LBTYA - Liberty Global

[merkhet]

I would be flabbergasted if he sold Liberty Global. Their runway is so long.

[ni-co]

He might also see if he can swap the German cable assets for something else.

 

That's exactly what I just thought, came here to write that. This would certainly be tax efficient and in keeping with Malone's MO.

 

There is a lot of potential with LBTYA German assets with respect to broadband penetration.  That being said, some sort of asset swap makes more sense to me than an outright sale of the company.  What premium would Malone take?  Would he even agree to a deal for a 100% premium?  I wouldn't..

 

Yes. I wouldn't rule it out but this doesn't seem probable either. Those assets are almost certainly too valuable compared to the price Vodafone would be willing to pay. The only thing I can see is some kind of joint venture. Then again, there is the control issue. And it would deprive him of some flexibility. I'm really curious about what made Vodafone think that they could be able to get these assets from Malone at a price they'd be willing to pay and how and why their contemplations got into the news.

[Liberty]

http://dealbook.nytimes.com/2014/12/01/how-a-vodafone-deal-for-liberty-global-could-work/?smid=tw-dealbook&seid=auto

 

Kind of what we've been saying. Doesn't make too much sense, at least not a takeover of the whole thing.

[Liberty]

Vodafone downplaying the possibility of a deal:

 

http://www.reuters.com/article/2014/12/03/libertyglobal-ma-vodafone-idUSL6N0TN4A420141203

 

Vodafone has met with analysts and investors this week to calm fears it could make a multi-billion dollar takeover bid for Europe's biggest cable company Liberty Global, according to people present.

[rogermunibond]

I'd like to see Vodafone and other M&A hype die down so maybe LBTYA shares drop back down to $40.  Would love to buy more.

[Liberty]

I'd like to see Vodafone and other M&A hype die down so maybe LBTYA shares drop back down to $40.  Would love to buy more.

 

I might buy more too if it dropped enough, but even if I don't, I'd like to see it come down so the buybacks are more effective. I hope Vodafone didn't make the price pop for no reason...

[ni-co]

So, this is what those rumors seem to be about:

Antitrust pressure could push Liberty out of Germany

 

Pressure from competition regulators could prompt Liberty Global to abandon Germany if it can no longer pursue its growth ambitions in Europe's biggest cable market, sources have told Reuters…

 

http://www.reuters.com/article/2014/12/05/liberty-global-germany-idUSL6N0TL39I20141205 

[rukawa]

I took a quick look at Liberty Global and its EV/EBIT is like 30. What am I missing here? Seems overpriced to me. On EBITDA measures its a lot cheaper but that ignores depreciation. And depreciation is a real cost which is particularly important for telecom.

[ni-co]

First off, depreciation is not a real cost, capex is. Capex should roughly equal depreciation in the long run but it doesn't when you did large one-off expenditures that only need to be made once (like building a cable network by digging up the streets for example – you only do this once if there is no need to upgrade the hardware). Then, this is not a telecom company, it's a cable company. There is a huge difference exactly because of capex requirements, especially when it comes to maintenance capex – which is hard to guess, though (whereby with "maintenance" I mean "maintain your existing network competitive").

 

That said, LBTYA is not cheap but you may have to wait for quite some time to get it when it's cheap.

[loganc]

First off, depreciation is not a real cost, capex is. Capex should roughly equal depreciation in the long run but it doesn't when you did large one-off expenditures that only need to be made once (like building a cable network by digging up the streets for example – you only do this once if there is no need to upgrade the hardware). Then, this is not a telecom company, it's a cable company. There is a huge difference exactly because of capex requirements, especially when it comes to maintenance capex – which is hard to guess, though (whereby with "maintenance" I mean "maintain your existing network competitive").

 

That said, LBTYA is not cheap but you may have to wait for quite some time to get it when it's cheap.

 

My view is that Global is far cheaper than it appears on superficial metrics.  You nail it in talking about "maintenance capex" needs for this business.  I think that it is much lower than what is going on presently and the trajectory is that capex is decreasing.  Global is just a monster of a business - my regret is not realizing this like 5 years ago.   

