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Liberty Global PLCÂ (LBTYK -3.01%)Â (LBTYA -2.69%)Â (LBTYB -0.91%)
Q3Â 2019 Earnings Call
Nov 7, 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 Third 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.
[Operator Instructions]. 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 conditions on which any such statement is based.
I would now like to turn the call over to Mr. Mike Fries .
Mike Fries -- Chief Executive Officer
Great. Thanks operator and welcome everybody. I appreciate you joining the call today. We've got plenty of ground to cover, as usual. So we're going to have to try to keep our prepared remarks a bit shorter today, so we can spend more time on Q&A. And as you've got a number of exacts on the call with me who will be sure to get engaged as needed in that conversation, so I'll kick it off with some Q3 highlights. By now, you've come through our financial and operating results. No doubt and Charlie is going to dig into those in a moment.
From my point of view, there were three key takeaways here. First, we're tracking the guidance in particular free cash flow and as we've discussed all year, that's a function in part of resetting our capital intensity levels with P&E additions down considerably we've reported 40% rebased OFCF growth, if you include Switzerland 80% if you don't, year-to-date. Again that's a major step up from prior years and it's happening across all of our key opcos. And third , we are absolutely descaling central cost both at corporate and in our centralized T&I operations, several of you have asked for clarity on this point and Charlie has an entire slide on it, coming up. The punch line though is that, the cost we incurred to fulfill the service agreements we signed with Vodafone, Deutsche Telekom and our Dutch JV were more or less equal the revenue we're generating from those agreements as they rise and fall. So there will be no significant mismatch in those costs, which means the additional cost to support our remaining operations, which is largely allocated to our opcos will not be impacted by these TSA agreements and should in fact be flat to down as we move forward more on that in a moment.
And as our largest operation Virgin Media naturally follows much of the same narrative. Despite continued investment in network expansion to project Lightning we've seen declining capex year-over-year and significant operating free cash flow growth year-to-date. Operationally Virgin subscriber growth and financial results continue to be impacted by competition and the macro picture, I think we foreshadowed that all year long, and I've got a slide on Virgin coming up.
So let me turn to Switzerland briefly, I'm sure you all followed recent developments on our transaction to sell our business there. Obviously. We were disappointed and Sunrise was unable to secure a favorable for the rights offering that would have financed the deal, we knew there was resistance from their largest shareholder, but we were not expecting ISS to publish such a misinformed and florid report, it's unbelievable really, and that's just pushed it over the edge. So you may have noticed that both the regulatory approval and the stock purchase agreement are still valid until the end of February, you can infer from that whatever you want.
Switzerland is rapidly becoming a converged market. There is no question that our gigabit networks and advanced TV platform are the most important link in that chain. As you know, we've already witnessed over 100 billion in fixed mobile mergers in Europe. Nearly all of which involve cable assets and there are more to come, pretty sure that. Two textbook examples of that convergence are our operations in Belgium and Holland, both of which are delivering on the promise of synergies, reduced churn, greater customer satisfaction and strong free cash flow. So the model works. And the backbone of that model, the backbone of these combinations in Europe is fixed broadband, just like in the US, it is the killer product that drives our bundles everywhere. That remains very competitive in Europe, you know that. We are adding data RGUs and expanding our lead on speed with gigabit broadband launched in all of our markets. In Switzerland, for example, we're marketing 1 gig networks now to about 75% of that country and in UK and we're launching giga cities as we speak and will reach over half the country with gigabit broadband in 24 months and that's the same for Holland and Belgium essentially.
And then finally, in an environment like this, we feel awfully privileged to have options when it comes to our financial position. Charlie will spend a minute on the balance sheet but we're sitting on about $10 billion of liquidity today, which includes $7.4 billion of cash. The net proceeds from the Vodafone deal were in the $11 billion plus, we're obviously reduced by the $2.7 million we spent on buying back 14% of the shares in September that was a Dutch auction tender. And then there are some other factors that Charlie will run through. I'm sure we'll get a few questions on this topic. So I simply going to say that our focus with this liquidity remains the same. We're evaluating opportunities in core markets, core sectors and of course our capital structure.
And the next slide provides a bit more background on Virgin Media's results. We know that a major focus for analysts and investors. I'm just going to highlight a few points here in the interest of time. As you know, our financial results in particular, operating cash flow have been mixed year-to-date and they reflect the headwinds we identified at the beginning of the year like broadband network taxes and increased content cost. In addition, we've seen increased competition ,discounting at the lower end of the market and general macro factors and that's resulted in slower RGU growth and stable revenue year-to-date.
Lutz and his team are focused on a host of initiatives in the consumer business from fixed mobile convergence to 1 gig roll out and digitization, all of which are well under way and should underpin performance going forward. But they take time, and I'm happy to get into that during the Q&A and Lutz would be as well.
A few positive takeaway here, operating free cash flow, as I mentioned earlier, was up over 30% through 9 months as capital intensity declined. Secondly, customer ARPU was up modestly in the 3rd quarter, driven in part by the recent price increase, which just started accruing in September. In fact, Q3 rental ARPU was up 1.7% year-over-year, while total ARPU as we tell you each quarter was impacted by declining voice usage and lower pay-per-view revenue, so it was up about 0.5%.
On the mobile front , we had a great quarter in the UK with 107,000 net postpaid adds as Virgin's foray into fixed mobile converged bundles continues to pay off. Now, to fund that, to fuel that, and to composite that we just announced a new MVNO deal with Vodafone that will result in significant savings on MVNO fees , hundreds of millions of pounds in fact over the life of the contract and provides us guaranteed access to 5G services. This is a good contract for us.
And then lastly Lightning is rolling on. We're closing in on 2 million homes built, we had our best customer in RGU net add performance in 4 quarters , revenue and operating cash flow are growing and the negative impact on free cash flow get smaller and smaller, every quarter, just as you would expect it to do. Now, there're plenty of speculation about our possible moves in the UK market when it comes to network expansion. And I'll just repeat what I've said before, first of all with only 5% fiber penetration in the U.K you're going to see a lot of activity by Outnet and even BT on this subject of next gen networks. That's to be expected and in our opinion as much as anything validates the broadband opportunity. But most of it is talk and as you know yourselves these plans are slow and expensive.
