Virgin Media 2010 Annual Report Download - page 49

General
Factors that affect all of the segments in which we operate are as follows:
General Macroeconomic Factors. General macroeconomic factors in the U.K. have an impact on our
business. For example, during an economic slowdown, potential and existing customers may be less willing, or
able to purchase our products or upgrade their services. We may also experience increased churn and higher bad
debt expense. In addition, expenditures by advertisers are sensitive to economic conditions and tend to decline in
recessionary periods and other periods of uncertainty.
Currency Movements. We encounter currency exchange rate risks because substantially all of our revenue
and operating costs are earned and paid primarily in U.K. pounds sterling, but we pay interest and principal
obligations with respect to a portion of our existing indebtedness in U.S. dollars and euros. We have in place
hedging programs that seek to mitigate the risk from these exposures. While the objective of these programs is to
reduce the volatility of our cash flows and earnings caused by changes in underlying currency exchange rates, not
all of our exposures are hedged, and not all of our hedges are designated as such for accounting purposes.
Additionally, we do not hedge the principal portion of our convertible senior notes. We also purchase goods and
services in U.S. dollars, euros and South African rand, such as customer premise equipment and network
maintenance services and a substantial portion of these exposures are not hedged.
Competition. Our ability to acquire and retain customers and increase revenue depends on our competitive
strength. There is significant and increasing competition in the market for our consumer services, including
broadband and telephone services offered by BT; resellers or local loop unbundlers, such as BSkyB and Talk
Talk Telecom Group PLC; alternative internet access services such as DSL; satellite television services offered
by BSkyB and by BBC and ITV through Freesat; free-to-air digital terrestrial television offered through
Freeview; internet protocol television offered by BT; and mobile telephone, television and data services offered
by other mobile network operators, or MNOs, including Everything Everywhere Limited (the joint venture
between T-Mobile(UK) and Orange(UK)), O2, Vodafone and 3 UK, and from other mobile virtual network
operators, including Tesco Mobile, Lebara, Carphone Warehouse and ASDA. In addition, certain competitors,
such as BT, BSkyB and large MNOs, are dominant in markets in which we compete and may use their
dominance in those markets to offer bundled services that compete with our product offerings. As a result of
increased competition, we have had to, and may be required to continue to, adjust our pricing and offer discounts
to new and existing customers in order to attract and retain customers. There is also significant and increasing
competition in the market for our business services, including data and voice services offered by BT, Cable &
Wireless plc, virtual network operators and systems integrators. While BT represents the main competitive threat
nationally due to its network reach and product portfolio, we also compete with regional providers, such as
COLT Telecom Group plc, which have a strong network presence within limited geographic areas. Recently we
have also faced increasing competition from the launch of business services by MNOs.
Integration and Restructuring Activities. In the fourth quarter of 2008, we commenced the implementation
of a restructuring plan aimed at driving further improvements in our operational performance and eliminating
inefficiencies in order to create a fully-integrated, customer-focused organization. We anticipate significant cost
savings from the plan and that savings will exceed the costs incurred in connection with the plan. These costs
will include purchases of fixed assets, lease and contract exit costs, employee termination costs and other
restructuring and restructuring-related expenses, some of which will be classified as restructuring costs. During
the second quarter of 2010, we identified further savings through the expansion of the program and revised the
estimated total costs and extended the completion date through the end of 2012. In total, we expect to incur
operating expenditures of between £150 million to £170 million and capital expenditures of between £50 million
to £60 million in connection with this plan over a four-year period. Our financial performance may be negatively
affected if we are unable to implement our restructuring plan successfully and realize the anticipated benefits.
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