Liberty Global plc
Q4 2016 Earnings Call Transcript

Published: 21 Feb 2017

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's Fourth Quarter 2016 Results Investor Call for its LiLAC Group operations. 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 express 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 www.libertyglobal.com. [Operator Instructions] As a reminder, this investor call is being recorded on this date, February 16, 2017. Page 2 of the slides details the company's Safe Harbor Statements regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectation with respect to its outlook and future growth prospects and other information and statements that are not historical facts. 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 from time to time in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Form 10-K. 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 Mike Fries.

[Michael Fries:]

All right. Thanks, operator, and welcome, everybody, particularly our LiLAC shareholders who may have just dialed in to join us and hello again to those who were with us on our last hour for the European call. This is our first LiLAC investor call, as we've said, and we're hoping that the next 45 minutes or so really provide you with a bit more information and transparency about our Latin American and Caribbean businesses. I'm joined again by senior leadership team here in Denver, in Europe, in Miami, in particular, Betzalel Kenigsztein, who's the President and COO of LiLAC; John Reid, our CEO of Cable & Wireless; and Chris Noyes, CFO of LiLAC. Each of them are going to make some remarks today and help during Q&A so you don't have to listen to me the entire time. I'm going to provide a quick introduction and Betzalel will cover some consolidated results, including -- and particularly Chile and Puerto Rico. John is going to dive into Cable & Wireless, and then Chris will close with some financial results, and then we'll get to your questions. And as we do usually, we're talking from slides, so I hope you can get those slides and follow along with us. Now I'm not entirely sure who's on the call and I'm on Slide four now, but we thought there might be a fair amount of investors who are new to the LiLAC story. We want to start with a quick recap of the LiLAC opportunity as we see it, basically laying out for you the strategic, operational and financial reasons to own this stock. I think the first point to make is that LiLAC represents a highly diversified set of operations across the region that is and will continue to experience tremendous growth over the next five years to 10 years. Now we're not the biggest operator in the region, but we feel like we're one of the best positioned to exploit this opportunity, with 5 million fixed RGUs, 4 million mobile subs, $3.6 billion of annual revenue and market-leading positions across 20 countries. We're the number one fixed broadband provider in 14 of those markets, the number one video provider in 9 of our 16 in countries with TV, and the number one or number two mobile provider in 17 of those 20 markets. So fixed and mobile convergence is alive and well at LiLAC. And it's well known that broadband and pay TV penetration in this region are about 35%, 40% compared to, say, 85% in the U.S. And also, the broadband consumption across both fixed and mobile networks is growing faster than it is in America and Western Europe. We think we're poised to ride this wave -- by the way, including in the B2B segment, where Cable & Wireless is perhaps the most respected provider of B2B services throughout the Caribbean and Panama, and our subsea fiber network is feeding the entire region with fast, reliable bandwidth, and that is consistently ranked as the number one provider. These 2 businesses represent 40% of Cable &Wireless' revenue today, and this expertise and connectivity will help B2B fuel growth in Chile and Puerto Rico, where we're really just getting started. Now as we know from Europe, scale drives opportunity and growth, and it's no different at LiLAC. We’ve already seen Columbus and Cable & Wireless hit nearly all of their synergy targets, and we've recently announced another $150 million of synergies between Cable & Wireless and LiLAC by year-end 2020. Half of those savings will come from OCF improvements, the other half from CapEx savings. And together with revenue drivers I talked about, we think over the medium term, LiLAC should return to being a high single-digit OCF growth company. I know Chris will provide some specific guidance for 2017. And we're in a perfect position to play a big role in the necessary and inevitable consolidation that's going to take place in Latin America and the Caribbean. When we originally created a LiLAC tracking stock, one of the main reasons for doing so was to exploit this highly fragmented telecom space. I'll tell you, our pipeline is deep and it's rich, but we're going to be patient. Clearly, we think our stock is undervalued. But now we're pushing forward with the hard spin of the business potentially by year-end. And in time, I can assure you that LiLAC will be front and center on some very interesting opportunities to drive further scale in the fixed to mobile network business and create great value as well as in the B2B space. We're excited about this region. I hope that's becoming clear in this company and this stock. And for those that have been long-term investors with us, I think you know our playbook. It won't happen overnight. But with steady organic growth, smart capital structure management and disciplined M&A initiatives, we're confident that this will be a very interesting business for a long time. Now I'll finish my remarks with some big headlines on Slide 5 about the year and the quarter. But before I turn it over to the rest of the team and as you'll hear in a moment, the legacy LiLAC operations in Chile and Puerto Rico are cruising along nicely. Together, they added nearly 100,000 new RGUs. In 2016, they generated a combined 9% rebased OCF growth for the full year. Both of these markets are competitive, just like in Europe, but we're leading the pack with the fastest broadband speed and the best entertainment platforms. During the seven months we've owned Cable & Wireless, we worked our tails off to steady the ship and create all of the right conditions for continued growth. We nailed down our growth strategy for each market. We created a new operating model, established new leadership and at the same time, we infused the organization with the best of what we do in Europe and what we know as well as with some of our brightest executives who have already been integrated. John Reid will expand on that. But the group exceeded the OCF guidance in the fourth quarter and is on the right track to achieve this sort of growth we originally anticipated. Network upgrade and network expansion are critical drivers of success in nearly all of our LiLAC markets, and we added a total of 150,000 two-way homes in Chile and Puerto Rico last year. And Cable & Wireless operations added or upgraded about 200,000 homes, primarily in Panama, and we're planning to build or upgrade another 450,000 homes this year. Similar to Europe, the Connect & Play strategy defines the opportunity in this region. We're increasing our top broadband speeds in Puerto Rico to 400 megabits per second. The speed of our core triple-play product in Chile is already 100 megabits. Across both markets, we developed approximately 150,000 Connect Box deployments, and we'll continue to aggressively deploy this game-changing WiFi router in 2017. And in addition to delivering the fastest speeds, we have a great product entertainment product everywhere, including the Premier League rights on Flow Sports in the Caribbean, which are a killer app. And lastly, as we signal to you, this opportunity is very similar to Europe in the sense that LiLAC will be a levered equity growth story. And even though we have been undercapitalized at the moment, we did initiate a $300 million buyback plan late last year, and we're certainly interested in taking advantage of the current stock price at these levels. So we are excited about LiLAC, the region, the company, the opportunity, the management team. We appreciate the patience that shareholders have shown, and we're anxious to continue to demonstrate to you the opportunity we see here in this region. And with that, I'll turn it over to Betzalel, and we'll get to your questions at the end.