And while everyone's busy raising capital or talking to regulators Virgin Media is making it happen, we're bringing 1 gig broadband to half of the country over the next 24 months. By the way that's without digging up streets or disrupting premises and I promise you that matters to politicians and customers. And It makes us the most important news story today in my view. UK is ranked 41st in the world of broadband speeds. If Virgin Media was a country, we'd be ranked 5th right behind Singapore, South Korea, Taiwan and Hong Kong and well ahead of the US. So we really are the secret weapon in this market and it's smart for us to consider how best to exploit that position, but to do it efficiently and economically and I'm sure I have plenty of questions on that. So let me move on to the last slide here , which provide some operating highlights for Belgium, Switzerland and our 50-50 JV in Holland.
I'll start by pointing out right upfront. You'll see a lot of similarities here. All 3 countries experienced fixed RGU losses in the quarter, but very positive in strong mobile postpaid net adds. And while each operation is reporting flat to down revenue growth, they are either delivering or projecting significant operating free cash flow margins and growth. Telenet operating free cash flow was up 45% in the quarter and they are now guiding to EUR380 million to EUR400 million of free cash flow for the full year. They also announced that they intend to dividend a large part of that out to shareholders obviously including us. VodafoneZiggo has returned to positive revenue in OFCF growth and operating cash flow growth and announced that they will dividend at around EUR600 million to us the Vodafone this year and Switzerland is hitting on all cylinders, its turnaround plan is working. Our new advanced TV set-tops and user interface are rolling out right on plan with the upgraded platform expected represent 50% of our boxes by year-end. FMC penetration is nearing 20% with NPS at an all time high and the one-gig network we're building there has helped improve fixed RGU losses for the 3rd straight quarter of this year.
So I'll just wrap it a few thoughts. first. We are extremely well positioned in all of these markets to take advantage of fixed mobile convergence, financially, operationally and strategically. We've shown you how we can do that, stay tuned for more. Second, we're focused on profitable subscriber growth, at least with our current premium brands and that's going to impact volumes and competitive times as it has this year. Third , fourth and fifth, we are committed to free cash flow margins yields and growth, and this year step change is going to be hard to replicate of course. 80% operating free cash flow growth is extraordinary. But that's a long-term metric that matters to us. And then finally just to remind you we have considerable scale in our core markets in Europe, 45 million fixed and mobile subs, 7 billion of operating cash flow if you include the Dutch JV and we have considerable financial flexibility with 10 billion of liquidity to opportunistically create long-term value. With that, I'll turn it over to you, Charlie.
Charlie Bracken -- Executive Vice President And Chief Financial Officer
Thanks, Mike. For those following. I know on the slide, titled Group overview. Revenue in the quarter was broadly stable excluding Switzerland minus 0.2% and with Switzerland at minus 0.6%. Telenet continues to be impacted by the loss of the media land MVNO contract and we also started to recognize TSA revenues from the assets we sold to Vodafone in the quarter, which contributed $26 million of incremental revenue that we don't include that in our re based growth rate. OCF declined 4.1% including Switzerland and 2.9% with assets. This is in line with our expectations for the quarter.
The UK was impacted by the year-on-year increase in network taxes, which will continue to increase, but a lower rate over the coming years. We also saw an increase in programming costs related to prior year renewals such as BT Sport and UK TV and the recent, multi-year is guide agreement. Swiss OCF was impacted by cost phasing and continued investment in key revenue growth initiatives such as the EOS box roll out and the 1 one-gig upgrade of the broadband network.
OFCF continues to grow strongly and was up 63% excluding Switzerland and 35% with it. Remember The Swiss numbers are impacted by the investments in those initiatives such as EOS set top boxes and the 1-gig upgrade, which we would expect to normalize over time, resulting in a lower capex figure. Liquidity remains very strong with cash sitting at $7.4 billion. And when we completed the sale to Vodafone in July, we reported net cash proceeds of $11.3 billion, which together with our Q2 cash balance of $1.3 billion came to $12.6 billion. The 5.2 billion difference is made up of the 1.6 billion UPC term loan repayment, the 2.7 billion Dutch auction tender completed in September.
As one as the combination of items, including a negative free cash flow in Q3, FX movements on the proceeds of around $200 million and an escrow payment of EUR300 million in relation to the TSA with Vodafone. Together with a revolver capacity available, that means around $10 billion of liquidity. The average remains around 5 times gross and 3.5 times net. We were able to take advantage of very strong financing markets completing over $6 billion of financing, which means that virtually all our senior secured debt is now repriced and extended. Our weighted average cost of debt is now 4.1% on an average life after what refinancing activity had happened after September 30 is up from 6.8 years to 7.3 years. And again, all the debt is fixed and swept back to the underlying currencies.
The next slide, we get further detail on our central costs. In total we spent around $200 million of opex and capex in Q3. And as we've discussed on previous calls, we would divide this into two buckets and then on top of the page, we set out our corporate costs, which includes cost such as centralized finance, development, HR, strategy and the like, which was $44 million for the quarter. We remain on track to reduce this to around $230 million for the year, down from $260 million last year. We continue to target around $200 million in 2020.
Next is essentially technology and innovation costs, which represent network and product development spend all this spend is attributable to our retained operations in our affiliates whether they've been sold or ventured. As suggested on the last quarterly call. We estimate total T&I opex and capex of $700 million for 2019. That number is now expected to be closer to $650 million in 2019 and well on track to $600 million in 2020. And just to put that in context, Total opex and capex for T&I was $800 million in 2018. So we made some substantial progress descaling our central cost structure with more improvement coming.
As you know, we do not collect revenue from Vodafone, T-Mobile in Austria and Liberty Latin America to offset some of our T&I spend. And the slide breaks, those numbers out quarterly, but to simplify it, we're currently collecting around $80 million per quarter against the total spend of roughly $150 million to $160 million , the balance is our net T&I costs and is fully attributable to our retained assets including Switzerland. Over time, we anticipate that revenue from these agreements will largely match our cost to service these contracts. So the Net spend attributable to our retained assets should be at least flat if not down.
