Liberty Global Ltd. (LBTYA) Earnings Call Transcript & Summary

Good day, everyone, and thank you very much for joining our CTO Symposium. Our next session today is with Enrique Rodriguez, Executive Vice President and Chief Technology Officer at Liberty Global. Before we start our session, I'd like to read a quick legal disclaimer. For important Morgan Stanley conflict disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures.

Okay. Enrique, thank you very much for joining our CTO Symposium this year. Really excited to have you with us. There are a lot of interesting topics to go through. But perhaps a good place for us to start our chat is if you could tell me a little bit more about your job at Liberty Global and the main priorities that were assigned to you by the management team.

Well, first of all, good afternoon or good morning, wherever everybody is, and big thanks for the opportunity to do this session. I'm looking forward to a good interactive chat. I know that you're an expert in the industry and so I'm interested. Maybe I may ask you some questions, too. I hope you don't mind. So a couple of things about my job. First of all, I've been at Liberty Global now for 4 years, but I'm a veteran of the entertainment and telecommunications industry. I have literally been in the industry for 40 years, believe it or not. And I had the opportunity to be in this industry in many aspects for -- maybe my first 20 or so years were more on the supplier side and really more focused on hardware, always technology, focused on hardware. Then I had the opportunity to join Microsoft. Was there for a few years, more on the software side and then, of course, an opportunity to be on the operator side. And finally, at Liberty Global, where my main responsibility is to oversee technology and operations across our operating companies. As you probably know, Liberty Global is an interesting holding company in that we have operating capabilities but not, let's call it, a pure holding company, but we're also not a centralized operating company where we do everything from the group. So my responsibilities is really to balance and to help us, as a team, identify the areas of technology where driving from a central point of view makes sense and the areas of technology where driving from a local point of view makes sense. And in these continuous changes of technology, that's always a bit of a dynamic line. So I spend quite a bit of my time trying to understand not only the operations at the group level, which are directly under my responsibility but also the operations in each one of our countries.

Interesting. Thank you very much for the overview. The customer experience is core to the business and it's something where you overall plays a core aspect. Could you discuss perhaps what are the key areas of differentiation from a customer experience perspective and also tell us a little bit more about how Liberty Global is positioned in those key areas of differentiation?

Okay, excellent. So obviously, customer experience is ultimately the most important thing. And you're right that my job is very, very, very centered on customer experience. Even though, by the way, we tend to spend a lot of time, maybe the majority of the time, thinking about the consumer when we say customer experience, as you know, in this industry, the B2B, the enterprise-type business is also extremely important. So we spend -- we try to spend enough energy making sure that customer experience can expand both from the consumer side as well as the B2B side. On maybe the next few minutes, I'll focus on the consumer because that tends to really get the majority of the attention, but I just wanted to point out how important our B2B business is for every one of our OpCos. If I think of the consumer in the context of our business, I would say there are 3 major centers of gravity, where experience is extremely important, okay? First of all, the experience of somebody becoming our consumer, somebody becoming a customer of one of our operating companies. So that's everything from onboarding, the acquisition process, the process of helping the consumer understand what our offers are, select the best offer that applies to that consumer. We have to think about consumer experience, not just consumption of the services but the experience as a customer as well. And as you probably know, I guess, maybe the first buzzword of the session, everybody talks about digital and how important digitalization of that customer experience is and really transition from what used to be a very face-to-face acquisition-driven process going on to a Virgin Media store or going to a Telenet store in Belgium. It has become more and more about digital. So we're spending a lot of time trying to understand how a customer navigates becoming a customer, staying a customer, and using modern technology like artificial intelligence to help that customer have the best possible experience and ultimately get as quickly as possible to enjoying the services, right? So that first area is extremely important for us. The second area, I would say, connectivity and connectivity both from a fixed and a mobile point of view. If you look at Liberty Global today, I mean, it's amazing how quickly we've transformed this company. When I joined the company 4 years ago, the great majority of our connectivity subscribers were on fixed networks, mostly HFC networks. If you look at Liberty Global today, if you look at our operating companies, about 50-50 of -- 50%-50% of our total customers are in mobile or fixed connectivity, right? So we've had to evolve the company culture and, in my case, the technology organization to make sure that we are thinking about connectivity in a full basis. Connectivity, when we're talking about mobile, where things like 5G provide a great deal of differentiation, and connectivity, sorry, in the fixed space, where more and more what the consumer really expects, they're buying HFC, they're buying cable, they're buying fiber, but what they really, really, really want is fantastic WiFi. And one of the things that has been a big transformation in our industry is we used to think about providing connectivity up to that gateway, up to that modem, whatever you want to call that device. But more and more, our customer satisfaction, delighting that customer is about providing fantastic WiFi. So you'll see us spending more and more time around that. WiFi 6 right now. WiFi 6E coming up very soon, WiFi 7 already in the road map, making sure that the customer has that fantastic wireless connectivity, whether they're inside the home or outside the home. And then the third part of consumer experience that is quite important for us is the entertainment experience. And at Liberty Global, we have spent the last 6 years or so developing our entertainment platform, which we call Horizon. We happen to be on Horizon 4, our current fourth generation. We're about to start deploying the fifth generation. And here, it's about making the entertainment experience as seamless as possible. More and more, our customers are expecting to move around different entertainment providers. It used to be that the program guide was the most important place where everybody navigated. But more and more, the consumer really wants to navigate on apps. They want to spend time on Netflix. They want to spend time on Amazon Prime. And we continue trying to be a great aggregator of all these experiences and trying to bring it to the consumer in an easy-to-consume package, in any device they want, in any room of the house they want. And so a significant amount of energy on our side goes to making sure that this entertainment experience is as best as it can possibly be.

