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Liberty Global 10-K 2006
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Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 1)
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the fiscal year ended December 31, 2005
 
OR
 
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the transition period from                            to
Commission File Number 000-51360
Liberty Global, Inc.
(Exact name of Registrant as specified in its charter)
     
State of Delaware   20-2197030
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 
12300 Liberty Boulevard
Englewood, Colorado
(Address of principal executive offices)
  80112
(Zip Code)
Registrant’s telephone number, including area code:
(303) 220-6600
Securities registered pursuant to Section 12(b) of the Act:
none
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, par value $0.01 per share
Series B Common Stock, par value $0.01 per share
Series C Common Stock, par value $0.01 per share
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes þ     No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o     No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.     Yes þ     No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Check one:
Large Accelerated Filer þ            Accelerated Filer o            Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-1 of the Exchange Act.     Yes o     No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $10.893 billion.
The number of outstanding shares of Liberty Global, Inc.’s common stock as of February 22, 2006 was:
226,041,245 shares of Series A common stock;
7,323,570 shares of Series B common stock; and
234,863,543 shares of Series C common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant’s 2006 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
 
 


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EXPLANATORY NOTE
The Registrant is filing this Amendment No. 1 on Form 10-K/ A to its Annual Report on Form 10-K for the year ended December 31, 2005 for the following reasons: (i) to file under Item 8 and Item 15 the consolidated financial statements of its equity investees Telenet Group Holding NV and PrimaCom AG, each as required by Rule 3-09 of Regulation S-X, (ii) in the business discussion of its networks in France and Switzerland in Item I, to correct certain historical operating data, (iii) in the discussion of financial commitments and contingencies in Item 7, to correct the projected cash interest payments on debt and capital lease obligations for fiscal 2006, 2007, 2008, 2009 and after 2010, (iv) in the discussion of market risks related to the Registrant’s cash and investments in Item 7A, to correct the aggregate fair value of the Registrant’s equity method and available-for-sale investments that were subject to price risk at December 31, 2005, and (iv) to correct typographical errors and to make certain tabular and clarifying changes in Items 1 and 7 and in the Registrant’s consolidated financial statements and notes thereto filed under Item 8. Accordingly, the Registrant hereby amends and replaces in their entirety Items 1, 7, 7A, 8 and 15 of its Annual Report on Form 10-K for the year ended December 31, 2005.
Except as described above, this amendment does not update or modify in any way the disclosures in the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and does not purport to reflect any information or events subsequent to the filing thereof.


 

LIBERTY GLOBAL, INC.
2005 ANNUAL REPORT ON FORM 10-K/A
(Amendment No. 1)
TABLE OF CONTENTS
             
        Page
         
 PART I
   Business     I-1  
 PART II
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     II-7  
   Quantitative and Qualitative Disclosures About Market Risk     II-44  
   Financial Statements and Supplementary Data     II-52  
 PART IV
   Exhibits and Financial Statement Schedules     IV-1  
 Consent of KPMG LLP
 Consent of KPMG AZSA & Co
 Consent of KPMG AZSA & Co
 Consent of Finsterbusch Pickenhayn Sibille
 Consent of KPMG LLP
 Information Re: Absence of Consent of Arthur Andersen LLP
 Consent of Ernst & Young LTDA
 Consent of KPMG LLP
 Consent of PricewaterhouseCoopers Bedrijfsrevisoren bcvba
 Consent of Ernst & Young AG
 Certification of President and CEO
 Certification of Senior Vice President and Co-Chief Financial Officer
 Certification of Senior Vice President and Co-Chief Financial Officer
 Section 1350 Certification