[Betzalel Kenigsztein:]

Thank you, Mike. I would like to take you through a high-level review of our 2016 results. You can see from the chart on Slide 6 that the acquisition of Cable & Wireless in May 2016 transformed LiLAC by having significant scale, nearly tripling the revenue at LiLAC. Our legacy business in Chile and Puerto Rico performed very well in 2016, generating healthy rebased growth. VTR had a strong quarter, with rebased revenue and OCF up 6% and 10%, respectively, while LCPR generated strong OCF growth despite a challenging macroeconomic environment. CWC performance was somewhat challenged, but we remain confident of the business significant growth potential. We have spent a considerable amount of time together with the CWC team analyzing strategic opportunities with a few focus areas. First, we continue to leverage the talent pool across Liberty Global and we are transferring seasoned professionals into the LiLAC businesses in areas such as programming, marketing, finance and technology. Leveraging our talents and experiences will drive operational improvements, including simplifying and standardizing processes using track course reducing installation times and lowering call center costs Second, we are focusing on delivering products our customers desire and on the same time, improving their experience, which is key to our future success. And finally, we aim to leverage our scale to achieve the targeted synergies following the acquisition of Cable & Wireless. For example, we are negotiating final regional procurement agreement on access equipment, IT services and external labor, and we plan to leverage our attractive content pricing in Chile and apply to Panama and the rest of the Caribbean. On Slide 7, we will take a closer look at VTR. In 2016, we added 77,000 organic RGUs and 66,000 customers, which was an annual record. These organic RGU additions included 88,000 broadband RGUs our best result in 9 years. Underpinning this success was our dedication to delivering the best customer experience, which we are improving through a number of initiatives. We aggressively rolled out our next-generation WiFi Connect Boxes. As of the end of the year, we had over 100,000 industries delivering a great solutions with improved WiFi capabilities for challenging environments such as the predominantly concrete homes in Chile. We also increased our broadband speeds last year and now offer 100 megabits per second in our core Vive bundle. And it wasn't just the fixed business that enjoyed a strong 2016. We also increased our mobile subscriber base by 26% to 166,000 subscribers as a result of operational improvements and refreshed packages. In terms of new builds and upgraded homes, during the year, we delivered over 130,000 homes and the program proved to be such a success that we are picking up the pace and targeting an additional 175,000 homes in 2017. Wrapping up this slide, I'd like to highlight the initial success that we have had in the B2B space, in particular in the SOHO segment. During 2016, we created and launched our first B2B bundle focused on SOHO segment, leveraging best practice from our European operations. We focused our marketing message on a unique value proposition with superior broadband speeds and dedicated B2B customer support. Through these initiatives we were able to add over 20,000 SOHO customers in 2016, a base that we expect will continue to expand in 2017. On Slide 8, we will dive into Puerto Rico. Liberty Puerto Rico operations continued to deliver strong operational and financial results as we have the best network and the best products on the island. And during 2016, we continue to enhance our video and broadband offering. In Q3, we launched our UPick skinny video bundles, which allow customers to choose their video package that best suit their needs. This follows on the heels of our success with Spanish-speaking packages, which allow customers to save up to 40% of their monthly bill but also allow us to efficiently manage our margin even much lower content cost. On the broadband front, we have deployed 40,000 WiFi Connect Boxes, and we raised our top broadband speed to 400 megabits per second, far outpacing what our main competitor can provide. We have also been focusing resources in our B2B business as the SOHO and SME segment, in particular, represent a large segment for us to exploit. We leveraged our fiber infrastructure to deliver high-quality services, mainly to the SME segment, taking advantage of our robust international connectivity through Cable & Wireless submarine network. As you can see in the middle of this slide, our innovative product offering resulted in bulk customers and RGU additions in 2016 as we added 3,000 customers and 22,000 organic RGUs. And on the far right, you can see the pace of our new build activity. In 2015 and 2016, we built a combined 30,000 homes and plans to roughly triplicate that two years' numbers in 2017. With that, I will turn it over to John.

