Liberty Global Ltd. ($LBTYA)

Mike, thank you for joining us.

Thanks for having me.

You were here last year. It was very inspiring. So excited to have you again. I thought it was.

It's inspiring for being reinvited.

Yes, exactly. It has to be inspiring. I mean you're also a man who needs no introduction, but I do want to make one point upfront to sort of, let's say, scope the discussion a little bit. In your role as Chairman and CEO of Liberty Global. Yes, you run one of Europe's largest telco operators. But you're also a, let's call it, majority owner, but also activist investor in infra technology firms like AtlasEdge, in media companies, in tech companies like Formula E, ElevenLabs, Univision. So you have an incredibly broad view of the market as a whole, tech, media, telco. And I'd love to get a bit more into the sort of beyond telco space with you today as well.

Great. Sounds good. I don't think this is all, but I'll speak loudly.

But let's start with telco. We were here last year. We started off by talking about pressure on margins, pressure on shareholder returns. And I think sentiment has indeed improved on the industry as a whole. But I said it this morning in sort of the opening words, I think the complexity, one has to navigate as a telco leader has also increased. But with that come massive opportunities, challenges and opportunities, AI, how do you scale it, maximizing ROI on your infrastructure investments, deepening your customer relationships. Where do you see the biggest opportunities to drive meaningful growth for the next, say, 2, 3 years for integrated telcos? And where is Liberty sort of playing in that space?

Yes. Well, we're playing where everybody is playing, let's start with that. It is still a challenging industry. Let's be clear. You're following it on every day, you're working with us on various projects. We're still too fragmented. Regulators are still too overregulated, that's clear. So there's a handful of things that I think still create headwinds in our sector. Having said that, I think the narrative is starting to change. And you can see that in the stock prices, right? Stocks are up 20% year-to-date, 70% in the last 2 years. So the sector is starting to catch a tailwind, which it needs and deserves in my opinion. Why does it deserve that? A couple of reasons. Unlike our friends hyperscalers, CapEx is starting to decline, and we're seeing the end of that tunnel. They're just going into the tunnel. It's a little bit of Karma, I think, actually. And we're coming out of that tunnel, and that's a positive thing for free cash flow for the basic economics of our business. So that's number one. I think regulators, you look at the CMA here and the structural changes that they've made are starting to back off a little bit, the Digital Networks Act in Europe. The are starting to show some potential for less regulation, which is super critical. I think AI is going to be transformational. If anybody is telling you different, they're not being straight with you. In addition to this rotation from sort of software to hardware companies, these old school businesses like ours are all of a sudden in favor because we can't be disrupted by AI, we can only benefit from AI. And the benefit will be substantial. I'm sure we'll talk about that. So there are some things that I think are positive. Our stock even up maybe 30% last couple of years, 40% if you add in Sunrise. And we're leaning into all the things you described. We're leaning into brands. So I'm sure you've heard a lot about brands here in this conference. Multiple brands, you have to have multiple brands. We're leaning into our networks. You have to keep investing in our networks. We're leaning into differentiation because I think it's impossible to compete if you can't sell yourself as unique and differentiated. And we're leaning into, as I said, AI, which is, I think, one of those accelerants that we'll dig into, I'm sure, as time goes by and as we talk today, but it's probably underestimated. I don't know what kind of work you're doing, James, about AI, but we can talk about where I see it, but it's probably underestimated as a benefit.

And let's pick that up now, actually, AI. So it's reshaping how consumers interact with telcos, what's possible? How do you think about it? And maybe taking sort of a 1-year versus a 3- or 5-year lens. You said it's transformational. What does that mean for you?

