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23 February 2021

Is VodafoneZiggo IPO the next step for Liberty Global?

Liberty Global’s latest financial filing serves as a reminder of the group’s’ pedigree as a rising converged network powerhouse, as well as issuing a warning to rivals and regulators that the company is not done buying and selling its way around Europe – not by a long shot.

To condense Liberty’s extensive financial documents into a single paragraph – a successful MNO venture has just been added to the arsenal in Switzerland with the acquisition of Sunrise, while the deal for UK-based mobile operator O2 could close in the next quarter.

Operationally, the business added almost a quarter of a million broadband subscribers and over half a million mobile customers across its footprint last year. Still, profitability was just out of reach for Liberty Global, recording a year-to-date loss from continuing operations of almost $1.5bn, a 4.1% acceleration from a year earlier. So, what else can Liberty possibly do to claw its way back to profitability?

The company could seek to raise funds from an IPO of the Dutch joint venture VodafoneZiggo, which could help Liberty escape some of the worse outcomes of that deal. CEO Mike Fries has already been peddling the idea of a cross-country merger between VodafoneZiggo and Telenet, its Belgian operation.

The next 24 months will be “interesting” in regard to a potential VodafoneZiggo IPO, according to Fries, speaking on the company’s earnings call, and he added: “I think you’ll see activity on that front.”

“We’ll have to come together and decide what’s the right outcome for each of us in these particular assets and markets,” he continued, almost forgetting that Vodafone had a say in the matter.

Fries announced that the $43bn merger of Liberty’s Virgin Media with O2, the UK-based Telefónica brand, is set to complete in mid-2021 – pending approval from the UK Competition and Markets Authority. The new joint venture is set to challenge incumbent BT, which delivers mobile services and fixed wireless home broadband via the EE arm, the country’s largest mobile operator.

The only potential roadblock here for the CMA to sort out is whether MVNOs leasing spectrum from second-placed O2, including Sky, will be unfairly hindered by the merger to the detriment of consumers.

In video, sustained subscriber losses across the UK, Belgium, and Switzerland (-44,400) were not enough to offset pay-TV gains in Poland, Ireland, and Slovakia (+34,900) – recording a net video subscriber decline of 8,900 for the fourth quarter. Liberty Global’s pay-TV footprint has now withered to 8.36m subscribers. If you include the more successful VodafoneZiggo joint venture in the Netherlands, that total increases to 12.2m, although this is also sliding, to the tune of 16,300 in the latest quarter.

Despite this, Fries described the entertainment roadmap as having “never been more robust, with all countries on the same platform for the first time.” All it took was a $21.3m multi-country asset sale to Vodafone.

A cloud-based upgrade for UK and Ireland pay-TV subscribers with V6 set-tops is being made available in Q1 2021, following on from the launch of the Virgin TV 360 platform in Q4 2020, its most advanced connected entertainment platform. This features Liberty’s latest UI, showing an MPS improvement of 50 points.

Another new video device, called Apollo, is also being rolled out on a country-by-country basis. Apollo – otherwise known as the Mini TV Box – debuted at UPC Poland in August 2020, and it seems the UK market could be next. The RDK-based device is manufactured by CommScope and designed by in-house Liberty Global engineers, and was the first device to run Horizon 4, the latest iteration of the enhanced video platform, fully over IP.

It’s unclear why Liberty Global has marketed the exact same device as the Mini TV in Poland but Apollo in the UK, although the operator has been known to treat its UK business differently. No matter the name, the device fits in the palm of your hand and is supposedly rather inexpensive, but Apollo’s real pull for Liberty Global is in allowing it to up-sell traditional video products. In other words, the device gives Liberty Global exclusive access to cord nevers, cord shavers, and even a way back into the pockets of cord cutters.

Meanwhile, the Project Lightning network expansion, announced back in 2015 with the promise of upgrading 4m UK homes to broadband speeds of at least 152Mbps (which Virgin Media has marketed as twice the average of competitors), has just reached 2.5m homes after upgrading 115,000 new premises in Q4.

This rate of fiber upgrades is simply too slow, and rather than increase investments to keep pace with the rising demand for connectivity, Virgin Media has been reducing cost per premises, reaching £590 ($820) per home in Q4, with scope to reduce this further as it ramps up use of Openreach passive infrastructure.