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

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We must continuously maintain and improve our networks in a timely and cost-effective manner in order to sustain and expand our customer base, service offerings and quality of service, enhance our operating and financial performance and satisfy regulatory requirements. The maintenance and improvement of our existing networks depends on our ability to: • Enhance the functionality of our network in order to offer increasingly customized services to our customers; • Upgrade our existing network and systems with new technology; • Expand the capacity of our networks to cope with increased bandwidth usage; • Expand and maintain customer service, network management and administrative systems; • Modify network infrastructure for new products and services; and • Finance our maintenance costs and future network upgrades If we fail to maintain and improve our network, our services may be less attractive to existing and potential customers and we may lose customers to competitors who are able to provide higher quality services than we are. This could impact our financial condition and make it more difficult for us to fund our operations and meet our substantial debt obligations. We require information technology enhancements in order to continue providing a high quality customer service. Failure to implement such enhancements may result in reduced quality of customer service, leading to an increase in customer churn, which may in turn result in decreases in revenue, otherwise impact on our financial condition and make it more difficult for us to fund our operations and meet our substantial debt obligations. Telefónica, the incumbent telecommunications operator, has the ability to set standards and precedents in this market, which may adversely affect our business. Telefónica, the incumbent telecommunications operator in the Spanish market and one of our main competitors, has the ability to set standards and precedents in this market, which may adversely affect our business. In addition to its significant market presence and power in the Spanish broadband internet and telephony markets. Telefónica also has a significant market share in the Spanish pay television market. Telefónica’s relationship with existing and potential customers and suppliers may impact our ability to negotiate contracts with them on terms commercially favorable to us or at all. Suppliers may insist on terms and conditions secured in negotiations with Telefónica that are favorable to the supplier and Telefónica but detrimental to us. In addition, Telefónica may use its substantial capital resources and dominant market presence to reduce prices charged to customers in order to meet its particular objectives. There can be no assurance that their actions will not adversely affect us. We are subject to increasing operating costs and inflation risks, which may adversely affect our earnings. While we attempt to offset increases in operating costs through a variety of measures focused on increasing revenues, there is no assurance that we will be able to do so. Therefore, operating costs may rise faster than associated revenue, resulting in a material negative impact on our cash flow and net profit. We are also impacted by inflationary increases in salaries, wages, benefits and other administrative costs. In addition, a number of our contracts are indexed to the consumer price index (“CPI”). Increases in the CPI could significantly impact our payment obligations with respect to our suppliers. Our capital expenditures may not generate a positive return. The broadband internet, television and telephony markets in which we operate are capital intensive. Significant capital expenditures are required to attract and retain customers to our networks, including expenditures for equipment and installation costs and the implementation of new technologies such as Docsis 3.0 and next generation TV. No assurance can be given that our current or future upgrades will generate a positive return or that we will have adequate capital available to finance future upgrades. If we are unable to, or elect not to, pay for costs associated with adding new customers, expanding or upgrading our networks or making our other planned or unplanned capital expenditures, our growth could be limited and our competitive position could be harmed. We operate in a highly regulated market as a result of which we may be required to make additional expenditures or limit our revenues. We operate in a highly regulated market subject to the supervision of various regulatory bodies, including local, regional, national and European Union authorities. Changes in these regulations may increase our administrative and operational expenses or limit our revenues. We are subject to, among other things: • Rules governing the interconnection between different networks and the interconnection rates that we can charge and pay for fixed and mobile line connections; 24
