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

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this speed on a nation-wide basis). As of December 31, 2011, over 424 thousand customers subscribed to our high-speed internet packages (30, 50 or 100 Mbps) which we believe makes us the leading provider of ultra-high speed internet in Spain. We intend to continue focusing on marketing and deriving the commercial benefits from this service. • Provide the best TV experience in the market. In June 2010, we established an alliance with U.S. digital video company TIVO in order to offer a next generation TV service, using set-top boxes manufactured by Cisco, which we believe provides a seamless convergence between internet and traditional television content. In October 2011, we officially launched our next generation TV service (TIVO) to customers within the Madrid and Barcelona regions and in February 2012 we made this service available in Murcia, Valencia and Santander and we expect to start offering this innovative service on a broader scale in the coming quarters. Although to date this product has only been launched on a limited basis, we believe there are positive signs of market acceptance of the TIVO product of this early stage, with over 8 thousand customers acquired as of December 31, 2011. We believe this innovative TV product will help us to grow our TV customer base, strengthen customer loyalty and increase revenues. We also believe it differentiates and significantly upgrades our television offerings compared to others in the market by providing users with a “best-in-class” experience and a wide variety of content that integrates broadcast and broadband television in a way that goes beyond the confines of traditional pay television. • Increase the number of high-quality customers. We are undertaking a more focused customer acquisition strategy while at the same time protecting our customer base with loyalty initiatives. Our main strategy is to grow market share of our residential services, but we are particularly focused on higher-quality customers, which we believe can help us achieve higher ARPUs and lower net churn. Actions to implement this strategy include the use of credit scoring, the implementation of activation and installation fees, selective application of customer acquisition promotions and a change in marketing strategy to focus on more targeted campaigns. Our advertising highlights the quality of our products in addition to the competitive prices at which we offer them. • Expand up-selling and cross-selling initiatives. We seek to sell additional products and services to our existing customers, a practice to which we refer as cross-selling, or transfer them to higher value services, a practice to which we refer as up-selling. In particular, we intend to encourage our customers to subscribe for additional services by offering bundled services at prices lower than those provided by our competitors or by us on an individual basis, or to transfer customers to higher broadband speeds and broader TV packages, including our recently launched TIVO product, at similar or slightly higher prices. We believe that providing existing customers with a variety of new and enhanced services with tiered pricing options encourages them to take more than one of our services. Bundling and new pricing options are expected to increase the number of our doubleand triple-play customers and thereby increase our RGUs per customer and protect ARPU stability. We also intend to continue developing customer loyalty by offering value-added services such as mobile voice and broadband internet and internet security software. • Grow our SME business. We believe there is opportunity to grow our SME business and gain market share in this business area. Different types of SME customers have different telecommunications service needs and respond to different sales and marketing approaches. Quality is of paramount importance for SME customers and we believe that we are well-positioned to deliver a quality service by utilizing our established proprietary stateof-the-art network and by offering competitive solutions. • Maintain cost discipline and maximize cash generation. We achieved positive free cash flow for the first time in 2009. We increased our free cash flow by €89 million between 2009 and 2011, and we aim to continue to improve free cash flow generation through the marketing and product development initiatives described above as well as through continuous cost control. In addition, we are continuing to identify specific projects to improve the overall level of efficiency in all our activities, such as our ongoing focus on more cost efficient internet sales and marketing, which accounted for 17% of our sales in the fourth quarter of 2009 but 32% in the fourth quarter of 2011. • Reduce our leverage. We believe that by focusing on the strategies above, we are continuing to generate positive cash flows and intend to use such cash flows primarily to reduce our indebtedness as evident by our reduction in net leverage from 5.1x in 2009 to 4.6x in 2011. 30
Our Products and Services We currently provide a broad array of broadband internet, fiber television and telephony services to our residential customers as well as broadband internet services and telephony to SMEs, large accounts and corporations, and the wholesale market. The following table sets out certain information with respect to our residential and business customers as at December 31, 2011: Data in units As of December 31, 2011 Residential fiber 1,806,598 Residential ADSL 93,509 Total Residential customers 1,900,107 SMEs customers 89,295 Indirect access customers 20,629 Note: We do not report numbers of customers in the “large accounts & corporations” and “wholesale & other” business segment because such data is not meaningful. Residential Fiber Services Overview As of December 31, 2011, our proprietary state-of-the-art network gave us fiber access to over 7 million homes with coverage across Spain, including the nine largest cities. Currently, our customers enjoy the same service offering despite their geographic location, except in the Canary Islands, La Rioja and Navarra where our customers continue to have an analog TV offering. In October 2008, we were the first operator to launch 50 Mbps broadband speeds and the first operator to launch 100 Mbps broadband speeds in October 2010 and 200 Mbps for SMEs in February 2012. At present, we offer a number of internet access services, including speeds of 6 Mbps, 15 Mbps, 30 Mbps, 50 Mbps and 100 Mbps and three television packages: “Esencial” (with 69 channels), “Extra” (with 105 channels) and “Total” (with 125 channels). All these television offers include VoD in the areas where this service is available and our next generation TV (TIVO) service, which we believe provides a seamless convergence between internet and traditional television content. The table below sets out certain information with respect to our residential fiber broadband internet, television and telephony services: Data in units, except if otherwise stated. As of December 31, 2011 Residential Fiber Homes released to marketing 7,042,797 Customers 1,806,598 Penetration (%) 25.7% Net churn (%) 18.8% ARPU (€) 52.4 RGUs 4,059,661 Internet 1,428,850 Television 922,537 Telephony 1,708,274 RGUs per customer 2.25x Revenues (€m) 1,125 Note: We do not report numbers of customers in the “large accounts & corporations” and “wholesale & other” business segments because such data is not meaningful. 31
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
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Page 21 and 22: altogether. In addition, the broadb
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Page 25 and 26: • Regulations relating to accessi
Page 27 and 28: Wholesale & Other: We provide carri
Page 29: espectively), which stands in contr
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
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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
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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
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the event that at the end of each C
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Senior Secured Notes On October 22,
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• Second, in payment of the follo
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