[ni-co]

First off, depreciation is not a real cost, capex is. Capex should roughly equal depreciation in the long run but it doesn't when you did large one-off expenditures that only need to be made once (like building a cable network by digging up the streets for example – you only do this once if there is no need to upgrade the hardware). Then, this is not a telecom company, it's a cable company. There is a huge difference exactly because of capex requirements, especially when it comes to maintenance capex – which is hard to guess, though (whereby with "maintenance" I mean "maintain your existing network competitive").

 

That said, LBTYA is not cheap but you may have to wait for quite some time to get it when it's cheap.

 

My view is that Global is far cheaper than it appears on superficial metrics.  You nail it in talking about "maintenance capex" needs for this business.  I think that it is much lower than what is going on presently and the trajectory is that capex is decreasing.  Global is just a monster of a business - my regret is not realizing this like 5 years ago. 

 

Same here. I've realized this two years ago but only after Malone kept hammering on it in several interviews. I don't think it's too late, though. Malone keeps pointing to a worldwide roll-up and sees LIberty Global at the center of it.

[mg0516]

Looks expensive on standard metrics.  FCF to Equity multiple is reasonable...factor in the massive pricing power they have and even cheaper.

[ItsAValueTrap]

Looks expensive on standard metrics.  FCF to Equity multiple is reasonable...factor in the massive pricing power they have and even cheaper.

 

Revenue growth at many of Liberty's market have been slow.  Their best non-UK market had something like 6% revenue growth YoY.  Going forward, there might not be much pricing power due to open access and due to competition.

 

I think the value is in turning UK/Virgin around.  There is the potential for huge earnings growth there.  It's the Charter story being played out by a CEO who's not quite as good as Tom Rutledge.

[ni-co]

Looks expensive on standard metrics.  FCF to Equity multiple is reasonable...factor in the massive pricing power they have and even cheaper.

 

Revenue growth at many of Liberty's market have been slow.  Their best non-UK market had something like 6% revenue growth YoY.  Going forward, there might not be much pricing power due to open access and due to competition.

 

I think the value is in turning UK/Virgin around.  There is the potential for huge earnings growth there.  It's the Charter story being played out by a CEO who's not quite as good as Tom Rutledge.

 

Competition by whom? I live in Germany and I just don't see how Deutsche Telekom is going to keep up with broadband speed increases cable cos are dictating here. They can't even do it today. People are still too fixated on TV when it comes to cable cos. Malone came back into cable because of broadband, not because of video. In 2012, he said:

 

It looks to me like broadband is even, if it’s possible, more sticky than video.

 

http://www.multichannel.com/news/content/unleashing-liberty-malone-muses-global-cable-content-us-economy/359967

[ItsAValueTrap]

Competition by whom? I live in Germany and I just don't see how Deutsche Telekom is going to keep up with broadband speed increases cable cos are dictating here. They can't even do it today. People are still too fixated on TV when it comes to cable cos. Malone came back into cable because of broadband, not because of video.

 

Germany is one of Global's fastest growing markets.  They face competition from:

1- DSL.  From what I understand, Germany is open access for DSL.  The phone company must open up its network to competitors.  So that will drive down the cost of DSL.

Cable companies there aren't open access.

 

2- Cord cutting.  If you lose the video revenue, then you can try to make it up by raising the cost of Internet.  But in Germany, Liberty Global has a pretty competitive marketplace for Internet access because of DSL and open access.

 

DSL is somewhat close to cable in terms of effective speeds for Netflix.  http://ispspeedindex.netflix.com/germany

 

---

I haven't figured out how much of the revenue growth in Germany was from market share gains (cable has very little share versus what it "ought" to have) and how much from price increases.

[ni-co]

Competition by whom? I live in Germany and I just don't see how Deutsche Telekom is going to keep up with broadband speed increases cable cos are dictating here. They can't even do it today. People are still too fixated on TV when it comes to cable cos. Malone came back into cable because of broadband, not because of video.

 

Germany is one of Global's fastest growing markets.  They face competition from:

1- DSL.  From what I understand, Germany is open access for DSL.  The phone company must open up its network to competitors.  So that will drive down the cost of DSL.

Cable companies there aren't open access.

 

2- Cord cutting.  If you lose the video revenue, then you can try to make it up by raising the cost of Internet.  But in Germany, Liberty Global has a pretty competitive marketplace for Internet access because of DSL and open access.

