Virgin Media 2010 Annual Report Download - page 32

as well as the realization of efficiencies and other benefits related to the implementation of the plan, will offset
the restructuring-related costs over time, this net benefit expected may not be achieved in the near term, or at all.
We are subject to currency and interest rate risks.
We are subject to currency exchange rate risks because substantially all of our revenues and operating
expenses are paid in U.K. pounds sterling, but we pay interest and principal obligations with respect to a portion
of our indebtedness in U.S. dollars and euros. To the extent that the pound sterling declines in value against the
U.S. dollar and the euro, the effective cost of servicing our U.S. dollar and euro-denominated debt will be higher.
Changes in the exchange rate result in foreign currency gains or losses.
We are also subject to interest rate risks. As of December 31, 2010, we had interest determined on a variable
basis on £1,675 million, or 28%, of our long term debt. An increase in interest rates of 1% would increase
unhedged gross interest expense by approximately £16.7 million per year.
We also incur costs in U.S. dollars, euros and South African rand, in the ordinary course of our business,
including for customer premise equipment and network maintenance services. Any deterioration in the value of
the pound relative to the U.S. dollar, euro or the rand increases the effective cost of purchases made in these
currencies as most of these exposures are not hedged.
We rely on third parties to distribute mobile telephony products and procure customers for our services.
Our ability to distribute our mobile telephony products and services depends, to a large extent, on securing
and maintaining agreements with a number of third party distributors and increasing our retail presence. These
distributors also procure customers for our competitors and, in some cases, for themselves. For example, one of
our third-party distributors also sells its own broadband and telephone services. Additionally, certain distributors
may also receive incentives to encourage potential customers to subscribe to our competitors’ services rather than
our own. Our agreements with third-party distributors generally allow for termination of the relationship by
either party, with 30 days’ prior notice. We are also exposed to risks associated with the potential financial
instability of third-party distributors, some of whom may be adversely affected by the general economic
downturn. While we are currently expanding our portfolio of Virgin Media branded retail outlets, our stores may
not perform successfully. Accordingly, if any of our distribution partners were to reduce or cease their
operations, due to financial difficulties or otherwise, or if we fail to maintain our key distribution relationships,
our results of operations may be materially adversely affected.
There is no assurance that new products we may introduce will achieve full functionality or market
acceptance.
Our strategy requires that we roll-out new products and services, such as the continued roll out of broadband
download speeds of up to 100 Mb across parts of our network, our current trials of broadband download speeds
of up to 200 Mb and upstream speeds of up to 10 Mb in limited geographic areas and our roll out in 2011 of a
next generation set-top box and related services with TiVo. We are also increasing the amount of content
available via our mobile telephony platform. There is no assurance that any new product or service that we may
develop will perform as expected or gain market acceptance, which could have a material adverse effect on our
results of operations.
We are subject to tax in more than one tax jurisdiction and our structure poses various tax risks.
We are subject to taxation in multiple jurisdictions, in particular, the U.S. and the U.K. Our effective tax rate
and tax liability will be affected by a number of factors in addition to our operating results, including the amount
of taxable income in particular jurisdictions, the tax rates in those jurisdictions, tax treaties between jurisdictions,
the manner in which and extent to which we transfer funds to and repatriate funds from our subsidiaries,
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