On the next slide, we try to break out the OFCF margins of the profitability of each key component of our Group to allow you to compare it to our peers and also to give you more clarity on the Virgin OFCF and particularly the free cash flow distinction between Lightning and non-Lightning operations.
This slide entitled divisional overview and we show the key financials for operations before K&I attributions which we've labeled as OFCF pre-central cost allocation and after the T&I attributions which will be able to on the slide as pro forma OFCF for the year to date. We have also expect our Lightning from the core Virgin operations. Now Virgin as a whole has reported $811 million of OFCF in the first 3 quarters of the year, we estimate the core Virgin operations generated over $1 billion with a net $241 million invested in Lightning year-to-date.
Belgium delivered $649 million of OFCF at a 30% margin. Despite its investment program this year, Switzerland has generated $228 million of OFCF, a 24% margin. And the Group as a whole, made $1.6 billion of OFCF including Lighting or $1.9 billion, excluding [Technical Issues]. The Dutch JV is also generating strong OFCF with $800 million generated year-to-date, it's OFCF margin of 24% should increase going forward as it completes the acquisition integration investments, with currently at 30% OFCF margin showing what is achievable to converged assets.
On the next slide, total pro forma adjusted free cash flow. We show how the OFCF converts into free cash flow. On our guidance basis, free cash flow for the quarter was in line with our expectations at minus $16 million. And remember, Q3 and Q1 are where we make our semiannual interest payments and we expect more meaningful interest costs in Q4. We remain on track to spend around $2.7 billion of capex for the full year excluding Switzerland. Our cash tax in Q4 will include a payment of around $70 million relating to US cash taxes paid. But despite this, we remain on track to meet our original free cash flow guidance excluding Switzerland for around $550 million to $600 million. Switzerland has generated around $19 million of free cash flow year-to-date and we expect a full year number of around $150 million meaning even after Lightning we should generate around $700 million to $750 million of free cash flow for the year.
So moving to the final conclusion slide. Our key focus remains OFCF and free cash flow delivery and we're pleased with year-to-date progress on both metrics. We're seeing strong cash flow generation despite our net OFCF investment around $350 million in Lightning this year which have exceeded means our retained assets including Switzerland should generate $1 billion to $1.1 billion of free cash flow this year. We're also focused on long-term value creation and have a significant cash position to support opportunities including share repurchases . We are reinforcing our speed leadership across our footprint with one-gig deployments, the Swiss turnaround is on track and gathering momentum and we are providing guidance both with and without Switzerland at the bottom of the page but we confirm that we are on track to meet our key targets, particularly free cash flows . And with that, over to you operator for questions.
Questions and Answers:
Operator
The question-and-answer session will be conducted electronically. [Operator Instructions] We'll go first to Michael Bishop with Goldman Sachs.
Michael Bishop -- Goldman Sachs -- Analyst
Thank you. Just two questions from me please. Firstly on the UK RGU growth and the wider performance, and Mike, I think you said it was the best quarter in four quarters for Lightning, net adds, so you sort of backing that out given the relatively weak overall RGU trends, particularly TV. I was just wondering if you could give us some comments on what was happening in the existing footprint outside of Lightning? And then secondly, on the free cash flow and guidance, it looks like if you broadly take the 700 and 750 remove Switzerland and then sort of remove the higher dividend from Vodafone Ziggo and the Telenet free cash flow, you're basically zero free cash flow. So as we look ahead to 2020, I was just wondering if you could walk through the moving parts to give us a bit more color on how effectively the ramp, including Virgin Media could improve cash flow generation and why you think the group might be able head to in 2020. Thanks.
Mike Fries -- Chief Executive Officer
Sure. Thanks Michael. Charlie, you I'm sure prepared to answer to the free cash flow question, make sure you understand that correctly. And I was asked to chime in, of course, on the UK, but in principle as you correctly say and as I pointed out the RGU growth is Lightning is pretty steady. If you could look at total net adds, broadband and telephony or video, we've been pretty consistent the last four, five quarters. And this was a better quarter than we've had in the last few marginally better, but I think it demonstrates that the product matters the Lightning Project is delivering the sort of penetration rates, ARPUs and returns that we expect and we do understand that people like the detail of Lightning. We were just trying to make the slides a little shorter today, but we weren't avoiding any disclosure on that. Lightning continues to be a terrific program for us from almost every perspective. In terms of the, in the BAU or GAU, how you define it and I think Lutz will dig into this and I made the comments in my remarks, it's a competitive market, that's for sure. Particularly, we are focused on more of the premium product and the higher end products, especially in video. So we're trying to retain customers that we view as profitable customers in our end the kind of Virgin customers that means a lot to us which means you're going to lose some customers at the lower end and that clearly happened in the BAU market in particular in video.
It was not a great quarter for us in video that much we are disclosing the details that you could probably do the math and in broadband as well. We did lose broadband customers on that footprint, we have lost customers on this footprint in the past. I would say that this is an extraordinary occurrence. The GAU or BAU markets has always been a bit lumpy, depending on what's happening in the competitive environments. And I think in our reaction to what we see as a softer environment in total for broadband and video is based on consumer confidence and impacts of Brexit combined with competition at the lower end is going to have an impact on our product mix, but I think Lutz can dig into it. I think we're focused on the right things here and focused on profitable subscriber growth, which is in our minds the right thing to be pursuing in this kind of environment.
You want to add to that Lutz and then Charlie on the free cash flow question.
Lutz Schuler -- Chief Executive Officer, Virgin Media
I can give some more numbers to it, Mike, if you want, and Michael. So the swing and RGUs as you can clearly see that it's 150,000 RGUs right. So we had a win 100,000 RGUs a year ago and now we have lost 50,000, half of that comes because we have put the price rise problem by a month. And so it's phasing -- half of it is phasing, 25,000 of that is we had a year ago, the launch of our voice over IP service was a one-off in telephony which doesn't come again.