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PART I
Item 1. BUSINESS
General Development of Business
Liberty Global, Inc. (LGI) is an international broadband communications provider of video, voice and Internet access services, with consolidated broadband operations in 19 countries (excluding Norway) outside of the continental United States at December 31, 2005, primarily in Europe, Japan and Chile. Through our indirect wholly owned subsidiary UGC Europe, Inc. (UGC Europe) and its wholly owned subsidiaries UPC Holding B.V. (UPC Holding) and Liberty Global Switzerland, Inc. (LG Switzerland) (collectively, Europe Broadband), we provide video, voice and Internet access services in 13 European countries at December 31, 2005 (excluding Norway). Through our indirect controlling ownership interest in Jupiter Telecommunications Co., Ltd. (J:COM), we provide video, voice and Internet access services in Japan. Through our indirect 80%-owned subsidiary VTR GlobalCom, S.A. (VTR), we provide video, voice and Internet access services in Chile. We also have (i) consolidated direct-to-home satellite operations in Australia, (ii) consolidated broadband communications operations in Puerto Rico, Brazil and Peru, (iii) non-controlling interests in broadband communications companies in Europe and Japan, (iv) consolidated interests in certain programming businesses in Europe and Argentina, and (v) non-controlling interests in certain programming businesses in Europe, Japan, Australia and the Americas. Our consolidated programming interests in Europe are primarily held through our indirect wholly owned subsidiary chellomedia B.V. (chellomedia), which also provides telecommunications and interactive digital services and owns or manages investments in various businesses in Europe. Certain of chellomedia’s subsidiaries and affiliates provide programming and other services to Europe Broadband.
LGI was formed on January 13, 2005, for the purpose of effecting the combination of Liberty Media International, Inc. (LMI) and UnitedGlobalCom, Inc. (UGC). LMI is the predecessor to LGI and was formed on March 16, 2004, in contemplation of the spin off of certain international cable television and programming subsidiaries and assets of Liberty Media Corporation (Liberty Media), including a majority interest in UGC, an international broadband communications provider. We refer to these assets and subsidiaries of Liberty Media prior to June 2004, collectively as LMC International. On June 7, 2004, Liberty Media distributed to its stockholders, on a pro rata basis, all of the outstanding shares of LMI’s common stock, and LMI became an independent, publicly traded company. As used in this document, the terms “we”, “our”, “our company”, and “us” may refer, as the context requires, to LGI and its predecessors and subsidiaries.
On June 15, 2005, we completed certain mergers whereby LGI acquired all of the capital stock of UGC that LMI did not already own and LMI and UGC each became wholly owned subsidiaries of LGI (the LGI Combination). In the LGI Combination, (i) each outstanding share of LMI Series A common stock, LMI Series B common stock and LMI Series C common stock was exchanged for one share of the corresponding series of LGI common stock, and (ii) each outstanding share of UGC Class A common stock, UGC Class B common stock and UGC Class C common stock (other than those shares owned by LMI and its wholly owned subsidiaries) was converted into the right to receive for each share of common stock owned either (i) 0.2155 of a share of LGI Series A common stock and 0.2155 of a share of LGI Series C common stock (plus cash for any fractional share interest) or (ii) $9.58 in cash. Cash elections were subject to proration. The aggregate cash consideration paid to UGC’s stockholders in the LGI Combination was just under $0.7 billion.
On September 6, 2005, LGI effected a stock split in the form of a stock dividend (the Stock Dividend) of LGI Series C common stock to holders of record of LGI Series A and Series B common stock as of 5:00 p.m., New York City time, on August 26, 2005, which was the record date for the Stock Dividend (the Record Date). In the Stock Dividend, holders received one share of LGI Series C common stock for each share of LGI Series A common stock, and one share of LGI Series C common stock for each share of LGI Series B common stock, held of record as of the Record Date. Unless otherwise indicated, all LGI and LMI share and per share amounts presented herein have been retroactively adjusted to give effect to the Stock Dividend,