[John Reid:]

Hello, everyone. I'll now take you through CWC's performance as well as provide some color around the opportunity that Mike touched on earlier. I want to start with the people side of our business, which is key to successfully executing on our plans. Over the last several months, we've been working to put in place the right operating model as well as the right people for us to be successful in our markets. Now I'm pretty much through that process. On this slide, you can see that one of the more significant changes that we've made is reorganize our operations into regional clusters, where Gary Sinclair, for example, is now responsible for the entire Caribbean business, both consumer and B2B, whereas previously, we managed these segments separately. This single ownership of the P&L and our view of the customers will result in better performance across the region. Before we established the new structure, we completed a very detailed, bottoms-up, country-by-country regimental exercise with the Liberty team to identify the most attractive opportunities and how best to exploit them. We're now in the early stage of the execution phase, and as Betzalel indicated, we're working closely with the broader Liberty Group to ensure we benefit from all the skill, experience and scale that we collectively have. In particular, we're benefiting from the go-to-market strategic expertise, engineering and design leadership, as well as procurement and content savings as we transform many of our businesses from what historically has been an incumbent telco to a triple-play and increasingly quad-play cable model. Finally, on this slide, you can see our net additions since the acquisition by Liberty in mid-May last year. In short, we had a good performance in mobile, with 13,000 net adds, led by continuing strong growth in Jamaica, while the fixed picture was more mixed, as progress and Panama was more than offset by the impact of competition in some of our larger Caribbean markets. It's worth pointing out that in addition to the competitive environment, our organic RGU numbers were also impacted by an adjustment that we recorded in Q4 to eliminate 30,000 non-pay subscribers from our subscriber counts. I'll now take you through our three largest markets, which together represent approximately 85% of CWC's revenue. Due to the acquisition timing and the pending changes to CWC's fiscal year, I'll focus mainly on our Q4 results for comparative purposes. First, the largest cluster is our Caribbean business. Across our 15 Caribbean markets, we saw flat revenue performance in the fourth quarter against the prior year. Running through the major markets in turn. Jamaica, a real indicator of what we can do if we get the execution right, continued its strong performance led by mobile, which was up strongly in revenue and where we saw our subscriber base about 900,000 for the first time, with 56,000 subscribers added in the quarter. Fixed voice and B2B growth more than offset some of the softness in broadband and video, following the increased competition, which resulted in double-digit top line growth year-over-year. Barbados had another difficult quarter as our growth in video and B2B was more than offset by declines across our other products. We experienced some initial technical challenges as we began migrating customers from their legacy copper network to our nationwide Fiber-to-the-Home platform. However, with these issues now resolved, we expect to see increased ARPU and churn benefits on this more advanced infrastructure and as we work to complete our customer migration in 2017. Later this year, we expect that Barbados will also be the first market where we launch a full true quad-play offering. In Trinidad, our largest radio market in the Caribbean, we saw encouraging results with stable broadband subscribers. However, this was offset by some video weakness, leading to a flat overall performance. Moving to our largest single market in Panama, our top line was up in Q4, driven by B2B. Our most competitive mobile business continued to prove challenging, with revenue off against the prior year; while in video and broadband, we saw the early benefits of our new Master video and broadband bundles. Upgrading and expanding this network while introducing new services represents one of our best opportunities to create a leading quad-play provider, underpinned by our strong existing mobile position. B2B continues to be a large part of Panama's business and revenue was up subsequently year-over-year, with double-digit growth in the fourth quarter. Finally, to the Bahamas, similar to the third quarter, we saw a sharp revenue decline as we continue with our plan to reduce our inbound roaming tariffs while also increasing data-led promotions, following the introduction of a new mobile competitor. To reduce churn, we also recently introduced the Flow TV mobile app in December, and we continued to make steady progress with our fixed line products over FTTH, however, recognizing that these still represent a very small contributor to the revenue line compared to approximately 70% from mobile. Looking across the region, our subsea and LatAm business continued to perform strongly as we continue to deliver unmatched connectivity across the region. Overall, we've seen some positive top line performance in the quarter with encouraging revenue growth, both year-over-year and sequentially. While we still have a lot to do, I'm convinced that we've developed the right strategy and that we have the unique opportunity ahead of us to create a leading quad-play, B2B and subsea operator in the region and deliver strong and sustainable growth over the medium term. With that, I'll hand over to Chris, who will take you through the financials.

