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Article by DailyStocks_admin    (09-22-08 03:24 AM)

Filed with the SEC from Sep 04 to Sep 10:

Virgin Media (VMED)
SRM Global Fund holds 13.2 million shares (4.04%), after selling 12.6 million on Sept. 3 for $12 per share.

BUSINESS OVERVIEW

Overview

Virgin Media is a leading U.K. entertainment and communications business providing the first "quad-play" offering of television, broadband, fixed line telephone and mobile telephone services in the U.K. together with one of the most advanced TV on demand services available in the U.K. market. By customer numbers, we are the U.K.'s largest residential broadband and mobile virtual network operator and the second largest provider in the U.K. of pay television and fixed line telephone services. We believe our advanced, deep fiber access network enables us to offer faster and higher quality broadband services than our digital subscriber line, or DSL, competitors. Through ntl:Telewest Business, which also operates under the Virgin Media group, we provide a complete portfolio of voice, data and internet solutions to leading businesses, public sector organizations and service providers in the U.K.

Through Virgin Media Television, or Virgin Media TV, we also provide a broad range of programming through our wholly-owned channels, such as Virgin 1, Living and Bravo; through UKTV, our joint ventures with BBC Worldwide; and through the portfolio of retail television channels operated by sit-up tv.

We presently manage our business through three reportable segments:

•
Cable (76.8% of our 2007 revenue): our cable segment includes the distribution of television programming over our cable network and the provision of broadband and fixed line telephone services to consumers, businesses and public sector organizations, both on our cable network and, to a lesser extent, off our network;

•
Mobile (14.7% of our 2007 revenue): our mobile segment includes the provision of mobile telephone services under the name Virgin Mobile to consumers over cellular networks owned by third parties; and

•
Content (8.5% of our 2007 revenue): our content segment includes the operations of our U.K. television channels, such as Virgin 1, which was launched on October 1, 2007, as well as Living, Bravo, and sit-up's portfolio of retail television channels. Although not included in our content segment revenue, our content segment management team also oversees our interest in the UKTV television channels through our joint ventures with BBC Worldwide.

For financial and other information on our segments, refer to note 19 to Virgin Media's consolidated financial statements included elsewhere in this annual report.

On February 6, 2007, we changed our name from NTL Incorporated to Virgin Media Inc. as part of our rebrand to Virgin Media. Virgin is one of the most recognized consumer brands in the world and gives us a prominent profile in a crowded communications marketplace. We believe the strong heritage and reputation of the Virgin brand is a powerful competitive advantage and our distinctive approach to advertising, packaging and marketing differentiates us from our competitors.

We are incorporated in the State of Delaware, United States. Our principal executive offices are located at 909 Third Avenue, Suite 2863, New York, New York 10022, United States, and our telephone number is (212) 906-8440. Our U.K. headquarters are located outside of London, England in Hook, Hampshire, United Kingdom. Our website is www.virginmedia.com and the investor relations section of our website can be accessed under the heading "About Virgin Media—Investors Information" or at www.virginmedia.com/investors, where we make available free of charge annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments thereto, as soon as reasonably practicable after they are filed with, or furnished to, the SEC. The information on our website is not incorporated by reference into this annual report.

Our Business

Cable Segment

In our Cable segment, we provide our services to residential consumers and business customers.

Consumer

We provide television, internet (broadband and dial-up) and fixed line telephone services under the Virgin Media brand to residential customers in the U.K. Our services are distributed principally via our wholly-owned, cabled, local access communications network and are available to an addressable market of approximately 12.6 million homes. The network covers parts of many major metropolitan areas in England, Wales, Scotland and Northern Ireland. In addition, we provide broadband and telephone services to residential customers outside of our network via access to other telecommunications networks, which we refer to in this annual report as "off-net". We also provide Virgin Mobile services both on a pre-paid pay-as-you-go basis or on a contractual basis. Increasingly, we seek to grow our mobile customer base by selling to our existing Virgin Media customer base. See "Mobile Segment" below.

Our Network Advantage

We believe that our deep fiber local access communications network provides us with several competitive advantages in our addressable markets:

•
Virgin Media, uniquely, has fiber already deployed to street cabinets. From there, our twin cable, consisting of both high capacity coaxial cable and twisted copper-pair elements, provides us with the flexibility to deliver broadband services over either or both coaxial or copper cables. Currently, we provide our broadband internet services over coaxial cable, which we believe allows us to provide a superior broadband experience to our customers as our network has fiber generally closer to a customer's home than BT or our other competitors who use BT's access network. BT's access infrastructure is copper pair technology over which broadband speeds can significantly diminish with distance from the local exchange. In 2008, we plan to use our advantage to offer increasingly faster broadband services.

•
It provides real two-way interactivity with residential customers who are connected to the network, which enables us to offer video on demand services through the set-top box.

•
It enables us to provide true "triple-play" bundled services of television, broadband, and fixed line telephone services to residential customers in our franchise areas without relying on another service provider or network.

In contrast:

•
Direct to home satellite service providers do not have the capacity to offer two-way interactivity except by adding a phone line from another service provider or other cable facility.

•
Communication service providers today have only a limited capacity to provide video over existing DSL technology, using BT's access network, without significant capital investment in their network.


Multi-Service Bundles

Virgin Media was the first U.K. provider of a residential "triple-play" offering of television, broadband and fixed line telephone services. Our packaging and pricing are designed to encourage residential customers to purchase multiple services from us and we frequently offer discounts to customers taking two or more products from our portfolio. As of December 31, 2007, more than 79% of our residential customers on our network, which we refer to as "on-net", received multiple services from us and approximately 49.5% of our on-net customers were "triple-play".

With our acquisition of Virgin Mobile in July 2006, Virgin Media began offering the U.K.'s first "quad-play" of television, broadband, fixed line telephone and mobile telephone services to residential customers. We expect to drive both mobile and cable penetration through the two customer bases by applying our past experience of cross selling products. See "Mobile Segment" below.

As part of our rebrand in 2007, we renamed our product offerings and bundles so they are easy to understand. For each of our products, we have a range of packages and tariffs for customers to choose from and have labeled them as Medium (M), Large (L) and Extra Large (XL). For example, we currently offer a 2Mb broadband service as Medium, a 4Mb service as Large and a 20Mb service as Extra Large. In 2008, we plan to increase the speed of our 4Mb service to 10Mb, strengthen the capacity of our 20Mb service and launch a 50Mb service, resulting in four tiers of broadband service at 2Mb, 10Mb, 20Mb and 50Mb. From time to time, we may enhance the value of our M, L or XL bundles as we did in 2007 by increasing the speed of our 10Mb broadband service to 20Mb, and by offering the Setanta Sports channels to our XL customers at no additional cost.

Cable Television

We offer a wide range of digital, or DTV, and analog, or ATV, television services. As of December 31, 2007, we provided cable television services to approximately 3.5 million residential customers, of which approximately 3.3 million received our DTV service and approximately 0.2 million received our ATV service.

Our DTV service includes access to over 130 television channels, advanced interactive features, and a range of premium and pay-per-view services. Our ATV service packages offer up to 60 television channels, including premium services. In addition to offering the basic and premium pay TV channels, we also offer our DTV customers one of the most comprehensive Video on Demand, or VOD, services in the U.K. called "Virgin TV On Demand". See "Virgin TV On Demand" below.

Our network technology enables us to deliver a significant range of digital interactive services over an 'always on' broadband connection from the network to a customer's home. Examples of interactive services provided include games, television email and access to news, entertainment and information services from an on-screen menu. Interactive services also include enhanced television functionality utilizing the "red button" applications from the BBC and other commercial broadcasters. "Red button" functionality in the U.K. permits television viewers to press a red button on their remote control handset to receive additional interactive services including multiple broadcasts. For example, in a Wimbledon tennis broadcast, a customer can press the red button and choose which match to watch.

In 2007, we introduced "Free TV" for customers who purchase a Size M fixed line telephone service from us where, similar to Freeview, customers can access over 40 linear channels and radio services such as Virgin 1, Five US, Five, E4 and UKTV History as well as Setanta Sports News. In addition, customers also have access to red button functionality and Virgin TV On Demand.

Virgin TV On Demand

Virgin TV On Demand is a significant enhancement to the existing DTV service, offering viewers choice over and above scheduled programming without any requirement for new equipment, installation or additional subscription. The VOD service provides access to thousands of hours of premium movies, music videos, and TV programs and series on demand. It appears within the existing electronic programming guide, and can be accessed and viewed at any time via the remote control. The service offers DVD-style features including freeze frame, fast-forward and rewind. These features provide a customer with control over the content and timing of their television viewing. This service is available to almost all of our digital customers. In 2007, VOD usage increased to 33 million average monthly views in the fourth quarter from 14 million average monthly views in the first quarter. We believe customers who use VOD are less likely to churn.

