Regulation of bitstream services has been already lifted in parts of the UK and Portugal and for residential customers in Austria.

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4 1 Regulation of bitstream services has been already lifted in parts of the UK and Portugal and for residential customers in Austria. 2 KCOM (formerly Kingston Communications) is the incumbent telephone operator of the British city of Kingston-upon-Hull. As the UK regulator Ofcom has found it to have significant market power in the Hull area, it has been imposed ex ante access regulation, but it has not been imposed functional separation of its network and service operations like the other British incumbent BT. 3 BT (formerly British Telecommunications) is the incumbent telephone operator in most of the UK (except Hull), and has entered voluntary undertakings with the British regulator Ofcom to functionally separate its network operations (Openreach) from its retail and business activities (BT Retail, BT Wholesale and BT Global Services). 4

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8 4 In the US, Next Generation Networks (NGN) are usually referred to as Ultra-broadband networks (UBB). 5 BEREC is the organization of the European Union that comprises the National Regulators of Electronic Communications of all Member States. 6 BEREC: Next Generation Access Implementation Issues and Wholesale Products BoR (10) 08, BEREC Report, March 2010, 2010/572/EU: Commission Recommendation of 20 September 2010 on regulated access to Next Generation Access Networks (NGA) - C(2010)

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11 8 In December 2009, the European Commission accepted the Austrian regulator s (RTR) proposal to include mobile broadband in the retail market for residential users, due to specific circumstances in Austria [see - Ref. IP/09/1888].The RTR conducted a market analysis of the broadband access market that concluded that, for residential customers, mobile broadband services were substitutes for fixed services (DSL and cable) and that its pressure made the market to be in effective competition. 11

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14 Market share (connections) Profiles of different EU countries broadband entrants 60% 50% 40% 30% 20% 10% 0% Incumbent Infrastructure-based Services-based France, Germany and Italy Rest of European Union 14

15 9 Competitive investor areas (the ones in which some entrant has made irreversible investments) amount for 90% to 70% of premises in Western European countries. See annex I for details. 15

16 10 We assume broadband penetration to be uniform within a country. This assumption is quite realistic, for there are countries like the UK in which rural penetration of broadband is higher than urban one. However, we acknowledge that, since penetration is usually higher in areas with infrastructure competition (see Bouckaert et al (2010), Aron & Burnstein(2003), Distaso et al. (2005) or Höffler (2005)), there is a certain overestimation of the market share of entrants. In any case, since using the national market share for incumbents also overestimates their real market share in competitive areas (for it is the average of 100% share in single network areas and the real market share in competitive ones), we estimate both biases to offset. 16

17 Considering only customers connected with Virgin Media s own local loops. 12 OpFCF: cash-flow from recurring operations, after capital investments in the recurring operations, but excluding nonrecurring items, financial investments and interest and tax net payments 17

18 M 600 Infrastructure-based EBIT Ono Virgin Media* UPC Fastweb Telenet Colt *Value in Euros. Exchange rate: 1= 1,136 Source: Annual Reports 18

19 60% EBITDA Margins of European operators 50% 40% 30% 20% 10% 0% Numericable FT (France-Fixed+Internet) Virgin Media FastWeb ONO Telenet BT (UK) Telecom Italia (Italy) Telefonica (Spain-Fixed) Belgacom 19

20 40% EBIT Margins of European operators 35% 30% 25% 20% 15% 10% 5% 0% Virgin Media FastWeb ONO Telenet BT (UK) Telecom Italia (Italy) Telefónica (Spain-fixed) Belgacom 20

21 M 600 Infrastructure-based OFCF Ono Virgin media* UPC Fastweb Kabel Deutschland Colt *Value in Euros. Exchange rate: 1= 1,136 Source: Annual Reports 21

22 13 See e.g. Soria & Hernández-Gil (2010) and Soria & Hernández-Gil (2008) [Ref.11] 22

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25 14 ECTA response to Commission consultation on the Draft Recommendation on Regulated Access to Next Generation Access Networks. July

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30 15 These are countries from which information about coverage and overlap of the different types of operators is available; moreover, they also cover a wide range of population densities, as well as encompassing 27% of the population of the EU (46% if we exclude France, Italy and Germany). Therefore, although the conclusions from their analysis may not be fully statistically representative, we think that they are a good representation of the whole EU. 30

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32 17 In 2009, due to the inexistence of segment differentiation in the annual report of Virgin Media, we include data referred to all company activities. 18 Cash flow includes all Virgin Media s business activities. No differentiation by segment. 32

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