Virgin Media 2008 Annual Report Download - page 20

An increasing number of companies are deploying their own network access equipment in BT
exchanges via a process known as local loop unbundling, or LLU. LLU allows an ISP to reduce the
recurring operating costs incurred through BT Wholesale by reducing the proportion of traffic that
must travel directly over BT’s network. LLU deployment requires a substantial capital investment to
implement, and requires a large customer base to deliver a return on investment. By the end of 2008,
both Carphone Warehouse and BSkyB had rolled out significant LLU networks (with approximately
80% and 70% coverage, respectively, in the U.K.). Other operators such as Orange and Tiscali were
also deploying LLU to some degree.
In addition to the increasing competition and pricing pressure in the broadband market arising as
LLU players look to gain the customer scale to make a return on their investment, there is the longer
term threat of new access technology. 3G mobile technology, other wireless technologies such as Wi-Fi
and Wi-Max, and mobile broadband may subject us to increased competition over time in the provision
of broadband services.
Cable Television
We compete primarily with BSkyB in providing pay DTV to residential customers in the U.K.
BSkyB is the only pay satellite television platform in the U.K. and has a high market share of the U.K.
pay television market. BSkyB owns the U.K. rights to both standard definition and HD versions of
various sports and movie programming content, which it has used to create some of the most popular
premium pay television channels in the U.K. BSkyB is therefore both our principal competitor in the
pay television market, and an important supplier of premium television content to us.
Residential customers may also receive digital terrestrial television, or DTT. Digital signals are
delivered to customer homes through a conventional television aerial and a separately purchased
set-top box or an integrated digital television set. The free-to-air DTT service in the U.K. is branded
Freeview. This service is provided by a consortium of operators, including the BBC, and offers
customers a limited range of television channels, which include the traditional analog channels.
Customers do not pay a monthly subscription fee for basic Freeview service but must acquire a
Freeview enabled set-top box or a television with a digital tuner. During 2007, according to Ofcom,
Freeview became the U.K.’s most popular digital television service. Other developments included the
launch of a new range of Freeview enabled digital television recorders under the brand ‘‘Freeview+’’.
In 2008, the BBC launched an initiative aimed at increasing distribution of their iPlayer content over
different digital platforms, including Freeview. This initiative, known as Project Canvas, involves the
development of uniform standards for the delivery of content over broadband via a new type of set-top
box. Project Canvas is intended to provide an open platform, allowing any broadcaster to make its
content available via Project Canvas enabled television set-top boxes. If implemented, the availability of
a standardized broadband enabled television platform may result in increased competition for pay
television broadcasters.
Residential customers may also supplement Freeview DTT offerings by subscribing to additional
content through Top Up TV. Top Up TV is a pay television service offering selected programs from
over twenty pay television channels for a fixed fee to subscribers who otherwise receive Freeview and
have purchased a Top Up TV digital video recorder.
In May 2008, BBC and ITV launched its joint venture Freesat, a free-to-air digital satellite
alternative to Freeview DTT service. Freesat offers approximately 80 subscription-free channels,
including some high definition channels such as BBC HD and ITV HD. Freesat channels are delivered
to the home through a separately purchased satellite receiver. Freesat also offers a range of digital
television recorders under the brand ‘‘Freesat+’’.
Residential customers may also access digital television content by means of internet protocol
television, or IPTV. BT Vision, a combined DTT television service and a video-on-demand service
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