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notwithstanding the fact that no shares of LGI Series C common stock were issued and outstanding prior to September 6, 2005.
Unless indicated otherwise, convenience translations into U.S. dollars are calculated as of December 31, 2005.
Recent Developments
Contributions and Acquisitions
Pursuant to a contribution agreement between Sumitomo Corporation (Sumitomo) and us, on December 28, 2004, our 45.45% equity interest in J:COM and a 19.78% equity interest in J:COM owned by Sumitomo were combined in a holding company named LGI/ Sumisho Super Media, LLC, formerly known as LMI/ Sumisho Super Media, LLC (Super Media). As a result of these transactions, we held a 69.68% non-controlling interest in Super Media, and Super Media held a 65.23% controlling interest in J:COM at December 31, 2004.
On February 18, 2005, J:COM announced an initial public offering of its common shares in Japan. Under the terms of the operating agreement of Super Media, our casting or tie-breaking vote with respect to decisions of the management committee of Super Media became effective upon this announcement. As a result, we began accounting for Super Media and J:COM as consolidated subsidiaries effective as of January 1, 2005. On March 23, 2005, J:COM completed its initial public offering and Sumitomo contributed to Super Media a portion of the 12.25% equity interest in J:COM that Sumitomo had retained following the December 2004 contribution. In April 2005, the underwriters in J:COM’s initial public offering exercised their over-allotment option and in September 2005, Sumitomo contributed the balance of its equity interest in J:COM to Super Media. After giving effect to the foregoing, as of December 31, 2005, we held a 58.66% controlling interest in Super Media and Super Media held a 62.65% controlling interest in J:COM.
On January 7, 2005, chellomedia acquired an 87.5% interest in Zone Vision Networks Ltd. (Zone Vision) from its shareholders. The consideration for the transaction consisted of $50 million in cash and 351,110 shares of LGI Series A common stock and 351,110 shares of LGI Series C common stock, which are subject to certain vesting conditions. As part of the transaction, chellomedia contributed to Zone Vision the 49% shareholding it already held in Reality TV Ltd. and chellomedia’s Club channel business. Zone Vision is a company focused on the ownership, management and distribution of pay television channels of third parties and its own channels.
On February 10, 2005, UPC Broadband Holding BV, an indirect wholly owned subsidiary of UGC Europe (UPC Broadband Holding), acquired 100% of the shares in Telemach d.o.o., a broadband communications provider in Slovenia, for cash consideration of 71 million ($91.4 million at the transaction date).
On April 1, 2005, a subsidiary of UPC Holding exercised its call right and purchased the remaining 19.9% minority interest in UPC Broadband France SAS (UPC Broadband France) that it did not already own for 90.1 million ($116 million at the transaction date) in cash, taking our ownership in UPC Broadband France to 100%. UPC Broadband France is the owner of our French broadband video and Internet access operation, which includes Suez-Lyonnaise Télécom SA (Noos), a provider of digital and analog cable television services and high-speed Internet access services in France, which we acquired in July 2004.
On April 13, 2005, VTR, which at the time was a wholly-owned subsidiary of UGC, completed its combination with Metrópolis Intercom S.A. (Metrópolis), a Chilean broadband distribution company. Prior to the combination, LMI owned a 50% interest in Metrópolis, with the remaining 50% interest owned by Cristalerías de Chile S.A. (CCC). As consideration for CCC’s interest in Metrópolis, (i) VTR issued 11.4 million shares of its common stock to CCC, representing 20% of the outstanding economic and voting shares of VTR subsequent to the transaction, (ii) VTR assumed certain indebtedness owed by Metrópolis to CristalChile Inversiones S.A., an affiliate of CCC, in the amount of CLP6.1 billion ($10.5 million at the transaction date), and (iii) UGC granted CCC the right to put its 20% interest in VTR to UGC at fair value, subject to a minimum purchase price of $140 million, which put is exercisable beginning on April 13, 2006 and expires on April 13, 2015. Final regulatory approval for the combination, which was obtained in March 2005, imposed certain conditions on the combined entity. The most significant of these conditions require that the combined entity (i) re-sell broadband capacity to third party Internet service providers on a wholesale basis;