Interesting. Thank you very much for sharing the color. Part of your network strategy is, of course, upgrades to next generation. So why don't you start our conversation with the fixed side? So could you discuss your cable upgrade strategy across the different markets? And perhaps, help the audience understand, how do you find the right path for the upgrades between DOCSIS, the next DOCSIS technologies that are coming, including DOCSIS 4.0, and fiber? You have different strategies depending on the market. So perhaps if you could also go granular and discuss the 4 different markets, that would be very helpful.

Of course. Quite often, I say I have the best job in the company with the exception of Mike's. And part of it -- part of why I love this job is because even one question, like HFC upgrade, has so many answers. And we have to understand the conditions of the market, the conditions of our network, the conditions of our -- in many cases, we -- these markets are not 100% owned by us. And so we're also dealing with a partner. I know you did a session with my colleague, Enrique Blanco. Enrique and I spend a lot of time together, making sure that we understand how are we going to evolve, in this case, VMO2, our joint venture in the U.K., evolve the offer there. So I'll start with the U.K., okay? First of all, across all our markets today, we are basically at 100% coverage with 1-gigabit DOCSIS 3.1, okay? Minor exception, I think we have about 1.5% left in Netherlands. That would be finished by the end of the year. But fundamentally, I think we are the only operator, certainly the only one in Europe that is offering 1 gigabit per second across the complete space. And that's very important because it has solidified this leadership that we have had in the fixed network for a long time and really puts us in the absolute best position. The next upgrade, and I'll start being granular the way that you requested. The next upgrade after 1 gig is still on DOCSIS 3.1 but going to 2.5 gigabit, okay? And 2.5 gigabit would even increase -- significant increase in upstream, which as you know, is becoming more and more important. And we will deploy 2.5 gigabit for sure in Belgium, most likely also in the Netherlands, in Switzerland and the U.K. And so that's a very important upgrade that we have. Then you go beyond 2.5 and really the road to 10 gig, and we will be deploying 10 gig in 2 different ways. And again, I'll come back market by market. In places where we feel DOCSIS 4.0 is the best solution, we will be using what is called the ESD version of DOCSIS 4.0, which is Extended Spectrum DOCSIS, which will allow us to deliver 10 gigabit downstream and probably about 2 gigabit per second upstream, okay? And we feel that, that level of performance is going to be sufficient for all the fantastic killer apps that everybody is working on, including everybody's buzzword of the day, everybody's metaverse definition. So we feel that, that would be a very, very, very important upgrade from a customer perspective. We will be deploying DOCSIS 4.0 ESD in the Netherlands, in Belgium and maybe in some pieces of Switzerland, okay, some portions of Switzerland. So extremely important for us. The second aspect of 10 gig on the fixed side that we will deploy is XGS-PON. It's what we consider the optimum level of technology on PON. It's a great compromise between being advanced enough, being able to provide 10 gig, have runway road map for the future to go beyond 10 gig at acceptable cost. And cost is, of course, extremely important in this industry. At the end of the day, we're in the business of getting return on our investment. And so we go from a country by country and, in some cases, from a region by region and define what is best. I'll start with the U.K. The U.K., we have made the commitment to move 100% of our HFC existing fixed network to XGS-PON. And we will complete -- that operate is codenamed Project Mustang, which I'm extremely proud because it's been very, very successful. We will complete that upgrade by the end of 2027, okay? We've already started rolling this out. We're very, very confident that we'll be able to do that. We've provided some guidance as to what we expect the cost will be over that long period of time. And I'm very confident that we will meet or exceed our cost targets when it comes to that upgrade. In addition, still in the U.K., we have committed to build between 5 million and 7 million more PONs that will also be passed with XGS-PON. So by 2027, we'll be in a position of about 22 million homes in the U.K. passed with XGS-PON from us. And then at that point, the consumer will have the ability to buy anything from our existing 200-megabit type service all the way to 10-gigabit service. And we think that's going to be absolutely the best network in the U.K. In Ireland, a very similar story. Of course, the scale is a little bit smaller. In Ireland, we also have started the deployment of XGS-PON, and we intend to convert every one of our homes passed up to XGS-PON by the end -- in the case of Ireland, it will be by the end of 2024, okay? Probably a little bit earlier than that but let's just be a little conservative in this discussion. In Belgium, Belgium will be a little more complicated because in Belgium, we actually have 3 technologies that we will be deploying. We'll continue to deploy DOCSIS 3.1. Probably will operate to 2.5 gig, the way I was describing before. We will deploy also DOCSIS 4.0 in certain parts of Belgium, and we will deploy XGS-PON in other parts of Belgium. And this, again, will be based on what we believe is the optimum between consumer demand, cost of investment and our ability to deliver these services. In Switzerland, in Switzerland, we will do a combination. We will also deploy DOCSIS 3.1, 2.5 gigabits. But in Switzerland, we have the ability to use also fiber from other providers. And so we will be basically mixing between our own network and fiber from other providers. So we think that, that would be the optimum again between level of investment and the service that we can provide to customers. And then finally in the Netherlands. In the Netherlands, we will almost exclusively deploy DOCSIS 4.0. The time line is still to be finalized. In the case of the Netherlands, we will probably start deploying DOCSIS 4.0 a little bit later. We're probably talking about 2025. And eventually, we will reach 100% also with DOCSIS 4.0. But the Netherlands, for a number of reasons, that market strategy is not as black and white clear as the other one that is coming a little bit later than others.

