After building and then selling the largest U.S. cable MSO in the 1980s and ’90s, John Malone went offshore in the last decade to quietly assemble an even larger operator, Liberty Global Inc.
LGI is now the second-largest cable operator in the world and the largest outside the U.S., with more than $10 billion in revenue coming from 16.9 million video, 7.2 million broadband and 5.2 million telephony subscribers.
While Malone has provided the financial backing for the company’s remarkable expansion and helps guide its strategic direction as LGI’s chairman, he gives president and CEO Mike Fries much of the credit.
“Mike is the finest executive I’ve worked with,” says Malone. “He has seemingly endless energy, he is strategic, he builds great management teams and he has been able to reposition the company in market after market.”
In the last year, Fries has also guided LGI through some major deals—notably, a $4.1 billion acquisition of cable systems in Germany that makes LGI the second-largest operator in Europe’s largest market. The company also has posted some record-setting results. In the third quarter of 2011 alone, LGI gained 327,000 additional new customers, up 96% from a year earlier and a record for the quarter.
Some of this growth is being powered by the company’s aggressive strategy of rolling out blazing fast broadband speeds, deploying DOCSIS 3.0 systems capable of offering 100Mbps speeds in 25 million of its 30 million homes.
“Mike has played a very innovative role in introducing DOCSIS 3.0 and pushing it forward as a competitive tool,” says Dick Green, an LGI board member and the former head of Cable- Labs. Green also points to the development of the Horizon next-generation TV platform as an example of the company’s innovation.
Two out of every three LGI broadband customers in Europe currently take 25Mbps tiers or higher. Fries says the company hopes to get average speeds up to 40Mbps in 2012, a level almost unheard of in the U.S.
“We are pushing up broadband speeds very aggressively, and that has really been the secret sauce in the success of our bundles,” Fries notes. LGI added a record 535,000 broadband customers in the first three quarters of 2011.
This success stands in marked contrast to the experience of many U.S. cable companies and telcos that rushed into international markets in the 1980s and ’90s but eventually retreated back to U.S. shores as they struggled with the complexities of doing business around the globe.
“Very few Americans are great at adapting to multiple cultures, but Mike has been very adept at understanding local politics, regulation, tax systems and the competitive landscape,” says Rick Michaels, chairman and CEO of Communications Equity Associates, who has worked with Fries on a number of international deals over the last two decades.
Fries’ long experience in the cable industry began soon after college when he joined the investment banking division at PaineWebber in 1985. After working on a number of major media and cable deals, Fries was hired by cable entrepreneur Gene Schneider to raise funds for his United International Holdings (UIH), a start-up with plans to build and buy international cable systems.
Fries liked the idea so much that he took a pay cut and joined the company as its fifth employee and early equity investor. “When I arrived, my first computer desk was a cardboard box,” he recalls.
Though the company started with $20 million in capital, UIH quickly attracted investment money from cable players such as John Malone and Time Warner Cable; it expanded rapidly, building up operations in 27 countries by the end of the 1990s.
After the dotcom bust in 2001, however, the company, which was then called UnitedGlobalCom (UGC), had trouble servicing its $10 billion debt load. Between 2002 and 2005, Malone, whose Liberty Media had become a $500 million investor in UGC in 1999, carried out a series of complex transactions that restructured UGC debt. Malone later bought out the Schneider family.
Since 2005, when UGC merged with Liberty International to form LGI, Fries has kept the company locked into fast-track growth. As part of a strategy to focus on the most promising European cable markets, LGI has sold off some $8 million worth of assets in markets such as Scandinavia, France, Japan and Australia, and it has spent about $17 billion to acquire other European systems.
“We have gone from a company in 27 markets with $1.5 billion in revenue to one that is in 14, really 13, markets [after the Australian deal closes] with $10 billion in revenue,” Fries says.
The consolidation of operations has also allowed the company to achieve some notable economies of scale, adds Brian Deevy, the cohead of RBC Capital Markets’ Communications, Media and Entertainment Group.
“Mike has done a very good job of piecing together operations to become a very significant player in a number of major markets like Germany,” Deevy explains.
The German deal, which was just approved by regulators last month, will be particularly important for LGI’s future. “We think Germany is a fabulous market,” Malone notes. “It is the economic engine of Europe, but it is kind of under-developed in terms of the penetration of broadband and digital. And there is an opportunity to do IP telephony.”
Early results con! rm that opinion, notes Fries. He points out that LGI has already been able to significantly improve average revenue per subscriber from €11 to €17 and that net addition subscribers for its services set a record in the third quarter in Germany. That’s no surprise—international speed records seem to be Fries’ specialty.
But along with ramping up broadband speeds, LGI has also developed the innovative next-generation TV effort known as Horizon. This platform, which won an award at IBC, will allow users to access a wide variety of content from outside the traditional cable platform on multiple devices. "Horizon will launch with 2,500 titles, almost 5,000 hours of online content and 60-plus streaming linear channels," Fries says.
Cable operators have "great networks and great content," Fries notes. "But we don't allow customers to move content from TV to other devices and places easily; we don't allow them to integrate Web or personal content into the TV experience and our user interface is a grid-based, text-based interface that is very clunky in a world where everyone has a tablet. Horizon solves all of those problems. It allows you to move content to an iPad or a PC. It has its own online video platform and we are integrating apps and web content into the platform."
Green adds that Fries demonstrated the platform to top U.S. operators at a CableLabs board meeting. It is hardly a surprise that they were wowed by the technology and beautiful user interface.
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