There are three primary types of content available within Virgin TV On Demand, a portion of which is refreshed on a daily basis. A selection of content is available to watch for free to all DTV customers irrespective of package size. This is primarily focused within our 'catch-up' TV service which offers a selection of more than 150 hours of top broadcast TV shows from the previous seven days for no additional charge. Additionally, all DTV customers have access to pay-per-transaction content including over 1,300 pay-per-track music videos and 500 current and library movies provided by 'FilmFlex'. In total, we have over 4,000 hours of on-demand content. New movies within this library are available on VOD up to nine months before they appear on scheduled TV movie channels. Pay-per-transaction programs are available for 24 hours after purchase and can be watched as many times as a customer wishes during that period for only one single charge. Finally, DTV customers that subscribe to our Size XL Virgin TV package have additional access to a subscription VOD, or SVOD, package which includes premium TV shows and music videos, all included within the price of their monthly subscription. Customers on our other TV packages can also receive the SVOD package on payment of a monthly subscription charge.

In 2007, we launched an innovative new kind of television channel called "Virgin Central", which combines the simplicity of a traditional channel with the choice and control of next generation TV-on-demand technology. The channel hosts a continuously refreshing showcase of entertainment around the clock. As with our other VOD offerings, by pressing one button and using a simple on-screen guide, viewers have instant access to different episodes of the show they select. They can then stop, rewind and pause—just like using a DVD player. Virgin Central includes free access to hit shows like Sopranos, The OC, Nip/Tuck, Grey's Anatomy, Spooks, Cold Case and Lost. The content is updated regularly and, unlike a traditional TV channel, subscribers do not need to wait for scheduled start times.

Digital Video Recorders and High Definition Television

We also offer one of the most advanced fully-supported digital video recorders, or DVRs, for a premium monthly rental option or an up-front payment as part of our top bundle. The Virgin Media DVR box, which is called the "V+ Box", is available to our entire DTV customer base. The V+ Box has 160 Gigabytes of storage space (up to 80 hours of broadcast television), is high definition, or HD, enabled and has three tuners, allowing viewers to record two programs while watching a third. V+ Box customers that also have an HD compatible television can access our HD on demand content. Digital video recorders are also known as personal video recorders, or PVRs, in the United Kingdom. In 2008, we plan to further enhance the functionality of our V+ Box.

Broadband Internet

We deliver high-speed broadband and dial-up internet access to customers within reach of our access network by direct connection to our network. We offer broadband services at a selection of download speeds: 2Mb for Size M customers, 4Mb for Size L customers and 20Mb for Size XL customers. During 2008, we plan to increase the speed of the 4Mb service to 10Mb and launch a 50Mb service. All of our broadband services offer unlimited usage (subject to our fair usage policy) and PC security software. Premium broadband services (which are free for Size L and XL customers) include advanced security features such as anti-spyware and premium broadband content. We plan to focus our efforts on increasing our market share in the U.K. by marketing the benefits of our high-speed broadband service to both existing and potential customers. As of December 31, 2007, we provided on-net broadband services to approximately 3.4 million customers.

Virgin Media operates a content destination site, virginmedia.com, which is regularly in the top ten of most visited sites in the U.K. and in the top 15 by page ranking. There is a broad base of content available on our website, with a particular strength in sports content. For example, exclusive near-live clips of English football programming over the internet are available on this website. We also use the website to cross-promote our entire product range and to generate advertising revenues. Our customers can access their broadband email services as well as customer care information through the website.

We also provide broadband and dial-up internet services to residential customers who do not purchase our cable broadband service via BT's local access network. Various price and feature packages are available including broadband ranging from 512Kb to 8Mb, and metered and unmetered dial-up. As of December 31, 2007, we had approximately 287,300 broadband customers using this service.

Fixed Line Telephone

We provide local, national and international telephone services to our residential customers who are within reach of our access network by direct connection to our network. We enhance our basic telephone service by offering additional services, such as call waiting, call barring (which prevents unauthorized outgoing calls), call diversion (call forwarding), three-way calling, advanced voicemail, caller line identification and fully itemized monthly billing. We also provide national and international directory enquiry services.

In addition to a core line rental fee, we offer Size M, L and XL variants of our fixed line telephone service as alternatives to straight usage-based billing. These packages include "Talk Plans" that enable customers to make unlimited local and national calls for a fixed monthly fee in addition to the standard line rental. As of December 31, 2007, we provided on-net telephone services to approximately 4.0 million residential customers.

We also provide phone service via BT's local access network to customers not connected to our network. As of December 31, 2007, we provided this type of telephone service to approximately 103,900 customers.

Sales and Marketing

We use a variety of sales channels to sell our services to residential customers, including telesales, online and retail channels. Historically, telesales has been the single largest channel for consumer product sales. We expect, however, growth in the proportion of sales coming from online and retail channels. Retail channels include 13 of our own Virgin Media-branded stores as of December 31, 2007, as well as retail distribution partners such as Zavvi (formerly Virgin Megastores), Carphone Warehouse and Phones 4U.

Prior to the acquisition of Virgin Mobile, our consumer retail reach was limited to concessions and third party retail channels. In 2007, we leveraged Virgin Mobile's retail experience with the launch of a series of Virgin Media-branded stores. In 2008, we expect to open additional Virgin Media-branded stores.

These sales channels are supported by direct marketing initiatives and national and regional television and press advertising. We use our residential customer database to identify the profiles of our customers so that we can design offers to match the needs of our customers. As Virgin Media, we have the scale and reach as a combined company to justify larger television and radio campaigns. Our offers encourage customers to purchase new services and upgrade their existing services. Our marketing balances acquisition marketing, or prospects, and customer marketing to ensure we optimize growth from new and existing customers.

Since the February rebrand to Virgin Media, awareness of the "Virgin" brand as a telecoms/entertainment supplier has increased steadily, reaching 90% amongst prospective customers in our addressable market at year end. Brand consideration, which measures the likelihood of a person considering to purchase a product from a particular company, also improved during 2007 for each of our product lines.

Customer Service

A combination of in-house call centers and outsource partners handle our customer service calls. Our in-house call centers are located in the U.K. in Bellshill (Scotland), Manchester, Sheffield, Dudley, Nottingham, Glenrothes, Edinburgh, Gateshead, Teeside and Birmingham. As of December 31, 2007, we employed approximately 3,200 call center staff. Our outsourced call centers in the U.K. are located in Swansea, Liverpool and Airdrie (Scotland) and our outsourced call centers off-shore are located in India in Delhi, Pune, Bangalore and Mumbai.

Business

ntl:Telewest Business retains its focus on meeting the communications requirements of U.K. public and private sector organizations, and serving other telecommunications service providers. Through the merger of NTL and Telewest in 2006 and the subsequent integration of their networks, we are now able to leverage one of the most advanced national access networks in the U.K., delivering a wide portfolio of voice and data products to business customers.

While the wider organization has rebranded to Virgin Media, ntl:Telewest Business has retained its legacy brand. Being a business predicated upon customer relationships, a strong service proposition and sector specific expertise, significant brand equity has been created in the market over the past 15 years by each of the legacy businesses.

Sales Channels

The two sales organizations within the division, Business Markets and Service Provider, are structured to support retail and wholesale customers, respectively.

•
Business Markets—Private Sector: This sales channel focuses on meeting the telecommunications needs of the U.K. private sector, from small businesses to large, national corporations. Centralized telephone account managers serve small organizations (with approximately 5 to 99 employees), while regionally-located account, service and project management teams, supported by pre-sales technical consultants, offer a differentiated service proposition to medium and large U.K. businesses (with over 100 employees). We believe this local presence and the resulting level of service is not available to this mid-market segment from any of our key competitors and the benefits of this strategy are reflected by the long-term relationships held with many of our customers.

•
Business Markets—Public Sector: This sales channel focuses on specific vertical segments, including local government, education, health and the emergency services. This meets a requirement for sector-specific expertise where an understanding of the drivers and procurement processes of publicly funded organizations is needed to enable the efficient deployment of communications solutions. The inclusion of ntl:Telewest Business as an approved supplier under various government framework agreements acts as both an enabler of growth in this sector and an endorsement of our track-record, commitment and capability to offer value to publicly funded organizations. An area of specific focus in 2007 and moving forward into 2008 lies within the health sector and the deployment of Community of Interest Networks, or COINs. Given our deep regional coverage, we believe we are ideally placed to deliver these multi-site solutions, which enable health authorities to move to integrated network architectures, delivering cost benefits.

•
Service Provider— This sales channel is divided into vertical segments, including fixed and mobile network operators, system integrators, or SIs, and internet service providers, or ISPs, reflecting the differing network requirements of each type of service provider. This sales channel predominantly provides data connectivity both in terms of local access (tail-ends) and core networks. Being well placed to leverage our extensive network asset, the Service Provider sales channel has demonstrated strong underlying growth in providing customers with backhaul solutions, which are high bandwidth connections between a site and the core network. We believe significant market demand exists for such services driven by local loop unbundlers transporting data away from BT exchanges, as well as mobile operators requiring higher bandwidth connections from mobile masts as a result of growth in 3G and data services.

