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Liberty Global PLC  (NASDAQ:LBTYK)
Q1 2019 Earnings Call
May. 07, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's First Quarter 2019 Results Investor Call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the expressed written consent of Liberty Global is strictly prohibited. At this time, all participants are in listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. After today's formal presentation, instructions will be given for a question-and-answer session.

Page two of the slides details the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995 including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact.

These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission including its most recently filed Forms 10-Q and 10-K as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the condition on which any such statement is based.

I would now like to turn the call over to Mr. Mike Fries.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

All right. Thanks, operator, and welcome, everyone. We're glad you joined us this morning or this afternoon wherever you maybe. The plan is to jump right into prepared remarks, so there's plenty of time for questions and I'm joined by most of my senior executive team who I'll try to get involved in the Q&A, so you can hear from them as well.

Now as usual, we are speaking off of slides. So, hopefully you've got those in front of you or you can grab them later. There's some good information in there. And then what I'll do, I'll kick off on slide four with the key highlights from the first quarter. I think it goes without saying that this is an incredibly exciting and strategic inflection point for this company.

As you all know, we're on the verge of completing a series of transactions that will leave us with a more concentrated operating platform in Western Europe that serves an aggregate of 33 million RGUs and generates $4.8 billion of consolidated operating cash flow at the opco level and another $2 billion through our 50-50 JV in Holland and over $15 billion of cash and liquidity realized through asset sales at prices that are nearly twice our current implied trading multiple.

John and I were talking the other day and we can't remember a time actually when a business was so well positioned to create value for shareholders. Not surprisingly then, the first few bullets on this slide address the status of those transactions beginning with the Vodafone deal, and for anyone watching it closely, which I'm guessing a few of you are you know that consistent and material progress has been made with the European Commission and as a result we remain confident of a summer closing. I'm happy to take questions on any of that.

The sale of UPC Switzerland is also winding its way through the regulatory process. The transaction was officially notified to the Swiss Competition Authority on the 1st of May, which starts the process of review. The timing here looks more like Q4 to us and of course we'll be updating you as we move along the way.

And as almost a footnote we also completed the sale of our DTH business in Central and Eastern Europe for EUR180 million. On the right hand side of the slide, you'll see some headline operating results for the first quarter shown on a reported basis and on a guidance basis with the key difference being that the guidance figures exclude Switzerland. So, I'll just focus on the second set of numbers in the white box that correspond to our guidance.

During the quarter we added 68,000 new RGUs about twice the prior year growth and up significantly from 16,000 in the fourth quarter. Revenue growth was largely flat year-over-year and OCF grew about 1% which is consistent with our guidance for the full year of flat to down OCF growth and reflects headwinds in the U.K. that we foreshadowed a couple of months ago. Three other key takeaways from our Q1 operating results are highlighted here.

First Virgin Media had a strong RGU quarter with higher net adds sequentially and year-over-year. UPC Switzerland is starting to show emerging green-shoots from the core elements of our turnaround plan, and I'll speak about that. And as expected, we saw a significant reduction in CapEx spend of almost 30% in the quarter, which drove operating free cash flow up 2.5 times from the year earlier period. That is of course one of the big story lines this year and I'll dig into all three of these headlines in the next few slides as will Charlie in his remarks.

The slide five shows a bit more detail on net add growth by quarter and by product. Now, if you just focus on the orange section of the bar you'll see that broadband growth has been steady and about 35,000 to 40,000 each quarter for this continuing set of operations and was up meaningfully in Q1 this year to 57,000. Two key drivers here.

First, we continue to push our speed leadership with 500 megabits rolled out nationwide at the end of last month in the U.K. and gigabit launches across our markets. And second we're committed to a better WiFi experience for all. With our Connect boxes now installed in two-thirds of our base and the launch of Intelligent WiFi and our cutting-edge Connect app.

Video losses were roughly evenly split between Virgin and Belgium in the quarter. Churn on the SFR footprint impacted Telenet's QM result, but with subscriber migration now complete and improved operational performance is expected from Q2 onwards and Virgin continues to target high-value TV customers as we seek to monetize our investments in content and functionality, and this approach has led to some softness in the Q1 intake, but should ultimately yield ARPU and churn benefits.

You'd have also seen that we announced a multiyear partnership with Amazon Prime Video in the U.K. starting this summer 2019. So, we'll put the prime video app on our Ultra HD TV set-top box and similar to earlier agreements with like Netflix. This enhances our strategy of combining the very best OTT apps and offerings with our own world-class content and TV functionality to create a seamlessly integrated experience. That's where it's heading. EOS and Horizon4 are doing exactly what we hoped.

Together, they're a one-two punch, a faster 4K box and the best UI in Europe and everywhere we've rolled out one or both NPS is up and consumers are loving it. And then lastly we're well positioned on fixed-mobile convergence. Belgium and Holland are of course fully converged today and reaping the benefits of lower churn and higher NPS while the U.K. and Switzerland which I'll talk about in a second are MVNO-based and just really getting started.

All-in total postpaid mobile add including Switzerland were over 70,000 in the quarter. And the next couple of slides beginning on page six provide a bit more detail on our largest operation, Virgin Media. And you can see on the left-hand side customer net adds or new homes connected were up sequentially and year-over-year at 25,000.

It helped deliver nearly 60,000 RGU net adds. It's important to point out that growth was a result of the improved performance in lightning and non-lightning areas and supported by market-leading broadband bundles that really helped drive a 10 basis point improvement in 12-month rolling churn.

Now I'll talk more about the plans in place to drive continued growth in the consumer business in a second. You'd also see that Q1 ARPU is modestly lower year-over-year after four quarters of positive growth and there are a few factors at play here most of which were not part of our ongoing subscription revenue. First of all Virgin had lower install revenue in Q1 2019 versus 2018 as we ramp down the number of CPE upgrades and saw a related reduction in activation fees.

