Amidst the whirlwind of M&A deals, stock buybacks, and regulatory hurdles discussed in Liberty Global's Q2 2018 and Q3 2020 earnings calls, a fascinating narrative is unfolding that seems to have flown under the radar of most analysts. Mike Fries, Liberty Global's CEO, appears to be meticulously crafting a European telecom empire, piecing it together through a series of shrewd acquisitions and strategic joint ventures. While the company's narrative emphasizes "fixed-mobile convergence," the underlying strategy seems far grander. Fries is building not just converged telecom businesses, but dominant national champions, poised to challenge incumbents and potentially become independent powerhouses.

Let's delve into the evidence. The Q2 2018 transcript paints a picture of a company at a pivotal point. Fries highlights the sale of their Austrian business, T-Mobile, for a hefty $2.2 billion – a multiple of 11 times operating cash flow. This isn't just a divestiture, it's a blueprint. The sale, a fixed-mobile merger approved rapidly by regulators, lays the groundwork for what will become a recurring theme – transforming individual markets, then extracting maximum value.

Fries underlines the point, emphasizing the sale of their German operations to Vodafone for a staggering $23 billion, also at a multiple of 11.5 times operating cash flow. The message is clear: consolidate, create value, and then capitalize.

The pattern becomes even more apparent in the Q3 2020 transcript. Fries, now several years further into his master plan, proudly showcases the "tremendous converged scale in Europe," boasting 84 million fixed and mobile RGUs (Revenue Generating Units) and an aggregate revenue of $26 billion. He points to VodafoneZiggo in Holland, a fixed-mobile convergence success story, where revenue and EBITDA have flipped from negative territory in 2017 to solid growth in 2020.

The takeaway? This Dutch JV, a model for the future, isn't just "converged," it's a dominant force, now larger than KPN in key segments and generating significant cash for shareholders.

The Sunrise acquisition in Switzerland further bolsters the argument. Fries champions the creation of the "clear number two to Swisscom," highlighting the scale and potential for substantial market share grabs in the B2B space. The acquisition, like the Dutch JV, is anchored in network superiority, reaching 90% of the fixed market with 1 gigabit services and boasting the largest 5G network in Switzerland.

This isn't just about convergence, it's about establishing a formidable competitor, capable of taking on the incumbent and ultimately becoming a market leader. The substantial synergy estimate of CHF 3 billion, predominantly from OpEx (Operating Expense) and CapEx (Capital Expenditure) efficiencies, further emphasizes the focus on building a lean, mean, fighting machine.

VodafoneZiggo's Turnaround: From Negative Growth to Market Leader

The table below showcases the dramatic shift in VodafoneZiggo's financial performance after Liberty Global's strategic fixed-mobile convergence:

Fries further fuels the hypothesis with his focus on "closing the value gap" and "potentially public listings" for these newly crowned national champions. He alludes to the substantial institutional demand witnessed during the Sunrise acquisition, hinting at the potential for unlocking significant value through local listings.

Potential Valuation: Unlocking Hidden Value

The chart below illustrates a simplified calculation of Liberty Global's potential valuation based on the multiple achieved from the sale of T-Mobile Austria:

This back-of-the-envelope calculation, while simplified, underscores the massive potential value creation embedded within Fries's strategy. By building national champions, each positioned to challenge incumbents and potentially achieve valuations comparable to T-Mobile Austria, Fries could be creating a telecom empire worth far more than Liberty Global's current market cap.

This underappreciated narrative, obscured by talk of convergence and share buybacks, is worth close attention. Mike Fries, it seems, is playing a long game, meticulously assembling a European telecom force, one dominant market at a time. The endgame? A potential telecom empire, ready to be unleashed, with valuations that could dwarf current expectations.

"Fun Fact: Liberty Global's Ventures portfolio, valued at over $1 billion, includes investments in diverse sectors like mobile gaming (Skillz), electric motorsports (Formula E), and data center infrastructure (EdgeConneX). This demonstrates the company's forward-looking approach and its willingness to explore opportunities beyond its core telecom business."