Report on ONO Midco, SAU and its subsidiaries as of December 31 ...

RISKS RELATING TO OUR BUSINESS
We may be affected by a further deterioration of economic conditions in Spain.
Our financial results are substantially dependent upon the overall economic conditions in Spain. After a period of
economic growth, Spain entered into a recession in the third quarter of 2008. The effects of the global economic downturn were
exacerbated by a real estate crisis and pressures from a relatively high fiscal deficit and foreign indebtedness. Spain’s gross
domestic product (“GDP”) declined by 3.1% from 2008 to 2009, although GDP grew by 1.0% in 2010 according to Eurostat and
is expected to have grown by 0.7% in 2011, although unemployment reached 22.9% in February 2012 according to INE. Spain’s
public debt experienced a series of downgrades in recent years, including most recently a downgrade in January 2012. An
extended recession, or public perceptions of declining economic conditions, could substantially decrease the demand for our
services and adversely affect our business. During periods with deteriorating economic conditions and high unemployment,
consumers have less discretionary spending to purchase services, including telecommunications services. For example, as a result
of the economic downturn, in 2008-2009 we experienced decreased demand for our services and our revenues declined from
€1,616 million in 2007 to €1,472 million in 2010. In 2011, our revenue change the trend and increased to €1,485 million. During
the 2009-2011 period, our residential fiber customer numbers declined by 19 thousand. While the impact of a continued economic
slowdown or recession on our business is uncertain, it could result in declines in revenue without a corresponding decrease in
expenses and adversely affect our results of operations and financial condition.
We may not generate sufficient cash flow to fund our operations or capital expenditures.
The operation, maintenance and upgrade of our network, as well as the costs of sales and marketing of our products and
services, require substantial upfront financing. We have major capital resource requirements relating to, among other things, the
following:
• Developing and deploying new products and services, such as next generation TV;
• Implementing new technologies;
• Maintaining the quality of our network;
• Consolidating our brand in the market;
• Increasing the loyalty of our customer base; and
• Continuously improving our processes and procedures through the implementation of systems and technologies.
Our ability to fund our ongoing operations depends on our ability to generate cash. Our ability to generate cash depends
on many factors. For a discussion of these factors see “—Risks Relating to our Financial Profile”. In addition, our liquidity and
capital resource requirements may increase if we expand into additional areas of operation or if we make future acquisitions. We
may not generate sufficient cash flow or have access to sufficient funding to meet these requirements. If we fail to meet these
requirements, our operations could be significantly adversely affected and future growth could be significantly curtailed.
The Spanish fixed and mobile residential broadband internet, television and telephony markets as well as the business
telecommunications market are highly competitive and may become more competitive in the future, which could result in lower
prices for our products and the loss of current and potential subscribers, which would result in reduced revenues and could
materially adversely affect our profitability.
We face significant competition from established and new competitors that provide fixed and mobile residential
broadband internet, television and telephony services as well as business telecommunications services in Spain. We also face
potential competition from new entrants. In some instances, we compete against companies with fewer regulatory burdens, larger
financial resources, more comprehensive products and services, greater personnel resources, wider geographical coverage, greater
brand name recognition and more established relationships with regulatory authorities and customers.
Broadband Internet: Telefónica (operating under the Movistar brand) is our principal competitor with respect to
broadband internet services. Telefónica is the former monopoly provider of most telecommunications services in Spain.
Telefónica has, among other competitive advantages, significantly greater financial resources, brand recognition and market
presence than we do. Telefónica has recently taken aggressive pricing measures for broadband internet services, including
packages which combine these broadband internet and mobile offerings. In addition to Telefónica, there are various providers of
digital subscriber line (“DSL”) broadband internet services that offer broadband services using Telefónica’s network on a bundled
and unbundled basis, such as Orange, Vodafone and Jazztel. These operators have also recently taken aggressive pricing measures
in response to Telefónica pricing actions. We may also face increased competition from internet offerings by the mobile service
providers as this service is becoming more popular.
Television: Our television services compete against Spain’s free digital terrestrial television nationwide, regional and
local channels. In addition, in the pay television market, we compete against Sogecable’s satellite platform, Digital+. Digital+ has
greater market presence than we do, and has exclusive access to certain premium television content. In addition to established
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