[Chris Noyes:]

Thanks, John. On the following slides, I'll take you through the financial results for LiLAC. And I am starting on Page 12. After adjusting for FX and the impact of acquisitions, rebased revenue growth was 1% year-over-year at $2.7 billion for 2016, while our rebased OCF growth was 6% at $1.1 billion for the same period. I will provide you with some more details at the segment level on the next slide, but the rebased OCF growth of our legacy operations in Chile and Puerto Rico was 9% for 2016 as compared to our guidance of 6%. On the CWC front, we delivered OCF of $226 million in the fourth quarter, just above our Q4 2016 OCF guidance range of $215 million to $225 million. P&E additions increased to $568 million in 2016 or 21% of revenue, up from 19% of revenue or $227 million in 2015. This is consistent with our target and also includes incremental spend related to the replacement of network assets in the Bahamas damaged by Hurricane Matthew in Q4. Overall, the year-over-year increase in both total spend and as a percentage of revenue was primarily driven by the inclusion of CWC and our new build programs in Chile and Puerto Rico. Finally, moving to the far right of this slide, consistent with our limited free cash flow target, we delivered 2016 adjusted free cash flow of $62 million. The modest year-over-year decline is attributable to the inclusion of CWC's negative free cash flow of approximately $22 million since the acquisition. On Slide 13, we show the financial performance of our 3 operations, starting on the left with Cable & Wireless. One quick note regarding the graph. The U.S. dollar amounts on this page combine the pre- and post-acquisition results of CWC while the rebased revenue and OCF growth rates are for the post-acquisition period. The post-acquisition revenues of CWC declined 1% on a rebased basis as growth in our managed services and broadband Internet business was more than offset by declines in fixed line telephony and mobile, driven in part by increased competitive activity in markets like the Bahamas and Trinidad. Rebased OCF growth at Cable & Wireless with the post-acquisition period was 3%. Despite softness in the top line, the company benefited from staff and network-related savings following the Columbus acquisition as well as lower year-over-year integration costs. In terms of capital intensity, CWC reported P&E additions of 21% of revenue during 2016, including 20% during the post-acquisition period. Moving to VTR, which represents around 1/4 of LiLAC's total business, we delivered rebased revenue growth of 6%, primarily driven by VTR's cable subscription revenue, which increased as a result of a higher ARPU per RGU and solid volume growth of 77,000 net new RGUs in 2016. Mobile subscription revenue grew 19% during the year, albeit from a small base, as we benefited from the introduction of refreshed mobile packages and a new sales approach. VTR reported rebased OCF growth of 7% for 2016, mainly driven by the aforementioned revenue growth and a disciplined approach to cost containment. Property and equipment additions for VTR were 23% of revenue in 2016, up from 18% in 2015, driven largely by the significant ramp-up in our new build and upgrade program. Rounding out LiLAC on the far right with Puerto Rico. We reported 1% rebased revenue growth in 2016. Despite macro challenges, we achieved double-digit growth in our B2B business and as Betzalel mentioned earlier, we experienced solid broadband and voice subscriber growth during the year. Our revenue growth was offset by a 2% decline in ARPU per RGU on a year-over-year basis. This was largely by design, reflecting our go-to-market video strategy, which is focused on lower ARPU Spanish and UPick video offers, both of which have attractive margins. Importantly, we delivered strong rebased OCF growth of 15% in fiscal 2016 or $28 million year-over-year. This OCF performance was driven by cost control and the $13 million positive impact in H2 2016 from the reversal of a previously reported provision and a recognition of indemnification proceeds in connection with a favorable ruling on a legal case. In terms of P&E additions, Puerto Rico finished 2016 at 22% of revenue, which was up one percentage point or around $10 million year-over-year, driven in part by more than a doubling of our new build activity. Moving to Slide 14, which is focused on our leverage and our buyback program. Similar to our European strategy, we manage our balance sheet risk by focusing on 3 factors. First, we organize our debt structure around ring-fenced borrowing groups, consisting of Cable & Wireless with $3.6 billion of debt, VTR with around $1.5 billion and LCPR with just under $1 billion. Second, we are focused on keeping our tenor extended. And third, we hedge our interest in currencies where possible. With respect to our leverage, we ended the year with $6 billion of total third-party debt and over $0.5 billion of cash, reflecting consolidated gross and net leverage ratios of 4 times and 3.6 times, both slightly reduced versus Q3 and calendar year 2015. The average tenor of third-party debt was 5.5 years, and more than 90% of our debt comes due after 2020. With that being said, we expect to be opportunistic over the next 18 months to improve our maturity profile, especially at CWC. We finished 2016 with a fully swapped borrowing cost of 6.8%. The slight increase over Q3 reflects in part our Q4 financing activity, which included a new $300 million term loan at CWC and the impact of hedging. Turning to liquidity. We had $1.5 billion at year-end, including approximately $550 million of cash and $1 billion of aggregate unused borrowing capacity under our credit facilities. As we sit here today, our liquidity, combined with incremental leverage capacity and future free cash flow debt generation, positions us well to remain opportunistic with respect to our $300 million share repurchase program and incremental investment opportunities that may arise. On Slide 15, we provide our 2017 outlook for the LiLAC Group. We are targeting approximately $1.5 billion in consolidated OCF in 2017 at current FX rates, with the Chilean peso likely to be the most material driver of FX fluctuations. At that level, we would expect our rebased OCF growth to run conservatively, in the low- to mid-single-digit range in 2017. Our reported rebased OCF growth in 2017 will be adversely affected by 2 factors in particular

[Operator:]

[Operator Instructions] And we'll take our first question from Jason Bazinet with Citi.

