Cable giant Liberty Global thrives next door
Sunday, August 29, 2010
Cable giant Liberty Global thrives next door - Pioneer Malone finds overseas nations ripe for service growth
By Andy Vuong
The Denver Post
Posted: 08/15/2010 01:00:00 AM MDT
"We're basically Comcast outside the U.S.," chief executive Michael Fries said of Liberty Global's footprint. ( Judy DeHaas, Denver Post file photo )The largest cable television company outside the United States is based in suburban Denver, hearkening back to the city's one-time reputation as the cable capital of the world.
Overshadowed locally by bigger business names, lesser-known Liberty Global is making waves internationally, raking in $7.5 billion in annual revenue and serving nearly 17 million video subscribers in 14 countries.
"We're basically Comcast outside the U.S.," Liberty Global chief executive Michael Fries said in a recent interview. "Our profile in Denver isn't quite the same."
Liberty chairman and cable pioneer John Malone is trying to replicate the success of Tele-Communications Inc., a company he guided for more than two decades. The Denver cable giant was acquired by AT&T in 1999 for $44 billion and is now part of Comcast, the nation's No. 1 cable-TV provider.
Formed from the merger of Liberty Media International and UnitedGlobalCom in 2005, Douglas County-based Liberty Global is largely focused on Europe, though the company also operates in South America and Australia.
Through a series of acquisitions, including a roughly $3 billion deal for Germany's No. 2 cable-TV provider in January, Liberty already claims more video subscribers than TCI had at its peak.
But Malone's work is far from done. With a lack of potential buyers for Liberty, the end game isn't clear.
"There aren't that many companies out there that have the scale to acquire them," said Matthew Harrigan, an analyst with Wunderlich Securities. "I don't think they need to sell. There are only a handful of guys, like Telefonica, that would have the wherewithal to buy them."
Liberty has struggled to consistently post profits. In the second quarter, the company grappled with fluctuations in foreign exchange rates and subscriber declines, incurring losses of $758.3 million in foreign currency transactions and 108,000 video customers. It posted a net loss of $686 million for the quarter, though revenue rose 20 percent as it added phone and Internet subscribers.
"We do not find any immediate growth catalyst for Liberty Global," Zacks Equity Research analysts wrote last week in downgrading the company's stock to "underperform." "Several European broadband service providers are deploying high-speed DSL and fiber-to-the- home networks, making the industry extremely competitive."
Competition has changed since Malone's TCI heyday.
Much like in the United States today, European cable companies are battling with incumbent phone operators to be the all-in-one service provider for households, though analysts say European telcos trail Verizon and AT&T in high- speed Internet and video rollouts.
"When TCI was there, telcos did not have any cohesive broadband strategy," said Vijay Singh, an analyst with Denver- based Janco Partners, an industry research firm. "Now the same pipe is being used for multiple services."
Just as significant, pay-TV consumer spending in Europe severely lags the United States. Liberty Global's biggest footprint is in Germany, where residents on average pay $16 a month for cable-TV service, according to research firm SNL Kagan.
In the United States, the average cable-TV customer pays about $70 a month, according to industry estimates.
More than half of Liberty Global's cable-TV customers are still on analog service.
To boost the amount of money it makes from each customer, the company is pushing to digitize Europe's home entertainment. The company plans to introduce a multimedia gateway next year that will serve as the hub for video, voice and data services.
Samsung will build the gateway, essentially an advanced set-top box that, among other things, can be synced to a device like the iPad to allow users to search for programming much in the same way they search the Web.
Fries calls it "Xfinity on steroids," a reference to the brand Comcast now uses for residential services.
"When you reach the critical mass of Liberty Global, it's very difficult to derive massive subscriber growth," Singh said. "It is more from the addition of value-added services, and continuing to make deeper penetration with double play, triple play and even quad play once they get their wireless strategy. That is the game plan, and they have been executing very well."
Liberty has 6.1 million Internet and 4.3 million phone customers. More than 20 percent of the company's subscribers take a triple-play bundle, excluding its recent German acquisition.
The company mostly resells wireless service, though it has acquired spectrum in Chile and the Netherlands.
"Germany offers perhaps the best growth potential — cable penetration is quite low, and the country's economy seems to be in better shape than many other European countries," said Todd Rethemeier, an analyst with Hudson Square Research in New York.
Liberty employs 20,000 worldwide, including 150 at its headquarters east of Interstate 25 and north of E-470. The sprawling campus also houses Malone's Liberty Media, a holding company with interests in Live Nation Entertainment, Expedia.com, Starz Entertainment and numerous other businesses.
As such, the campus is home to two of Colorado's eight Fortune 500 companies and a pair of Colorado's top-paid and most politically connected executives, Fries and Liberty Media chief executive Greg Maffei.
Fries, 47, is a graduate of Wesleyan University in Connecticut, whose alumni include U.S. Sen. Michael Bennet, D-Colo., and Denver mayor and Democratic gubernatorial nominee John Hickenlooper.
A Republican, Fries said he hosts events for candidates from both parties at his Cheesman Park mansion. He splits time among Denver and Liberty's international properties.
Analysts said that as long as Malone remains chairman, it makes sense for the company to be based here rather than closer to its operations.
"Denver has been the hub of broadband and cable for 40 years," Fries said.
Andy Vuong: 303-954-1209, firstname.lastname@example.org or twitter.com/andyvuong