In addition to network services, a small number of significant contracts drive financial performance, such as local area network cabling projects in Business Markets, such as the new Terminal 5 at Heathrow Airport, and network builds for other operators in Service Provider where revenue peaks during construction phases and lower ongoing rentals are received during the maintenance phase.

CEO BACKGROUND

William R. Huff

Mr. Huff, age 58, has been a director since January 10, 2003 and chairs our executive committee and nominating sub-committee. He served as our interim chairman of the board of directors from January to March 2003, when Mr. Mooney became chairman. Mr. Huff is the president of the managing member of W.R. Huff Asset Management Co., L.L.C., an investment management firm. Mr. Huff founded W.R. Huff Asset Management Co., L.L.C. in 1984. W.R. Huff Asset Management's managed accounts and affiliates collectively historically constituted one of our stockholders.

James F. Mooney

Mr. Mooney, age 53, has been a director and chairman of the board of directors since March 2003, and serves on the executive committee. From April 2001 to September 2002, Mr. Mooney was the executive vice president and chief operating officer of Nextel Communications Inc. Prior to joining Nextel, from January 2000 to January 2001, Mr. Mooney was first the chief financial officer, then the chief executive officer and chief operating officer of Tradeout Inc., an asset management firm jointly owned by GE Capital Corp., EBay Inc. and Benchmark Capital. From April 1999 to January 2000, Mr. Mooney was the chief financial officer at Baan Company, a business management software provider that had dual headquarters in Amsterdam and Virginia. From 1980 to March 1999, Mr. Mooney held a number of positions with IBM Corporation, including his last position as the chief financial officer of the Americas. Mr. Mooney is also a director of Sirius Satellite Radio and was the chairman of RCN Corporation, a telecommunications service provider based in the U.S., until December 2007.

Edwin M. Banks

Mr. Banks, age 45, has been a director since May 7, 2003, chairs our compensation committee, and serves on the executive and audit committees and the nominating sub-committee. Mr. Banks is the founder of Washington Corner Capital Management, L.L.C, an investment management firm. From 1988 to October 2006, Mr. Banks served as a portfolio manager for W.R. Huff Asset Management Co., L.L.C. Mr. Banks is currently a director of CKX, Inc. and CVS/Caremark Corp.

George R. Zoffinger

Mr. Zoffinger, age 60, has been a director since January 10, 2003, chairs our audit committee, and serves on the executive and compensation committees and the nominating sub-committee. From March 2002 until December 2007, he served as the president and chief executive officer of the New Jersey Sports and Exposition Authority. From March 1998 to March 2002, he served as president and chief executive officer of Constellation Capital Corporation, a financial services company. Mr. Zoffinger is currently a director of New Jersey Resources Inc.

Neil A. Berkett

Mr. Berkett, age 52, was appointed as a director by the board on April 7, 2008, and has been our chief executive officer since March 6, 2008. Prior to that, he served as our acting chief executive officer from August 2007 to March 2008 and as our chief operating officer from September 26, 2005 to August 2007. Prior to joining us, Mr. Berkett was managing director of distribution at Lloyds TSB since 2003. From 2002 to 2003, he was chief operating officer of Prudential Assurance Company Limited. From 1997 to 2002, he was a principal at Marsh Mill Consulting Ltd, and from 1998 to 2002, he was also chief executive of Trek Investco Ltd.

effrey D. Benjamin

Mr. Benjamin, age 46, has been a director since January 10, 2003 and serves on the audit and compensation committees. He is currently a senior advisor to Apollo Management, LP, a private investment fund, and has held that position since September 2002. Mr. Benjamin currently serves on the boards of directors of Exco Resources, Inc. and Harrah's Entertainment, Inc.

Gordon D. McCallum

Mr. McCallum, age 48, has been a director since September 11, 2006. Since September 2005, he has been chief executive officer of Virgin Management, Virgin Group's U.K.-based management services company providing corporate services and general management oversight of Virgin's investment portfolio. From January 1998 to September 2005, Mr. McCallum was group strategy director of Virgin Management and prior to that, he worked for Virgin Management as a freelance consultant.

Andrew Barron

Mr. Barron, age 42, became our managing director of strategy and corporate development on March 17, 2008. Before he joined us Mr. Barron was chief executive officer of the Viasat broadcasting division of Scandinavian broadcaster MTG from September 2002. From January 2003 to September 2003, he served as chief operating officer of the MTG group. Prior to that, Mr. Barron was chief executive officer of Chello Media, a division of United-PanEurope Communications, from November 1999 to June 2002. Prior to that, Mr. Barron was executive vice president of new media and business development at Walt Disney Europe.

Robert C. Gale

Mr. Gale, age 47, became our vice president—controller on June 17, 2003 and prior to that was the group director of financial control for our U.K. operations since October 2000. Mr. Gale joined us in May 2000 when we acquired the cable operations of Cable & Wireless Communications plc, where he had held a number of senior financial positions since 1998. Prior to that, Mr. Gale was chief financial officer of Comtel, a cable operator subsequently acquired by us, from 1995 to 1997.

Charles K. Gallagher

Mr. Gallagher, age 42, became senior vice president—finance on December 18, 2007. Mr. Gallagher served on our board of directors from August 2003 until December 2007 and was the chairman of our audit committee during that period. From September 2001 to March 2007, Mr. Gallagher was chief financial officer of Viewpointe Archive Services, a joint venture among Bank of America, JP Morgan Chase & Co., U.S. Bancorp, SunTrust Banks, Inc., Wells Fargo and IBM that engages in the imaging and archiving of digital copies of checks.

Bryan H. Hall

Mr. Hall, age 45, became our secretary and general counsel on June 15, 2004. From September 2000 to June 2004, Mr. Hall was a partner in the corporate department of the law firm Fried, Frank, Harris, Shriver & Jacobson LLP in New York, specializing in public and private acquisitions and acquisition financings. Mr. Hall is an attorney licensed to practice in the State of New York.

Mark Schweitzer

Mr. Schweitzer, age 48, became our chief commercial officer on October 1, 2007. Before he joined us, Mr. Schweitzer was chief marketing officer of Sprint Nextel, a wireless communications company, from August 2005 to June 2007. Prior to that, he was senior vice president of marketing of Nextel Communications from April 1997 to August 2005. Mr. Schweitzer has been managing marketing, sales and customer operations functions in the communications industry since 1981, including experience with Time Warner Cable, MCI Communications and McCaw Wireless.

Malcolm R. Wall

Mr. Wall, age 51, became the chief executive officer of our content division on March 3, 2006. Prior to that, he was the chief executive officer of the content division at Telewest since January 31, 2006. Mr. Wall served as chief operating officer at United Business Media plc from 2001 to 2005. Prior to that, he was chief executive officer of United Broadcasting and Entertainment Ltd from 1996 to 2000.

Howard Watson

Mr. Watson, age 45, became our chief technology and information officer on March 3, 2006. Prior to that, Mr. Watson was the managing director of network technology and IT at Telewest where he had a number of key technical and managerial roles since 1993. In 1997, Mr. Watson became managing director—networks at Telewest and led the build and operation of all of Telewest's network including the build of the national network and the digital television and broadband platforms. In 2001, Mr. Watson also became responsible for IT for Telewest.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Virgin Media Inc. is a leading U.K. entertainment and communications business providing the first "quad-play" offering of television, broadband, fixed line telephone and mobile telephone services in the U.K. together with one of the most advanced TV on demand services available in the U.K. market. By number of customers, we are the U.K.'s largest residential broadband and mobile virtual network operator and second largest provider in the U.K. of pay television and fixed line telephone services. Through ntl:Telewest Business, which also operates under the Virgin Media group, we provide a complete portfolio of voice, data and internet solutions to leading businesses, public sector organizations and service providers in the U.K.

Through Virgin Media Television, or Virgin Media TV, we also provide a broad range of programming through our wholly-owned channels, such as Virgin 1, Living and Bravo; through UKTV, our joint ventures with BBC Worldwide; and through the portfolio of retail television channels operated by sit-up tv.

We presently manage our business through three reportable segments:

•
Cable: our cable segment includes the distribution of television programming over our cable network and the provision of broadband and fixed line telephone services to consumers, businesses and public sector organizations, both on our cable network and, to a lesser extent, off our network;

•
Mobile: our mobile segment includes the provision of mobile telephone services under the brand name Virgin Mobile to consumers over cellular networks owned by third parties; and

•
Content: our content segment includes the operations of our U.K. television channels, such as Virgin 1, which was launched on October 1, 2007, as well as Living, Bravo and sit-up's portfolio of retail television channels. Although not included in our content segment revenue, our content management team also oversees our interest in the UKTV television channels through our joint ventures with BBC Worldwide.

For further discussion of our business, please refer to Item 1 of this annual report.

Revenue

The principal sources of revenue within each segment are:

Cable

•
consumer—monthly fees and usage charges for telephone services, cable television services and internet access; and

•
business—monthly fees and usage charges for inbound and outbound voice, data and internet services and charges for transmission, fiber and voice services provided to retail and wholesale customers over our national network.