Our industry is sort of the poster child for AI. Why is that? We have massive inefficiencies. We have massive software dependencies. I think we're only 20% on the cloud in our workflow in workloads. So we're poster child for all of the things that are percolating. And we're doing quite a bit. I mean, you would have heard from all of the telcos up here the same thing. So we're really excited about call centers. Yes, we are. We're super excited about optimizing network design, reducing consumption of power, anticipating outages. 90% of our employees are using AI every day. That's all great stuff. But I'll tell you, it's super marginal stuff. I've said this before. It's going to add up to hundreds of millions, and we want that. We'll take that. But the capability gap that exists today, the OpenAI CFO in Davos the other day was saying, it's 10x. Meaning, we're only utilizing 1/10 of what this technology can do for us. I sat with another big tech CEO, and I said to him, you may have heard this as well, but I got $14 billion of OpEx. I'd like it to be $7 billion. I want to take $14 billion to $7 billion. That's transformation. Even you begin on [ Apples-to-Apples ].

I would like that. Yes.

It can be done. It will be done. There will be a few areas of our business that we will take massive chunks out of the cost. It will be beneficial for sales, for revenue, for retention, for churn, all those things as well. But I think the real benefits will be in how we operate our business, how -- and to me, that's the exciting bit. We're working on that every day. That's a big part of what we're doing.

Fantastic. And then I mean, given we're talking about, I suppose, kind of AI and everything that can happen here and the benefits for you, there are also potentially say benefits for some of your kind of challengers and maybe kind of new entrants that are potentially coming into the sector. We've seen some of the kind of fintech players come in now and kind of MVNO role, maybe kind of Revolut here within the U.K. So I mean, when you think about the competitive advantages you have as a business, how do you see yourself kind of defending yourself against maybe some of these AI new entrants that could be coming into the industry?

Well, look, we know the MVNO space well. We're the largest MVNO provider in this market with Tessco, gifcap and Sky. And Revolut is an awesome digital neobank, but they're an old school MVNO. And they're feeling the pressure and the challenge with that. There's nothing digital or AI about their mobile launch. In fact, there are no AI native mobile companies I'm aware of. So I'm not saying it won't happen someday. But Revolut launching in our market is about as far from an AI-driven launch as you're going to find. It's just old school MVNO, and they're having integration challenges. It's a highly defensive move, trying to maintain a sub base. I mean, I get while they're doing it, but it's not offensive. It's not AI native. It's just a brand, a great brand, by the way. So they're taking advantage of that brand, and that's great. And we'll compete and do what we need to do and find other folks to join our networks as MVNOs if that's exciting to them. What do we -- what advantages do we have? Number one, we own the network. So our ability to pace innovation to anticipate innovation, to drive innovation that benefits us is first and foremost. And MVNO doesn't have that. That's point one. Secondly, we have a huge customer base. And our customers, we have -- we can work with them. We know what they need, we can evolve with them technologically, commercially, and that's a huge advantage. And I think we're using AI in an offensive way, not a defensive way. We're using it to drive revenue, to reduce, to increase margin. These are things that I think we have unique capability to do. So there's plenty of advantages. There will be new entrants. That's the nature of our sector. But I don't see them having any advantage over us, at least when it comes to AI.

So you just talked there about innovation. And I suppose one area where you've just recently been very innovative is the Virgin partnership deal with Starlink. So how do you see kind of LEO networks fitting into your overall world of connectivity?

Well, I think, first of all, let's just take Starlink. It's a tale of 2 technologies. There is the broadband business, which is a business, 10 million subs, 160 countries, 10,000 satellites, he's going to go. It's a decent product. It's expensive in this country. And it has applications, maritime, aerospace, rural, mobile backhaul. And in certain constructs, you can even get more speed out of it. So it's a real product, and it's going to be around for a long time. However, I think he's playing a different game. He's playing the game of a small number multiplied by a big number, i.e., 7 billion people is a big number. So he doesn't need a lot of penetration for that business to work. And that's great. I think it's -- is it a replacement for what we're doing in the center of London? No. Will there be an application for that? Absolutely. So I think that's -- and that is what it is. The direct-to-device business, very different, highly dependent to get the O2 satellite product that we launched, which you referenced, we had to low him spectrum. There's no -- he does not have spectrum in every country. To do the direct-to-device business, you need to borrow spectrum from an MNO like us. And it's an edge case. We go to 94% coverage, we charge you GBP 3. It's a safety security thing, and it has a real market moment, but it's not a disruptor. I think the physics of the satellites when it comes to devices will never reach a point where it's going to -- I think he said the same thing publicly, and I can't believe what he says. I have the time, but he has said it. So it's -- and even in the U.S., where they have 45 megahertz of spectrum, I think they're getting -- I think 2% to 4% penetration is all they can actually realize. So the direct-to-device business is heavily dependent on spectrum. He has it in the U.S. He has it only if you load it to them in this market, he might acquire other, but it needs a lot more than he's going to get to be a replacement product.

