In seven out of nine markets Liberty has seen an improved performance driven by the two planks of broadband internet and digital TV rollout. The latter is particularly significant, as the staged rollout of digital TV from UPC hasn’t always kept pace with the availability of digital terrestrial services and in some markets commercially available direct-to-home satellite services. Once digital video services are in place – not just the linear TV channels but the other benefits such as VOD and PVRs – the triple play proposition becomes a truly workable marketing tool.

In an investor call on the company’s second quarter financials, Mike Fries, CEO & president, Liberty Global said that by far the most improved market was The Netherlands, where UPC added 38,000 RGUs boosted by new triple play bundles. “This is not an anomaly, this is a significant trend for us and one that should continue for us as we reach 80% of our footprint with DOCSIS 3.0 by the year end,” Fries said there had also been a halo effect for its voice business as customers took up the triple play option.

Romania was not so lucky, amid major competition from the DTH sector accounted for 40% of sub losses for the quarter. Excluding Romania, the figure was 20%.

In some markets it just doesn’t work out, with hardly any DTT to speak of and little in the way of DTH, Switzerland’s Cablecom had just got it wrong. Over the past year though Cablecom has been put under new management, introduced HD, VOD, DOCSIS 3 and even dabbled in 3D. New resources have been put into customer care and UPC is so confident that a rate increase can be introduced in the second half of 2010. The newly found confidence also extends to Cablecom starting to take the UPC name.

“At this point we’ve seen good signs that Cablecom is about to turn the corner, specifically we’ve seen strong net RGU performance year on year, although weaker than budget and that was largely due to an aggressive assumption on the reduction of churn,” said Gene Musselman, president and chief operating officer, UPC Broadband.

The Netherlands, where KPN now has over one million subscribers to its pay DTT and IPTV services, posted its lowest video subs loss in three years. As the first European country to switch off its terrestrial analogue services, way back in November 2006, Holland is once more a mature market.

High definition is beginning to play its part, an additional 260,000 HD subscriptions were taken on the quarter, helping to deliver a combined total of 2.4 million HD and DVR subscribers across the continent. Typically HD is able to command a premium of between €5 and €10.

With hardware costs coming down, it is less painful on the capital expenditure to get new HD boxes into the homes of subscribers that are happy to pay for the privilege. It has also brought down the cost of the proposed Liberty Media network device that with six-tuners might have initially been seen as high-end in the extreme. “We are making great progress with Samsung, Intel and NDS on the development and integration on the hardware and software components here and we continue to feel very positive about the impact that this IP device for the home will have on our digital TV and broadband business,” said Fries, pointing our that the company had received a good reception from operators in both the US and Europe.

Fries described how subscribers would be able to use the gateway to communicate with multiple Wi-Fi devices while sitting in front of the TV, moving content to an iPad from another device elsewhere in the home, over the IP network. “This isn’t just a slightly better user interface, this is an entirely different approach to the user experience, but more than that this is about putting a device in the home that has all the bells and whistles that your PC has today in terms of a very fast processor, multiple Wi-Fi chips, six tuners, and importantly the ability to communicate with your Wi-Fi devices.”

Because Liberty still has close to ten million homes that use no set-top box at all – the cableco has not set a date for an analogue switch-off – Fries said this presented a unique opportunity.

There are also opportunities in acquisition, Fries said Poland remains a very appropriate and obvious consolidation market and pointed to obvious consolidation in the Czech and Slovak markets. In the Czech Republic there were also “interesting opportunities”.

Liberty Global Q2 Financials

• Organic RGU2 additions of 169,000 increased by 80% or 75,000 RGUs
• Revenue of $2.17 billion and Operating Cash Flow (“OCF”)3 of $985 million
• Reflects reported revenue and OCF growth of 20% and 21%, respectively
• Represents 5% rebased4 revenue and OCF growth
• Operating income expanded by 120% to $327 million
• Cash provided by operating activities from continuing operations

Source: Liberty Global

The proposal, which is still at a preliminary stage, would be subject to a number of regulatory and financing pre-conditions and the directors believe this could add considerable uncertainty as to when and if a formal offer might be made.