As in prior quarters, we saw lower telephony usage, but we also experienced lower pay-per-view revenue largely due to fewer boxing events in the first quarter. And then finally the team did increase the depth of promotional discounts on certain bundles in response to market dynamics particularly in January and February.

It's important to note that the pay-per-view revenue had been the same as last year. ARPU growth would have been positive. It's also important to note that we continue to target an improvement in ARPU throughout the balance of the year on the back of new consumer bundles, which launched at the end of April and a series of product innovations that Lutz and his team had been working on that I'll highlight on the next slide.

On the right-hand side of this slide though we provide an update on Project Lightning, which continues to drive financial operating and strategic value for Virgin. Everyone's talking about building out the U.K.'s next great network and we're the only ones actually doing it today with 500 megabits available nationally on our footprint a 1-gig cities rolling out and 400,000 to 500,000 new homes added to our network every year.

Today, we've built and released 1.7 million new homes across the U.K. and Ireland more than the entire market combined and we've added 370,000 new customers and 900,000 RGUs on those networks. ARPUs and penetration rates are in line with expectation. The cost per premise continues to decline as we get smarter and the revenue in OCF on a project level were up 50% year-over-year. With unlevered IRRs in the mid-20s we are as committed as ever to this build-out and as you might expect are exploring creative ways to expand or partner or finance expansion beyond our current plans.

I'm sure you've all seen the announcement that Lutz Schuler will be assuming the CEO role at Virgin Media starting June 11th. I am extremely thankful to Tom Mockridge, who over the last six years really transformed Virgin Media into a dynamic market share leader in broadband and video delivering a 5% annual growth in OCF through his tenure and positioning the company for continued leadership in video with V6 launch and Horizon4 around the corner.

In broadband with 500 megabits speeds everywhere 1-gig cities popping up and in convergence with the best MVNO deal we have in Europe. Now having said that, I'm thrilled that Lutz is here to take the reins. He has been a star performer in Germany and since September of last year has set the stage for a revamp of our consumer business at Virgin.

This slide seven highlights a few of those strategies. Most of which are incubating, but some of which have already rolled out like Virgin's new FMC bundles which launched April 29th and have already delivered encouraging results with mobile attachment rates.

For example our new V.VIP bundle offers it all. 500 megabit broadband speeds at seven times faster than the competition, a mobile SIM with unlimited data, full house TV with Sky premiums, two V6 set-top boxes and inclusive any time landline calls all for around GBP100 per month on a 12-month contract. Customers can also add a mobile SIM with a broad choice of data bundles to all our standard packages, which comes with additional speed boost.

Our research shows that people want convergence. They're craving the increased simplicity that FMC brings with a single bill and access the information about their fixed to mobile services along with a dedicated service team and of course the speed boost.

Now it's still early days. Above-the-line activity will start in mid-June, but this product should also drive improved churn and underpin ARPU growth that it has in another markets. Lutz and his team have also been working hard to keep improving customer experience and engagement with products like Personal Picks which offers customers attractively priced video bolt-ons that they can add onto their entry-level player TV service.

As I mentioned, we've also launched Intelligent WiFi to improve the in-home experience to our broadband customers using the Connect2 app. Additional upgrades for the product portfolio include the Amazon Prime video product I just mentioned in Horizon4. All of those things should drive NPS up as it has in other cities and markets. Now the goal of all these improvements is to optimize the lifetime value of customers by reducing churn, maximizing cross-sell and upsell, and supporting ARPU growth.

Then lastly, on the sales side Lutz and the team have been rationalizing high-cost sales channels by closing stores and pivoting to more online sales, which now make up around 35% of total sales, and they're investing as you would expect in a seamless digital experience across touch points for potential and existing customers. That includes sales, payments, help, service all things that will drive NPS up and reduce costs.

So, finally switching gears to Switzerland. The next couple of slides provide an update on the really good work Severina and her team had been doing on the ground there. Even though we don't include Switzerland in our guidance we know that both Liberty and Sunrise shareholders would benefit from some additional transparency here and the punchline is that the turnaround plan is working.

As the charts on the left indicate RGU losses were marginally better than Q4, but don't yet show the benefit of a strong sales month in March and new products and bundles. ARPU on the other hand has returned to growth. It was up 3.6% in Q1 driven in part by an improved entertainment bundle and tier mix. And the new MVNO with Swisscom has delivered on the promise of unlimited product offers and led to 13,000 net postpay mobile adds in the quarter.

Financially, at the bottom of the slide on the left, you can see steady improvement in the revenue and operating cash flow losses. But I think it's important to remind everyone this is a transition year and we are investing both OpEx and CapEx into this program and the initiatives are really highlighted on the right-hand side. All of these things are working. The 1-gig rollout is ahead of time and we'll launch this year along with major benefits of the digitization plan, but two of these initiatives are already showing significant result and are summarized on the next slide, slide nine.

Switzerland is the first market where we've launched both the EOS box and the new Horizon4 user interface together and the results are fantastic. We now have 130,000 boxes rolled out at the end of April. That alone is a great sign of success and we're looking to be in roughly half of video homes by the end of the year, but much more importantly consumers love it as evidenced by a 30-point improvement in product NPS record sales in March up 30% and a reduction in truck rolls, customer calls.

Similarly that team is seeing great results in fixed-mobile convergence with over 160,000 mobile subs now on the Swisscom network, which we switched over to at the beginning of the year. We have record Q1 sales of 19,000 on the back of our unlimited offers. We have record product NPS and a 15% cross-sell rate on the fixed pace. And we've started to see the same churn benefits as Holland and Belgium.