So I hear you about on could satellite on the broadband side challenge what you have here in urban London. No. But how much of like when you look at your cable networks around Europe, do you see exposure maybe in any of the suburban areas where it could become more of a threat? Or do you think just because of where your networks are physically located, you are better protected against that kind of broadband threat?

We're generally not in rural markets. There aren't a lot of fixed operators who are prioritizing rural markets. So I'd say from that point of view, we're seeing not very much of it. I read today is GBP 75 for 400 megabits. I mean it's a lot of dough and you got the kit and it doesn't work in all cases and it's weather dependent and et cetera, et cetera. So I think it's going to struggle to replace fiber and HFC, but there is a market for it for people who either live on the edge. And I think in that case, it's a great business model. He's going to make a lot of money.

What about other wireless technologies? I mean at 4:00 today, we've got Christian, the CTO from A1 Telecom Austria speaking, and that's a market where FWA has been kind of quite a success. What are you seeing kind of in the, let's say, in the Netherlands with Odido starting to push FWA a bit, Vodafone here in the U.K. talking about it. Do you see that starting to kind of encroach on your business at all?

Not yet. I mean, listen, I think the fixed wireless access has a lot of buzz in the U.S. But in the U.S., remember, there's no wholesale access. So if I want to launch a product, I'm not going to get on Verizon's network or AT&T's network or Comcast network, I'm not allowed on it. They also have more spectrum in the U.S. That's a big benefit for them to be able to launch a viable product and not eat into their mobile product. And ARPUs are very high. So you have all the conditions, I think, to make fixed wireless a product in America. You don't have those conditions here, sadly. ARPUs are very low. It's a very -- largely a denser market, at least in the core markets that we operate in. Spectrum, we're not spectrum rich, we're spectrum poor, and to use that spectrum for fixed wireless access is going to impact your 5G, 4G business. I think in the markets we're in, 1%, 2% penetration is what we see today. I don't think it's a winner long term. It's -- we've got bigger fish to fry when it comes to competition.

Got it. Clear. So let's pivot a little bit and talk about just kind of capital strategies. Obviously, since we were here a year ago, you've made some big changes. The Sunrise deal is now kind of well and truly successfully behind us, but you've announced the Ziggo kind of spin-off as the next big step. Trying to think now kind of step beyond that, I mean, how does that inform your thinking on what the next chapter could be in the Liberty structure? I mean, do you see more spins to come? Interesting about how you think about your portfolio development over time?