 

DSL is somewhat close to cable in terms of effective speeds for Netflix.  http://ispspeedindex.netflix.com/germany

 

---

I haven't figured out how much of the revenue growth in Germany was from market share gains (cable has very little share versus what it "ought" to have) and how much from price increases.

 

That's not the way I see it. This is a matter of capacity. It's simple physics. There are three thick cables going into almost every house in Germany. Two copper wires (the telephone line and electricity) and one TV cable. By sheer dumb luck the TV cable is much, much better suited for transporting data than the other two. This gap is poised to grow. The only countermeasure telcos have is digging up the streets and lay fibre cable to every single house in Germany. Can you imagine how expensive this will be? Now with this information you can make a reasonable guess how this is going to develop over the next few years.

 

Add to this that businesses are only beginning to realize that they will have much better internet connectivity by switching from DSL to cable.

 

The only significant risk I can see is regulatory risk.

[ItsAValueTrap]

Competition by whom? I live in Germany and I just don't see how Deutsche Telekom is going to keep up with broadband speed increases cable cos are dictating here. They can't even do it today. People are still too fixated on TV when it comes to cable cos. Malone came back into cable because of broadband, not because of video.

 

Germany is one of Global's fastest growing markets.  They face competition from:

1- DSL.  From what I understand, Germany is open access for DSL.  The phone company must open up its network to competitors.  So that will drive down the cost of DSL.

Cable companies there aren't open access.

 

2- Cord cutting.  If you lose the video revenue, then you can try to make it up by raising the cost of Internet.  But in Germany, Liberty Global has a pretty competitive marketplace for Internet access because of DSL and open access.

 

DSL is somewhat close to cable in terms of effective speeds for Netflix.  http://ispspeedindex.netflix.com/germany

 

---

I haven't figured out how much of the revenue growth in Germany was from market share gains (cable has very little share versus what it "ought" to have) and how much from price increases.

 

That's not the way I see it. This is a matter of capacity. It's simple physics. There are three thick cables going into almost every house in Germany. Two copper wires (the telephone line and electricity) and one TV cable. By sheer dumb luck the TV cable is much, much better suited for transporting data than the other two. This gap is poised to grow. The only countermeasure telcos have is digging up the streets and lay fibre cable to every single house in Germany. Can you imagine how expensive this will be? Now with this information you can make a reasonable guess how this is going to develop over the next few years.

 

Add to this that businesses are only beginning to realize that they will have much better internet connectivity by switching from DSL to cable.

 

The only significant risk I can see is regulatory risk.

 

I don't think that consumers really need the higher speeds that cable offers (which cable can deliver at lower cost).

 

There are some limits that we run into.  In movie theatres, consumers do not care about 2K/HD versus 4K/ultra HD.  In the home, consumers will likely notice ultra HD and care about it.  However, a netflix stream of ultra HD only requires 15 mbps.  So a household might not have much use for speeds faster than 60 mbps.

 

DSL with vectoring is pretty fast over short-medium distances.

[ni-co]

Competition by whom? I live in Germany and I just don't see how Deutsche Telekom is going to keep up with broadband speed increases cable cos are dictating here. They can't even do it today. People are still too fixated on TV when it comes to cable cos. Malone came back into cable because of broadband, not because of video.

 

Germany is one of Global's fastest growing markets.  They face competition from:

1- DSL.  From what I understand, Germany is open access for DSL.  The phone company must open up its network to competitors.  So that will drive down the cost of DSL.

Cable companies there aren't open access.

 

2- Cord cutting.  If you lose the video revenue, then you can try to make it up by raising the cost of Internet.  But in Germany, Liberty Global has a pretty competitive marketplace for Internet access because of DSL and open access.

 

DSL is somewhat close to cable in terms of effective speeds for Netflix.  http://ispspeedindex.netflix.com/germany

 

---

I haven't figured out how much of the revenue growth in Germany was from market share gains (cable has very little share versus what it "ought" to have) and how much from price increases.