Mobile

•
mobile services—monthly fees and usage charges for airtime, data, roaming and long-distance calls; and

•
mobile handset and other equipment—charges for the supply of equipment.

Content

•
transactional and interactive—sale and delivery of retail consumer goods through television shopping channels; and

•
advertising—fees for television airing of advertising from advertisers or advertising agencies.

Expenses

The principal components of our operating costs and selling, general and administrative expenses within each segment include:

Cable

•
payroll and other employee-related costs;

•
television programming costs;

•
interconnect costs paid to carriers relating to call termination services;

•
facility-related costs, such as rent, utilities and rates;

•
marketing and selling costs;

•
costs of maintaining our cable network infrastructure and IT systems; and

•
allowances for doubtful accounts.

Mobile

•
interconnect costs paid to other carriers relating to mobile call termination services;

•
purchase costs of mobile handsets and other equipment;

•
subscriber acquisition costs;

•
payroll and other employee-related costs;

•
marketing and selling costs;

•
facility-related costs, such as rent, utilities and rates;

•
repairs and maintenance costs; and

•
allowances for doubtful accounts.

Content

•
television production programming costs;

•
amortization of television and movie program costs;

•
costs of purchasing consumer goods for re-sale;

•
leased satellite transponder costs;

•
payroll and other employee-related costs;

•
marketing and selling costs;

•
repairs and maintenance costs;

•
facility-related costs, such as rent, utilities and rates; and

•
allowances for doubtful accounts.

Acquisitions and Disposals

Acquisition of Virgin Mobile

On July 4, 2006, we acquired 100% of the outstanding shares and options of Virgin Mobile through a U.K. Scheme of Arrangement for a purchase price totaling £953.2 million, including cash of £419.2 million, common stock valued at £518.8 million and direct transaction costs of £15.2 million.

Reverse Acquisition of Telewest

On March 3, 2006, NTL merged with a subsidiary of Telewest and the merger has been accounted for as a reverse acquisition of Telewest using the purchase method. In connection with this transaction, Telewest changed its name to NTL Incorporated, and has since changed its name to Virgin Media Inc. The total purchase price was £3.5 billion, including cash of £2.3 billion, common stock valued at £1.1 billion, stock options with a fair value of £29.8 million and direct transaction costs of £25.1 million.

Sale of Broadcast and Ireland Operations

On January 31, 2005, we sold our Broadcast operations, a provider of commercial television and radio transmission services, to a consortium led by Macquarie Communications Infrastructure Group. The cash proceeds from the sale were £1.3 billion. Our Broadcast operations provided site leasing, broadcast transmission, satellite, media, public safety communications and other network services, utilizing broadcast transmission infrastructure, wireless communications and other facilities.

On May 9, 2005, we sold our telecommunications operations in the Republic of Ireland to MS Irish Cable Holdings B.V., an affiliate of Morgan Stanley, for an aggregate purchase price of €333.4 million, or £225.5 million.

As a result of the sale of our Broadcast and Ireland operations, we have accounted for the Broadcast and Ireland operations as discontinued operations. The results of operations for the Broadcast and Ireland operations have been excluded from the components of loss from continuing operations and shown in a separate caption, titled income from discontinued operations.

Factors Affecting Our Business

Cable Segment

In our Cable segment, residential customers account for the majority of our total revenue. The number of residential customers, the number and types of services that each customer uses and the prices we charge for these services drive our revenue. Our profit is driven by the relative margins on the types of services we provide to these customers and by the number of services that we provide to them. For example, broadband internet is more profitable than our television services and, on average, our "triple-play" customers are more profitable than "double-play" or "single-play" customers. Our packaging of services and our pricing are designed to encourage our customers to use multiple services such as television, telephone and broadband at a lower price than each stand-alone product on a combined basis. Factors particularly affecting our profitability include customer churn, average revenue per user (ARPU), competition, capital expenditures and seasonality.

Customer Churn. Customer churn is a measure of the number of customers who stop subscribing to our services. An increase in our customer churn can lead to increased costs and reduced revenue. We continue to focus on improving our customer service and enhancing and expanding our service offerings to existing customers in order to manage our customer churn rate. Our ability to reduce our customer churn rate beyond a base level is limited by factors like competition and customers moving outside our network service area, in particular during the summer season. Managing our customer churn rate is a significant component of our business plan. Our customer churn rate may increase if our customer service is seen as unsatisfactory, if we are unable to deliver our services over our network without interruption, or if we fail to match offerings by our competitors.

Cable ARPU. Average Revenue Per User, or ARPU, is a measure we use to evaluate how effectively we are realizing potential revenue from our residential cable customers on our network. We believe that our "triple-play" cable offering of television, broadband and fixed line telephone services is attractive to our existing customer base and generally allows us to increase our Cable ARPU by facilitating the sale of multiple services to each customer. Cable ARPU excludes any recognition of revenue from our Mobile segment.

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 and resellers or local loop unbundlers, such as BSkyB and Carphone Warehouse (Talk Talk), alternative internet access services like DSL, satellite television services offered by BSkyB, digital terrestrial television offered through Freeview, internet protocol television offered by Tiscali and BT, and mobile telephone services offered by other mobile telephone operators. Our business services also face a range of competitors, including BT and Cable & Wireless. Certain competitors, such as BT and BSkyB, 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.

Capital Expenditures. Our business requires substantial capital expenditures on a continuing basis for various purposes, including expanding, maintaining and upgrading our network, investing in new customer acquisitions, and offering new services. If we do not continue to invest in our network and in new technologies, our ability to retain and acquire customers may be hindered. Therefore, our liquidity and the availability of cash to fund capital projects are important drivers of our revenue. When our liquidity is restricted, so is our ability to meet our capital expenditure requirements.

Seasonality. Some revenue streams are subject to seasonal factors. For example, telephone usage revenue by residential customers and businesses tends to be slightly lower during summer holiday months. Our customer churn rates include persons who disconnect their service because of moves, resulting in a seasonal increase in our churn rates during the summer months when higher levels of U.K. house moves occur and students leave their accommodation between academic years.

Mobile Segment

Factors particularly affecting our Mobile segment include competition, seasonality and our third party distribution arrangements.

Competition. Our ability to acquire and retain customers and increase revenue depends on our competitive strength. There is significant competition in our markets from mobile operators, including O2, Vodafone, Orange, T-Mobile and 3, and from other mobile virtual network operators, including Tesco Mobile, BT Mobile and Carphone Warehouse. Many of our competitors are part of large multinational organizations, have substantial advertising and marketing budgets, and have a significant retail presence. If competitive forces prevent us from charging the prices for these services that we plan to charge, or if our competition is able to attract our customers or potential customers we are targeting, our results of operations will be adversely affected.

Seasonality. Some revenue streams and cost drivers are subject to seasonal factors. For example, in the fourth quarter of each year our customer acquisition and retention costs typically increase due to the Christmas holiday period. Our ARPU generally decreases in the first quarter of each year due to the fewer number of days in February and lower usage after the Christmas holiday period. During the summer holiday months, roaming revenue is generally higher as a result of increased international travel.

Distribution. We primarily rely upon third parties to distribute our mobile products and services. If any of these distribution partners were to cease to act as distributors for our products and services, or the commissions or other costs charged by the third parties were to increase, our ability to gain new customers or retain existing customers may be adversely affected. We also distribute our products through our own retail outlets.

Content Segment

Factors particularly affecting our Content segment include competition, the number of buyers for our television channels, our access to content, seasonality and advertising revenue.

Competition. Our television channels compete with other broadcasters for advertising revenues, subscription revenues, and programming rights. sit-up competes with a large variety of retailers in the U.K. market and with other television channels for audiences. IDS, our advertising sales department, competes with advertising sales operations representing other television broadcasters.

Limited Number of Buyers. The principal third party buyer of our television channels is BSkyB. Other than BSkyB, there are no significant buyers of our television channels.

Access to Content. Most of the television content on the Virgin Media TV channels is purchased, mainly from the U.S., and because there is a limited supply of content available and an increasing number of digital channels in the U.K., Virgin Media TV has experienced and may continue to experience an increase in the cost of its programming.

Seasonality. Our Content segment incurs increased costs in the fourth quarter of each year due to the need to provide enhanced programming over the important Christmas holiday period. Also, sit-up records increased revenues and costs in the fourth quarter due to generally higher retail sales in the lead up to the Christmas holiday.

Advertising Revenue. The majority of revenue for Virgin Media TV is from advertisers. Consequently, Virgin Media TV's revenue is directly affected by changes in the total spend on television advertising in the U.K., the viewing levels for its channels and the proportion of the U.K. advertising market represented by IDS.

