Free from the leash, Liberty Latin America looks shaky

The Latin American dream is off to a precarious start to 2018 for Liberty Global, as its newly spun off company, Liberty Latin America, reported widespread pay TV losses. The results come at a time when the operator is slimming down operations in Europe where saturation points are nearing, in favor of pastures new in emerging markets where it can repeat the process of building up market share, and then selling assets to keep shareholders happy.

Liberty Latin America will be rethinking its strategy after losing 21,000 video subscribers in the fourth quarter, but with Balan Nair as CEO, the former CTO at Liberty Global responsible for the successful Horizon TV service, an aggressive video-focused plan of action should be at the forefront of a recovery.

Puerto Rico performed poorest, losing 65,000 subscribers in total during Q4 across video, internet and fixed telephony, including 10% of its TV base, leaving it with 232,100 total video subscribers in the country.

Quick to defend its results, Liberty Latin America blamed hurricanes for impacting performance which, granted, did require costly network repair work, but a company cannot point the finger at natural disasters for causing cord cutting – even if Irma and Maria were responsible for physically cutting cords.

VTR in Chile remains in front with just over 1 million pay TV homes but lost 1,300 in the last quarter, adding 1,100 enhanced subscribers but losing 2,400 from the basic package. Trinidad and Tobago also saw small losses, bringing Liberty Latin America’s total video subscriber base to just under 1.7 million, while it has 2.1 million on internet services, 3.6 million on mobile and 1.4 million on fixed telephony.

Liberty’s Cable & Wireless (C&W) business added 3,200 net video subscribers across its footprint in the Caribbean, with a gain of 7,500 fixed video subscribers offsetting 4,300 DTH losses in Panama. C&W has 389,800 video subscribers, of which 384,400 are enhanced, 11,700 are basic and 29,700 on DTH. C&W’s internet business performed better, adding 21,100 subscribers in the quarter to total 615,100. It also has 3.4 million mobile subscribers, losing 41,900 in Q4. C&W primarily operates under the consumer brands Flow, Mas Movil, and BTC which are located in the Caribbean, Panama and Bahamas, respectively.

Despite being very contrasting markets, the trend in Latin America is more similar to Liberty’s operations in Europe than expected, in that its enhanced video offering, which is defined as delivered over a broadband network via a digital signal, is seeing healthy uptake, yet converting 100% of basic video subscribers over to a more expensive package is an impossible task, so the total subscriber base is shrinking, although increasing ARPU in the process. This lower tier therefore must be replaced to avoid losing these subscribers to cord cutting alternatives, and Liberty Latin America must take advantage of its mobile presence to avoid slipping behind in video.

For now, focus number one is investing in fixed networks, highlighted by Nair last week: “In 2017, we upgraded or newly built approximately 465,000 homes and there is more room to grow with a fifth of our network footprint at Cable & Wireless still served by low-speed copper connections and many homes in our markets yet to be passed. We also accelerated the roll-out of our WiFi Connect Boxes during the year, with 40% of our customers in Chile now benefiting from a market-leading in-home broadband connectivity experience.”

Famously, Liberty Global has integrated Netflix in 30 countries including many in Latin America and the Caribbean. We expect it to buy up additional operations in Latin America and, at some point, enter bidding for soccer rights to challenge América Móvil.

Video operations accounted for 18% of full year revenue totaling $3.6 billion, down 2% year on year and down 10% for Q4 to $850 million. However, prior to the spin off, Liberty’s Latin American and Caribbean operations have grown from accounting for 6.6% of its total revenues, to 20% – in just three years.

Liberty Latin America reported an operating loss for Q4 2017 of $243.6 million, down from operating income of $141.2 million in Q4 2016. Full year operating loss came in at $148.4 million. Hurricanes were responsible for some of the negative income, for which Liberty Latin America said it repaired or laid 530 miles of fiber to date in Puerto Rico.

Poor performances and natural disasters haven’t spooked Liberty Latin America however, reaffirming its bullish strategy by buying up 80% of Televisora’s Costa Rican cable operator Cabletica for approximately $250 million last week. Cabletica has 207,000 customers on analog and digital TV, broadband and fixed line telephony.

Chile is Liberty Latin America’s largest market, accounting for a 27% share of its asset base, followed by Panama with 17%, Jamaica 9% and the Bahamas with 7%. Other countries make up the remaining 30%.

CEO Balan Nair said, “Our assets are well-positioned across a region that remains underpenetrated and underserved by high-speed telecommunications products. In addition to the organic growth potential in our existing markets, we also see a significant consolidation opportunity across a fragmented region where we can leverage our scale to drive synergies and improve operating performance. Our recently announced acquisition in Costa Rica is a clear example of the high quality assets available in the region and the potential for us to add value through the application of our operating model.”

“Looking to 2018, it will be a challenging year as we work towards recovery in several of our Caribbean markets following the hurricanes, however, we are on-track to getting our networks and customers back on-line. Combined with strong ongoing performance in Chile and momentum building at Cable & Wireless, we are establishing an exciting platform for sustainable growth,” added Nair.