Fries Stands By Liberty Global


Liberty Global Inc. CEO Mike Fries tried to allay investor fears on a fourth-quarter analyst call Monday, but despite reporting strong results, it had little impact on the stock.

LGI -- which was spun off from Liberty Media Corp. in 2004 -- includes European cable giants UnitedGlobalCom Inc. and United Pan-Europe Communications Inc., as well as Japanese cable operator Jupiter Telecommunications Co. Ltd.

For the quarter, revenue was up 9.5% to $1.4 billion and operating cash flow rose 12.2% to $471 million.

LGI also released guidance for full-year 2006, estimating that it will add 1.6 million revenue-generating units in the period, that revenue will increase 32% to $6.8 billion and that operating cash flow will rise 36% to $2.4 billion.

But despite those strong results and Fries’ attempts to ease investor concerns, LGI stock was up just 10 cents per share in 4 p.m. trading Tuesday to $19.73 each.

Fries started off the call addressing what he believes are four investor concerns that have impacted the stock: competition; the complex structure of the company; increases in capital spending; and the notion that LGI is losing ground to disruptive technologies like Internet-protocol TV, mobile telephony and “over-the-top” video and voice-service providers like Google Inc. (, Skype Ltd and Vonage Holdings Corp.

On the competitive front, Fries pointed to LGI’s strong subscriber growth in the quarter and for the year (it added 500,000 RGUs in the quarter and 1.5 million for the year). Regarding capital spending, he said that while 2005 capital expenditures were more than double those of 2004 ($1.2 billion versus $485 million), they were largely tied to revenue-generating products. Fries added that roughly 75% of total capex was tied to RGU additions and, of that, about 55% went to the purchase of customer-premises equipment.

Fries said LGI’s complicated capital structure is actually a benefit. According to Fries, LGI’s structure, unlike single-market providers, naturally hedges the company from a financial, political and operating point of view; its recent acquisitions have allowed it to rebalance its footprint tax efficiently; and its balance sheet puts its leverage as close as possible to its operating cash flows in the same local currencies. “All of which, in our view, are going to help drive equity returns in the long term,” he added.

Fries said several European telephone companies have launched or are in the process of launching IPTV services, but so far, the impact has been minimal.

“Many, if not all, of these providers are going to find it far more challenging to acquire video subscribers,” he added. “Video is not a commodity, and customer inertia is hard to turn around. For the most part in Europe, across the vast majority of launches, they’ve achieved customer levels in the tens of thousands in most cases. And even they admit to needing considerable scale to generate meaningful returns.”

Fries added that Internet companies like Google attempting to move into the video space are also in for a rude awakening.

“Putting aside for the moment that the vast majority of our 15 million customers are not techno-savvy bloggers -- these are regular folks -- we still think these services are going to find some challenges. The economics of streaming video are tough,” he said. “Even before you factor in HD, we can’t forget that video is not voice -- people are not going to put up with jittery pictures or dropped signals.”