Consolidated Results of Operations from Continuing Operations

Consolidated Results of Operations for the Years Ended December 31, 2007 and 2006

Revenue

For the year ended December 31, 2007, revenue increased by 13.1% to £4,073.7 million from £3,602.2 million for the year ended December 31, 2006. This increase was primarily due to the reverse acquisition of Telewest and the inclusion of its revenues from March 3, 2006, and to the acquisition of Virgin Mobile and the inclusion of its revenues from July 4, 2006, as compared to their inclusion for the full year in 2007. Offsetting this has been an underlying decline in revenue in our Cable and Content segments due to the factors described below in our segmental results of operations for the years ended December 31, 2007 and 2006.

Expenses

Operating costs. For the year ended December 31, 2007, operating costs, including network expenses, increased by 16.4% to £1,830.0 million from £1,572.8 million during the same period in 2006. This increase was primarily attributable to the reverse acquisition of Telewest and to the acquisition of Virgin Mobile. Operating costs as a percentage of revenue increased to 44.9% for the year ended December 31, 2007 from 43.7% for the same period in 2006, due to a decline in gross margins in our Cable segment together with the full year impact in 2007 of the inclusion of the Telewest Content segment subsequent to the reverse acquisition of Telewest and the new Mobile segment subsequent to the acquisition of Virgin Mobile, since these segments have lower gross margins than our Cable segment.

Selling, general and administrative expenses. For the year ended December 31, 2007, selling, general and administrative expenses increased by 5.9% to £960.2 million from £906.9 million for the same period in 2006. This increase was primarily attributable to the reverse acquisition of Telewest and to the acquisition of Virgin Mobile and higher marketing costs in connection with the Virgin Media rebrand, partially offset by a reduction in our employee expenses as a result of our integration activities together with lower company bonus scheme payments, a reduction in our share-based compensation expense resulting primarily from stock and option forfeitures, lower bad debt expense due to operational improvements in our billing and collections following the integration of our systems and processes, and gains resulting from the settlement of certain contractual issues.

Other charges

Other charges of £28.7 million in the year ended December 31, 2007 and £67.0 million in the year ended December 31, 2006 related primarily to employee termination costs and lease exit costs in connection with our restructuring programs initiated in respect of the reverse acquisition of Telewest.

Depreciation expense

For the year ended December 31, 2007, depreciation expense increased to £924.9 million from £799.1 million for the same period in 2006. This increase was primarily attributable to the reverse acquisition of Telewest and the acquisition of Virgin Mobile, together with purchases of new fixed assets during the year and the effect of a full year of depreciation expense in 2007 for assets placed in service in 2006.

Amortization expense

For the year ended December 31, 2007, amortization expense increased to £313.3 million from £246.6 million for the same period in 2006. The increase in amortization expense related to additional intangible assets arising from the reverse acquisition of Telewest and from the acquisition of Virgin Mobile.

Interest income and other, net

For the year ended December 31, 2007, interest income and other decreased to £19.5 million from £34.7 million for the year ended December 31, 2006 primarily as a result of increased losses on disposals of fixed assets and a decline in interest income due to lower average cash balances, partially offset by a gain on disposal of investments. In 2007, interest income and other included gains on disposal of investments totaling £8.1 million, offset by losses on disposal of fixed assets totaling £18.8 million.

Interest expense

For the year ended December 31, 2007, interest expense increased to £514.2 million from £457.4 million for the same period in 2006, primarily due to the additional borrowings resulting from the reverse acquisition of Telewest and the acquisition of Virgin Mobile.

We paid cash interest of £486.9 million for the year ended December 31, 2007 and £327.1 million for the year ended December 31, 2006. The increase in cash interest payments resulted from the additional borrowings following the reverse acquisition of Telewest and the acquisition of Virgin Mobile, and changes in the timing of interest payments.

Loss on extinguishment of debt

For the year ended December 31, 2007, loss on extinguishment of debt was £3.2 million, and related to the write off of deferred financing costs as a result of our partial repayments under our senior credit facility.

For the year ended December 31, 2006, loss on extinguishment of debt was £32.8 million, and related primarily to the write off of deferred financing costs on our previous senior credit facility that was repaid upon completion of the refinancing of the reverse acquisition of Telewest.

Share of income from equity investments

For the year ended December 31, 2007, share of income from equity investments was £17.7 million as compared with income of £12.5 million for the same period in 2006. The income from equity investments in the year ended December 31, 2007 was largely comprised of our proportionate share of the income earned by UKTV. The increase in our proportionate share of the income earned by UKTV was primarily due to the inclusion of UKTV within our Content segment only from March 3, 2006 following the reverse acquisition of Telewest as compared with its inclusion for a full year in 2007, together with an increase in UKTV's net income in 2007 resulting primarily from additional advertising revenue.

(Loss) gain from derivative instruments

The loss from derivative instruments of £2.5 million in the year ended December 31, 2007, primarily related to losses on cross-currency interest rate swaps not designated as hedges offset by hedge ineffectiveness on interest rate swaps. The gain from derivative instruments of £1.3 million in the year ended December 31, 2006 related primarily to favorable movements in the fair value of derivative instruments not designated as hedges.

Foreign currency transaction gains (losses)

For the year ended December 31, 2007, foreign currency transaction gains were £5.1 million as compared with losses of £90.1 million for the same period in 2006. The foreign currency transaction gains in the year ended December 31, 2007 were largely comprised of favorable exchange rate movements in our U.S. dollar long term debt and payables. The foreign currency losses in the year ended December 31, 2006 were largely comprised of foreign exchange losses of £70.8 million on U.S. dollar forward purchase contracts that were entered into to economically hedge the repayment of our U.S. dollar denominated bridge facility. The repayment of $3.1 billion of this facility on June 19, 2006 resulted in an offsetting gain during the period of £120.7 million that was recorded as a component of equity. Our results of operations will continue to be affected by foreign exchange rate fluctuations since £807.9 million of our indebtedness is denominated in U.S. dollars and £522.1 million of our indebtedness is denominated in euros.

In 2007, we received refunds of £7.9 million in respect of pre-acquisition periods of Virgin Mobile and £0.4 million of U.S. federal income tax relating to pre-acquisition periods of Telewest. We paid £0.6 million of U.S alternative minimum tax.

In 2006, we received refunds of £1.3 million of U.S. alternative minimum tax and £0.1 million of U.S. state and local tax. We also paid £3.1 million of U.S. federal income tax in respect of pre-acquisition periods of Telewest. In addition, we paid £4.6 million of U.K. tax expense in respect of pre-acquisition periods of Virgin Mobile.

Loss from continuing operations

For the year ended December 31, 2007, loss from continuing operations decreased to £463.5 million from a loss of £509.2 million for the same period in 2006 due to the factors discussed above.

Loss from continuing operations per share

Basic and diluted loss from continuing operations per common share for the year ended December 31, 2007 was £1.42 compared to £1.74 for the year ended December 31, 2006. Basic and diluted loss per share is computed using a weighted average of 325.9 million shares issued and outstanding in the year ended December 31, 2007 and a weighted average of 292.9 million shares issued and outstanding for the same period in 2006. Options and warrants to purchase shares along with shares of restricted stock held in escrow outstanding at December 31, 2007 and 2006 were excluded from the calculation of diluted net loss per share, since the inclusion of such options, warrants and restricted stock are anti-dilutive.

CONF CALL

Richard Williams - Director of Investor Relations

Good morning or afternoon to you all and welcome to Virgin Media's Q2 Results Call. On today's call, we have Neil Berkett, our CEO; Charles Gallagher, our Senior Vice President of Finance; and Jim Mooney, our Chairman.

Please can I draw your attention to the Safe Harbor statements on slide two, and remind you that some of the statements made today maybe forward-looking in nature and that actual results may vary significantly from these statements. I would also ask you to refer to our latest filings with the SEC for applicable risk factors.

Now, I'll turn to you over to Neil.

Neil Berkett - Chief Executive Officer

Thanks Richard and thanks everybody for joining the call. I'm pleased to say again that we have delivered another solid set of results.

Let's start by looking at some of the key improvements compared to a year ago. We've delivered our best ever underlying OCF of ₤330 million, which is up 6% year-on-year. SG&A is down 9% year-on-year.

Our actual Unite ends [ph] are up a 132% and as promised, we've kept churn low at 1.3% which is down 50 basis points in the last 12 months. In fact, slightly better than we expected it to be. Triple-play is now at a record 53%, that's up 8 percentage points up on this time last year. We are also the only major broadband provider in the U.K. to grow net ads compared to the same quarter last year. We've grown our broadband base by 11% over the year. More importantly, we've grown our 20 megabit top tier by 82%.

Our video on demand usage has virtually doubled at a 92% year-on-year growth. And we've grown mobile contracts that brought subscribers by 64%. So let's also look at our strategic progress and how that fits in with our role operational progress.

Our strategic priorities are firstly to lead the next generation broadband market and speeding quality. And lead and redefine the TV experience through our on demand platform.

Thirdly, to leverage our position to mobile as the third screen. We continued to make progress... great progress in quarter two at 4 to 10 megabit broadband upgrade program is now 70% complete and will be finished in the next couple of months.

