Virgin Media 2010 Annual Report Download - page 30

generated by or associated with the Virgin Group or any other licensee of the “Virgin” name and logo could have
a material adverse effect on our business and results of operations.
Our operating performance will depend, in part, on our ability to control customer churn.
Customer churn is a measure of customers who stop using our services and controlling churn is a key
element of our operational performance. Our customer churn may increase as a result of:
• customers moving to areas where we cannot offer our superfast broadband and/or digital television, or
DTV, services;
• the availability of competing services, some of which may, from time to time, be less expensive or
technologically superior to those offered by us or offer content that we do not offer;
• interruptions to the delivery of services to customers over our network and poor fault management;
• a general reduction in the quality of our customer service; or
• a general deterioration in economic conditions that could lead to customers being unable or unwilling
to pay for our services.
An increase in customer churn can lead to slower customer growth and a reduction in revenue which could
have a material adverse effect on our business, results of operations and cash flows.
Our inability to obtain popular programming, or to obtain it at a reasonable cost, could potentially have a
material adverse effect on the number of customers or reduce margins.
For the provision of television programs and channels distributed via our cable network, we enter into
agreements with program providers, such as public and commercial broadcasters, or providers of pay or on
demand television. We have historically obtained a significant amount of our premium programming and some
of our basic programming and pay per view sporting events from BSkyB, one of our main competitors in the
television services business. BSkyB is a leading supplier of programming to pay television platforms in the U.K.
and is the exclusive supplier of some programming, including its Sky Sports channels and Sky Movies channels,
which are the most popular premium subscription sports and film channels, respectively, available in the U.K.
Ofcom conducted an investigation into the pay TV market and, in its Pay TV Statement of March 31, 2010,
imposed new license conditions on BSkyB that provide for a must offer obligation on Sky and that regulate, or
set a fair, reasonable and non-discriminatory, or FRND requirement for, the price and terms of supply of certain
Sky’s Sports Channels. While BSkyB (and others) have appealed the fact of the imposition of the license
conditions, we (and others) have appealed that the intervention did not go far enough and we are seeking to
overturn it. See “Our Business—Regulatory Matters—Regulation of Television Services.”
We now buy BSkyB wholesale premium content on the basis of carriage agreements entered into on June 4,
2010, which provided for the wholesale distribution of BSkyB’s basic channels, and its premium sports and
movies channels, on our cable TV service. This agreement provides for security of supply of Sky premium sports
and movie channels until June 30, 2013 at which time we will need to negotiate a new commercial agreement
pending the decision by Ofcom. However, for standard definition, or SD, we are still exposed to BSkyB changing
the ratecard terms of supply on 60 days’ notice, and to wholesale price changes for Sky Sports 1 and 2 which can
occur under Ofcom’s price regulation mechanism following changes to BSkyB’s own retail prices. Also, with
regards to HD, BSkyB continues to offer the Sky Sports 3 and 4 HD channels exclusively to its digital satellite
customers and not to us. Moreover, the launch of Sky Atlantic exclusively to its own retail customers on the
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