 

That's not the way I see it. This is a matter of capacity. It's simple physics. There are three thick cables going into almost every house in Germany. Two copper wires (the telephone line and electricity) and one TV cable. By sheer dumb luck the TV cable is much, much better suited for transporting data than the other two. This gap is poised to grow. The only countermeasure telcos have is digging up the streets and lay fibre cable to every single house in Germany. Can you imagine how expensive this will be? Now with this information you can make a reasonable guess how this is going to develop over the next few years.

 

Add to this that businesses are only beginning to realize that they will have much better internet connectivity by switching from DSL to cable.

 

The only significant risk I can see is regulatory risk.

 

I don't think that consumers really need the higher speeds that cable offers (which cable can deliver at lower cost).

 

There are some limits that we run into.  In movie theatres, consumers do not care about 2K/HD versus 4K/ultra HD.  In the home, consumers will likely notice ultra HD and care about it.  However, a netflix stream of ultra HD only requires 15 mbps.  So a household might not have much use for speeds faster than 60 mbps.

 

DSL with vectoring is pretty fast over short-medium distances.

 

That's what I thought, too. However, what matters in the end is large capacity at high speeds. And the picture for DSL is very dark there. I think we are only at the beginning of people watching TV over the internet – services like Netflix, as paradoxically as it seems – are going to be a boon for cable cos, because of broadband usage. Momentarily, it's only certain age groups watching over-the-top TV, but Netflix is already using up so much capacity that I really doubt that prices are going to stay where they are.

 

Malone is predicting that, in the end, some kind of volume pricing structure will prevail. I think that cable cos are going to gain real pricing power in broadband, this will more than make up for cable cutters. Momentarily, it looks like this is going to be a very smooth transition with the importance of broadband increasing and of TV simultaneously decreasing.

[ItsAValueTrap]

That's what I thought, too. However, what matters in the end is large capacity at high speeds. And the picture for DSL is very dark there.

 

Cable has an advantage in speeds at the "last mile" to the consumer's home.  Cable can achieve high speeds at a lower cost.

 

Capacity-wise, cable and DSL should be on equal footing.  There are some economies of scale to being a big ISP.

 

Eventually, the cost of delivering Internet TV will rapidly decline.  Once 4K matures, demand for higher capacity won't grow as fast as Moore's Law.

[Liberty]

http://www.libertyglobal.com/pdf/press-release/12-10-Acquisition-of-Choice-FINAL.pdf

 

Puerto Rico acquisition.

[Liberty]

Listened to Mike Fries speak at the UBS conference. He said that he doesn't know where the rumor that they might get out of Germany comes from, but it's their "crown jewel", and it doesn't sound like he sees any reason for that to happen.

 

If anyone wants the audio:

 

https://www.dropbox.com/s/vlc03t95cgxf3vf/2014-dec-LBTYA-UBS-conf.m4a?dl=0

[loganc]

Listened to Mike Fries speak at the UBS conference. He said that he doesn't know where the rumor that they might get out of Germany comes from, but it's their "crown jewel", and it doesn't sound like he sees any reason for that to happen.

 

If anyone wants the audio:

 

https://www.dropbox.com/s/vlc03t95cgxf3vf/2014-dec-LBTYA-UBS-conf.m4a?dl=0

 

Thanks so much for posting this.  What software do you use to record these calls? 

[Liberty]

Listened to Mike Fries speak at the UBS conference. He said that he doesn't know where the rumor that they might get out of Germany comes from, but it's their "crown jewel", and it doesn't sound like he sees any reason for that to happen.

 

If anyone wants the audio:

 

https://www.dropbox.com/s/vlc03t95cgxf3vf/2014-dec-LBTYA-UBS-conf.m4a?dl=0

 

Thanks so much for posting this.  What software do you use to record these calls?

 

https://www.rogueamoeba.com/audiohijackpro/

[loganc]

 

Many thanks, sir.

[ni-co]

Listened to Mike Fries speak at the UBS conference. He said that he doesn't know where the rumor that they might get out of Germany comes from, but it's their "crown jewel", and it doesn't sound like he sees any reason for that to happen.

 

If anyone wants the audio:

 

https://www.dropbox.com/s/vlc03t95cgxf3vf/2014-dec-LBTYA-UBS-conf.m4a?dl=0

 

Thanks so much for posting this.  What software do you use to record these calls?

 

https://www.rogueamoeba.com/audiohijackpro/

 

Thank you for uploading! Great software, too.