Our plan is to launch 50 megabits in the fourth quarter remain on track. And we have also significantly enhanced our TV offering, the launch of BBC, iPlayer. Video on demand usage remain strong and the iPlayer launch has had a dual effect of using VOD usage and freeing up peak time capacity on our broadband platform.

We continued to see strong growth in mobile contract customers to the cross sale through our cable base. And we are leveraging our position in mobile with the launch of a mobile broadband service later this year. In terms of operational progress, reducing churn remains our number one operational priority. This was down 50 basis points year-on-year. As expected, the June price rise did not result in a material increase in churn.

Broadband net ads continued to be strong. The number of 20 megabits subscribers is growing well, so is TV. We are pleased that our efforts to repair subscriber losses in telephony through smart pricing and bundling are continuing.

We are effectively managing our best book of customers, using cross sale and up sale to mitigate pressure along with the press rising June, just narrowed the gap between the back book and front book pricing. Well, over half of our customers are now triple-play, is contributing to improvement in year-on-year revenue trends.

As I said before, we are managing a long-term lifetime value. And we are well on track to measurably grow the lifetime value of that customer base of the first of January 2009 compared to the beginning of 2008. Therefore giving a great growth impetus going into 2009.

Finally, data fitting from substantial cost savings, particularly in SG&A just speeding through into improved margins in OCF. We continued to focus on right sizing our business and hit the right cost and organizational structure to position us for long-term cash flow growth. Particular this quarter, we have agreed a new wholesale deal with T-Mobile in our mobile division, it sees us receive immediate and future cost benefits. But most importantly, it allows us to offer more competitive mobile data products.

Going forward, we will continue to target substantial cost reductions in a number of areas as we continue to reengineer the business. With the number of ongoing work streams to help deliver this, and when we are in a position to share more detail with you, we would do so. We clearly have an opportunity to expand OCF margins in the next few years.

Well, let's get into the detail. Our top priority is reducing churn. And it was 50 basis points lower than last year, which is a great achievement. Of course, Q2 last year did include the impact of a lot of sky basics but as you can see, there is still considerable year-on-year improvement. The biggest improvement has been in voluntary controllable churn. There are several contributing factors and I'll highlight just three. We've achieved substantially improved key touch points with our customers. Now have a single fit for purpose billing system covering all of our only customers. And that has defeated some of quality of service issues we used to have.

Secondly, I have also restructured the organization to reinforce the importance of both product reliability and this time resolution. Both that cool answer statistics and all right have measurably improved in the last year.

Thirdly, value for money that pick some voluntary churn and we are successfully addressing this through effective management of our back book. In addition, non-pay disconnects are down 27% year-on-year that thing improved credit controls and focus on quality growth. As expected, churn is up by 10 basis points sequentially due to a seasonal increase in movies churn, which includes student churn and rental moves.

You can see that non-pay churn is down on the previous quarter, despite the softer economic environment. Put through a price rise in June and as predicted have not seen any material increase in churn. As usual, we do expect the seasonal churn increasing Q3 which is typically 20 basis points. But we expect it to remain lower than Q3 last year. A churn improvement is sustainable. Targeting churn remains my number one operational objective and reducing it is the biggest driver of value in this business. Churn reductions with margin and value so reducing churn in 2008 through to 2007 should give us a greater growth impetus going to 2009.

Turning now to gross additions. You can see that these are down by around 13% year-on-year and also down sequentially. Post Q2 last year benefit from the significant marketing effort around our brand launch, partially offset by the loss of sky basics from our plate. Also it shifted towards more quality gross ads as reflected in our now improved non-pay churn and increasing triple-play penetration. Driving MPV at the discipline through the business through the business has been critical.

Sequentially, we are down by about 14,000. This is a typical seasonal trend as you can see from the 2006 figure. If I just mentioned the 2007 trend, just picked it by the brand launch. There is probably also some impact from the software macroeconomic environment difficult to isolate, but as we see before, gross edge is where we would feel any weakness affected.

I will explain in a moment why we feel we are positioned to address the effects of a weaker economy well positioned. These lower gross ads combined with the seasonal increase in churn but as expected we have negative net ads, which came to a minus 20,000 which is still a substantial improvement on this time, last year.

But I want to be sure to focus you on what is really more important than a hit line customer number. The quality of our customer base improving. By way of example, we have 24,000 fewer owned only subscribers, low value subscribers than we did a quarter ago. Partly through those low quality customers churning and partly through us cross selling other products. In fact, we now have a 132,000 fewer fine only customers than we did a year ago, at 31% reduction.

And we look forward to improving gross additions in the rest of the year. As in pervious years we expect gross ads to be higher in the second half of the year.

So turning to RGUs, we've seen continued good growth despite the seemingly lower gross ads in prior churn and we've remained well ahead of the same quarter last year. This was achieved alongside the continued success of increasing triple-play penetration, which has now increased to a record of 53% with due penetration of 82%. This is helping to drive improvements in customer quality, lifetime value and low churn. We expect to see improvement in RGU net ads in the third quarter to have found similar levels of Q3, 2007.

Moving on to cable ARPU, which as we said last quarter, remained in a narrow range at around £42. ARPU was down slightly on Q2 due to lower telephony usage and customers shifting to lower price bundles as we worked through the back book.

Improved quality of our products and service and therefore we have enhanced our cross selling and up selling ability to help maintain ARPU. For example, we've increased some broadband tier speeds. We have partly improved our VOD offering. We've been rolling out V+ DDR to better obtain to Sport XL TV customers.

Our success is clear from our improved triple-play penetration and improved broadband mix. I'm very pleased with the ARPU performances of the last two quarters. We are managing the business for long-term value, not just ARPUs. And therefore it may move up or down in any one quarter, as we manage the back book more effectively and as the competitive environment has stabilized. The year-on-year decline in ARPU has slowed. It is very, very encouraging. Of course Q3 ARPU should benefit from the June price rise.

What is important that we're being more effective in managing the underlying value of our customer base and creating value. Obviously, reduced churn has been the bigger driver of long-term value in the last few quarters. As promised we are well on track to measurably grow the lifetime value of our customer base this year, therefore giving us a greater growth impetus going into 2009.

Moving on to my next slide. As you're all aware, there is no doubt that the macroeconomic environment in the UK is softening as oil and fuel price and food price should I say driven inflation, it's compounded by the ongoing credit costs. As a largely consumer facing business, we are not immune to this and we are probably seeing some impact in our level of gross additions by way of example.

However, for a number of reasons we feel that we have well positioned ourselves to face an economic slowdown. Firstly, feel that the home entertainment and communication bundles that we provide a great value for money. Many of our services are increasingly becoming bond discretionary.

Broadband and pay TV are becoming huge parts of people lives are available in the home everyday if people are choosing to go out or shoplift are very cheap compared our alternative entertainment all day of choices. It also helps to our subscription business. Our existing customers are not having to make a transaction choice with each time they interact with XL services. This is not the case in other sectors such as retail for example. A high triple-play penetration, which also help lot of churn.

Limited exposure to the advertising market, just 3% of revenue is coming from advertising. Even so, our VMTV business had just outperformed the wider market by growing Q2 ad revenue by a 11% year-on-year as it grows it's market share. Though not immune to it, we think our risk from customers spin down is limited but low premium channel penetration. We also do not charge a subscription for HD. It's in 20% of our TV subs are subscribed to Sky Premium channels.

In broadband, the vast majority of customers are on the entry tier, so the focus here is on up sell rather than trying to limit to down spin. The evidence is that we have been very successful at both up sell and cross sell in the last quarter, as triple-play hit a record and our broadband mix continued to show strong improvement.

Friction of our 10 megabit upgrade and a 50 megabits launch are also going forward. Continued to improve value and quality for customers, for example, we are upgrading our four customers into 10 megabits for free. We recently launched iPlayer, which is free to all our TV customers and at not available on any other TV platform.

But its tend to sports for free to our TV extra large pack to fix around 50% of our TV subs paid the monthly fee for top tier V+ sells. Finally, with a huge amount of free video on demand TV and music content available to those XL subscribers.

Now churn remains low and we expected it to remain low and lower than last year. That shows that we're demonstrating resilience. Price rise we put through in June has stuck with bad debt remaining low. As you know we get a mitigating impact of lower movers churn in a slower housing market.

Despite all this, we are far from complacent and continued to manage the risk of our consumer slowdown materially affecting us. Managing our back book in many ways, including leveraging our mobile business and cross setting great value mobile contracts into our cable base, gently helps our customers save money.

I've already talked about the continued migration of our back book. Again, here we are saving customer's money or giving them better value deals. At the same time as improving revenue trends and growing cash flow and life time value.

We're being careful about how we mange our marketing investments to focus on those channels and media that have the best returns, both in terms of response and customer quality, and lifetime value.

And finally as I hinted before, we continued to examine ways on improving efficiencies rather further as we reengineer and reorganize the business to reduce costs as we move forward. So, with that let's have a look at broadband.

Here, you can see both a continued growth in subscribers, but also the improved mix as we continued to upgrade speeds and focus on up selling customers. We live in a world where there is ever increasing demand for bandwidth.

