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

Our net churn (based on the last quarter of each period) for our residential fiber business increased from 13.9% in 2009,
to 15.5% in 2010 and to 18.8% in 2011. This increase was primarily driven by some customers dropping their telecommunication
services to preserve their disposable incomes, along with the increased promotional activity experienced in the Spanish
telecommunication market that has impacted a portion of our most price sensitive customers (mainly single play customers).
Going forward we intend to continue focusing on stabilizing net churn with the implementation of a series of initiatives to
promote customer loyalty (such as our recently launched 15 Mbps upgrade campaign), the development of better products (such
as DOSCIS 3.0, TIVO, mobile), improved customer care, customer segmentation tools and tactical promotions.
Broadband Internet: In 2011, broadband internet customers increased by 49 thousand, or 3.6%, to 1,429 thousand as
of December 31, 2011. Broadband internet customers as a proportion of total residential fiber customers increased by 2.9
percentage points to 79.1% in 2011. Our residential broadband internet penetration increased to 20.3% at the end of 2011 from
19.6% at the end of 2010. The increase was a result of our efforts to acquire customers with this service combined with telephony
or on a triple-play basis as well as our focus in high-speed interent offerings. As of December 31, 2011, over 424 thousand
customers subscribed to our high-speed internet packages (30, 50 or 100 Mbps), which represents approximately 30% of our
broadband customer base. We believe these excellent commercial results position ONO as the market leader in high-speed
Internet in Spain. In February 2012, we completed the deployment of DOCSIS 3.0 technology in the Canary Islands and currently
we have the capacity to deliver high-speed Internet of up to 100 Mbps to over 7 million homes within our network coverage areas,
representing our entire fiber customer base.
In 2010, broadband internet customers increased by 54 thousand, or 4.1%, to 1,380 thousand as of December 31, 2010.
Broadband internet customers as a proportion of total residential fiber customers increased by 3.6 percentage points to 76.2% in
2010. Our residential broadband internet penetration increased to 19.6% at the end of 2010 from 18.9% at the end of 2009.
Television: In 2011, fiber television customers decreased by 31 thousand, or 3.2%, to 923 thousand as of December
31, 2011. Fiber television customers as a proportion of total residential fiber customers decreased by 1.6 percentage points in 2011
to 51.1% as of December 31, 2011. The penetration of fiber television services decreased by 0.5 percentage point to 13.1% at the
end of 2011. The decrease in television customers was mainly derived from the negative macroeconomic environment uder
whiche we have operated in that has forced our most price sensitive customers to drop the television service to preserve their
disposable incomes.
In October 2011, we officially launched, our next generation TV service (TIVO) to customers within Madrid and
Barcelona and in February 2012 we made this service available in Valencia, Santander and Murcia (these regions represent c.37%
of the Pay TV market in Spain). We expect to further extend this innovative TV service to other regions within our network
coverage areas in the coming quarters. As of December 2011 almost 8 thousand customers subscribed to this unique TV product
what represents c.4% of our TV customer base in Madrid and Barcelona. Although to date this product has only been launched on
a limited basis, we believe that there are early signs of positive market acceptance. We expect that this new TV product will help
us to provide our customers with a best in class experience and a wide variety of content that integrates broadcast and broadband
television in a way that goes beyond traditional pay television features. We believe these unique functionalities will help us to
increase the number of our TV customers and revenues going forward.
In 2010, fiber television customers decreased by 22 thousand, or 2.2%, to 953 thousand as of December 31, 2010. Fiber
television customers as a proportion of total residential fiber customers decreased by 0.8 percentage points in 2010 to 52.7% as of
December 31, 2010. The penetration of fiber television services decreased by 0.4 percentage point to 13.6% at the end of 2010
from 13.9% at the end of 2009. During 2010, the decrease in television customers was mainly due to the fact that we ceased
offering this product on a stand-alone basis and focused on acquiring customers with telephony and broadband bundles, which
enjoy lower net churn rates, and a discontinuation of promotions relating to “TV Esencial”, a low-cost television package.
Telephony: In 2011, the number of telephony customers increased by 22 thousand, or 1.3% to 1,708 thousand as of
December 31, 2011. Telephony customers as a proportion of total residential fiber customers increased by 1.5 percentage points to
94.6% at the end of 2011. This increase was primarily due to our efforts to acquire customers taking bundles with telephony and
the lower net churn experienced in customers taking this service. This service is showing resistance to the decrease in the
customer base and minutes of use, remaining strong in terms of national fixed-to-fixed calls; although fixed-to-mobile and
international call volumes remain weak.
In 2010, the number of telephony customers increased by 20 thousand, or 1.2% to 1,686 thousand as of December 31,
2010. Telephony customers as a proportion of total residential fiber customers increased by 1.8 percentage points to 93.1% at the
end of 2010.
Residential ADSL Services
Residential ADSL services are comprised of services offered through full unbundling of the local loop. These services
provide us with revenues from monthly fees from telephony and broadband internet services and usage charges from telephony
services. The following table sets forth customers, RGU and revenue from our residential ADSL services and percentage change
over the period.
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