strong liquidity profile.
Mike Fries, CEO
Turning to our guidance slide, VMO2 is updating their revenue guidance from revenue growth to stable revenue for the year. This decision is driven by continuing pressures on the fixed business as a result of households continuing to optimize their spending habits and a softer performance in handset sales year to date, which is probably related to the same issue. Excluding VMO2's revenue guidance, we're actually reconfirming all our other guidance metrics for VMO2 as well as across each of our key operating companies. And we're also reconfirming our group guidance of $1.6 billion of distributable cash flow. And this is based on the FX rates in February when we gave our original guidance. And with that, operator, over to questions.
Operator, Operator
The first question comes from Robert J Grindle with Deutsche Bank. Your line is now open.
Robert Grindle, Analyst
There was a positive update on the rollout at Nexfibre in the third quarter. Are we at the expected run rate yet, and are the Nexfibre homes being marketed to VMO? If so, what has been the early experience?
Mike Fries, CEO
Robert, we're having a hard time hearing your question. There seems to be somebody in the background talking over you. Could you start over maybe in a quieter spot? Or—I just want to make sure we get your question.
Robert Grindle, Analyst
I'm sorry, Mike, can you hear me now?
Mike Fries, CEO
That's better.
Robert Grindle, Analyst
Can you hear me better now? Sorry about that. My question was about Nexfibre in the UK. Are we at run rate yet in that area? There was a significant increase in the first quarter, and are Nexfibre homes being marketed to the VMO2 customers? What has the early experience been like?
André Krause, Chairman of Nexfibre
Yes. Thanks, Mike. Hey, everyone. So in terms of run rate, I would say, as you've seen from the numbers, it's stepping up, and we're not quite at a run rate, but we will be by the end of the fourth quarter. So I would expect that you'll see that annualized through next year. In terms of the VMO2 selling on, that was launched a few months ago. It's early days, but yes, we still retain our confidence in the long-term projections on that.
Mike Fries, CEO
And then, Lutz, you have been marketing—yes, the second question, Andre, maybe Lutz can tackle this was, are we marketing Nexfibre homes and certainly, as we have with Lightning, we are marketing greenfield homes. Lutz, do you want to talk about that experience, please?
Lutz Schüler, CEO of Virgin Media
Yes. We have, right, with Nexfibre launched our first fiber proposition, right? So fully across broadband and video, and we are selling this, and we are ramping this up. Our early experience is similar to the Lightning penetration. So, there's no reason to believe that we won't get to similar numbers.
Polo Tang, Analyst
Just two quick ones. Firstly, in terms of your share buyback, it's been targeted at the non-voting K Line of shares, but would you consider buying back the voting line of shares after your change of domicile to Bermuda? If I look at the spread between the A and K lines of stock, it's quite wide—it's 8%. So can you remind us what your criteria are for choosing one line of stock for the buyback versus another? And I just had a follow-up in terms of your comment about commitment to shrink the value gap in terms of your stock. In your view, what is driving the value gap? And what do you see as the optimal level of leverage in the Company, given where interest rates are currently? Do you think you get more credit in the share price if you have lower levels of leverage and potentially did less in terms of buybacks?