This is being driven by the availability of video and audio streaming sides such as iPlayer, iTunes and YouTube. The explosion in the use of social networking side is MySpace, Facebook, and Bibo and bandwidth using devices in the homes such as gaming consoles, laptops, and second PCs have also contributed to this phenomenon.

Our usage has also been growing sharply as a result. Our average usage per customer is over 8 gigs per... 8 gigabits per month. This is about 75% as the rev has grown about 75% should I say, since Q1, 2007. Actually, I think Carphone and Sky have quoted a figure of around about 3 gigabits. So, we can see that our customers are taking advantage of our greater speeds and quality to do more with their broadband service. Why, because they can.

As a result, we've driven an 82% increase in the number of top tier customers over the last year and the ongoing 10 megabit upgrade is also driving an improved mix. We are taking an increased share of the economic proper pool as we target higher quality growth. More and more customers are joining us or upgrading because they want the highest and the most reliable speeds available. There is a real segmentation in the overall broadband market between quality, Virgin Media and commodity read DSL.

In our marketing messages, we are positioning the superior quality aspects of cable over DSL Copper with some success. We've been running edge with the strap line of the mother of all broadband and have again being using Samuel L. Jackson in both radio and TV ads. And broadband continues to feature heavily in our compelling value bundles.

Broadband is a key element of our mini bundling strategies and we're building a reputation for quality and delivering a higher proportion of advertised speeds versus DSO. We regularly come top of speed side surveys, which specifically look at the delivering speed versus the head line speed. In this world, our ability to promise and deliver highest speed at peak times becomes a key differentiator compared with competing technologies.

Now, turning that technical and speed advantage into a real advantage for the customer in providing a non-commoditized push is critical to our future growth. Our overall on net broadband net ads were 55,000. Like our competitors, we saw a seasonal slowdown in the second quarter, but we were able to show good year-on-year growth. In fact, we were the only major broadband provider in the UK and to grow in net ads compared to the same quarter last year.

I would like to spend a little bit of time while highlighting some of our technical network advantage over the competition, both today and just as importantly in the future. Today, there are two fixed line broadband networks in the UK, ours and BTs. There are of course several resellers to provide broadband over BT's network.

We already have a next generation core and excess network with a capability of offering super fast broadband as you can see from the middle diagram. Carry fiber to the street cabinet and then we use for copper for voice in call extra broadband and TV. The distance from the street cabinet to the home did not impact broadband speeds as it doesn't... as it does for DSL.

By the end of the year, we will offer 2, 10, 20, and 50 megabit tiers, reinforcing our huge and quality advantage. Our current CapEx guidance includes the relatively modest investment in customer equipment and channel bonding port require to do this. During 2007, we increased our access network capacity by 25% in the first half of this year we've increased it by another 30%. This is all being done within our existing modest CapEx levels, which are inline with our guidance.

On the right hand side, you can see that the channel allocation that we use on our coax cable. On average we have 750 megahertz of capacity available which is divided into about 75 usable, 8 megahertz slots of carriers. Today, we use just two of those 75 slots to drive 2, 4, 10, and 20 megabit broadband in the middle of the diagram.

The fourth quarter up 20 and the new 50 megabit customers who remove to a DOCSIS 3 platform, which we'll use an extra four slots thereby tripling the capacity reallocate the broadband. This will significantly improve the quality of service provided to all our broadband customers as the 2 and 10 megabit customers will have more bandwidth specifically dedicated to them on their own two channels.

This will help us push real world delivery speeds as close as possible to their advertised headline speed. We also use about 27 slots to carry digital TV and around 9 slots to carry VOD the bottom half of the picture. You can see that towards the top, the largest single portion of the spectrum is the 30 slots we currently use to carry analog TV. And yet, we have less than a 190,000 analog customers and net numbers reducing by about 15,000 each quarter through migration to digital and some churn.

A 140,000 of those analog subs are in digital capable areas and so we will continue to migrate them to digital thus far switching off analog in digitally capable areas. This will allows us to free up huge amounts of extra capacity which we can use for broadband, digital, VOD, HDTV and other applications that may become prevalent overtime.

As you can see from the diagram on the left, BT's network run copper from the local exchange to the street cabinet and then copper a gains to the hunt. BT runs voice, video data, retail and wholesale products over this single prop-up line.

With the natural property of the copper wiring that used that the ADSL signal quality degrades as the distance. This is a problem for DSL providers because BT's exchanges are on average over three kilometers away from the customers home. A coax cable offer superior performance for broadband and for television. This means that even after billions of pounds of investment in 21 CN, only half of UK households will be able to receive at least 6 to 9 megabits per second via our ADSL 2 plus. And only 10% will be able to get speeds of at least 16 to 20.

In addition, due to capacity constraints, many DSL competitors have to deploy extreme traffic saving measures and throttle back speeds at peak time. As you know BT have announced the four year program for a limited build out of fiber to the cabinet and some fiber to the home. This endorses our own view that bandwidth demand will continue to grow. And that there will be increasing consumer demands for super fast broadband. Clearly, there will be some overlap with that cable areas but it won't be a 100% overlap.

BT had targeted 40% of UK homes and we think they might come under some pressure or even in same device to make some investment in non-urban areas. Even by 2012, we will still have an advantage to BT's fiber to the cabinet. With the extra bandwidth freed up, by analog switch off, we'll probably be able to offer over 200 or certainly up to 200 megabits broadband if we so chose. By contrast, BT has committed to 40 megabits, limited by the exchanges.

In most areas, BT will still be reliant on the single copper drop from the cabinet to carry all services, that's voice, video, data and whatever wholesale services they are carrying too. Whereas we'll only use copper for voice, use the superior coax for TV and broadband. A huge broadband advantage over competing technologies to speed, quality, reliability and cost. With our existing network and analog switch off, and it is an advantage, we will maintain for many years to come.

So moving onto TV. We had another great quarter driven by VOD and attractive bundling. TV net ads remain strong will go slightly down sequentially due to seasonal factors. Mix remains good with around 50% of digital subs on our top... extra large top tier.

Remember, this is our top basic tier, less than 20% of our TV subscribers subscribe to premium Sky channels. We are seeing increased usage of our video on demand service demonstrating the steady transformation of the way people watch and interact with their TVs is continuing on our data.

Usage has been boosted further by our launch of BBC iPlayer which was added to our electronic programming guide in June. We are the only TV platform in the UK to carry the service. iPlayer carries BBC programming from the previous seven days and is very, very user friendly. That is around 350 hours of content.

Developments like this give VOD a new impetus and help establish on demand as a genuinely mainstream TV service. We had 10.5 million views of BBC iPlayer in June alone. And as you can see from the chart, average monthly VOD views in Q2 have grown to 38 million. This is a whopping 92% increase over a year ago. Services used regularly by 48% of our digital base and average views per user per month have grown to 24 compared to only 14 a year ago.

Our huge library of content and quality of service are not easy replicable. And we believe this is playing an important role in both consumer retention and acquisition. We also had another strong quarter of the V+ growth. We've doubled the number of subscribers in less than a year and our research shows that DDR customers churn less than other customers.

Even with such strong growth, we still only had a 13% penetration of our digital base. So we feel there is still a huge growth opportunity here. We see our DDR product has been complementary to VOS so customers can time shift in different ways. With that super fast fiber optic broadband service and our market leading video on demand service, we are base place to benefit from the consumers increasing consumption of on demand content.

After accessing driving VOD usage and improving TV mix gives us great confidence that we can do the same with broadband. We have only relatively recently started to improve the mix.

Now turning to mobile, starting with contract. As I've already said, our strategy here is to use our favorable economics to cross sell into the cable base. We had another successful quarter with 56,000 net ads, 95% of these styles we threw are on channels which helps to keep the acquisition cost down and our profitability up.

We're seeing particular success in SIM only contracts where we would gross ad market leader in the second-quarter. Contract is an important element of our proposition, allowing us to offer appealing bundles to our customers and a low acquisition cost. The churn profile also improves as the number of products taken by our cable customers increases.

Contract customers have much lower churn and higher ARPU in prepaid customers. This means that the lifetime value of a contract customer is significantly higher than a prepaid customer. Also this quarter, we've been able to negotiate our wholesaler network contract with T-Mobile for both voice and data rights. The voice and data rights are which are active to first of January and the first of April respectively.

Not only does this allow us to improve our mobile margins, but it means we can now be more competitive in mobile data. Consequently, we will be launching a mobile broadband product in the fourth quarter, which we see as being complementary to our fixed-line broadband service.

Moving to prepaid, where last quarter our base was affected by increased market competition. This is flowed through into the reported prepaid disconnects this quarter because we use a 90 day definition for subscribers. That means that some customers who actually stop using their phone in Q1 have only appeared as churn in Q2.