So I'm extremely happy with Severina and the team and the work they're doing on this plan and we're all excited to get this deal across the line.

With that, I'll turn it over to you Charlie.

Charles H. R. Bracken -- Executive Vice President and Chief Financial Officer

Thanks, Mike. I am now on the slide entitled revenue and OCF growth. Now, if you look at the figures for the continued operations, we had a revenue decline of minus 0.6%, an OCF decline of minus 0.5%.

Excluding Switzerland that's the basis of our 2019 guidance, revenue was broadly flat and OCF grew by around 1%. Mike talked about what's been driving the numbers in the U.K. & Ireland and Switzerland. So, I'm going to briefly address the other segments. In the top right, you can see that Belgium recorded 2.2% of OCF growth, with a slight decline in revenue.

As you probably heard on the results call last week, the loss of the media contract and certain regulatory headwinds will have a more pronounced impact in Q2 and that's factored into our full year expectations.

CEE delivered revenue and OCF growth of 2% which was driven by top line growth from B2B and new build predominantly in Poland. And for our central and other segment revenues were $61 million. Now to remind you these are largely to do with the TSAs that we have with our Dutch joint venture and our former business in Austria, and the net OCF costs were minus $86 million versus minus $107 million in Q1 of 2018. This year-on-year reduction represents our continued initiatives to resize central costs in line with the smaller groups scope.

Now, to emphasize that the central cost trajectory that we laid out in our full results call is going to continue. Namely that the $260 million of OpEx for corporate functions will be reduced by approximately 20% by 2020 and approximately $900 million of Central T&I or technology and innovation OpEx and CapEx will decline at the time in part due to the decline in services under the multiyear TSA agreements.

We'll turn now to the slide titled cash, leverage and liquidity. Q1 reported free cash flow for our continued operations was negative $625 million which was an improvement year-on-year versus the negative $999 million of Q1 2018. We've also laid out the various adjustments to bridge from our reported free cash flow of $625 million to the pro forma free cash flow number of $622 million, which is the basis of our guidance that excludes Switzerland.

Now I'm going to cover the underlying driver numbers shortly. So, I'll come back to that then. Our Q1 leverage was 5.4 times growth and 5.3 times net debt to quarterly EBITDA, and this is in line with our budgeted expectations and we expect the full year even without the proceeds from many plan disposals to be within our four times to five times range. Liquidity remains strong at $3.4 billion including around $900 million of cash and we still plan to spend around $500 million in the first half of the year on stock purchases.

Turning to the next slide, which breaks down our Q1 property and equipment additions and operating free cash flow. Excluding Switzerland we saw a year-on-year reduction of 31% in property and equipment additions resulting in a spend of $640 million or 25% of sales. Including Switzerland the figure was $659 million represented 24% of sales and showed a decline of 29% and that was in the quarter where we connected over 100,000 new premises in the U.K. & Ireland. Now, we remain on track to deliver a 20% reduction in CapEx for the full year.

Of the significant upgrade of our set-top boxes state in the U.K. in 2018 we saw a significant reduction in CPE spend in the U.K. Following the peak investments in product and enablers including our MVNO and voice-over-IP platforms we also saw a reduction in spend in that category of 39%. Belgium is on track to achieve the more normalized CapEx to sales ratio of around 20% following the completion of its fixed and mobile network upgrades in 2018. And having said all of this, we continue to invest in Switzerland and as Mike noted this increased spend is focused on the roll out of EOS boxes in that market for 1-gig upgrade and also the investment in digitization.

If you look to the top right of the slide you'll see the impact by declining CapEx has had on the operating free cash flow which grew by 74% including Switzerland and more than double that number if you exclude Switzerland. Turning to next slide, which details Q1 pro forma free cash flow for our continuing operations excluding Switzerland.

We presented the numbers in the format that we used for our year-end results, which isolates working capital flows. And as you can see pro forma operating free cash flow was $442 million, which included a $75 million investments in Project Lightning. Q1 and Q3 are where we make virtually all our semiannual interest payments, which had a cash interest spend of $561 million for the quarter.

Our Q1 tax payment of $181 million was virtually all accounted for by Belgium's annual payment. The working capital flows in Q1 are typically negative as we unwind our higher Q4 paddles resulting from the seasonally higher CapEx in that quarter and that contributed to a negative working capital flow of $322 million resulting in a total negative outflow for the quarter of $622 million.

Q1 free cash flow is in line with our expectations and we continue to expect the full year free cash flow for the continuing operations excluding Switzerland to be in line with our guidance of $550 million to $600 million. Now remember also that this number includes our estimated $400 million to $500 million negative free cash flow from Project Lightning.

So, moving to the final slide, in conclusion the transactions with Vodafone and Sunrise remain on track. We think Virgin Media had a pretty strong Q1 subscriber result particularly considering the negative sentiments around in Brexit. And despite the flat ARPU results we believe that our product innovation and speed leadership will continue to underpin pricing power. Switzerland is beginning to show green-shoots with its turnaround plan which remains firmly on track and we're confirming all of our 2019 guidance targets.

So, with that, operator can we open up to questions?

Questions and Answers:

Operator

The question-and-answer session will be conducted electronically. (Operator Instructions) And our first question comes from Robert Grindle with Deutsche Bank.

Robert Grindle -- Deutsche Bank -- Analyst

Yes, hi. It's Robert from Deutsche Bank. Mike, can I take you back to your comment you referred in your speech to innovative and creative ways to expand, I think, it was the network. Please could you expand on that? Are you using kind of using BT's ducts and poles comps to reduce the cost? I note your cost per build is lower this quarter than prior year. Is that a new thing and to address press commentary are you thinking of wholesaling to other suppliers? Thank you.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Yes. Thanks, Robert. Look, I think, the reference there was really just to point out that why wouldn't we be looking at creative and innovative ways to continue expanding the network. The results so far for lightening in our minds have been exactly what we wanted them to be successful productive operationally, strategically and we think the capital that we're allocating to that project is really good capital. But as you know the market is moving quickly. There are lots of start-ups, I guess, I would call them.