Mike Fries, CEO
Thanks, Polo. Listen, on the buyback question, our policy has been historically to buy Ks over As, principally because they have traded until more recently at a discount. And we don't believe either shares should trade differently than the other because even though one is voting and one is non-voting, we've always viewed them as economically equal. The reason for historically buying Ks over As was to try to maintain the liquidity of the As since there were fewer of them, and there are still fewer of them, so that we have two healthy trading markets. Of course, that's changed more recently, and I think we will look and should look at changing that policy. You're right, and the variance has been only more recently a large one. And so we are refocused on it. I think if we started to buy A and not K, that gap would narrow. So it's somewhat self-fulfilling. We have a bid out there for Ks, and if there's somebody selling As, you're going to have that widen if we start buying As, it comes back into place. So I think that's—it's a good point. And I think Bermuda would potentially give us some alternative options to look at that. So you should assume, going into '24, we will look at that very closely. On leverage, we think the business, as we've described in our remarks, is really stable; our balance sheet, both with the liquidity we have, the maturity schedules we have, and the fixed rate nature of our balance sheet is unique, if you look at our peer group. And so we don't think there is an issue with leverage today. That doesn't mean investors see it that way; that's just how we see it as the folks running and operating the Company day in and day out. To shrink the value gap, maybe you asked what is driving the value gap. I think it's the things that I mentioned to some extent, right? It is—we've talked for some time about the ability to deliver private market value or transactions that would get closer to private market value. The sale of Poland, a couple of years back was the last time we did that at 9x. And I think people are in a wait-and-see mode as to what we do next, and that's fair enough because the market has the right to demand action, but we take action when we think it makes sense and on the basis that we think it makes sense. In the call, we have in a few months, we will dig deeper into the sort of things that we're considering. And as I've said in the past, nothing is off the table, meaning that we will look at any and all structures, ideas to shrink that gap because we're heavily motivated to shrink it, and we believe it's an anomaly here. And so I think we just need to get the energy back in the narrative, and we're not going to get into that today—all the things that we're working on because I don't want to get ahead of ourselves, but when we move to Bermuda at the end of the month, I think that's going to open up some opportunities. And I think, more importantly, stable markets, continued performance of our businesses, and a keen eye to the sorts of transactions that we could pursue here will be illuminating. Leverage might change into some of those transactions, I suppose. If I were to say, for example, hey, we're going to list an asset, you would rightly say, well, that's tough to do at 5x. So we might consider ways of delevering into value-creating transactions. But absent that, I don't see us delevering. I think the business is solid and steady, and we have no balance sheet issues or concerns as we've said many, many times. So I hope that's an answer for you, Polo, but more to come.
James Ratzer, Analyst
So I had a question. I know you've talked in the past around kind of pressures in the B2C business. But in your opening remarks there, it sounded like you were kind of a bit more open around this issue as your kind of lead point in suggesting this pressure could continue into 2024. How are you kind of thinking about that specifically, as you think about the guidance for next year? Is this just continued pressure on KPIs? Or are you kind of thinking it could be harder to push price rises through next year? I'd just be interested to hear what you are thinking about on those B2C pressures going into '24? And then also, I mean, you've changed the Telenet leverage approach here, which means it looks like if that cash in Telenet upstream to the TopCo, you're going to have about $3 billion to $3.5 billion of liquidity now sitting at the TopCo. I know you can't tell us exactly what you're planning for this strategic update, but should we be expecting as part of that, that that cash could be used somehow, or will we still at the end of 2024 with $3.5 billion of liquidity still sitting at the TopCo?
Mike Fries, CEO
Good questions. On the cash point, I'll take that first. Whether it's at Telenet or upstairs, it's consolidated and accessible. And I think it would be my preference, and I'm sure everyone on this call would agree, that by the end of 2024, do we need to be sitting on $3.5 billion of cash? I would suggest no; there should be, and are likely to be, opportunities for us to put that cash to work in value-accretive transactions or opportunities. It's never been our desire to sit on the cash as such. I think we've always, as you noticed, put that cash to work either in investments to a lesser degree or into our own stock to a greater degree. That's going to change materially. But I do take your point that and I did sort of say just a moment ago, the kinds of things we'd be looking at could require some cash, and that would be only if we felt that the sorts of moves we could make would be value-accretive. So let's see how it unfolds. As in general, having all that cash on our balance sheet doesn't necessarily serve shareholders, and we want to put it to work in ways that create value and drive the stock. So that's the short answer. On the B2C business, I think it was just an acknowledgment that if you look at our results across the group, mobile is a steady business for us. Mobile service revenue, in particular, excluding handsets, continues to be a strong-performing revenue stream; that our B2B business is pretty much consistently in the low to mid-single-digit kind of revenue growth range, and that's an opportunity for us to continue to drive value in our operating companies. And the B2C business, not unlike our peers around the world, faces some structural or secular headwinds, not the least of which is a video business that's declining and then a voice business that's declining. Overcoming those challenges requires strong moves. And what we're doing in digital, price increases, in broadband speeds, and fiber builds will have an impact. But those things take time to deliver value and results. So I’m nearly just pointing out what everybody realizes—that our fixed B2C business requires continued care and feeding, and that as we go into '24, you should assume that is going to be an area of our P&L we are heavily focused on, and we'll continue to update people on, but it's going to take quite a bit of time, effort, and energy. And as we get into questions in each of the markets, I'm sure the CEOs on the call will address that fixed challenge in their own market. It's different in most markets—it’s not the same challenge beyond the video voice issue. We have different competitive environments, some more rational than others, different headwinds. So I think it does differ market to market, but it’s just an acknowledgment of what analysts are already identifying here—that we've got to get busy on driving that fixed consumer business to a positive revenue growth position.