Last quarter, we also saw an overall decline in usage which negatively affected service revenue in overall mobile ARPU. And to the leadership of Mark Schweitzer, our Chief Commercial Officer and Graham Oxfe [ph], our mobile AMD, we put in place a range of initiatives to address prepaid churn and stimulate prepaid usage.

We've made some selective prepaid price increases and other tear-off adjustments to address market competitiveness and grow ARPU. We've also begun to identify acreage customers and approached inactive customers much earlier with offers such as our new daily bonus tariff to reengage and retain them. We know that cheap handsets prices also led to early inactivity. So we increased these upfront costs and affectively withdrew from the low end of the market.

Our focus on profitable acquisitions as a result of the more aggressive push behind similar offers and an increased channel mix shifted Virgin Media managed channels away from third-party distribution, where commissions are significantly higher. The combined impact of these initiatives as well as the T-Mobile renegotiation has helped us to significantly increase mobile OCF compared to the first quarter.

Turning now for business. As you can see revenues is a 157 million, which is slightly up year-on-year. System without strategy, we continue to see a mixed shift in retail revenue from voice to data. Retail data is up 10% year-on-year, leveraging up our superior network and a superior network economics. Retail and other revenues is lumpy in nature and the majority of the this revenues is from infrastructure projects which are nonrecurring in nature.

Our largest infrastructure project is the provision of telecoms network equipment in Heathrow's Airport terminal fire. This revenue is expected to decline in the third quarter as the contract comes to an end. However, this contract is in a very low margin, so we will did not foresee any material impact in OCF. Wholesale revenue was down mainly due to a reduction on our ISP subscriber base and contract decline in mobile account.

Turning to content, VMTV revenue was up 9% year-on-year due to an impressible 11% increase in advertising revenue. Despite weakness in the overall TV ad market, our strong channel performance meant that we grew our market share and outperformed the market.

Our commercial impacts are up 8% year-on-year. You can see on the right hand side, our viewing share has been strong. We are growing our viewing share from about 3.5% year-on-year while Sky Basics was down 1.4%, Viacom is flat and discovery are down 0.8%. Sit-up revenue was 7% compared to the same quarter last year, which is a strong performance in a weakening macroeconomic environment which clearly will impact this business.

UK TV has also delivered strong performance and we have received 10 million cash in the first half. Content OCF was a £1 million loss. This was down by ₤6 million sequentially due mainly to an increase in VMTV programming and marketing costs and seasonally lowest sit-up revenue. OCF was down by about 1 million on year-on-year. As in previous years, VMTV's programming costs are expected to seasonally increase in the third quarter.

Now, let me now hand you over to Charles, to run through the financials before I return to summarize. Charles.

Charles K. Gallagher - Senior Vice President of Finance

Thanks, Neil. On my first slide, you can see the revenue split between the segments. Consumer revenue is down 1% year-on-year as a result of the decline in ARPU. What is important, however, is that the revenue decline has slowed from previous quarter as the competitive environment has stabilized and we have become more effective of back book migration and improved our up sell and cross sell propositions.

As you heard from Neil a moment ago, business revenue is slightly up year-on-year with a small sequential declines as the lower voice, wholesale and other retail revenues partially offset by growth in retail data revenues. Mobile revenue is slightly down year-on-year, but is up sequentially due to our improved ARPU as a result of the prepaid enhancement initiatives that Neil outlined. As we have just heard VMTV revenues up year-on-year due to strong ad revenue growth.

On my next slide you can see some revenue trends over the last year. The year-on-year movement on our principle revenue metrics have improved although they remain negative year-on-year. This slide shows that percentage require in ARPU, our net consumer, business and total revenue have all improved in Q2.

In the consumer business, this is because we have seen an increase in customers over the last year and we have seen a more stable ARPU positions due to successful up sell and cross sell. In the business division, we have seen retail data growth offset weakness in other lower margins areas.

Let's now move to the summary income statement showing Q2 '08, versus Q1 in the same quarter of last year. I'll break up all the detail cost movements on the next couple of slides. I've already discussed the revenue movements... operating costs are flat from the same quarter of last year and down 5% on the previous quarter.

SG&A was down by 9% on the same quarter last year, but up 3% on the previous quarter. This results in OCF was 333 million, which is up 6% year-on-year and up 3% on the previous quarter. OCF margin has increased to 33.6%, up nearly two percentage points from last year.

Cash CapEx at 108 million was down in both the previous quarter and here, which is an increasing amount of fixed assets acquired on the finance leases, together with the timing of cash payments related to fixed asset purchases. During the quarter, we acquired 30 million of fixed assets under the finance lease.

Accrued CapEx of 156 million was flat year-on-year. It was up on the previous quarter due to increased scalable infrastructure costs related to the broadband speed upgrades, partially offset by reduced consumer premises equipment expenditure as a result of reduced volumes.

So, let's look at the cost in more detail where we can see that we have demonstrated good spending control. Cable operating costs were down, both sequential and year-on-year mainly due to lower volume related costs and lower network facilities costs. This sequential decline also included lower business costs, reflecting reductions in other retail volumes. As a result, cable gross margin has increased to 61.9%.

Mobile operating costs are down on the previous quarter, just the lower equipments costs and the renegotiated wholesale and voice rates. This change in rates was retroactive to January 1st for voice and April 1st for data. Consequently, the second quarter reflects six months of voice rate reductions, as a result mobile gross margin is up sequentially to 42.3% roughly flat year-on-year.

Content offering costs are up year-over-year due to the launch Virgin 1 on October 2007. The results of all of this is gross margin is relatively flat year-on-year at 56.1%.

Turning to SG&A, cable SG&A is down by 10% year-on-year due to the reduce headcounts and marketing cost. As we signaled last quarter, cable SG&A is up sequentially due to higher marketing costs driven by a Samuel L. Jackson TV campaign and also higher stock-based cost compensation expense.

Mobile SG&A is down 14% year-on-year due to lower employee expenses and content asset remain fairly flat. As a result, total SG&A is down 9% year-on-year but up sequentially 3% at 22.5% of revenue.

As Neil has already said, we will continue to target substantial cost reductions on a number of years going forward as we continue to reengineer the business. We currently have a number of ongoing work streams that help deliver this and when we are in a position to share more details with you, we will do so.

The result of all this is shown in my next slide. Cable OCF is up 5% year-on-year, but down slightly sequentially due to extra marketing costs. However, OCF margin is slightly up in the previous quarter at 38.9% and well up in the same quarter last year.

Mobile has made a significant improvement on the previous quarter as Neil has already outlined. And in content continues to hover around breakeven. The net result of the total OCF margin has increased from 33.6% from 31.7%.

In the third quarter, we expect OCF to be lower than Q2 for four main reasons. Firstly as usual we'll see VMTV's programming cost seasonally increase. Secondly, we will be increasing our sales and marketing other volume related costs to support improvement in ARPUs and gross ads that Neil discussed.

Thirdly, mobile OCF will be marginally lower as Q2 benefited from the retrolife have changed the voice wholesale rates. And finally there will be a small increase in employee related cost resulting from our annual salary review.

On my final slide, I have set our debt position as of the end of the quarter as compared to a year ago. As you know, in April we issue $1 billion convertible bond and use the proceeds to preface some of our outstanding bank debt. As a result, we do not have any material bank repayments due until March 2010.

We had a strong working capital performance in the quarter and we have had good cash generations in the quarter. You can see that our cash balances increased to ₤427 million and as a result, net debt was reduced to $5.6 billion, which is about 200 million lower than a year ago. Our key leverage ratio has also fallen to 4.2 times confirming our deleverage and profile.

At this point, let me hand you back to Neil to wrap-up before we take your questions. Neil?

Neil Berkett - Chief Executive Officer

Sure Charles. So let me summarize with this final slide. You can see from the results from the last few quarters that our discipline focus on execution is bearing results and driving improved fundamentals, which has resulted in our best ever underlying OCF performance.

In particular, we focus on driving down churns for a range of operation improvements. We've been effectively managing our back book pricing issues through improved cross sale and up sell. As a result, we've seen ARPU begin to stabilized in a narrow range and revenue trends improve.

We've seen the benefits of cost savings come through and start to drive improvements in our bottom-line. We remain convinced that we can target further efficiencies. We have an amazing asset in our network which we are focused on and exploiting. We have a clear technical advantage in the broadband and on demand space alongside the economic advantage of owning and running our own network, both now and in the future. Growing consumer demand the bandwidth quality and on demand consumption is freely playing to our strengths.

Competitive environment is more stable that has been for sometime as the market pricing changes have now been in the market for one to two years. If you are comfortable enough with the competitive environment of the strength of our brand and our products, that we've raised prices for the second half of the year and we're also starting to see some of that competitors raise their on own pricing.

The wider macroeconomic outlook is clearly weakening and we have felt some impact of this, particularly in gross ad. Nevertheless, we feel we are well positioned to address these conditions that are outlined. We feel we have a significant opportunity to take further cost out of the business next year and we have various work streams running to scud them out.

So, we are pleased to have the first half of the year has gone and about our prospects for the future. And with that, we'd be happy take your questions. Operator?

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