And then 25,000 is, we are continuing our high value video strategy. So we are not winning low end player customers anymore, which we have used to charge the same price, then dual customers out there. That was not a very good use of our capital and you see that in our high capex . So that is 25,000 a deliberate decision which will come again and only 25,000 is due to the market. Yes, so therefore make up your own mind, but I would say two-thirds are really just because of the phasing, one third is half of that is a conscious strategic decision of use of our capex in our video and 25,000 is just the market.
Charlie Bracken -- Executive Vice President And Chief Financial Officer
And just on the free cash flow and I appreciate your numbers, if I just break it out into the key groups. I think your point is essentially, if you take out Switzerland and use the $600 million number and then you subtract Telenet you probably end up with only around $200 million and then you're saying that the $200 million, effectively equates to the dividend. I think what I would point out is when we do our shareholder distributions from Holland which is about EUR600 million, remember that $200 million that $100 million our shares, so EUR300 million is our share, EUR100 million of that comes in the form of a loan repayment that isn't hit into free cash flow. Next year, we will be making loan repayments. So that kind of repayment, will be cash available to fund the dividend. So that's one point, I think the second point is the point we've tried to emphasize in a number of occasions, the UK on the net basis is not generating a lot of free cash flow, but they are two very distinct businesses. You have the Lightning business which depending how you look at the allocation of debt is a negative $450 million free cash flow business, whereas you have a core business that is generating something like $600 million $800 million of free cash flow and that is why there is a distinction.
So if we stand back and think about our assets, got a highly generative assets in Belgium, very generative asset with an upside in the Netherlands. Switzerland actually is a depressed level at 24% traditionally has been a lot higher, but behind the investment cycle and then you got this Virgin business the splits between a very generative business as usual but a highly investing Lighting business. And then the delta is Eastern Europe and corporate, Eastern Europe is slightly positive on an aggregate basis. And the corporate net number is this $200 million that we've been talking about which we tried to explain in the slides. I hope that's helpful. If you have any other questions. Maybe we can follow up offline with Matt and the guys.
Operator
Thank you. We'll move next to Jeff Wlodarczak with Pivotal Research Group.
Jeff Wlodarczak -- Pivotal Research Group -- Analyst
Good morning. It sounds like the price hike accounted for most of the UK RGU result. Thanks for those details. Do you feel comfortable, will you be able to return to maybe modest RGU growth in the fourth quarter or is that too high of a hurdle. And then how interesting is, it is a lot of competition at the low end how interesting is it to potentially launch of flanker brand targeted at lower spending users to boost RGU growth?
Mike Fries -- Chief Executive Officer
Lutz, you want to address this?
Lutz Schuler -- Chief Executive Officer, Virgin Media
Yes. So, right. I said that 25% is due to our conscious decision on video strategy, you can expect that somehow to continue and then, I wouldn't say that the market will repair itself from one quarter to the other right, so competitiveness is still high. I mean we are not making a guidance for next quarter. But I think when you look at the numbers through the commentary you will come to the right conclusion. Your question on second brand. Well let's put it that way. Right. So the more we invest in our network, the more also we want obviously to leverage that network. Yes with Virgin Media is a high value brand. So I think everybody else in the market has also low value brands Plusnet now broadband, so you can be assured that we are working on it. Yes. But we want to have this (ph) surprise also.
Charlie Bracken -- Executive Vice President And Chief Financial Officer
One thing Jeff, you will see in the fourth quarter. the ARPU itself should be better so ARPU and revenue should be better, because we'll have a full quarter of that price increase.
Operator
Thank you. And we'll move next to Vijay Jayant with Evercore.
James Ratcliffe -- Evercore -- Analyst
James Ratcliffe for Vijay. Can you hear me?
Mike Fries -- Chief Executive Officer
Yes, we got you James.
James Ratcliffe -- Evercore -- Analyst
Okay. Good morning. James on for Vijay. I just wanted to a couple of questions, one on the operation side and one on the -- on the strategy side, can you talk about what your thinking is around the Dutch JV. I know some of the put call options are starting to come up, and whether it makes sense that to be stand-alone or potentially become a closer or more distant part of Liberty Global. And secondly, just wanted to understand on the corporate costs and make sure I'm getting this right. Then, it looks like you're saying that once the existing TSAs fully roll off, you're looking at the net cost of around $500 million a year for corporate plus T&I, as allocate to the currently ongoing businesses. Thanks.
Mike Fries -- Chief Executive Officer
Charlie you work up and I will answer to the second one, look at those numbers are right. But with respect to the Dutch JV, James we're happy where we are in the current situation, need both parties do have rights with respect to liftings and then down the road, other sorts of liquidity provisions. But I would say and I'm pretty sure about if I would say the same thing. We're very pleased with the performance and the progress that the joint venture is making.
As I mentioned in my remarks it would return to growth on the top line in the OCF line, it's got great OSCF and free cash flow margins, and a business that's generating dividends to us. So we're pleased with the progress that the venture, we had the whole Board there just a month or so go, and I think Jeroen and the team done a terrific job and they're proving out yet again and get another market the benefits of fixed mobile convergence. Synergies are on track, there are some outstanding strategic matters around spectrum and mobile -- and also access. Fundamentals of the business look terrific. At this point, I would assume, we are going to own our 50% stake, there doesn't appear to be any huge momentum either direction to drive a change in that.
Charlie, you want to address the corporate costs?
Charlie Bracken -- Executive Vice President And Chief Financial Officer
Yeah. Just on page James. I mean you have it right. So just to summarize the T&I costs, we do -- cost on behalf of the companies we've either sold or ventured. And then for the retained operations and as you correctly point out, the retained operations was $69 million of T&I cost, $70 in Q2 and $75 in Q3. We are saying to you that, we think that number should be flat to down over the next 4 or 5 years. And the reason is, because we're able to flex the cost of the other TSAs roll off, because a large amount of that spend is actually not internal labor, its third-party contractors, and it's a sort of a variable cost model.
And then you are also correct that the net spend, which is the classic corporate overhead, which is, HR, finance, strategy. development, etc. etc. That was 55 in Q1, 53 in Q2 and it's 44 in Q3 and we're telling you that's going to be around 200 million in 2020, when it would probably stay flattish thereafter, but certainly we wouldn't expect that to increase and maybe there are opportunities for savings.