James Ratzer, Analyst
And that shouldn't then kind of derail your thinking that the Swiss business, which has been a bit of a drag recently, should still be able to achieve the Q4 stabilization in EBITDA and going into next year support from there?
Mike Fries, CEO
Andre is confirming his guidance today. And if we have questions on Switzerland, I'm sure he can address that.
Ulrich Rathe, Analyst
So on this strategy update and sort of the activities that you're planning, there it's really not a new topic. So my question is a little bit about the timing. What's the urgency now as compared to a year ago or two years ago when we were talking about this value gap in similar terms, maybe not quite to the same extent, but it was there? And the reason I'm asking this is the cornerstone stakes was at a trailing multiple of 19x, and I think your European tower payers are trading more on 23x. So what's the reason to sort of—in this perfect storm environment that we are in at the moment—to sort of start getting active on this front? And then if I may, just a clarification, Charlie, you talked about getting the benefit in the U.K. refinancing from stopping this into fixed because the swap rates are below the variable current variable brands. Could you just put numbers behind that where you swapped into? Because that was actually my—an original question before you've made the comment that I had.
Mike Fries, CEO
Yes. I'll let Charlie work up an answer on the refi. First of all, on the CTI sale at 19x, remember, we're disposing of a very small minority interest in that tower portfolio. It's not as if it's a change of control transaction; it's a relatively small stake and might lead to more things. So multiples have come down a bit, and we thought that particular price made sense in the context of what we were offering and the other elements of the deal, which are quite complex, as you know, in tower sales. So that to us made sense into Telefónica that made sense, and we pursued it. On the strategy update, let me maybe provide some color. It's not as if we're going to show up and tell you exactly what's happening and when—it’s not as if we have transactions ready to execute. But I think we want to be clearer with what our tactical game plan could look like so people can start understanding the path that we believe, or the paths, I should say, that we believe exist in front of us. So it's not a new topic; we're always working on these things. You can look at every fiscal year where we've done these calls, there's something happening on a strategic level. But it feels to us that it's a moment where we should provide some greater clarity about the extent of what we're willing to consider. And I'll also give people a better sense of how we see value in the operating companies, for example, how we might be utilizing our cash and updates on our buyback strategy. I think a concrete example of what we might be pursuing and how we see the market unfolding to potentially accept those types of strategies would be worthwhile. It's not as if we're about to transact in every instance. So consider it an update, not necessarily here's what we've done, but I think the update could be useful for people to start understanding the way we see the value creation narrative and things that we would be willing to consider and might be already working on. We'll find out—you'll find it out in that context.
Charlie Bracken, CFO
And just to pick up on the debt point broadly, if you look at our debt, more than half of it is actually in what's called bank loans, which is slightly misleading because it's institutional investors who buy what's called a floating rate product, which is like a bank loan, LIBOR plus. And when we did those transactions, which generally had maturities of eight years, we did swaps from floating rate into fixed rates. And therefore, the LIBOR plus the spread, and our spreads broadly speaking around 300 basis points, 300 to 325, those kinds of numbers. At the time we did swaps, we were swapping at about 1%, whereas the swap rate today is probably 4%, 4.5%, depending on the market. And the point I was trying to make was that those swaps survive independent of any refinancing. So they still—they go to maturity, if you like. So it's not when you refinance your debt, you lose the benefit of the swap—the swap continues. So in effect, what it says is that on the bank loans, which is this floating rate debt, we're hedged until 2028 and beyond in many cases. And it's really a question of what we do about hedging after that period. That was the only point I was trying to make.
Carl Murdock-Smith, Analyst
My question is on Virgin Media O2. With the fiber base now well over $3 million and starting to approach $4 million, I was just wondering if you had any lessons learned about customer behaviors in that base. Is there any difference to customers on the rest of your network in terms of either NPS or propensity to churn or ARPU? And I guess I asked slightly because all your services are marketed as fiber broadband. So I was just wondering what are the differences you've seen between that cohort of customers and pre-existing customers?
Mike Fries, CEO
Lutz, do you want to address that?