Hoping to build fiber in various places and of course BT open reach deciding that at some point they will also get more serious in our fiber. So, it's smart for us to be creative and flexible and opportunistic. I have nothing specific to say about that other than to assure you, we're doing what we should be doing which is looking at all options to be sure that the Virgin network and the Virgin product is available as widely as possible.

If we were to do something I don't see it hitting our balance sheet as such or our cash flows. I think there are ways to possibly look at network expansion and in more creative fashions. So, that was really the only point there. What was the second question, Robert?

Robert Grindle -- Deutsche Bank -- Analyst

It was about that you might be considering wholesaling your network in the U.K?

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Yes. No comment there, I mean, yes, I have no comment on that.

Robert Grindle -- Deutsche Bank -- Analyst

Sure. Thank you.

Operator

We'll move now to Ben Swinburne with Morgan Stanley.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Good morning. Maybe just to dig into the Virgin ARPU trends a little bit more, Mike, you gave us some good detail. If you look at from here what are the drivers of ARPU improving? Did the discount headwinds you talked about will go away? I know you mentioned pay-per-view. And could you maybe talk about how the mix of subs in the Lightning versus the BAU markets impact ARPU if at all, I don't know if those are a short-term depression on ARPU because they're coming on discounts. Is there any more color there because that's obviously a huge lever for you guys? And then just on sort of use of proceeds and capital structure rates have come in a lot. I'm just curious if you guys see kind of post close in some of these major asset sales and opportunity to maybe reprice to some of your debt facilities downward? I don't know Charlie has any thoughts on that once you look out beyond particularly the Vodafone sale? Thank you guys.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Yes. Thanks, Ben. I'll let Lutz walk up and answer on the ARPU question. On the use of proceeds, I mean, there won't be a satisfactory answer to this question that will make everybody happy. We're still three months away from the Vodafone deal closing and of course we're like six months probably for Switzerland. So, no large or even small transactions in the pipeline. I wish I could be more specific about capital structure. We are looking at as you would imagine all of the various buttons on the foot machine to be sure that we are optimizing capital structure whether that's on the balance sheet or through buybacks and probably not prudent for us to be any more specific about that as we sit here today. Lutz, do you want to address the ARPU question?

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yes, I mean, on ARPU, right, we distinguish between subscription ARPU and non-subscription ARPU and the underlying subscription ARPU is still growing 0.9% right? I mean it used to grow 1.6% the previous quarter. So, it was -- it's a bit lighter. This is because of two things. We had less installation revenue because we had a huge box swap with V6 boxes a year ago and the other things is we had some higher promotional activities. Q1 according to our knowledge, Q1 2019 in terms of growth adds compared to a year ago is 11% down, so 11% less profit. So therefore there was a little bit higher promotional activity.

However, this is the biggest part by far the biggest part of the ARPU and it's growing and it will continue to grow. While the non-subscription ARPU where you see the huge shrinkage around 15% down to GBP2.50 now and this was driven by two things less pay-per views. This is more a saving thing because there was simply in our big boxing event. And the other thing is declining voice usage.

I think the good news on the non-subscription revenue is that it came down during the last six years from GBP8 to GBP2.50, but we have been able to increase the subscription revenue at the same time frame of around GBP11. So, therefore there is not so much to go down anymore, right. So therefore only from that comparison, you see the ARPU growing in the future.

But also and this is what Mike mentioned when I joined U.K. eight months ago. We created a growth strategy for the consumer and now we have launched the first items. And the biggest one is for me fixed-mobile convergence, right. And you see that from other markets. So customers will have really cross-platform us. They have our higher ARPU and lower churn. I mean the V.VIP for EUR99 you get the best of the best from us and the attachment rate of mobile only after the first week of launching is incredibly high.

So, very encouraging here. Personal Picks, I mean, that is simply we want -- we are focusing more on higher value TV subscribers and therefore, right, we have snag of the content now and that will also lead to higher ARPU. We have -- we are going to launch targeted advertising together with Sky in a couple of weeks from now and this also will help us to generate revenue.

And we have launched Intelligent WiFi end of March, which leads to better in-home coverage on WiFi higher customer satisfaction. So, a lot of innovation has kicked in now the last month and that will help us to increase ARPU and also which gives us pricing power for the future.

Benjamin Swinburne -- Morgan Stanley -- Analyst

Thanks for all the color.

Lutz Schuler -- Chief Executive Officer, Virgin Media

How about you, Mike?

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Thanks, Ben. That's it.

Operator

Next we have Goldman Sachs, Michael Bishop.

Michael Bishop -- Goldman Sachs -- Analyst

Thank you and good morning. Just following up on the U.K. I just like to change the direction a little bit to the regulation in the recent update from Ofcom because it feels like clearly there is a lot of pressure in the market in terms of discounting from the volume discounts that have been passed through by open reach to the resellers. But if you read the latest Ofcom documents it talks quite explicitly about reinjecting margin into the infrastructure there potential with some more detail later in this year. So, it will be really interested in your thoughts on that please. And then just maybe as a very quick follow-up you mentioned that you have seen encouraging results albeit from a soft launch on FMC. Could you give us a little bit more color about sort of the strategy on FMC and how big you think the initial market would be for people really looking to move to those converged products? Thanks.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Sure. Lutz you can address the FMC question more specifically. I think on the Ofcom point you're right. One of the market pressures that Virgin Media experienced in Q1 although difficult to say how large an impact it was in the overall scheme of things was probably related to the discounting that might be resulting from volume discounts from BT open reach.