Operator
We'll hear next from Nick Lyall.
Nick Lyall -- SocGen -- Analyst
Yes, good morning guys. Is Nick from SocGen. Just 2 please on the UK, please. Mike. It's, you mentioned again the UK plans on fiber maybe for the next 7 to 10 million. So it looks like BT is probably going to have to wait about 12 to 18 months before it launches its onshore plans, if at all. So how quickly could you launch for these -- for the 7 to 10 million. Is it something where you prefer to wait to see what BT does what the regulator says or is it something that you think is maybe a bit more imminent.
And then secondly, that means the UK, it's already quite complicated business with Lightning and non-Lightning, anyway becomes more complicated. So do you think you'd have to think of different structures, different disclosures, so that the market could value properly. Thank you.
Mike Fries -- Chief Executive Officer
Good questions. In terms of what BT will or won't do. I think it's when Phil speak to the market, he is quite determined that he needs to invest in fiber. I think his challenge is the amount of time and capital It's going to take it doesn't sync up particularly well with this financial position today, whether it's EBITDA, free cash flow or dividends or pension plan. So I think you've got a bit of a of a challenge in front of him to accelerate and rapidly roll out fibers. I think you're right it is going to take time for them to get any kind of momentum.
But we do assume for what it's worth, we do assume that BT will build fiber over some period of time. If you're looking at a 5 to 10-year time frame, we do assume that they will reach some measure of critical mass, certainly not the entire market. Well, south of that. But they will pick up speed and they will build fiber. They will need some regulatory relief to do it and they'll need some financial relief on some basis to do it, but we assume just to be clear that BT will build some fiber in some portions of the markets.
As you point out, there are 7 to 10 million homes that we could possibly go out and build more quickly, and potentially more efficiently and while we're pleased with Lightning at the for 400,000 to 500,000 home-year click, we are unlikely to do that through Lightning on balance sheet and impacting our free cash flow and taking a fair amount of capital to do so. So I don't anticipate that you'll see Lightning on steroids, where we take -- at least not in its current structure. We take the current a team and ask them to double or triple the amount of activity they are undertaking.
We are exploring, as I've said a few times now, how to do that perhaps in an off-balance sheet manner, potentially with partners that would have -- 2 or 3 benefits. Number one, outside capital, number 2, a two teams working if you will, if it makes sense and three, the ability to potentially keep it off balance sheet and the finance and value it separately. Now those were a lot of request and asks on our part. And I'm not suggesting here that they're all going to happen or any of them are going to happen. But when you read press reports that we might be looking at this, or we might be looking at that it shouldn't surprise you. Nobody is achieving or achieving in that marketplace, when it comes to gigabit speed, networks and rollout of new network. So for us to not be part of that conversation, when fully 95% of the country is on copper, 95% of the country's on copper, is the same. There is no reason why we should be looking at it, because we've proven we could build faster, build more efficiently and penetrate markets with new build better than anyone else in the footprint.
But we have to balance that ambition with our desire to ensure that we're generating profitable growth in our core business that we're delivering as we promised greater operating free cash flow and free cash flow. So we're trying to juggle those objectives, but I think they're achievable and we want you to stay tuned. It might be complex, but I think in the end, we should be able to make it clear. If it's something which we used to do, if we don't do it, remember there is no reason why the Virgin brand couldn't be marketed elsewhere in the country, where we don't have network.
And we've obviously looked at that, if we can assemble the rights, certainly we have a nationwide mobile, a platform certainly everybody in the country knows Virgin, whether you can get it or not. So expect us to try to drive scale in that market. I'm not saying we are subscale, but our objective should be the drive scale with our brand and with networks owned or leased.
Nick Lyall -- SocGen -- Analyst
Great. Thank you.
Operator
We'll move now to Ulrich Rathe with Jefferies.
Ulrich Rathe -- Jefferies LLC -- Analyst
Thanks for the question, one short. Thank you. I have one question and maybe just very short clarification. The question is, what is the -- what are the decisions that are need to be made or what the evidence you're waiting for to move forward on the shareholder return decisions at this stage? You sort of repeating for quite some time now that's all the question of sort of generating value and I think that's fair. But in terms of trying to understand what the timeline is and what it depends on would be interesting, if you had anything in mind that you can point to, what need to happen or what you're waiting for? What you still have to decide? And then a question over for Charlie for clarification. In Central and Corporate, there was a bit of a revenue pop -- you highlighted the costs were more or less flat quarter-on-quarter, there was a revenue pop in the report, it said there were high CPE sales to the Netherlands. Is that -- all that is the step-up and that it looks a bit like a one-off, could you just confirm. Thank you.
Mike Fries -- Chief Executive Officer
Thank you. On the buyback, I believe and Rick will check this with the $3.2 billion in shares, we've repurchased this year. This is the largest amount of stock we've ever purchased in a 12-month period. And not an insignificant amount of stock. So I think, anybody who is looking at their own shares and trying to manage a buyback program wants to be measured and thoughtful about that. We did just complete a $2.7 billion Dutch auction tender at $27. We were fine pursuing that price. And today, we're $24, $25. So you want to be thoughtful about the timing of these sorts of things that's point one. And generally, if you own the shares while you have and follow them for a while, we provide some measure of guidance around buyback activity on our year-end call, and that's coming up of course as we finish the year and so I think there is no particular science behind it. And then thirdly, I suppose the last thing would be, we're always evaluating opportunities to create value for the our company on both sides of the spectrum buybacks and investment. And we're looking at those in relation to one another with a fair amount of discipline, so that as we evaluate opportunities to put money to work in an industrial way we want to be sure that we're able to demonstrate returns that would exceed what we could do just by buying our shares. So I don't -- I wouldn't take our lack of a buyback program at this point in time or in the fact that we haven't announced another Dutch auction as an indication of anything really just that we're pacing ourselves as we should. And as we take measure of the year we are quite a bit back into the stock , $3.2 billion is not small number and I think we're taking a longer view of this and perhaps maybe a bit more patient and then other shareholder.