We were kind of backed into this is how I would look at it. Now there's a Liberty tradition of spinning businesses off. If they're not being valued fairly in a conglomerate structure, give them to your shareholders and let them value them. That's what we did with Sunrise. Nobody in the research community at $9 a share on the Sunrise stock in our stock, nobody. When we put $4 of cash in and spun it out, you now have a $13 dividend, tax-free. That's value creation. If you're a shareholder, that's value creation. I could argue like many of my peers, well, but if I own it and I can synergize it and all these benefits, not true. There are no benefits. So in the end, giving it a life of its own is a way to deliver value to shareholders. That is a model that's worked for 25 years in John's world and it is working well for us. We spun out Latin America. Sunrise, will there be more? Yes. And will Ziggo Group be an asset that we look to build and unleash and unlock? Absolutely. Will it work? I'm certain of it. Why? It has a lot of the same characteristics as some of these are rational markets, largely reasonable competition. We have 100 people building fiber in Holland. We're only going to have one person building fiber in Belgium, either us or Proximus, so rational as can be. We've got, I think, real strong brands in these markets, and we have a prospect or a chance to generate real cash flow, real free cash flow to pay dividends. And by the way, Sunrise was a public company. We took it private. We brought it out to the market. People love it. Ziggo was a public company. You may remember, we took it private, built this great group. We're going to bring it back. And so it has a history. People understand the company as a public company. And I think investors have made it clear. If you can give us a clean story with dividends today and tomorrow and in a market that's largely rational, that's worth something. Now you know what it's worth in my stock today, negative $4. I don't need it to be worth $14. Just give me $1 or $2 or $3. Negative $4 is where I think I'm getting in my stock, and you've said I deserve it, by the way. I read your stuff on the way. So I knew I was getting a dressing down. I wasn't quite sure. It took this long to get there. The truth is I don't -- to get from negative $4, give me $5, give me $6, give me $10. My point is there's something there in these businesses. We will delever them. They will generate free cash. And I think that is an opportunity for investors if you own our shares. And the buyback we did has paid off. We spent $14 billion and $15 billion buying back stock. If you own 1% of Liberty, you own 2.5% of Sunrise today, and that will accrue to investors who have been hanging around our stock as well. when Ziggo Group goes public. So I'm encouraged by it.

So you mentioned that there could be other spins to come. I mean, how do we think about that practically? Is that a kind of -- I mean obviously, the big asset you own is Virgin Media O2. So is that something you have in mind? But is that possible whilst you're only a 50% shareholder in the asset? Or does that need to change?

Well, if you want it, we could spin our 50%.

We kind of okay. Yes.

That's not a great move, but we could do it. We would need Telefonica's cooperation to spin the company to our respective shareholders. So we'll see. I think this is the longest pole in the tent. We have work to do in this market structurally, commercially. And I think ultimately, we will sort this one out, too.

Can I just loop back to the Ziggo Group point because you announced some significant [ golden ] synergies potential for the group. We know that on both sides, Netherlands and Belgium, there have been also a concerted effort on AI and operations and commercial. Can you talk a little bit more around your view on the synergies with the group?

So what we said publicly is we think we can get to $500 million of free cash in this group. We're at -- I think we made it public, $120 million this year is our guidance. So how do we get another $380 million of free cash? Synergies will be substantial, bigger than we probably -- not probably bigger than we realized initially. There will be CapEx declines, especially in Belgium, where their mobile upgrade is essentially done this year. So that will have a huge impact. And then there's EBITDA growth, some one-offs that will unwind and just performing better in Holland because we took it -- we took the EBITDA down to reestablish a competitive profile. That comes back. So it's not that hard to get from $120 million to $500 million by 2028, and we think maybe even sooner. And the synergies are what you'd expect. There are financial synergies, I'll just leave it at that. There are operational synergies, tech supplier, procurement. So there -- we think the synergy story when we fully develop that will be substantial. We expect to close the deal in July in terms of buying Vodafone and we'll be -- day 1, we'll be working on that.

And have you given us part of that? I mean a big part of kind of Sunrise deal was also then the kind of dividend story as part of the spin. Have you given any thoughts yet as to what you can say around a dividend on the Ziggo Group spin?

You should expect that if we're going to spin that asset, it will include a dividend. In the Sunrise case, we're 70% of free cash. That might be a good metric. And to me, that's definitely part of the story.

And that's within then the 4.5x kind of leverage as well?

We get to 4.5x by -- we're selling assets, right? We're selling a stake in our Belgian fiber company, where we have towers in Holland, we haven't monetized property, we haven't monetized. There'll be free cash flow to delever. There's a handful of things that will drive deleveraging for us.

So if you were -- hopefully, you also read in the taxi over if you're reading my research that I was hugely applauding the NetOmnia transaction as a kind of think of very...