Again those are generally on lower-end customers, a market that were typically not attacking or even marketing to. But I think in the end that has had a minor impact in the first quarter and we'll see if that continues in the second and third quarter. I think the one main point here, Michael, is that the market is heading toward superfast broadband.

And volume discounts on 36-meg or low-end speeds are temporary moments because it's our opinion and it certainly there's plenty of capital and activity in this space that U.K. will be a superfast market. We're already 500-meg across our footprint going to a gig and that's the space where we play.

So, while that might create some flux in the market quarter-to-quarter, I think, over the long-term we don't believe it's going to have a large impact and that everybody is leaning into faster networks and hoping as you point out for a greater margin which means more price stability over the long haul. Lutz, do you want to talk about FMC in more detail?

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yes, I think, first of all when you talk about FMC proper FMC hasn't been launched in U.K. so far. So, you see only mobile bolt-ons. I mean we are leading with them, right, 20% of our customers, our cable customers use mobile on top, but it is more on bolt-on.

So, if you look at other market such as Netherlands, Belgium, Germany you don't have really proper FMC product. So, we have now launched a proper FMC product, right. You have higher speeds. You have unlimited data. You have higher service level as a customer and you get a mobile phone at a best price. So, really a bundle one problem issue.

And I mean we have launched that as a soft launch because we want to make sure that all processes are working right, I mean, within six months from the idea to launch we have been very fast. And now the importance is the more the attach rate to it. And I don't want to disclose so much here because we don't want to wake competition up, but I think it's very encouraging. And at the end, right, when you talk numbers, I think, in other markets you see a mobile penetration and a cable base of 40% or even more. And why shouldn't that be also the case in the U.K.

Michael Bishop -- Goldman Sachs -- Analyst

Thank you so much.

Operator

We'll move now to Vijay Jayant with Evercore.

Vijay Jayant -- Evercore -- Analyst

Good morning, Mike. Can you sort of talk about your broad views on vertical integration, obviously, the company is all in on converged network, but is there an opportunity there on sort of convergence with content? Just very philosophically. Second, you guys called out in your press release about mobile handset sales moderating. Can you just give us some perspective on what's the underlying profitability impact of a decline in those sales? Is this a competitive impact or is this more customers bringing their own devices in the market? Thank you.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Sure. On the handset question maybe Lutz can provide some color, but it's not a profitability issue. There's very little margin on the handset sale itself. So, it's really creating more volatility in revenue than it does in OCF for us. On the vertical integration question, I think, we've done it the right way to-date, Vijay.

If you take Holland for example or even Belgium and more recently Switzerland. We're focused on content that's really moving the needle for consumers. So, that's sports, local sports generally whether Ziggo Sport or MySports in Switzerland or Telenet sports package. These are things that we know consumers will pay for and we can isolate and acquire those rights at relatively inexpensive prices without changing materially the dynamics or economics of the business model.

And that strategy where you can sort of find critical content not necessarily all the content and provide a bit more exclusivity and power to your package usually works for us, and you're not necessarily gambling. In the case of Ireland, we've taken a slightly different approach where we acquired two very small broadcast networks and that has worked very well for us. We rebranded the Virgin. We've been able to cross-promote and cross-sell and we've done it really cost effectively and economically.

So, I think, we believe in some instances vertical integration in European markets make sense. We're not, I think, there's a limit to where that makes sense. And at this point at Virgin we don't see any immediate need or reason to go beyond what we've done. Remember Virgin has all the content. It has all the Sky content, it has all the movie content, it has all the sports content.

We've launched Netflix. Now we'll have Amazon on the box, voice control, I mean, it doesn't really, there's very little you can't get if anything on Virgin. And so you have to ask yourself what were the real advantage for the vertical integration be in that market at this point we don't see it. Lutz, do you want to address the handset question any further?

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yes. On the mobile question, I think, 15 months ago, the team has launched mobile offering, mobile handset offering called freestyle. So, it's installment for 36 months and that has helped to sell a lot into the mobile customer base, and now each proportion of the mobile customer base has performed already. And therefore the future sales are not so strong anymore.

Having said that, if you compare also here the market U.K. market with other markets 85% of the U.K. market is sitting on a subsidized model. So, you pay your mobile contract together with your mobile phone and you get a subsidized phone, but then you pay for the phone even longer than your minimum contract length.

Other markets for instance like Germany you have 50% on a SIM free model and I think this is a huge opportunity for us. So, therefore we will be offering in the future the complete range of mobile devices including tablet. And we will offer that for with installments six months and we use that to simply drive traffic into our store. So, therefore and I think it is great lever not so much a margin lever, more a traffic lever.

Vijay Jayant -- Evercore -- Analyst

Got it. Thank you both.

Operator

We'll move now to Ulrich Rathe with Jefferies.

Ulrich Rathe -- Jefferies -- Analyst

Yes, thanks very much. I just was wondering in particular on the U.K. ARPU, the management discounting. I'm interested if you have a bit more color in terms of where that discounting is going into the existing base in order to sort of manage churn whether what you're seeing here is sorts of the discounting on the front book on your intake. This is my first question please.

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yes, I can take that now.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Go ahead, Lutz.

Lutz Schuler -- Chief Executive Officer, Virgin Media

We have done less discounting in the customer base compared to the previous quarters and we have done more promotions for the new sales compared with previous quarters.

