London - Liberty Global , billionaire John Malone’s cable carrier,
slumped after lowering its growth target for Europe this year amid a weaker-than-expected
start in the UK.
Liberty now forecasts operating cash flow growth of 5
percent for 2017, down from February’s outlook of 6 percent to 7 percent, the
London-based company said Sunday.
The operator lost more customers than expected in the UK in
the first quarter, following two price increases last year and challenges with
the launch of a new video product. Mobile revenue also declined. “The UK is our
biggest market, so it has a big impact,” Chief Executive Officer Mike Fries
said in an interview. He cast the new target as conservative. The reduction is
“more of a bump in the road.”
The shares declined as much as 8.1 percent, the biggest
intraday drop since November, and were down 6.1 percent at $32.18 as of 10 am in New York.
The European unit of Malone’s cable and Media Empire is
facing stiff competition in Britain from BT Group Plc and Vodafone Group Plc as
the country’s carriers expand on each other’s turfs. A Dutch joint venture that
moved ahead with Vodafone in the quarter is doing well in the fixed-line
consumer business, but facing challenges in mobile amid competition from Tele2
AB and Deutsche Telekom AG’s T-Mobile, Fries said.
“The real magic will happen when we can start marketing a
true quad-play product,” Fries said of the joint venture, which reported a 2
percent revenue decline in the first quarter and 6 percent drop in operating
cash flow. Fries said he didn’t have anything fresh to say about whether the
partnership could be a prelude to a larger deal between the two companies.
Vodafone, ITV
Investors have been fixated on the idea of a merger or asset
swap between Liberty and Vodafone, after years of talks between the companies.
Even after the agreement to partner in the Netherlands, Fries and Vodafone CEO
Vittorio Colao have stoked speculation by publicly commenting on the potential
to bring their fixed and mobile assets together and challenge Europe’s
incumbent operators.
Liberty is also seen as a potential buyer of UK broadcaster
ITV Plcof which it owns 9.9 percent, particularly after last week’s
announcement that ITV CEO Adam Crozier will step down in June. Crozier’s
departure, with no successor named, doesn’t change Liberty’s relationship with
ITV, Fries said.
Liberty, which has
purchased free-to-air broadcasters in Belgium and Ireland, doesn’t see any more
immediate deals in the area on the horizon, he said.
In its home UK market, Liberty is working to improve
execution of a 3 billion pound ($3.9 billion) expansion of its Virgin Media
footprint, known as Project Lightning, after revealing in March that it
had overstated construction progress.
Management changes will probably delay the project this
year, with a ramp-up now expected over 12 to 24 months, the company said. The
impact of the Project Lightning slowdown isn’t material to company targets,
Fries said.
Price Competition
Liberty faces the threat of escalating price competition for
broadband in the UK, where the communications regulator proposed in March to
lower some wholesale rates charged by BT for other operators to access its
network. Liberty’s expansion project in the country is the company’s biggest,
aimed at boosting coverage by almost a third, to another 4 million homes.
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While that has led to speculation that Liberty might find UK
expansion less attractive and in turn scale back its plans, Fries said the
project is on track. “At this point, we are not seeing anything in the market
that would reduce our appetite to continue building out to 4 million homes,”
Fries said. “The demand is good.”
Excluding the Netherlands, Liberty’s first-quarter operating
cash flow rose 4 percent from a year earlier to $1.6 billion. That was down
from 7.5 percent growth in the fourth quarter. The company forecasts higher
growth in the second half of the year, just as in 2016.
“Numbers for the quarter were rather disappointing,” said
Dhananjay Mirchandani, an analyst at Bernstein, in a note. “Organic revenue
growth for the quarter in Europe was the slowest in four quarters.”