Lutz Schüler, CEO of Virgin Media
Yes, sure. So first of all, we are only marketing fiber into the Nexfibre footprint car. So we haven't started to market fiber in our existing footprint. So that means we are talking about something like 700,000 homes. And we have started to generate customers, but the amount of pure fiber customers in it is not so big. Now having said all of this, in terms of customer satisfaction, installation speed, reliability, we don't see really massive differences between fiber customers and core customers. And the reason for that, we think, is that because our existing core network is very strong, offers today up to 1.1 gig speed, and has a really high reliability, and the customer doesn't really perceive, in our opinion, the different underlying technology. So, no material difference from our seeing so far may change in the future, but so far not.
Maurice Patrick, Analyst
If I could ask a question on the Dutch business. So you've seen broadband net adds because they've taken a sort of step down again but down minus 30%. On the previous call, I think Jerome was when asked about whether you're seeing loss to old nets or KPN seemed to indicate it was more sort of KPN being deeply promotional rather than a loss to outlet as such, despite the continued rollout of the folks at Delta Fiber and ODS. I'm just curious to understand whether those dynamics were changing at all? And if it's still KPN driving most of that decline in your base.
Mike Fries, CEO
Ulrich, do you want to address that, please?
Operator, Operator
Mike, Ulrich just dropped off his line and got disconnected. You want me to take Ritchy?
Mike Fries, CEO
Yes, go ahead.
Ritchy Drost, CFO
Okay. What you see happening is that KPN, among others, are extremely aggressive still in terms of promotional pricing. I think Mike mentioned it already at the call. So, de-promotional pricing is, for sure, impacting us. What you also need to bear in mind in the third quarter, you get the, let's say, knock-on effect of the July 1 price increase, which was a very successful price increase, leading to revenue growth and ARPU increase, but it also shares a bit of the net add performance. But to your question, KPN is super aggressive, like the others are while rolling out fiber.
Mike Fries, CEO
I think the question, Ritchy, is what AltNets are impacting our performance. Now my understanding is it's limited impact from AltNets. As you might know, Maurice, the 2 AltNets in that market have been quite disciplined about not overbuilding each other and building on unique discrete areas. And so Delta, half their footprint isn't even on our—isn't even on our footprint, and ODF is quite not very far along. So I would suggest the answer is it’s limited impact. But the question was whether we've seen any meaningful impact from AltNets on our footprint.
Stephen Malcolm, Analyst
A couple on the UK, if I can. Just going back to Nexfibre and Virgin. First of all, Nexfibre, you obviously undertook an acquisition in September, you bought up, it looks like you passed and truly a few months ago. Can you help us sort of understand what you liked about up and what wasn't so good about Trillion? And maybe just the lens you're looking at these transactions through as we look forward for the next 12 months or so. I guess alongside that, any progress on wholesaling with Nexfibre beyond Virgin Media, maybe just sort of any color on transactions there or discussions? And finally, one quick add-on just back to the UK and interest rates, can you help us understand what your sort of base case for rates is in the UK? I mean, I think you refinanced that 1.2 billion. I think, it costs you north of 8% from 27. We can all do the math; if you refinanced your debt stack at sort of 8% 9%, you pretty much wipe out your operating free cash flow. Are you assuming that rates will fall back, or do you just think you've got enough EBITDA growth in CapEx declines to absorb that in extremis to allow you to keep running the debt stack in that sort of low 20 billion sterling cohort?
Mike Fries, CEO
Certainly. Charlie, prepare yourself for the interest rate question regarding Nexfibre. To answer simply, the difference between Up and Truly lies in the percentage of overbuild within our own footprint. We have significant expansion plans for the East of England, where the majority of the homes, approximately 500,000, are located, and we’re not fully established there yet. Nexfibre is actively seeking acquisitions of AltNets, especially those that do not compete with Virgin Media O2 and can create genuine greenfield opportunities where Virgin Media O2 can be a customer, alongside potentially others. There isn’t much to report on wholesaling at this time. However, we have seen success in Ireland, as we currently have Vodafone and Sky wholesaling from our fiber network there. I can assure you that there are no institutional biases against wholesaling from Liberty. It’s just a matter of time, and I remain relatively optimistic about that. Charlie, would you like to address the interest rate question?