Charlie Bracken -- Executive Vice President And Chief Financial Officer
Just on the corporate side, you're quite right. Yes, so we do buy set-top boxes on behalf of Vodafone Ziggo, the reason why we very specifically on our central update focus you on opex and capex that is not in those numbers. So it's a cost of goods sold line is the way. And then the second thing to say is that is essentially a zero margin slight positive, zero margin type activity and it's a hard number to predict because it's quite volatile, because we need to do set top boxes, there are two things, one is you can refurbish existing set-top boxes and one is you can buy new. The reason that buying a lot of new set-top boxes is they rolling out the new EOS platform, which by the way, has been a terrific success. Generally, we see a lot of our boxes being refurbished because they good average life and they work pretty well, and in fact, that's one of the factors in the slight decline in OCF in some of the market because we've shifted less from new box sales to refurbish boxes as refurbishment counts as opex under the magic of US GAAP, whereas new box as a capex, which is one of the reasons why OFCF is probably a more accurate metric of what the underlying cash flow is doing than the old OCF. In terms of predicting how will go. I can't really predict, if they continue to sell like hot cakes, you might see an acceleration, we might not but just -- it may slightly distort the revenue, but on a cash flow basis it's basically a breakeven number.
Ulrich Rathe -- Jefferies LLC -- Analyst
Right. Thanks, much appreciated.
Operator
Our next question comes from Carl Murdock-Smith with Berenberg.
Carl Murdock-Smith -- Berenberg -- Analyst
Hi, thanks very much. Just one question from me, -- I tracked very carefully the churn and I don't think you reported UK churn this quarter. So I was just wondering if it was possible for you to provide an update, I think the 12 month trailing was 15% last quarter. Thanks very much.
Mike Fries -- Chief Executive Officer
Yeah, I mean historically we realized it. None of our peers report that churn figure either. And so I don't believe that the lack of reporting and Charlie, you have to jump in here and Lutz I don't believe we're not reporting it because it's not a good number. I think we probably made a determination that the amount of detail we're reporting in our markets was consistent and not consistent across the industry, but Charlie or Lutz want to get that?
Lutz Schuler -- Chief Executive Officer, Virgin Media
Yeah. I said, right, when we are referring to the RGUs that 75,000 due to the pull forward of the price rise, right. So we are predominantly selling triple. So I think you cannot make up the number ourself. On the other hand side, right. I try to get the intelligence from the competitors and I get less and less and why would we disclose more and more.
Carl Murdock-Smith -- Berenberg -- Analyst
Okay. I suppose, I'll just start on that the BT does provide fixed churn every quarter. And I suppose, just as a follow-up. It's interesting that you've lost TV RGUs. But at the same time Sky this quarter is also tend to declining RGUs this quarter as well. So where do you think those TV customers are going and do you think it's evidence of more cord cutting in the UK TV market?
Lutz Schuler -- Chief Executive Officer, Virgin Media
I think -- We know that these TV customers are the low-end customers, what do I mean with that, these are predominantly customers who have used to buy our triple play entry product, right. They're paying roughly with time limit discounts 30 pounds and then after 12 months when they get off the time limit discount. It's a very high jump. And then they simply value the pure video product not as much than to pay more for it and then you see high churn. and therefore, I can only speak for us, so therefore you see that the bit -- these 25,000 on a quarterly basis are pretty much that.
High level, the high-end packages actually are very stable. So, and they provide also obviously higher margin. So therefore, I would not really see the world turning very much to an App World, pick and choose world. So I don't see that accelerating but obviously we have to watch that carefully over a longer time period, we will see that trend, but these numbers are not really referring to that.
Carl Murdock-Smith -- Berenberg -- Analyst
That's brilliant. Thanks very much guys.
Operator
Robert Grindle with Deutsche Bank has our next question.
Robert Grindle -- Deutsche Bank -- Analyst
Yeah, hi there . My question is about the UK deal you've just done with Vodafone. Congratulations on that, you had another 2 years to run though on your existing MVNO with EE. So it seems very premeditated to strike a new deal so soon. So I wondered what drove the timeline on that and what was the swing factor, was it 5G access, having Vodafone as a customer for Virgin business or was it the financial terms or something else. Thanks so much.
Mike Fries -- Chief Executive Officer
Well, I'll let Lutz dig into it, from my point of view, it was all the above. There was no other strategic purpose to it, but to switch providers is not a simple thing even though we have a core network that allows us to do it relatively seamlessly. From the consumers' point of view, you need to get prepared for these. So I think it was smart for the team to determine well in advance which direction we're going, to put that out to bid if you will. And as a result, derive fantastic contract that as you pointed out guaranteed 5G access, which we were not getting in any other deal , has much better economics. But I wouldn't read anything strategic into it. That would be my observation. Go ahead Lutz, if you want to add anything more.
Lutz Schuler -- Chief Executive Officer, Virgin Media
Exactly. We've done an (ph) RP in the market and we wanted the best technology at the lowest price. And this is what we found, and we have the opportunity now to launch 5G as we are able to implement it. And so we are not a stick to the end of the contract in the 5G world.
Robert Grindle -- Deutsche Bank -- Analyst
Thank you.
Operator
We'll move now to David Wright with Bank of America.
David Wright -- Bank of America -- Analyst
Hello, guys. Thank you for taking the questions. A couple from me. First, the first one follows on from Robert and the answer you've given. My understanding is that 5G services you can migrate instantly away from the BT MVNO onto the Vodafone contract. I think you have like a clause that allows you to exit. So is it possible we could see customers coming before that year end '20, '21 expiry and then beyond that, I think you mentioned Mike a little earlier on that we got info what we wanted on perhaps this Swiss deal. It's obviously something that I think the Sunrise shareholders maybe saw strategic value and bought necessarily like the means to raise capital or the price paid. Is this possibly something where you could even migrate to some kind of earnings -- earn-out clause or you potentially take less capital upfront, you are not exactly desperate for cash right now of course and maybe sort of lever into the strategic synergies of the merger and some kind of optionality further down the line is that potential. Thank you.