Right. And perhaps just for the last point, why the network strategy in the Netherlands is not as black and white as the other?

Well, it's a combination of the competitive environment and the state of the network, okay? As you know, most of these networks have grown through a number of acquisitions. And so you end up with a combination between a legacy that you have today. The ability, for example -- just to use an example, it's not about the Netherlands. It's about the U.K. In the U.K., basically, all of our network is in -- is ducted, okay? So we have conduit where we today run both coax as well as twisted pair, and our ability to deploy fiber in the network is fantastic. I mean we can deploy fiber at a cost that is a fraction of the cost of other providers that need to actually build their network, right? In the Netherlands, we don't have that luxury, and so our ability to upgrade that network is a little bit more limited and that's what we're still trying to optimize. As you know, DOCSIS 4.0 is brand-new technology. And I think we're taking advantage of waiting a little bit to the last minute so that we can truly, truly optimize both the consumer experience and the investment required.

Okay, very clear. I wanted to spend some time on DOCSIS 4.0. As you said, it's a brand technology and we do get a lot of questions from investors on this. So I have a number of questions on this. So firstly, starting with the commercial availability of DOCSIS 4.0. You mentioned 2025 for the Netherlands for the rollout. So when do you think DOCSIS 4.0 will be available? Will it be available before 2025? Or how do you think about the time line there?

I think the early availability both in the U.S. and Europe will probably start in the beginning of '24, okay? And you will see us also provide some limited services at the beginning of '24. But the reality, and obviously, I cannot speak for other providers, my view of the industry is that DOCSIS 4.0 will really be prime time in 2025. It does not mean it's not ready before 2025. There will be valid deployments from us and others before 2025. But to really consider it a fully deployed technology, my expectation is around 2025.

Right. That's very helpful. I wanted also to ask you about the cost of deployment for DOCSIS 4.0 because we hear different numbers. So could you help us perhaps scope how much will be the cost of deployment for DOCSIS 4.0 and perhaps also discuss actually the CPE element of DOCSIS 4.0?