Yes, you were.

Generally, we're going the right direction. But anyway, so that looked like, I think, a great deal. I think it was a kind of accretive deal for value for you at the Liberty Global level. I mean, is that a kind of template you see that there is scope for further altnet consolidation here going forward?

I hope so. I hope so. I think there's been commentary around the price, how do we reconcile the price. We're paying GBP 600 per fiber home. I think that's 1/3 of what CityFibre has invested per fiber home. So it feels a good price to me. And it's a great deal for VMO2. I think you had questioned that, is this a value transfer somehow to nexfibre? I don't believe so. VMO2 is getting $1 billion of cash to delever. They're getting 500,000 customers to integrate into their platform. They're getting CapEx avoidance on 4 million homes. They're getting a stake in nexfibre, new nexfibre, and they're getting the ability and the control over the monetization of a 20 million fiber home footprint. That's their job. That's a pretty good outcome for VMO2. And it's a great outcome for the market. We're unlocking new capital into the market. There's no question, this is smart and necessary in this fragmented altnet space. And anybody who complains, I think it's sour grades really because CityFibre was trying to do the same deal. So I'm not sure how it's a different outcome really for nexfibre versus Cityfibre. And it should be a Phase 1 approval. That's clear in my mind. The government has talked about transforming regulation in this country, working at pace, not stifling innovation and growth. This is a test case for that. There's no theory of harm here that stands up. And I can tell you, all the counterfactuals are bad. Maybe we stopped building fiber, nexfibre stopped building fiber. Only counterfactual that's certain is BT gets stronger as far as I'm concerned. So who's going to build a scale-based competitor to BT Openreach who's going to do that? Who has the capital, the wherewithal of the customers? I don't think there's anybody else. So the government should see this as a net positive for sure.

Right. That means -- I mean, you've said that kind of nexfibre results is going to 8 million homes. I mean from what you were just saying there, is that more of a kind of stepping stone and longer term, you would hope and have ambitions it could then scale up further.

Nexfibre is at 8 million and including the 4 million homes that get transferred over from VMO2 in terms of the traffic from [indiscernible] and VMO2 is left with 12 million homes. Together, there will be a branded wholesale provider on those 20 million homes, 2 separate companies owning the 20 million, but a single brand promoting and marketing that footprint.

Okay. Small pivot. Liberty growth. You said at the beginning, we would go there a little bit. You've taken a majority control of Formula E. It's a very cool proposition. I think, with the new cars, especially, super exciting. With Atlas Edge, you're sort of in the middle of the sovereign infrastructure debate in Europe. Where will this portfolio go? What is your plan to drive value there? I think last year, we also -- you put a bit of cold water on the point of synergies with the core, which makes sense. I think that probably hasn't changed. But where is the value in your eyes over the next few years?

Yes. Well, we have 3 verticals. It's about a $3.4 billion portfolio today, infrastructure, tech and media content. They're all intriguing. I think we have a great track record in all 3 of them. Tech is kind of funds itself or in start-ups, venture capital. This is real tech, and there is some synergy with what we're doing, ElevenLabs, you mentioned that. What we have to decide in tech is, is this something we do for the next 10 years? Or do we partner? Do we capitalize it? It's $400 million, $500 million of great stuff. They kind of eat what they kill, meaning when they sell, they can invest, but they're not using our capital. How's the best way to monetize value that business? In the infrastructure side, as you mentioned, with AtlasEdge and EdgeConneX, the stuff we're doing in energy, it's right down the middle of what we do. There's lots of opportunity for now, anyhow, it feels like lots of opportunity to build data centers and metro fiber and energy suppliers. So that's a business we have to decide how much capital we can afford to really drive that business. It's -- fortunately, we're sitting on high returns. I think in the EdgeConneX case, maybe we've got $100 million in it's worth $5 million or $6 million we've taken money out. In the case of AtlasEdge, a little more in it, but it's also been a 20%, 30% IRR. So infrastructure is something we're good at. We understand really well, and we have to decide how do we capitalize that and grow that and stay present in that. In the middle is the trickier bit. A lot of the content assets we own are things we've owned for a long time. We exited all 3 media for GBP 1 million. We're starting to sell our ITV stake. You're reading that. We love these companies, but there is no -- we're not so sure where we fit, owning 10% of a company or being in the production business. So there, we're much more interested in what we would call the experience economy. Formula E is a perfect example. sports platform, 1 of 8 global sports leagues on the planet, and we own it. And I think it's got great tailwinds, great potential, great opportunity. We'd like to do more of those if we can. And we'll see if we can. There's no guarantee that we'll find something or that we're -- it's the right thing for us. But this portfolio, according to some analysts is $10 a share on a $12 stock. For me to say, I don't really want to talk about it or for an analyst or an investor to say, that stuff over there, I really wish you weren't doing it. It's $10 of my $12. I need to manage it, grow it, exit it, monetize it. So it's definitely worthy of conversation. And what we do going forward to build it out will be -- we'll see, but it will only be smart stuff. I think I don't think anything.