[Jason Bazinet:]

I just had one quick question on the, you talked about it being a levered equity return story. If I look at that $300 million buyback target by '19, is the right way to interpret that, is that roughly your free cash generation that you said will be modest this year will sort of go towards buybacks? And then to the extent that your EBITDA grows and you hold your leverage consent, those monies would be plowed back into the plant in terms of CapEx. Is that a fair interpretation?

[Michael Fries:]

Well, it's a good question, Jason. Listen, I think the main point, the most important point to takeaway is that, philosophically, we intend, over time, for LiLAC to operate in a similar manner. By that, I mean generating really high single-digit OCF growth, maintaining moderate, more moderate but consistent leverage and ideally generating free cash to the parent that can be used for acquisitions or buybacks. So that's the main point, which is we intend to evolve into a platform here that looks very similar in terms of how we create value for shareholders. That's point one. In terms of the exact numbers, I mean, we feel there is, obviously, a limited free cash flow today, as we pointed out. We're going to grow that number over time. But we did feel there was liquidity, sufficient liquidity, to start buying stock, especially when it was trading, and we didn't want to miss that opportunity to do so. And we felt that, that number, $300 million, was the right kind of amount, but that could change over time. There's significant draft cash in this operation that could be ultimately upstream. You saw the subsidiary cash figure of $500 million. There is borrowing availability. So I think we're at an inflection point here, and we're going to see how the M&A opportunities evolve, how the stock trades, how the cash flows progress. But the main point was that, over time, you should view this in a similar light, a levered equity growth story, where we're going to be optimizing capital and shareholder returns. I hope that's a little clear.

[Jason Bazinet:]

Yes. That’s helpful. Thank you.

[Michael Fries:]

You bet.

[Operator:]

We'll take our next question from David Joyce with Evercore ISI.

[David Joyce:]

Thank you. I was hoping you could drill down some more into the PP&E plans now that you've gone through your strategic review. Could you help us think about how you would be slicing up? Where you would be investing first? How you would be prioritizing, be it in mobile or fixed line upgrades? I know you talked about new home builds. But just could you talk about the product types as well as the countries in which you would be looking to be investing this year?

[Michael Fries:]

Yes, Balan, I don't know, John, if you want to hit that on Cable &Wireless, or Balan is on the line, either one. I mean, you're going to hear that. It's a combination of both mobile networks. Well, the company, Cable & Wireless in particular, has been investing quite a bit in mobile networks in the last few years, a combination of mobile networks, making sure we're up the snuff, and then more importantly, driving fixed, converting and upgrading copper but also driving our fixed capabilities in core markets. But who wants to take that question? You want to take that question, John, for Cable & Wireless?

[John Reid:]

Yes, sure, Mike. Yes, that's exactly the strategy. I think we've done a pretty good job leading up to, actually, prior to the Compass acquisition. And then of course, since Liberty has bought the company, a great, a significant amount of investment went into the mobile network, and that was Cable & Wireless' strategy. And with that, LTE rolled out a number of sites. And of course, we've got other countries coming on stream. As a company, that's a legacy telco for the most part, except for the Compass assets. We've got a lot of copper. So the strategy is market-specific in terms of either upgrading ADSL to VDSL or ADSL to HFC or some Fiber-to-the-Home expansions. So there's upgrades and there's expansion plans by country. And our anticipation, our target is to certainly accelerate the, that upgrade so that our customers, regardless of the country, can pretty much have the same product set and the same amount of customer experience. And that's certainly what we expect to achieve over the mid-term.

[Michael Fries:]

Betzalel, you want to talk about VTR in Puerto Rico? Go ahead, Balan, if you just want to add to that.

[Balan Nair:]

Sure. I'd say that you'd see a lot of our capital investments will go to its new builds products. You'd see in VTR, in Puerto Rico, we're investing in video; we're investing in our latest and greatest CPE. But really, we are investing a lot in new builds as well. And you'll see the capital intensity in mobile dropping a bit, and the capital intensity in the fixed network is growing because that's where it's going to drive the growth in the business in all of LiLAC.

[Betzalel Kenigsztein:]

Yes, just one point, Mike, to add. I think that [indiscernible] cable in Chile and Puerto Rico, most of the investment is in new build. There's a significant part of the investment in -- or not significant but a significant number of homes that will come in the Cable & Wireless properties, where we are upgrading the network from one-way to two-way, especially in Panama HFC. That is one-way that we are bringing to two-way and also expanding to new build on HFC in Panama, specifically.

[David Joyce:]

And just finally on the Panama side. Given the mobile competition there, do you need more investment in the network there? Or is that much more just a marketing issue because of the high prepaid market that it is?