Ulrich Rathe -- Jefferies -- Analyst

Got it. That's very helpful indeed. And if I could follow up with another question. That's for you, Mike, please. Vodafone sort of announced a remedy package to the European Commission. Obviously, you're not directly involved as opposed in this process, but I was wondering whether the package at Vodafone has now designed and then offered would affect the purchase pricing in anyway shape or form. In other words whether anything is in the agreement is contingent upon the remedies and whether that is all sort of happening at the side of the (inaudible) insulator from it? Thank you.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Yes. So, I mean, for those who may not have seen this morning Vodafone announced a long-term cable wholesale agreement with Telefonica in Germany. That covers 100% of the footprint of Unity Media and Vodafone about 24 million homes. The terms are confidential, but they will provide availability of up to 300 megabit speeds to Telefonica.

And they also announced today that they're going to upgrade the entire footprint to one gig by 2022. And then lastly they put in the press release that they believe the deal will be approved in July. Obviously, we're supportive in all sorts of ways of this particular agreement, but remedy is clear and comprehensive and it addresses definitive any concerns that may have existed around broadband competition, and this is a huge win for German consumers.

And I'm not just saying that to have Vodafone squarely focused on upgrading the entire footprint providing access to a third-party who can also take advantage of that seems like a really positive win-win. And we don't believe that has any impact on our transaction other than speeding up closing and providing far more certainty than we had yesterday of that closing.

Ulrich Rathe -- Jefferies -- Analyst

Thanks very much for your time.

Operator

And our next question comes from Jeff Wlodarczak with Pivotal Research.

Jeffrey Wlodarczak -- Pivotal Research -- Analyst

Good morning, guys. I had one for Lutz and one for Mike. I guess for Lutz you've been CEO of Virgin Media since September of '18. You're about to be elevated to COO, I mean, excuse me CEO. What do you see as the biggest opportunity and the biggest challenge for Virgin? And then for Mike a bigger picture question on the U.K. and a follow-up on data. From a data penetrations perspective in the U.K. you're about six years behind your U.K. cable peers. How much of that would you say is related to the fact that DSL historically has been much robust product in the U.K. versus sort of the competitive environment? And now that you've taken your speeds to 500 megabits or eight times your peers you have a cost efficient path to 10-gig. And assuming consumer data continues to go up is it fair to say medium or long-term you expect to close the gap with data household penetration with your U.S. peers? Thanks

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Sure. Well, Lutz, do you want to start?

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yes. Thanks for the question, Jeff. Yes, I think, the big opportunities we are having here is first of the brands. I think Virgin Media is such a strong brand and I mean I was part of the team who came up with a brand or two . I have to say I did a lot of work on the brand Unity Media, but we never had such an opportunity in Germany what we don't have with Virgin Media as a brand.

I think we can do huge growth with that brand. And then to use that brand we came up with four levers and I think Mike has mentioned them. One is fixed-mobile convergence. One is digitalization. Huge opportunity both for growth and cost savings. One is sales simply to have a very efficient go-to market model sell more to lightning customers and then the most important one is base management, I mean, we have close to 50% market share.

So, it's all about share of wallet and to manage the customer base in a way that we have more satisfied customers you can upsell more and you do everything online and you have lower churn is a big value for us. So therefore, I think, clearly in the consumer machine because the consumer machine is the biggest machine of Virgin Media that's huge for us.

In terms of challenge, well, I think it's a big company right? And it was also founded out of couple of smaller independent cable companies right? And if you want to shift gears and grow more then you need to manage the complexity. So, therefore I would say the challenge is a bit to get the balance right between growth, but also the remaining complexity of maybe proper integration of system side everything. Some has started, but we just not finished yet.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Yes. On the data question, Jeff, the key point is on footprint we're generally 40% to 50% market share. So, the balance is split between three or four different resellers. You don't have that in the market U.S. marketplace. It's really a two-horse race. And so Sky is an effective marketing machine. BT of course has a nationwide reach of DSL. It's an effective marketing machine with sports and all sorts of things that they're selling.

So, the fact that we're on footprint outperform them two to one when it comes to penetration of broadband says it all. And that has a lot of to do with the fact that our products are five, eight times faster than theirs and we'll likely are likely to be faster than theirs for a very long time because it will take the fiber in the market today is 3% or 4% of the homes. And we're going to one gig as quickly as we can as you say ultimately the 10-gig.

So, I don't want to say the race is over, but Virgin is running a different race than the rest of the U.K. broadband providers, but it is a bundled market. And we know that people aren't going to generally buy broadband if they don't have a video product and solution as well and we make lots of margin on our video products still despite what's happening let's say in the U.S. video for us is still a profitable product and with a high rate of return and that has to be a part of our bundle.

And so it's competitive in broadband and I think ultimately you'll see speeds continue to accelerate in this marketplace as they have in the U.S. maybe faster than they have in the U.S. And our goal is to be leading the way and not just with fast broadband, but as Lutz said with fixed-mobile convergence bundles with video products that are best-in-class with the new box, the V6 box plus the new Horizon UI coming very shortly here.

And remember that's got, it basically attach one in this market and there won't be anybody who can touch Virgin. But once all those pieces of the puzzle come together, the fastest broadband networks, a fixed-mobile product by far the most sophisticated video platform with pretty much all of the content that can be available integrating OTT apps.

And so the magic here is as Lutz identified is to make sure the machine is running properly and there is complexity in a big company like Virgin, and I feel he's got the right talent, and certainly the right focus to get that sorted out and keep the marketing engine humming as fast as possible and be keep innovating.

There's no substitute for being first or being best in all of these particular products and services. And we're excited about Virgin. It's, as I said, many times as we sit here and look at it today strategically complete. We have a great MVNO deal. We've got long-term relationships with our core content providers like Sky will also get renegotiated.

We have the fastest network and we're building 400,000 to 500,000 new homes every year. We have creative opportunities to accelerate that off-balance sheet if we choose. I think it's Virgin's in a really good spot.

Jeffrey Wlodarczak -- Pivotal Research -- Analyst

Thank you.

