Liberty Global’s Fries: ‘Grinding’ European telecoms industry needs consolidation

The European telecoms business is badly in need of consolidation, according to Liberty Global CEO Mike Fries.

Mike Fries (Source: Liberty Global)

Speaking at the Morgan Stanley’s European Technology, Media & Telecom Conference in Barcelona, Fries said that the European telecoms space remained highly fragmented compared with other parts of the world, and that action is needed to fix this.

“If anyone thinks this is an easy business, get back to reality. We are grinding in this industry. There are too many operators. In China there are 450 million subs per operator. In the US it’s 110 million. In Europe it’s five million. There are 110 MNOs in this country,” he said.

He said there was work to be done, including on the regulatory front, to achieve meaningful consolidation.

Fries said that there were “positive tailwinds”. Operators have been able to raise prices. He said AI would be a “game changer” in the way customers are managed.

Fries said that Liberty in its next strategy update would look at how to value its operating companies, how to crystallise that value concretely, and how to allocate capital more effectively.

Fries said that Liberty would meet all of its major targets this year except UK revenue, which will fall short due to handset sales.

He said that mobile and B2B continues to perform well in the UK.

Fries said that VMO2 had implemented price increases under contracts that allowed people to churn, meaning that churn would go up. Next year things will be different because contracts will allow the company to raise prices by RPI plus 3.9% without any ability to end contracts.

He said that Liberty reaches more than half the UK with 1Gbps products today. The company is upgrading to XGS-PON because this is only marginally more expensive than a DOCSIS upgrade.

Greenfield extensions will reach 5-7 million additional homes via the nextfibre JV.

Fries said that the M&A market is heating up because there are too many fibre builders whose business case does not make sense, given the cost of capital. “In the end there will probably only be two networks – us and BT – which is as it should be,” he said.

Fibre versus DOCSIS

Turning to the first of Liberty’s European markets, Switzerland, Fries said that this was “a pretty rational market” with Swisscom, Liberty-backed Sunrise and the much smaller Salt competing.

Merging Sunrise and UPC into a single brand “was always going to bring about friction”, he said. The company was now about “halfway” through the integration with most of the “price-sensitive customers” now integrated.

Fries said that the HFC network reached 70% of the country and Sunrise had access agreements that takes it to 90% of the country. “I don’t see us building or rebuilding in Switzerland, “he said, with a hybrid strategy serving Liberty well.

In Belgium, said Fries, Liberty had put its network into the Wyre JV with Fluvius. That netco would have a 70% utilisation rate because Orange is a long-term partner, and a fully-funded programme to build out fibre to 80% of Flanders.

The Belgian government has said it is open-minded about fibre mergers, which could benefit the company, he said.

In Wallonia, Liberty will launch nationally on the fixed network, he said.

In the Netherlands, building fibre is expensive and this is “the one market where we are really seriously looking at DOCSIS 4.0”, said Fries. This was a proven technology and would allow VodafoneZiggo to upgrade to 10Gbps. “It could very well make sense in this market,” he said.

Fries said VodafoneZiggo was “a strong asset” but noted that priorities could change from Vodafone. He said that there could be “more to say” on the future of the JV in February.

Media disposals ‘to be entertained’

Regarding Liberty Global Ventures, Fries said that the company invested in things that are “strategic to us”. He said that the company had done well. The infrastructure vertical had grown massively, he said, and this was a space that “we understand”. He highlighted Atlas Edge which is focused on edge computing.

By contrast, Liberty was, he said, looking hard at the future of its media and content portfolio and “whether there are strategic adjacencies with these businesses.”

He noted that the company was planning to exit production outfit All3Media and said “we are definitely going to entertain disposals” elsewhere in the portfolio. Between ventures and non-core assets, the company is looking at between US$500 million and US$1 billion of disposals next year.

Fries indicated that Liberty may not do much more in the way of ventures investments in telecoms, where the company owns 5% of Vodafone. “We don’t have any current plans to make other investments in the region,” he said, even though “smart money is looking at assets that are undervalued” in the business.

Simplifying the equity story

Fries said that Liberty had done a lot to “simplify the story” to optimise its valuation. He said that JVs had benefits because they gave access to expertise and noted that JVs had “an expiration date” which is “a healthy thing in these markets”.

“The convergence benefits of these businesses is real,” he said. “We are in the right spot.”

Fries said Liberty was “open-minded” about listings and spin-offs for example for the Swiss market.

Fries said that Liberty was “religious about de-risking its balance sheet” in terms of indebtedness. “We have a balance sheet that is super-strong,” he said. He said it was nevertheless “great to have” a large cash balance, noting that it may be necessary to deleverage for certain transactions.

Fries said that “nobody is happy” with Liberty Global’s valuation but noted that one benefit was that it was “able to slowly take the company private” through buybacks. He said “the fundamental logic of [buybacks] makes great sense”.

Fries said that Liberty’s move to Bermuda was to do with “cumbersome” UK regulations that made it difficult to be nimble. He said that it would now be possible to act more flexibly and at lower cost.