Well, I'm not sure my answer will be helpful in clarifying because it's actually not a clear answer. What happens in these networks is that a great deal of the cost of upgrade really has little to do with the technology itself. Has a lot to do with the civil engineering aspects. And the civil engineering aspects are as localized as you can imagine, right? I mean, everything from your ability to get permits to your ability to run an aerial network that is exposed or your ability to build new conduit, new docs, that actually dominates a great deal of the upgrade cost. And what happens is you have to do that work for every home passed, whereas something like deploying the CPE, you only do it for every home serviced, okay? So the -- when we talk about network investment, it's dominated by the network aspects. It's not dominated by the CPE. When you talk about cost of acquisition of a consumer, then of course, the CPE becomes very important. The good news is that we expect the DOCSIS 4.0 CPE to be no more expensive than our DOCSIS 3.1 CPE. The change from DOCSIS 3.1 to 4.0, we believe the advances in technology very quickly will basically equalize the cost. Now there's other aspects. WiFi 7 will be more expensive than WiFi 6. So there's other aspects that drive the cost of CPE, but that will be less driven by DOCSIS 4.0. So my apologies because I know it doesn't clarify the question, but it's one of those where, frankly, there isn't a black-and-white answer. Our cost in Belgium, very different than our cost in Netherlands. And if I try to start breaking it down right now, I'll probably drive you more crazy than more clarity, I'm sorry.

Actually, it's a helpful answer. Thank you very much. Giving us like puts and takes and the different bits to think of when thinking of the deployment cost is definitely helpful. And thank you for discussing also the CPE element, which is always important.

Sorry, I was going to say one more thing. Apologies to interrupt you. But one great news about every generation of this technology is that the cost of delivering X number of gigabytes to the consumer goes significantly down. But also equally important, the energy required, ultimately, the power that we have to pay required to deliver that same capacity goes down. So when you think about this cost, it's really a complex equation that includes the operating cost. And as you know, Liberty Global, we believe sustainability is a very important theme for us. And so looking at these technologies as a way to improve our ESG footprint is also extremely important for us.

Thank you. One last question on DOCSIS 4.0. I know that we're spending some time on it, but I think it's very important and it's a brand-new technology and you are the experts. So this is really helpful. We saw a number of cable players in Europe moving to fiber. And some of the cable players that have moved or are in the process to shift into fiber have been highlighting also some of their concerns about the robustness of the DOCSIS 4.0 ecosystem as a whole, given that there are less DOCSIS players out there. Could you discuss a little bit your views on this?

First of all, to be very clear, it is a concern and it's a real concern, and I think it's just the reality of the industry. The reality of the industry is that we're going through this transition where when we went from -- when we went to DOCSIS 3.0 or 3.1, basically, the complete industry moved in that direction. Different speeds, different vendors, but a very healthy ecosystem getting into that. The move to DOCSIS 4.0 is not going to be as unified as what we saw before. Now however, what's changed and where -- here, where I really have to thank the great partners that we have in the industry as part of this ecosystem, is that DOCSIS 4.0 is born virtualized, okay? And what I mean by that is when you look at DOCSIS 3.0 and 3.1 and prior technologies, in many cases, we were buying dedicated equipment that was for a single function, okay? And all the hardware and software were coming from the same supplier. All the hardware and software had to be perfectly integrated before it gets deployed. And what you're seeing in DOCSIS 4.0 is really a modernization of how you deploy a network. The functions are virtualized, meaning the functions are less and less about the hardware and more and more about the software. And it gives you a level of freedom that you didn't have before. So even though the ecosystem in raw numbers may be smaller, we are tapping into core technologies that have deployment in a very, very broad range of technologies. If I just look at ourselves, a great deal of the network management, to use one example, network management between XGS-PON and DOCSIS 4.0 is going to be common, okay? And so yes, of course, maybe there's a little bit of fragmentation but the core functionality of the network is common. And then the last point I'll say, and maybe I'm being a little cheeky when I say this, okay, people forget that the F on HFC is fiber, okay? And we've been deploying fiber for years and years and years. I mean, I should know this. You know what, I'll do a little research. But I guarantee you, we have more fiber deployed today than many, many, many fiber companies because these networks are fiber-deep. We've been investing into the quality of the network for a long, long time. And so our ecosystem today already includes a great deal of fiber. So I don't want to hide the answer. Yes, the ecosystem is a concern. But I do believe -- and we're just coming out of the cable show 8 days ago in Philadelphia, and we had the opportunity to, of course, have discussions with lots of these ecosystem players. And first of all, I'm very thankful for them because they continue to invest in technologies that we believe are core for us. And I do believe it's going to be a good business case for them as well because of the -- ultimately, the explosion on the demand of these networks.

Great. Thank you very much. So moving into mobile and 5G, of course. Could you talk a little bit about where you stand in terms of your 5G coverage at the moment? And what is the road map going from here?