[John Reid:]

I can take that again, Mike. I don't think it's so much of an investment in the network. We kind of -- we upgrade according to, certainly, as data consumption growth, and we fill in where we have to if there's any congestion in the network as we do in any country. It's more of an issue of it's a 4-player market. You've got a couple of players in particular that certainly play for price as opposed to ourselves and another key operator there. So I think it's just a little movement. And I think for the most part, the consideration is that it's really about the value proposition, how we've kind of tie in our mobile product with our fixed line strategy. We will be the only true 4-play operator in the region, and I think that's going to significantly change the -- certainly change the competitive dynamics. But it's really about the marketing and the competitive landscape than it is about the network.

[David Joyce:]

Great. Thank you very much.

[Operator:]

We'll take our next question from Andres Coello with Scotiabank.

[Andres Coello:]

Yes. Thank you. Good morning and thanks for taking my question. John, you mentioned your plans to ramp up the fixed line network in Panama. Can you give us an idea what percentage of your network is currently capable of delivering video and how that can improve on your -- on the Master bundling plan? And second question, I -- regarding Trinidad and Tobago, I understand that you're currently in the process of divesting from TSTT. Can you give us an idea of how that process is going and perhaps an estimate on how much you could monetize from your former stake in the company?

[John Reid:]

On the Panama network, we've been busy upgrading that network. That network actually considers -- or consists of one-way HFC, now two-way HFC after we've upgraded about 180,000 homes over the past year. We've got a lot of copper there. So the plan there, Andres, is by the end of the year, we'll be able to compete certainly and offer a very similar product set as we do in other countries over probably two-thirds of our plans. And that doesn't count the expansion plans, but that's well articulated. So maybe for us, it is a ramp-up. It's an acceleration of our, I guess, our capital intensity in that particular market. And in doing so, I will add, certainly benefiting from the scale of Liberty and certainly the cost effectiveness of allowing us to do that in a more accelerated rate. So, it really changes by quarter. We've gone from 100% HFC one-way 12 months ago to two-thirds of that network being completed. So, that will continue to be upgraded and accelerated throughout the year. And our anticipation is, certainly in the short term, we will be able to compete in probably 80% to 90% of our network on the same product set as our competitors.

[Andres Coello:]

Okay, thank you.

[Operator:]

And we'll take our next question from Julio Arciniegas with RBC Capital Markets.

[Julio Arciniegas:]

Good morning. Thank you for taking my questions. Can you give me some color about the competitive dynamic in Panama? Because well, I've seen that revenue growth has improved quite a lot in this quarter? Can you give me some color about these project-related revenues? What's the amount of this project, and in general, the competitive dynamic?

[Michael Fries:]

Do you want to handle that, John or Betzalel?

[John Reid:]

Yes, I can start and, Betzalel, you can certainly chime in. In Panama, there's a 4-play mobile market, and we are the market leader and we kind of maintain that market leadership probably since inception. We were the incumbent. So we still enjoy over 50% market share in Panama. The investment strategy has pivoted, I guess, to the fixed line, as we've articulated. And as of right now, on the fixed line business when it comes to video, there's only really two players besides the DTH service providers, and that's ourselves and Cable Onda. They are of course, they're market leader. And being the, I guess, the incumbent triple-play operator in that market, it's about now I think about 65% market share. So that's where we see tremendous opportunity, and it's probably similar percentages on the broadband as well. So for us, that's an obvious investment target. I think we're holding our own in mobile. The business continues to change as we understand and move into a more data-centric and consumption model and away from voice. But that being said, we've held our strategy there. We held our position there, I should say. And so our focus on the fixed line and that expansionary capital, as per what Balan said, and also the upgrade strategy, as we've articulated, I think is certainly the right one. So we expect that percentage of market share to change going forward. It continues to change as we've launched our first upgrade project, and that will continue through '17 and then to '18. But again, we see a significant opportunity there. If we go from one market to two, we will certainly gain our fair share of market through that transition. And again, and coming back to my point on us being really the only quad-play provider in the market is a unique opportunity certainly for Panama.

[Michael Fries:]

I'd say from a strategic point of view, also this is a big market, of course, with Cable & Wireless and one that we certainly have forecasted to be a big contributor to growth and upside over time. As we've seen in Europe, it may also be a market and a candidate for consolidation. I mean, there is only so many competitors a market can withstand, and we don't have anything to announce or anything under way. But it does appear to us from 30,000 feet that over time, some of these markets like Panama might benefit from consolidation in the mobile space perhaps or elsewhere, just to ensure that there is significant infrastructure investment and infrastructure competition going into benefiting consumers. And so there's a handful of markets where that could be a case. This one could be one.

[Julio Arciniegas:]

Okay. And can I follow up in the project-related revenues? Because basically, I see that in Panama, mobile revenues excluding these project-related revenues, they have been minus 10%, I think so. And also, you have some pressure in the broadband side. So I would like to get some color into the size of these project-related revenues.

