Liberty Global lost over 120,000 TV customers in a financial performance that was lackluster, but more or less on the money. As usual its management focused purely on the numbers, which were slightly below expectations, but more or less on guidance, and the company grew revenues 6% to $2.8 billion, with net income at $525 million, also up by 6%.
Mike Fries CEO added that the company had grown RGUs, the so called revenue generating units, that have been used for some time now to measure cable companies, by 373,000 to over 35 million. An RGU is a customer for a single service so either TV, broadband or Telephony.
The biggest TV weakness seemed to be in the Netherlands and Belgium, where UPC lost 32,000 pay TV homes and Telenet in Belgium lost 16,500 respectively. The only territory that won TV homes across the entire performance was at VTR in Chile. Liberty Global now has 18.2 million pay TV homes, and that’s before it adds the 3.75 million of Virgin Media in the UK, when it completes that deal in Q2, which will take it close to 22 million.
But broadband was another matter where Germany, Switzerland and Poland all brought great results, up 99,900, 32,300 and 20,100 respectively. In total broadband RGUs drove the entire performance with 233,300 new broadband RGUs out of the 373,000.
And this message reverberated around Fries’ discussion, so much so that he talked about a new 200 Mbps product that was doing well in the Netherlands and a 500 Mbps product that is on trial now and will come out by year end.
In countries where cable is strong, it tends to already attract most newcomers to broadband, while Telcos try to hold their numbers steady. We already saw how last week AT&T and Verizon in the US had barely changed the number of broadband customer they have collectively over a 5 year period. KPN in the Netherlands has done better than this, growing by 200,000 broadband lines over the past year, roughly 50,000 each quarter, but it is still way behind the collective might of the two cable operators in terms of additions.
There is plenty of evidence that broadband saturates at around 70 Mbps, if you have higher speeds, at more cost, available, very few people can find enough of a reason to pay higher rates for speeds above this. This evidence comes from analyzing out Fiber operators, but is equally valid on cable. But the reason that cable is perceived as far faster than VDSL broadband lines in Europe is because it is winning the PR battle, and Fries comments are really about this. If cable constantly gets to the higher speeds first, then it can introduce them ahead of telcos, and when a larger proportion of the community wants faster speeds, cable already has a tested product.
The issue in the Netherlands is that KPN has tracked cable speeds and it is the toughest market in Europe on broadband speeds. KPN already has 80 Mbps over DSL technologies and has bought almost all its fiber rivals up, and continues to offer those services too. In order to appear to stay ahead in the Netherlands, Liberty Global has to push the envelope.
The Liberty Global Dutch operation lost 3,000 RGUs in the quarter compared to a gain of 42,000 a year earlier which gives an idea of how competitive this market is becoming across the entire triple play area.
Most major European cable companies have had demonstrations of DOCSIS channel bonding up to 1.5 Gbps, including Virgin and Kabel Deutschland. This is achieved using DOCSIS 3.0 which allows for the multiplexing of multiple DOCSIS channels, usually around 24 or more, to get to this kind of speed. Eventually, if enough people take up those options, the networks themselves need to buy new QAM and split their loops, or this kind of speed cannot be maintained because there aren’t enough channels to go around to be bundled, but initially it is easy to offer very high speeds to a relatively low number of high end broadband customers, given the cable architecture.
The arrival of the Horizon DVR is still dividing opinion at Liberty Global, but Fries says that it has reached 200,000 across the Netherlands and Switzerland. He confirmed that Ireland and Germany will follow with launches later this year, so the company is not being put off by teething problems and exceptionally high call rates at the help desks.
Fries said, ‘Horizon sales continued to do well, we have over 145,000 installed gateways (in the Netherlands) representing about 13% of our digital base and we continued to improve and evolve the platform. We had 24 new apps during the first quarter, including Facebook and Twitter and we’ll launch faster navigation, a new menu structure and a new remote this summer.’ Virgin has installed its own TiVo gateway product at something approaching 1.5 million or 40% of its base, and although the projects were announced at the same time, the TiVo product was available a full two years earlier. In figures out from Virgin last week, this led to the lowest churn the company has ever recorded, which it attributes directly to the TiVo product line.
Fries also said that 6.2 million customers subscribe to triple-play packages and 9.3 million had some kind of bundle.
Fries also talked about a key development being the introduction of a basic digital unencrypted package which helps Liberty Global digitize customers without having to get them to move up the subscription ladder. It has been introduced in Switzerland, the Netherlands, Austria, Romania, the Czech Republic and in Germany at Unitymedia. It saves on the cost of smart cards and specialist set tops as well.
Liberty says it has launched the Horizon Online platform in Ireland with an initial 45 channels in mid-April and will move to the full Horizon device this summer. Germany will go through the same process later in the year.