In a statement issued by BSkyB on their behalf, the directors said they would not be recommending the offer were it to be made at the 700 pence (842 euro cents) per share at which BSkyB is currently valued. In giving their advice the banks took into account commercial assessments given by the directors. However, they indicated that an offer of 800 pence or above would be considered. In early London trading, BSkyB shares were up 19.57% at 718 pence. Shares were already just short of the 52-week high achieved in March, when rumours of a delisting first surfaced.

The directors include former president and CEO of Wal-Mart Europe and Royal Mail chairman Allan Leighton and former Hallmark Entertainment Networks president and CEO David Evans.

Nicholas Ferguson, BSkyB’s senior independent non-executive director, who has now been appointed deputy chairman, said in a statement: “The eight independent directors have evaluated the proposal since receiving News Corporation’s approach on 10 June. Based on careful review and advice, it is the unanimous view of the independent directors that there is a significant gap between the proposal from News Corporation and the value of the company. We believe the company has a track record of very strong performance and excellent growth prospects.”

In the meantime, and in recognition that an offer from News Corp could be in the long-term interest of shareholders, BSkyB has agreed to co-operate with News Corp on any future merger clearances needed to facilitate such an offer.

Chase Carey, deputy chairman, president and COO, News Corp, said the success of BSkyB was reflected in its market valuation and it went without saying that News Corp was in full support of the BSkyB management. “We believe that this is the right time for BSkyB to become a wholly owned part of News Corporation with its greater scale and broader geographic reach. For News Corporation, our proposal presents an opportunity to consolidate a core business with which we have been closely associated for over two decade. However, we are taking a disciplined approach to this transaction, recognising both the market valuation of BSkyB and our substantial existing ownership.”

Recognising that an offer from News Corporation could be in the interests of BSkyB shareholders in the future, and that obtaining any necessary merger clearances would facilitate such an offer, BSkyB has agreed to co-operate with News Corporation in seeking those clearances from the relevant authorities.

BSkyB has entered into an agreement with News Corp that it will not request a so-called “Put up or shut up” notice from the Takeover Panel. For its part, News Corp will reimburse BSkyB costs of up to £20 million.

In the past 12 months, the Saltaire-based company has launched over 20 HD PVR products and a new cable decoder to help US MSO Comcast in the transition to digital television, the largest order in Pace’s history.

“We’ve been first to market with both our new customer wins and our existing business,” Pace CEO Neil Gaydon told a press call. “We’ve seen a series of high profile launches including 20 PVRs, and it wasn’t the case of taking one design and then replicating it for different markets, each of these were a specific product designed for a specific operator, there can be different software, different conditional access and different technologies involved.”

Gaydon said he expected the market to grow, particularly in the field of HD product, with a total of 200 million units shipped in the pay-TV market as a whole. “In ’08 we shipped 13 million boxes and the consensus is 15 or 16 million for ’09. It’s a strong statement that the market will be recession proof, but it will certainly be resilient. What we’ve managed to do is to take market share from our competitors, focusing on growing markets, and by focusing on things like DTA [the Digital TV adaptors picked up by Comcast] or HD and PVR we’ve got the right strategy for the company. We are seeing pull forward on products like HD, operators have got to offer more value from their competitors.”

The company achieved record growth in revenues and shipments of £745.5 million (€830.89 million) and 13.1 million respectively. Profit before tax was £13.8 million, compared to £15.4 million in the seven months to December 31, 2007, as Pace change its financial year. The former Philips division now known as Pace France contributed £8.4 million of profit.
Gaydon confirmed that Pace was in conversations with Canvas, the BBC-led IPTV application, arguing that the service would not compete directly with the 50% of the UK market that had chosen a pay-TV service. He said that software that was dedicated to the UK market would not have a direct effect on overall equipment costs.

Speaking about the recall of 90,000 Sky+ HD boxes, Gaydon said Pace continued to have a “very strong” relationship with Sky.

In the context of the company’s 13 million shipments, 90,000 boxes were not significant, and the recall was covered under normal warranty provisions.