Charles Bracken, CFO
Yes. So as you said, we did that refinancing in the U.K. That was of this type of bank debt, what they call bank loans or traded loans. So as a result, what we were really rolling was maturity and credit spreads. So the credit spread actually rolled at the same as it had been. So what in effect we did is we took the maturity from 2028 to 2031, but what we didn't do was put the swaps on for the interest rates in 2029, 2030, and 2031. So, in theory, on that debt, we are fixed until 2028, and then there we will become floating in '29, '30, '31, although we have the option at any time to lock in a fixed rate for that or three years if we choose. And as you rightly pointed out, we're probably not paid to guess on interest rates, but it does feel to us the rates are reasonably high today as the Central Bank tries to squeeze off inflation. And there's certainly the European Central Bank yesterday, I think it suggested that rates probably are certainly not going any higher and maybe starting to trend down. So we'll see how that plays out. But just to reiterate, we have a lot of time. You also made the point though that if it does settle out at the 7% or 8%, what does that do to the 4x to 5x. I think I would observe that we're in a very big investment cycle, pretty much across the peak—perhaps not in Switzerland, but certainly across the piece, we're investing in fiber up in the U.K., particularly. And so all things being equal, whilst we don't give long-term LRP guidance, it's probably worth observing it's pretty likely CapEx is going to be materially lower in five, six, or seven years' time, which would increase the free cash flow conversion. So we'll have to see how it plays out. But I think we still feel pretty comfortable with this 4x to 5x. But we do understand through the cycle, at times, it seems high-ish, and at times investors tell me it's too low. But for the time being, we're comfortable.
David Wright, Analyst
My first one is on your joint venture partners. My sense was that Telefonica is definitely reconsidering the releverage trade at VMO2 and paying that back upstream because it is just plain and simple financially dilutive for them with 5% cost of debt and you just refinanced the debt, for instance, against that balance sheet to 3.5%. And they're just paying dividends. I mean, you can obviously justify the trade much more efficiently, I think, with buybacks. So it does feel like there is some misalignment there. Now they've got a Capital Markets Day on the 8th of November, so I'm just wondering if they're going to announce a slightly different objective for maybe VMO2 leverage that you might want to just sort of consider here. And then just on the cash next year that you guys obviously have on the balance sheet. I guess one of the possibilities is that you do see less dividend upstream, whether it be VMO2, I'm not so sure; but surely VodafoneZiggo is struggling to justify a dividend, I think, given its operational performance and its leverage. So is it the case that you could use the cash maybe to sustain the buyback with less dividend upstream in the near term?
Charles Bracken, CFO
Before you answer, can I make a quick point? First of all, just real, we haven't reaped at 8%. We've recapped at 4% because of these swaps that I was talking about earlier on. I maybe I misunderstood your question, but because the swap rate is already locked into 2028, we've just extended the spread. And I think, if you're talking about the debt raise earlier in the year, we had done actually forward swaps. So I do agree going forward, if we recap, it could be excellent. And I think as we indicated, we'll always evaluate like all these decisions with our partners with the best use of capital. But I just want to make sure we're clear that it wasn't that we just extended our balance sheet at 8%. We extended our balance sheet at 4%, but with an open question around 2029, 30, 31. Sorry, Mike, do you want to pick up?
Mike Fries, CEO
Yes. And I think at that point, we're not going to comment on Jeff’s capital markets day come out and provide, I'm sure, a point of view on lots of things and perhaps even on the JV and these sorts of matters. I will simply say that we are consistently aligned on most everything that we consider, and I'll just leave that at that. You also asked if we would use cash on the balance sheet to sustain the buyback potentially. I don't know that we would—we certainly wouldn't exclude that idea. I mean, it seems to us that the stock continues to trade at meaningful discounts to any reasonable value than we should be looking at it as we would any investment. And I'm not commenting on distributable cash flow next year because it's October or November 1. On the other hand, we're—and to answer your question directly, short, why wouldn't we, if we felt like that was the best use of cash. Certainly, we would look at that as an alternative.
André Krause, Chairman of Nexfibre
Yes. Thank you, Mike. Look, I think we explored all the alternatives. I would say, as in all these tower transactions, there are complicated sets of variables. The—it's a trade-off, obviously, of retaining strategic and operational co-control at a time when we're investing heavily in the network versus realizing some proceeds today. So I think in combination with Telefonica and given the upside that we saw out there, we made that trade-off. And we're actually delighted with the result that we got. I would add that just a comment that I think one of the earlier questions on could we sell it cheaply was the implication. If you look at where European towers are trading, they're trading at 17, 18 times, and obviously, as I think everyone in this call appreciates, when you sell a tower company, there are many different ways that you can put value into the towerco or you can keep value on the MNO. So it's extremely difficult to compare results across individual transactions. So I think a minority stake that allows us to keep financial control and strategic control of the asset at the time when we're investing at a slight premium to where the current players are trading with an ability to get a control premium from other operators down the road, we thought it was a very smart trade. I hope that addresses the question.