• Regulations relating to accessing Telefónica’s network for offering fiber to the home (“FTTH”), ADSL and indirect access services and regulations relating to accessing mobile network operators for the provision of mobile line services to end-customers; • Rules for authorization of renewals and transfers; • Regulations on universal service obligations including recent developments on the National Universal Service Fund and contributions to it with respect to previous year. (See “Regulation—Regulation of Electronic Communications Services—Universal Service, Public Service Obligations and Other Obligations of Public Character”); • Regulations relating to customer privacy and data protection and other consumer rights; • Regulations on intelligent network services; • Taxes such as under the RTVE Financing Law as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ONOMidco—Regulatory Costs” and regulations requiring us to invest in content; • Regulation and taxes on the use of the spectrum; • Other requirements covering a variety of operational areas such as land use and environmental protection, technical standards and subscriber service requirements and legal interception obligations; • Significant market power regulations and other restrictions relating to competition; • Changes in Telefónica’s regulatory rate (in light of which we determine the rate for our wholesale services); • Regulations on television and other audiovisual communication services; • Regulations relating to accessing content in the audiovisual market; and • Other regulations. One of our regulators, the CMT, is required under current regulations to define the retail and wholesale telecommunications markets in Spain that are not competitive. The CMT has concluded all market reviews and adopted a substantial number of decisions whereby, in compliance with the EU Network Regulation Framework and the General Law on Telecommunications, it has defined relevant markets, identified operators with significant market power and, consequently, imposed certain regulatory obligations both on the traditional fixed telecommunications incumbent (Telefónica) and other operators, such as mobile and cable companies. In 2012 the CMT will initiate a new round of market analysis. For more information, see “Regulation”. Changes in applicable law, regulations, governing policy, or the interpretation and application of existing laws or regulations, including recent developments on universal service (see “Regulation”), could adversely affect our business, financial condition and ability to introduce new products and services. Our business could be materially adversely affected by any changes in relevant laws or regulations or their interpretation regarding, for example, authorization requirements, access and price regulation, interconnection arrangements, the imposition of universal service obligations or any change in policy allowing more favorable conditions for our competitors. Our ability to introduce new products and services may also be affected if we cannot predict how existing or future laws and regulations or policies would apply to such products or services. Many of our suppliers, particularly content providers and suppliers of equipment and services, are also subject to extensive regulation, which could adversely impact their ability to satisfy their obligations to us and thereby indirectly expose us to additional risk. 25
Page 1 and 2: Report on ONO Midc
Page 3 and 4: • Operating free cash flow do not
Page 5 and 6: • the effect of changes in the re
Page 7 and 8: CONTENTS INFORMATION ON THE COMPANY
Page 9 and 10: RECENT DEVELOPMENTS Key operating e
Page 11 and 12: SUMMARY FINANCIAL INFORMATION AND O
Page 13 and 14: Reconciliation of EBITDA, operating
Page 15 and 16: RISK FACTORS In addition to other i
Page 17 and 18: We do not expect to generate suffic
Page 19 and 20: RISKS RELATING TO OUR BUSINESS We m
Page 21 and 22: altogether. In addition, the broadb
Page 23: evenues could be adversely affected
Page 27 and 28: Wholesale & Other: We provide carri
Page 29 and 30: espectively), which stands in contr
Page 31 and 32: Our Products and Services We curren
Page 33 and 34: We offer all our broadband customer
Page 35 and 36: services, ranging from simple fixed
Page 37 and 38: coming years. For example, in June
Page 39 and 40: technology, although depending on O
Page 41 and 42: Supplier Network Equipment Next Gen
Page 43 and 44: not belonging to a group (following
Page 45 and 46: Telecommunications Law, the MIET ha
Page 47 and 48: The right to provide electronic com
Page 49 and 50: As holders of spectrum concessions
Page 51 and 52: A general provision against anticom
Page 53 and 54: programs and content in order to in
Page 55 and 56: SELECTED HISTORICAL CONSOLIDATED FI
Page 57 and 58: MANAGEMENT’S DISCUSSION AND ANALY
Page 59 and 60: aggregate price of these services p
Page 61 and 62: Residential Services Residential re
Page 63 and 64: Operating data in units % change Fi
Page 65 and 66: Operating Expenses Our operating ex
Page 67 and 68: Net Financial Expense Our net finan
Page 69 and 70: Cash flows from investing activitie
Page 71 and 72: Currency Risk While the vast majori
Page 73 and 74: MANAGEMENT DIRECTORS AND SENIOR MAN
Page 75 and 76:
Starman AS, Elipso Finance and Vest
Page 77 and 78:
Víctor Guerrero is our Director of
Page 79 and 80:
The amounts and percentages of shar
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filing and the court has to evaluat
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DESCRIPTION OF OTHER INDEBTEDNESS T
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Maturity: Tranche A and Tranche B m
Page 87 and 88:
the event that at the end of each C
Page 89 and 90:
Senior Secured Notes On October 22,
Page 91 and 92:
• Second, in payment of the follo
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Report on ONO Midco, SAU and its subsidiaries as of December 31 ...

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