Operator

Our next question comes from Nick Lyall with SocGen.

Nick Lyall -- Societe Generale -- Analyst

Hello there? Hope you can hear me? This is Nick at SocGen. Hope you're aware. A couple of questions please. You mentioned on the VodafoneZiggo release the final tariffs for cable access, wholesale cable access, sorry, have been in the market since the end of March. Could you give us an update at all on any talks or responses you may have had from other operators from the Dutch regulator please? And then secondly you also mentioned the VodafoneZiggo remedies today with the cable wholesale again. Just in general do you see increased pressure for cable wholesale organically from regulators? And do you think this is going to be a future part of any remedies that anybody would need to offer in a fixed-mobile deal in Europe now do you think? Thank you.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Yes, good question. I'll let Manuel or Charlie or maybe Manuel hook up and answer on certainly what we can say about the Dutch, hang on a minute, about what we can say in the Dutch market specifically about that cable wholesale offer. I'll just speak more generally that I think cable wholesale is, obviously, if you look today versus five years ago a much more prominent part of our business and the market environment more generally, but I think it's very situational.

I think it has three or four factors that gets built into the decision. It's very much a political decision to begin with. So, that we will be -- it will be determined by what, hey, could you put us on mute until you are ready Manuel, it will be determined to what the local politics are in that particular marketplace and how cable is perceived. It will be a competitive decision just how dynamic is the market for broadband and other products. And it may be a transactional element.

As you point out in the case of Belgium or Holland if you remember the VodafoneZiggo deal cable access was not required in that transaction. It was only subsequently introduced on a political basis, which we continue to argue with and fighting the courts and certainly commission itself doesn't necessarily see that as necessary, but has been not willing to stop it for other reasons. And then the German transaction this was a voluntary commercial arrangement between two operators.

It is a cable wholesale access deal, but it's not available to all parties. It's a transaction between two very specific parties. And in that instance, I would say, it's very different than Belgium, which is regulated wholesale access. So, I think, it's going to be market by market situation by situation determined by politics and the transaction itself.

And in some instances for example in Germany it was a voluntary decision by two commercial parties that they believe will benefit each other and we don't see a big problem with that as a general matter. In terms of the Dutch market specifically, Manuel, why don't you offer what we can say about that?

Manuel Kohnstamm -- Senior Vice President and Chief Corporate Affairs Officer

Yes, not very much, but the Dutch regulator has created conditions for negotiations between VodafoneZiggo and interested parties. What we can say is there has been expressions a number of expressions of interest, but no actual discussions that are going on as we speak.

It's worth to mention that it's different from the regulated system in Belgium where in Holland the regulator asks the parties first and negotiate and only later intervened. The other thing to mention is that the Dutch case, the Dutch regulatory situation is still pending litigation in before the Dutch courts where we expect the decision in the second half of this year.

Nick Lyall -- Societe Generale -- Analyst

That's great. Thank you.

Operator

Christian Fangmann with HSBC has our next question.

Christian Fangmann -- HSBC -- Analyst

Yes. Hi, guys. It's Christian. I have a couple of questions back on the U.K. We already talked about the ARPU in great detail, but just looking at Q2 and the following quarters. Is Q1 really the exception, I mean, we discussed the reasoning, but do you see already a better traction for Q2, I mean, for example the VOD sales and stuff like that really impacting Q1? And then also regarding the TV losses, I think, Q1 was definitely lighter than what we've seen over the quarters in 2018. Is there a new strategy when it comes to TV? So, not really pushing the entity TV product anymore, I mean, a bit of color on that one will also be interesting to hear? Thanks.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Sure. I think you got it right on the TV side. It was definitely a purpose on higher end, higher return more profitable TV packages. But do you want to address the March and April results more generally, Lutz?

Lutz Schuler -- Chief Executive Officer, Virgin Media

Yes, I mean, Christian as you know former colleague, we are not allowed to make any forward-looking statements. But right, I mean, we share a bit the levers for ARPU growth which you guys right? And so for the underlying subscription revenue is still growing right, I think, that's important.

And then right we have three levers to play now before we talk about any price increase right? One is FMC, one is Personal Picks and one is Intelligent WiFi right? And of course we don't do that because we want to avoid further shrinkage. We want to increase it and I think on the video side, Christian, yes.

I mean we are focusing a bit more on operating free cash flow and we are looking therefore to have the right balance between volume and value in video customers. And so therefore we were after more VIP customers in Q1 more full house customers.

And also therefore we have now launched Personal Picks because here you can bundle GBP8 to GBP10 significant content for a dedicated target group with the V6 boxes and triple-play. So, therefore, it is a balanced walk toward more value in the video strategy.

Christian Fangmann -- HSBC -- Analyst

Thanks.

Operator

We'll move now to James Ratzer with New Street Research.

James Ratzer -- New Street Research -- Analyst

Yes, good morning. Thank you very much. I had two questions please. First one is regarding the topic of going back to cash return please. It's probably one of the biggest decisions you'll have to make over the next few months. I mean when you look across the investment landscape, I mean, you've been selling your cable businesses at 10 to 12 times OCF, I mean, Telenet itself traded near eight times. Do you see anything more attractive to do with the capital than to buy back your own stock versus the ramp valuation is nearer four to five times OCF? And then as a second follow-up is, I mean, is it still your intention post deal to be keeping leverage at the upper end of your current four to five times range? Thank you.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

I think on the leverage question I'll let Charlie chime in. We're comfortable where we are today. You can always trim, but you'd have to measure or evaluate that decision to use capital against what you just described which was a return either on your own stock or on other opportunities.