And what about Liberty Services? I mean, with Liberty Tech, you're in the services products business and Liberty Bloom especially...

Liberty Tech is very much an inside thing. We have about $500 million of revenue we collect from our OpCos, even Sunrise. By the way, when we spin Sunrise, when we spun Sunrise, they still have a very strong contractual relationship on technology. We do their treasury work. There's a strong strategic relationship. Andre is still part of my core management team. He comes to my offsites. So we're spinning them, but they're still very much in the fold in the family. So I think it's -- I was tracking your question, but...

The value story behind Liberty Services, including Bloom Services because I think...

The Bloom side of it is about $100 million of financial services. And there, we've decided maybe they can do that for other people, some third parties, and so we'll see how that unfolds.

And leverage some of the domain knowledge you have in the industry, which I think is super interesting.

Yes.

Okay. So maybe closing thoughts. I'm sort of looking at the clock. We have about 2 or 3 minutes left. You're a telco operator in Europe, majority of your investments are in Europe. What gives you the greatest confidence in the European telco and tech sector? And what needs to change for you to make most of that?

I don't think you can do that in 2.5 years. the European telco and tech sector needs to kick in the pants if you're comparing it to the U.S. or China and everybody who operates in it knows that. I was just at the Mobile World Congress and basically, we go there to complain to regulators about how difficult things are. And I think it can be better, and I think it will be better. I think this digital sovereignty point initially bothered me a lot. A year ago, I was talking about it, most people what is that? But it bothers me a bit to less so today because I see it as an opportunity for us and our infrastructure to be part of those solutions. So that's exciting. I think this is where we started. There are tailwinds in our industry, but there are things we need to do better, right? What do we need to do better? We need to move fast. The pace, you're seeing it, you know it, the pace at which technology is evolving, AI is evolving, disruption is evolving is like nothing we've ever seen before. So the old school telco mindset, I got a few quarters to figure this out or I can launch this in 9 months or give me 18 months. That's gone. We have to start thinking differently. And to do that, we need different talent. Let's be clear. We need different talent. I'm not really hiring a lot of people from other telcos. I'm hiring them from big tech, hiring them from other sectors. We definitely need that. And I think we have to find a way to remove these dependencies. We're highly dependent regulators for sure. We've got to remove that. But also a massive software company. And there's no reason why software is trading off. We're spending a lot of time to figure out how to get off the stack to chop the stack, burn the stack because we spend massive amounts of money with these companies. And it is old school money. And in this world, as fast as AI is moving and the speed at which it's developing, we can take advantage, there will be better, faster, cheaper ways to do the very same things that will result in significant reduction of cost. And if we can remove those dependencies carefully, appropriately quickly, I think you're going to see a seismic shift in our economics.

Great. Thank you, Mike. Thanks for joining us. I don't think inspiring was the wrong word. I don't think so.

Yes.