Mike Fries -- Chief Executive Officer
I'll take the Swiss deal question first. Lutz and you can prepare on the first one. It is reasonable people can disagree on value and financing structures in any transaction. But I don't see many folks disagree on the industrial logic of putting those two businesses together. It's almost a no-brainer. The synergies are substantial and real, and as I mentioned in my remarks the ISS report was not anticipated and a bit of an embarrassment to them in my view . And just to, you know shareholders were still voting for the deal 2-1 in favor but we need a slightly larger margin in order to get the one shareholder whoever address their concerns or not, across the line. So we felt it would be right due to play that out, I'm not going to get into what we may or may not do now I think we are obviously willing to engage in any discussion that appears to be accretive and smart for us, either with Sunrise or other operators in that market and it's only one. So you should assume that we're not sitting still. You should assume that the industrial logic of fixed mobile convergence in Switzerland is compelling. And that, as I mentioned in my remarks, we are the most important fulcrum asset in that equation. Whether the -- the shareholder or Sunrise think so or not, this is where it's going.
So I think it's going to be an interesting period of time here and the good news for us is, the turnaround plan is working. We are able to do the things we need to do in the fixed mobile space with our Swisscom, which is terrific. I think the team is executing on all of the things we asked them to execute on. Whether it's one-gig, rolling out new set-top boxes, driving fixed mobile convergence. And if we have to own this business, we're happy to own it, because we're on our way as they say.
On the other hand, one of the most accretive aspects of fixed mobile combinations are the synergies. They are real -- in Sunrise's opinion, upwards of $3 billion of NPV -- of synergies. That's something worth talking about, and they would be substantial synergies with the other mobile operator in the market. You can do that math as well, so I would -- you should expect that we're obviously opportunistic here and evaluating opportunities to look at alternative outcomes that drive value for all of us, in particular shareholder. Sure, I would stay tuned.
Lutz, you want to address the --
Lutz Schuler -- Chief Executive Officer, Virgin Media
On the mobile MVNO deal, so obviously now contractually for new customers and for existing customers migrating to 5G, we could do that tomorrow. So therefore, obviously, now we have to put the technology in place and then I think, right the take-up of 5G phones usage will take some time. But you can expect that we get all interested 5G customers new and migrated from the day we have launch it and this is a technical question.
And you can also right -- for us, it's very important, we offer the highest-speed in fixed. Now we are in the position to bundle that with the higher speed in mobile and therefore we have extracted the customer base for that. Look at our net add number this quarter, more than 100,000 postpaid record quarter in the quarter. So we are going to take off in FMC and therefore we do everything to have 5G as soon as possible.
David Wright -- Bank of America -- Analyst
If you don't mind me just following up. I wonder whether, there's a reciprocal agreement on some network usage backhaul, etc. Is this something you guys could have or even extend to reciprocal wholesale access to Vodafone customers or even any wider wholesale access to the VMED network. Thank you.
Mike Fries -- Chief Executive Officer
Go ahead and address the first point, but not the second, OK.
Lutz Schuler -- Chief Executive Officer, Virgin Media
Yeah, exactly. Obviously, right. We have now really engaged in a close up partnership with Vodafone. And as we have said right, Vodafone very fastly deploys 5G base stations and they need backhaul opportunity. So therefore, we have also closed a huge deal on dark fiber and mobile backhaul. At the same time when we have closed MVNO deal. And we are very pleased with that. And in general, so dark fiber, IRU, mobile backhaul deals, this is an area that we -- which has huge growth opportunity in the future. And therefore we focus more-and-more on this kind of business.
Mike Fries -- Chief Executive Officer
I think with respect to your -- the second part of your question, which is wholesale access, the end-to-end network, for me a fixed retail point of view. That is not something we've discussed with Vodafone. That's obviously a very different conversation and I think one that we would have to take a longer view of. And at this point, nothing to add. I mean we don't think that's necessary in this market, is certainly not legally regulatory or required. And I don't see us jumping into discussions of that without broader considerations.
David Wright -- Bank of America -- Analyst
Thank you very much guys.
Operator
We'll hear next from James Ratzer with New Street Research.
James Ratzer -- New Street Research -- Analyst
Yes, thank you very much -- Yes, thank you very much indeed. I had a question and a very quick clarification. Just regarding your UK customer growth on your BAU footprint. I wonder, if you could kind of talk us through what your strategy is to try to return that customer base to growth? And actually it is indeed your strategy to return it to growth or are you going to be much more focused on trying to extract revenue growth there just through price rises alone?
And then just a clarification on the churn point. Lutz, I think you gave a 75,000 from that, want to check my math is around 1.4 percentage point impact from churn in the quarter, which would be about kind of 5 points annualized -- implying annualized rate of churn step up to about 20%. Is that a fair assessment based just on the Q3 churn levels? Thank you.
Mike Fries -- Chief Executive Officer
Lutz you want to answer those questions.
Lutz Schuler -- Chief Executive Officer, Virgin Media
Yeah. So I think on the churn number, right. I told you the RGU number. So you have to turn that into customers. But on an annualized churn, you get a bit like 0.5 percentage -- percent on it, then you're right, right. And in the quarterly churn obviously, the increase was higher.
Mike Fries -- Chief Executive Officer
But it was the quarter of the price increase.
Lutz Schuler -- Chief Executive Officer, Virgin Media
Yeah, it was the quarter of the price increase [Speech Overlap] and we are getting back to that. Exactly.
James Ratzer -- New Street Research -- Analyst
I think if you were to disclose [Speech Overlap] it as you've calculated it. It would be -- would not be an aberration. Go ahead please.
Lutz Schuler -- Chief Executive Officer, Virgin Media
What was the first question again, sorry for that.
James Ratzer -- New Street Research -- Analyst
Yes. Thank you very much. The first question was about what the strategy. [Speech Overlap] BAU or whether it's more going to be focused about price on an ongoing basis? Thank you.
Lutz Schuler -- Chief Executive Officer, Virgin Media
Yeah, OK. So right, this is where our consumer strategy kicks in. So we started that a year ago and we have 4 growth levers. One is fixed mobile convergence, right. So we started that, we now that fixed-mobile converged customers have a substantially lower churn in a 2 or 3 percentage points, so therefore we drive that. And when you see our mobile net add numbers or the accelerated number of fixed-mobile converged customers you see that we will get an improvement from that over time. And so we have started at 19.6% year ago and now we are 20.7 or something that area and that is the second quarter after we launched, so you can be assured we will push for much more and then take the MVNO deal with Vodafone into account. So that is a very strong weapon. That's number one.