[John Reid:]

Well, in terms of the mobile network, as earlier indicated, the market continues to sort of play itself out with a couple of lower, I guess, lower share of market player that are competing more in price than we are on the top. And certainly, we're looking at our strategy in terms of we've got a lot of customers that go back and forth between networks based on price. And so we're responding to that and developing new value proposition. When it comes to broadband, the churn is the result of that old network that had not been upgraded yet. So as we continue with that strategy of upgrading the ADSL, which is really where the churn is taking place to HFC or even upgraded to VDSL 2, we'll see the benefits of that. So really, it's just a matter of time in that market especially when it comes to the fixed network. We're trying to, again, ramp up our investment strategy so that we can offer the same services as other parts of the network. So it really comes down to timing, and that's why we've also again accelerated our investment strategy there.

[Julio Arciniegas:]

Okay thank you.

[Operator:]

And we'll take our next question from Kevin Roe with Roe Equity Research.

[Kevin Roe:]

Thank you for the stand-alone LiLAC call. It's greatly appreciated. Two questions for John. First, on the Bahamas, you mentioned the new mobile competitor in November. Any surprises there? And can you briefly talk about your expectations for mobile in Bahamas in '17? And regarding the hurricane, is there a specific OCF impact you can call out from the hurricane in Q4?

[John Reid:]

I'll answer the OCF question. I'll defer to Chris, the number, it hasn't moved a whole lot since we gave some guidance at the end of the quarter, Kevin. But I'll let Chris give an update. In terms of BTC, no, we haven't. If anything, I think we've held market share and actually grew subscribers in the fourth quarter. Now a lot of that of course, was special promotions and sort of data packages that we brought to the market. So if anything I suppose, the market shifting in terms of we've been able to keep our base pretty strong, has probably only been a bit of a surprise to us. I mean, we would have expected probably a higher churn in the first several months. And even those that have churned off are still keeping -- a lot of them are keeping SIM. So the number of connected devices to our network is still pretty high and really against what we thought our plan would be. In terms of BTC, obviously, we factored in, in our own internal outlook some market erosion there. We're going to go from 100%, and we're going to lose share. And I think we've been pretty conservative in terms of our outlook, in terms of our internal kind of forecasting as what to expect. And at the same time what's critical for us is to ramp up that fixed line investment. So we've just gone from 14,000 to that 26,000 homes on our new Fiber-to-the-Home network. And that's important, not just because we want to sort of expand our video and broadband market share and grow that product, but also it gives us an opportunity to really keep the mobile customer through a sort of cross-platform value proposition, which we've as an example we've launched the mobile and TV service for all of our customers late in the fourth quarter. That gives a sort of a skinny package bolt-on for a mobile subs before we get the video product to their home. So I think we're in pretty good shape. We will continue to evaluate our strategy and certainly pricing and packaging as each month goes on. But I think the early indications Kevin, is we're in pretty good condition based on what we probably would have expected 6 or 8 months ago.

[Chris Noyes:]

Yes. In terms of OCF, we estimated it was about $4 million in Q4 impact.

[Kevin Roe:]

Great. And a quick follow-up for John on Trinidad. You've got your new management team in place. How should we think about 2017? Can this market return to growth?

[John Reid:]

Yes, yes. Trinidad is from the old plummet days, was really, I guess, our jewel in the crown. It was really our first HFC, a very passive optical network, and we designed it right. I think, sometimes, you just realize through changing market conditions that the leaders need to change based on the competitive landscape changing. And of course, we've made those as we've indicated. So yes, our anticipation is we are back, actually, we're back down there next week. We've got some new leadership, new engaged team, new customer value proposition is being created and a real focus for us on Trinidad, in particular. Because we still see, even though they've had some macro issues with the oil impact, it's still a very, very strong market for us, strong B2B market for us. And so my anticipation is that we will obviously see a reversal of fortune in the new fiscal year. And it does start with people, but it's really a complete reset for that country.

[Michael Fries:]

Two other things to add there. We are still shooting for the third license, I believe, John, so in the mobile space. So that would be a big positive if we could pull that off. And I think somebody should address the earlier question on TSTT. I don't know if that's you, Chris, or you, John, in terms of where we are in divesting that 49% stake. So at least, get to have an update on that.

[John Reid:]

Yes, I can speak to it. We continue to go through the process, the formal process, which is the, and we're in the early days of expressions of interest. And we have an extension from the telecom authority of Trinidad and Tobago to the end of March. And it's not, I will say it's not easy to divest an asset that's a 49% stake. Some of the interested parties, obviously, would like to have control. So there's some, but there is interest, and I think we'll get through the process. And again, the government has a vested interest as well to start to get us off that asset, as it were, I guess, and so I think that'll play out the way we want it to. And then I think as we've indicated, it will also free us up to pursue that third mobile license. So I think it's just a matter of timing. It's a bit complicated, but all parties want to see this come to a successful conclusion.

[Kevin Roe:]

Great. Thank you, John.

[Operator:]

And we'll take our final question today Matthew Harrigan with Wunderlich Securities. And Matthew please pick-up on your handset or check the mute function.