Listen at this point we don't have any transactions in the pipeline large or small that would be an immediate use of proceeds upon closing the transaction this summer. So, we're waiting and holding our cards to determine what the right way to address all of those issues you've defined there, capital structure and opportunities, and we'll do it in a patient appropriate way as we had in the past.

So, that's all I can say. I mean clearly as we pointed out on our last call and as you can see today the stock is highly undervalued given it's assuming the closing of the deals which are only more certain than they were 24 hours ago, and the performance of our underlying business over the long haul which we still believe is materially better than people are giving it credit for. So, we see what you're describing. I'll just leave it at that.

James Ratzer -- New Street Research -- Analyst

Could I just -- thank you, Mike, I mean, quick follow-up and one of the other potential use of capital that's been talked about is maybe a combination of Telenet with VodafoneZiggo. I mean could you talk us through what operational synergies you might see in such a cross-border tie-up if that's possible? Thank you.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Yes, I prefer not to address that. The VodafoneZiggo partnership is a strong one. We're very happy with that relationship with Vodafone and home. There will be a natural point in the coming months or years for both parties to determine what the right outcome is for the partnership and the joint venture, it's premature to determine that today, and I don't want to create any speculation around it.

And providing synergies or things of that nature would only fuel that speculation. Telenet on the other hand is a business, we are happy to be a 60% shareholder in, as you say, undervalued in the marketplace and we're pleased with your own performance. And there are organic opportunities to grow Telenet as well as end market opportunities to grow Telenet. So, I think, both businesses today are doing just fine on their own and it's premature to discuss anything different.

James Ratzer -- New Street Research -- Analyst

Okay. Thank you.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

You got it. Okay, we have time for one more, operator.

Operator

Yes, and we'll take that final question from Matthew Harrigan with Buckingham Research Group.

Matthew Harrigan -- Buckingham Research Group -- Analyst

Thank you. I think everyone agrees you've got more speed -- any of your peers on broadband, but at the same time if you look at the global take rates for full gig, I mean, they are pretty much in the low single-digit percentages and a lot of the new geographies. In some of the apps I'm not sure everybody is going to want a light field (inaudible) rex in their living room at some point. Does that give you some pass that you could have ultimately have like 200 or 300-meg sort of keep into your four competitors like in 5G much further out not the fixed wireless access right now? And I know Europe is behind, but is that something you think ultimately affects your pricing power because you have a much better product? And then the second question is, I know, Vodafone has continued enthusiasm obviously for the German transaction. But what happened, I know, it's a discontinued operation, but what happened if the German numbers in Q1 because the revenue in the OCF looked extremely late? Thank you.

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Yes, I think, on Germany Matt the budget we're a feeling good about performance they are more generally we don't have any concerns around the business quarter-by-quarter variances. But I think all things considered they're hitting the targets that we set for them and the buyer expects us to be hitting. So, no material variability that we're pointing out. On the 5G point listen 5G will roll out. It won't be fixed wireless in Europe.

It will probably begin a fixed wireless in the U.S. with questionable capability and execution we understand and believe. But as a mobile product we're all going to be have a 5G phone at some point down the road. But remember this, the average customer, our average customers downloading 150 gigabytes to 250 gigabytes a month that's 20 times more than they are doing on their mobile phone, yet, ARPUs are not that far off right?

So, the value of fixed line broadband access is phenomenal in comparison to what you're paying for a mobile fixed line mobile product. And as that 200 gigs goes to 700 gigabytes, 800 gigabytes, 900 gigabytes mobile will also grow, but will never reach the kind of levels that we believe people will require in the home for video for other products and services. So both data streams will grow.

Consumption will grow in both ecosystems and network configurations, but the fixed product is so cost-efficient for consumers and for the delivery of data. It's got nowhere to go but up. But I think it's going to be just as we cohabitate very well with 4G today and LTE one-gig and 10-gig will cohabitate extremely well with 5G. And when people are in the homes or in their businesses they're going to rely on one-gig or 10-gig or whatever they think they need because it's most cost efficient and certainly most productive and useful.

And when they are out of their homes they will rely on their mobile phones. So, I think, the ecosystem will evolve much more harmoniously and look a lot like it does today with just everybody consuming a lot more. And that's a good place to be for us and for mobile operators in the long run. So, we see nothing, but positive to be honest with you. But thanks for the question, Matt.

Anyway that we're excited, yes, you got it. Thanks for joining us, I mean, the punchline here is that the Vodafone deal absolutely on track for summer close. That should be a positive. The Swiss market is doing exactly what we wanted it to do and providing some nice, we think performance for the Sunrise transaction.

And Virgin Media and our remaining operation we think are stable and have great prospects going forward. So look forward to talking to you about Q2 and thanks for joining us this morning. Speak to you soon. Take care.

Operator

Ladies and gentlemen, this concludes Liberty Global's first quarter 2019 results investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website. There you can also find a copy of today's presentation materials.

Duration: 62 minutes

Call participants:

Michael T. Fries -- Chief Executive Officer and Vice Chairman

Charles H. R. Bracken -- Executive Vice President and Chief Financial Officer

Robert Grindle -- Deutsche Bank -- Analyst

Benjamin Swinburne -- Morgan Stanley -- Analyst

Lutz Schuler -- Chief Executive Officer, Virgin Media

Michael Bishop -- Goldman Sachs -- Analyst

Vijay Jayant -- Evercore -- Analyst

Ulrich Rathe -- Jefferies -- Analyst

Jeffrey Wlodarczak -- Pivotal Research -- Analyst

Nick Lyall -- Societe Generale -- Analyst

Manuel Kohnstamm -- Senior Vice President and Chief Corporate Affairs Officer

Christian Fangmann -- HSBC -- Analyst

James Ratzer -- New Street Research -- Analyst

Matthew Harrigan -- Buckingham Research Group -- Analyst

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