And number 2 is, the SOHO business, right. So we have put now this small office -- home office business into the consumer machine. So we can leverage all sales channels, all marketing online and it's a huge to much less penetrated areas. Our market share in SOHO was substantially lower, so therefore we ramp up that. Number 3 is do more regional sales, so we are getting more-and-more -- and data analytics in place. MDU as a segment, we want to target more and we are doing more-and-more on that.
Get to higher market share in several regions, Greater London, our market share is 36%, Scotland our market share is 60%. So we are focusing on that. So therefore, I'm not -- we are not giving a forward-looking guidance, but you can be assured that we have put a strategy in place to get substantially better in the GIU business. But these things take time.
James Ratzer -- New Street Research -- Analyst
And you think that can be done without price discounting?
Lutz Schuler -- Chief Executive Officer, Virgin Media
I mean price discounting, I mean that is in general, right. I think discounting has increased in that market. So I think that's a factor of market situation and also more customers are within the minimum contract length. So that means, everybody is discounting more to get a higher share of grossest. And so therefore, simply we need to offer value for money, right. And that means, while we are -- we are in the position that we need to offer discounts as well. If you want to get a certain number of grossest. I mean, obviously we will see a game changer at end of contract notification coming from February onwards. And let's see how the market is evolving there then in terms of discounting. So if the market is then right because what is happening is you give a high discount within the minimum contract length after that the customer is then asked to pay more what the customer does is, calls in and asks for a retention discounts to stay on that discount , right. So with the end of contract notification, obviously we talk about that even more so I think it's more customer-friendly and more market-friendly when we are getting a bit more rational here.
James Ratzer -- New Street Research -- Analyst
Great, thank you. Lutz thank you.
Mike Fries -- Chief Executive Officer
Okay, go ahead.
Operator
We'll take our final question from Maurice Patrick with Barclays.
Maurice Patrick -- Barclays Capital -- Analyst
Yeah, thanks guys. Maurice here. So quick question on Switzerland, I can see how you're clearly if I disappointed about the deal filing, but you do sort of highlighted in the release that you do see early signs of recovery they have you point to improving NPS trends and subscriber trends, OCF remains pretty negative. I wonder when we'll start seeing the impact on the financials and the improving operational trends that clearly you can see already coming. Thanks.
Mike Fries -- Chief Executive Officer
Sure. And Severina is online here. She is offering to chime in. We're tracking a whole series of operational metrics there. RGU movement of course ARPU, which is growing every quarter the rollout of EOS boxes so that we can get our base to about 50% advanced in set-tops by the end of this year. 1 gig homes, 1-gig penetration and the impact of this faster speeds in the marketplace. Now we're investing quite a bit of money to achieve that. So on one hand you've got some really positive metrics on customer -- on the customer front in terms of NPS and net add performance in ARPU . On the other hand, we're putting capital into products, into technology, and also into digitizing the operations themselves. So this year, I think we were clear that this is a year of investment, but we would want to see metrics improve that I've just described and they have and they are and that through the course of next year we'll start to see the pendulum swinging the other direction. We're not providing guidance as we sit here. But I think we've always said, the 2020 is important year, important inflection point for the business if we keep hitting on all cylinders, so far we have. Severina, would you like to add anything to that.
Severina Pascu -- Chief Executive Officer of UPC Switzerland
No. Yeah, Mike, you basically pointed in the right direction as you said this year was the year of investment and we actually worked on multiple areas rolling out EOS, doing the 1 gig, investing in Simply Digital and as the organization also mature, we expect to do all these activities faster and better as well as seeing that the efficiencies coming -- paying off from the investments we don't simply digital. So next year, we should see, yeah, the organization, getting more mature and benefits coming through to a greater extent than this year.
Maurice Patrick -- Barclays Capital -- Analyst
Thank you.
Mike Fries -- Chief Executive Officer
Yeah. So ill wrap it quickly I think is three points. One, you can tell from the conversation today and from our remarks that we are focused first and foremost on pushing our operations forward with two primary goals. One is profitable subscriber growth. And secondly, free cash flow margins and yield, all of these operations even Switzerland, still very profitable on the free cash flow line. And our view is that each of the businesses when you aggregate them together, are free cash flow machine really, and that's exchanging the narrative a bit for you and something we will continue to do a better job of is getting you to rethink the narrative of our operations. And I think you should expect more of that from us.
Strategically, we're always looking at ways of recognizing and crystallizing value both in our operations and then maybe new operation. So you should expect that we are very busy and looking at ways to both crystalized and realized value in our existing markets and possibly others but always doing that with an eye toward returns and value creation, nothing else. And then lastly, we continue to look at our capital structure and of course, I think our credibility on buybacks and the commitment to buying stock is one question. So it's just -- I can appreciate the need or the request for more disclosure on that but just be patient we're always looking at those things in parallel and so we'll have probably a much more to say about that, through the course of this year and the early part of next year and we appreciate your support. Thanks everybody.
Operator
Ladies and gentlemen, this concludes Liberty Global's Third 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: 65 minutes
Call participants:
Mike Fries -- Chief Executive Officer
Charlie Bracken -- Executive Vice President And Chief Financial Officer
Lutz Schuler -- Chief Executive Officer, Virgin Media
Severina Pascu -- Chief Executive Officer of UPC Switzerland
Michael Bishop -- Goldman Sachs -- Analyst
Jeff Wlodarczak -- Pivotal Research Group -- Analyst
James Ratcliffe -- Evercore -- Analyst
Nick Lyall -- SocGen -- Analyst
Ulrich Rathe -- Jefferies LLC -- Analyst
Carl Murdock-Smith -- Berenberg -- Analyst
Robert Grindle -- Deutsche Bank -- Analyst
David Wright -- Bank of America -- Analyst
James Ratzer -- New Street Research -- Analyst
Maurice Patrick -- Barclays Capital -- Analyst