[Matthew Harrigan:]

Great. Sorry about that. You guys have really interesting opportunities for programming innovation with the quad play, Barbados, Panama, et cetera. I know you've done some really interesting things that Flow Sports already, and you've got relationship with Televisa. I think you've done some more things in Spanish bookings. And in Puerto Rico, there are higher margin. Can you talk a little bit about your innovation there and what you can bring to CWC from some of the other LiLAC markets? And then secondly, you've really had a big rally, particularly in dollars in some of the markets that you're in and not just Chile but even some of the smaller markets like Jamaica. I don't know what that bodes for the macro sensitivity. But how do you feel about the tourism and all that in the Caribbean countries? I mean, in Puerto Rico, you got through the downturn. In Europe, I mean, in 2008, 2009, I don't think you missed much of the blip. But how do you feel about the macro sensitivity in both the upside and the downside now that you're very familiar with the CWC markets?

[Michael Fries:]

On the programming side, Matt, we are doing, I guess, a few things. Number one, as I think Betzalel mentioned in the synergy estimates, we are definitely trying to bring as much of our $2.5 billion of programming spend in Europe to bear on contract renegotiations, access, et cetera, et cetera. So you should expect us to do that, continue to do that, and that'll be obviously a benefit over time. We don't have the same sort of programming investments and then issue is yet under way other than the Premier League, as one example, as we do in Europe. But I think there are opportunities that we're evaluating for sure in the programming space. And I think you're going to find, whether it's in the Caribbean or in South America or Central America, we're going to be creative and inventive and use the same basic game plan that we've used in Europe in terms of trying to create a competitive video product. And I think in most cases, we have that, and that's certainly what we want to try to do. The macro picture, I'll let these guys jump in. I mean, it's a tale of -- it depends on which market you're talking about. I mean, Panama, certainly, in my understanding has good growth ahead of it, 5%, 6%, I think, is the estimate for GDP growth. Bahamas and Jamaica, Barbados, closer to flat but not negative. And so, we watch that closely. We clearly hedge every and all -- any and all debt that we can. And so we, I think, more or less hedge pretty much everything. Chris, you can address that. But we've learned our lesson over the last 20 years about macro risk and how best to manage through it. And I think we're doing everything in our power, which I will tell you many of our competitors in the region do not do. And you know who they are. They don't bother with it at all. And we, on the other hand, will withstand any big shocks in the macro picture as well as being able to power through any macro volatility in the economy because of what we've done. So, Chris, you want to address the balance sheet, quickly?

[Chris Noyes:]

Yeah. Sure. In terms of overall leverage, as you know, Matt, we're hedged completely on the VTR debt, the $1.4 billion. We have done -- we've been able to execute some hedges on the Jamaican dollar in the last few months, and then a range of the currencies are pegged. So, we're, at least, in pretty stable countries. So, I think we're relatively balance sheet-hedged today from what we can do. There are few other currencies that we're working through, whether you can actually hedge them. So it's something we can update in the coming quarters.

[John Reid:]

I think, Matt, if you don't mind, I'll just -- just to add to Mike's comments on certainly large tourism base and certainly important to us across the region. From all my reports, the numbers are up on a lot of these countries as reported by the tourism bureaus. What's also important for you to, I guess, to get some insight on, is we've actually -- we're developing some pretty unique hospitality products. I mean, there's 200,000 to 300,000 hotel and hospitality homes that we've identified in the Caribbean. And so the product development team is close to launching a -- some unique products when it comes to in-room, in-property and sort of managed Wi-Fis and new sort of video solutions and other hospitality opportunities that we see. So, for us, as a growth part of our B2B business, it's really the number 1 -- it's the number 1 certainly, what we would call, managed service outside the core connectivity. So, we see tremendous upside on hospitality, Caribbean on the whole. And I think as it go on, I will see that meaningful impact coming into our business in the next couple of years.

[Matthew Harrigan:]

Thanks, Mike, Chris, John.

[Michael Fries:]

Great. Thanks, Matt. Listen, we appreciate everybody hanging in there this morning and joining us for both calls, if you did. And then of course, for the second call, we're glad we're able to pull that off. And we'll continue this, I think, for sure. It's definitely worth our time and, hopefully, your time to get more transparency and information about LiLAC. I'm pleased with the management team. I think John and Betzalel and Chris and others are really doing a nice job of both integrating LiLAC with LiLAC -- with Liberty, making sure we're not missing any opportunities to drive synergies and strategic opportunity, but also just putting their heads down and running the business day in and day out to hit the strategic plan and the financial plans we put in place. So as I said in my -- at the outset, it's going take to take some time. This is not going to get sorted overnight. This is going to be a longer-term growth opportunity. We like the region. We think we're in the right space in this region. And then lastly, I think, there's going to be some really interesting consolidation opportunities over time, and we're well positioned. We're well positioned because we generate a lot of cash flow. We have a great balance sheet. I think we've got the right operating model, and we're opportunistic, and we've been down this path before. So we're excited about it and look forward to bringing you along for the ride and updating you on a quarterly basis. So appreciate you joining us, and take care. Thanks, everybody.

[Operator:]

Ladies and gentlemen, this concludes Liberty Global's Fourth Quarter 2016 Results Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website at www.libertyglobal.com. There, you can also find a copy of today's presentation materials.