David Wright, Analyst
Thanks, Andre. I was just going to say that, you mentioned control, but it's not controlled, right, because it's a 50-50.
Unidentified Company Representative, Other
Yes, sorry. Yes, that's a very good point. It's co-control with Vantage, but it's obviously important to us.
Joshua Mills, Analyst
I had a question on the Netherlands and question on Belgium. So just starting with the Dutch market, in the last few quarters, both VodafoneZiggo and KPN have blamed each other for front book pricing trends, which should be very poor. I ask, in your view, is that more of a structural issue here around network quality? And maybe one way of answering this would be if you could provide some color around NPS scores because you do refer to these in the VodafoneZiggo report improving as you move to convergence, but KPN last week basically implying that network schools are a negative for their competitors. And on the front book trends, I think in the same press release, you talked about the launch of new front book propositions with faster Internet speeds to try and repair net add trends. So maybe how you're thinking about value over volume because obviously, it'd be great for the market if everyone went to value, but I read that comment in the report as slightly a shift towards volume? And then on the Belgium side, a quick question on the IT issues. Are these all fixed now? And should we start to see a recovery in net adds and commercial trends as you head into Q4?
Mike Fries, CEO
I am unsure if John is present, but the short answer regarding the IT issue is yes. So the answer to your question is yes. I'm not sure if you're back on the call.
Unidentified Company Representative, Other
Yes, I am. The value of a volume question is crucial, so let me elaborate on that. Looking back at our third-quarter results, there has indeed been a decline in our net additions. While this isn't entirely by design, it's essential to balance customer numbers and net additions with our average revenue per user (ARPU). We did not experience higher churn in July and August than expected, primarily because we implemented some strategies. One key change was raising our prices by 8.5% compared to a 3.5% increase the previous year. This may cause some initial shock among customers. It's important to recognize that customer churn is driven more by costs and higher prices than by a shift to fiber. The market remains very competitive, which presents challenges. For example, KPN is still offering promotions like free TVs or tablets, and Odido, formerly T-Mobile, has an aggressive eight-month offer at €35 for broadband and TV. We generally avoid such promotional tactics, although we occasionally adapt to market conditions. Regarding your question about our pricing strategy, we were the first this year to introduce a fixed price increase of 8.5%, which is the highest on both new and existing customers. A couple of months later, APN raised prices, but only by 6.4% for existing customers and actually lowered prices for new customers by 5%. This results in a significant discrepancy between our base and their front book. We are firmly focused on providing value, having increased our ARPU by 4.5% this year, achieving an ARPU of €56 for fixed services. For the first time in two years, this has led to slight growth in our consumer fixed segment in the third quarter. Therefore, we are prioritizing value over volume. I hope this clarifies things for you. Yes, it's a very good question. It may be a bit too detailed going to, but obviously, happy to speak offline or maybe Ritchy can do that, our CFO. But we have made a small adjustment to our front book, which is basically one or two tariffs that we made a slight adjustment because we were too far out of skilled. And to be 13.5% more expensive than the incumbent is simply too much. And we've also given our customers more value. And that's the most important point. So, we only made one small tweak on the pricing, but we give customers more value by giving them higher speeds and, for new customers, a better Wi-Fi in-house. So, we're trying to give customers more rather than lower the price?
Operator, Operator
Thank you. We have a final question from Stephen Malcolm. Please go ahead.
Stephen Malcolm, Analyst
I think I've already covered all of my questions.
Mike Fries, CEO
Look, we're over time. So I want to thank everybody for hanging in there if you're still on, and obviously, we appreciate you listening and asking good questions. I'm glad we were able to get a good 50 minutes or so of questions, and I could get more of the executives involved—that's always helpful. We're busy, but we can't wait to talk to you in February on our next earnings call. And so we'll speak to you then. Thanks, everybody. Take care.
Operator, Operator
Ladies and gentlemen, that concludes Liberty Global's third quarter 2023 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.