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(ii) activate two-way capacity to two million homes passed within five years from the consummation date of the combination; and (iii) for three years after the consummation date of the combination, limit basic tier price increases to the rate of inflation, plus a programming cost escalator.
On May 9, 2005, our indirect wholly owned subsidiary, UPC Ireland B.V. (UPC Ireland), entered into an agreement to acquire MS Irish Cable Holding B.V. (MS Irish Cable), subject to regulatory approval. MS Irish Cable acquired NTL Communications (Ireland) Limited, NTL Irish Networks Limited and certain related assets (together NTL Ireland) with funds provided by a loan from UPC Ireland. UPC Ireland closed the acquisition of MS Irish Cable on December 12, 2005, following receipt of regulatory approval. The total cash purchase price for the acquisition was 333.4 million ($428.2 million at May 9, 2005) (excluding direct acquisition costs). NTL Ireland, Ireland’s largest cable television operator, provides cable television and broadband Internet services to residential customers and managed network services to corporate customers in Ireland.
On September 30, 2005, J:COM purchased all of the outstanding shares of Odakyu Telecommunication Services Co., Ltd., now known as J:COM Setamachi Co. Ltd. (J:COM Setamachi) for cash of ¥9,200 million ($81 million at the transaction date). J:COM Setamachi provides cable television and high speed Internet access services in Japan, including Tokyo’s Setagaya ward and the cities of Machida, Kawasaki and Yokohama.
On October 14, 2005, we acquired, through an indirect wholly owned subsidiary, 7.7 million shares of Telenet Group Holding NV (Telenet) for cash of 160.2 million ($193.7 million at the transaction date) in connection with Telenet’s initial public offering. After giving effect to this acquisition and Telenet’s initial public offering, we and Belgian Cable Investors LLC (Belgian Cable Investors), a partnership that is majority owned and controlled by us, increased our combined economic ownership in Telenet from 14.1% to 19.89% but will continue to exercise voting control over a total of 21.5% of the Telenet shares. Belgian Cable Investors additionally holds call options to acquire 25.4 million shares in Telenet.
On October 14, 2005, UPC Romania S.A., our indirect wholly owned subsidiary, completed its acquisition of Astral Telecom S.A. (Astral) from a group of Romanian entrepreneurs and foreign investors for a cash purchase price of $407.1 million. Astral is one of Romania’s largest broadband telecommunications operators.
On October 24, 2005, LG Switzerland completed the purchase of all the issued share capital of Cablecom Holdings AG (Cablecom), which is the indirect parent company of Swiss cable operator Cablecom GmbH, for a cash purchase price of CHF2.8 billion ($2.2 billion at the transaction date). The acquisition was funded through a combination of (i) a 550 million ($667 million at the borrowing date) split-coupon floating rate payment-in-kind loan (PIK Loan) borrowed by LG Switzerland, (ii) a new offering of 300 million ($363 million at the borrowing date) 8.625% Senior Notes due 2014 by UPC Holding, and (iii) available cash.
On November 23, 2005, a subsidiary of chellomedia acquired the 50% interest it did not already own in certain businesses that provide thematic television channels in the Iberian market (Spain and Portugal) (IPS). We acquired the 50% interest for $62.8 million.
On December 14, 2005, we increased our indirect ownership of Austar United Communications Ltd. (Austar) from a non-controlling interest to a controlling interest, which was 54% (51% on a fully diluted basis) as of December 31, 2005, for net cash consideration of A$204.9 million ($154.9 million at the transaction date). Austar provides satellite pay television services, Internet access and mobile telephony services to subscribers in regional and rural Australia and the cities of Hobart and Darwin.
On March 2, 2006, our subsidiary, UPC Austria GmbH, acquired all the outstanding shares of Inode Telekommunidationsdienstleistungs GmbH (Inode) for cash consideration of 93 million ($111 million at the transaction date). Inode is one of Austria’s leading DSL companies.
Other smaller transactions during 2005 and early 2006 include: J:COM’s 2005 increase of its interest in Cable Television Kobe, Inc. from 20.4% to 65.13%; J:COM’s 2005 acquisition of an approximate 92% equity interest in Chofu Cable, Inc.; UPC Romania S.A.’s 2005 acquisition of Conex Sat SRL; chellomedia’s 2005

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acquisition of the content business of Canal+ Netherlands; J:COM’s 2006 acquisition of an 81% equity interest in Rokko Island Cable Vision Co. Ltd.; and J:COM’s 2006 increase of its interest in Kansai Multimedia Service from 25.75% to 64.0%.
Dispositions
On December 19, 2005, we agreed to sell our Norwegian cable business, UPC Norge AS (UPC Norway). Following receipt of Norwegian regulatory approval, on January 19, 2006, we completed the sale of UPC Norway for 448 million ($542 million at the transaction date).
On November 8, 2005, we received cash consideration of 276.4 million ($325.6 million at the transaction date) in connection with the disposition of our 19% ownership interest in SBS Broadcasting S.A. SBS Broadcasting S.A. was a commercial television and radio broadcasting company in Europe.
During 2005, we also sold our interest in Fox Pan America Sports, LLC (FPAS), Torneos y Competenias S.A. (TyC), EWT Holding GmbH (EWT), The Wireless Group plc and a subscription right with respect to Cablevision S.A. FPAS develops and operates multiple Spanish language subscription television and radio services. TyC is an independent producer of Argentine sports and entertainment programming. EWT owns a broadband communications provider in Germany. The Wireless Group is a commercial radio group in the United Kingdom and Cablevision S.A. is a broadband communications provider in Argentina. In addition, on February 16, 2006, we received $88 million as cash consideration for our 10% interest in Sky Mexico, a direct-to-home satellite provider.
Financings
On March 8, 2005, the senior secured credit facility of UPC Broadband Holding (the UPC Broadband Bank Facility) was amended to permit indebtedness under: (i) Facility G, a new 1.0 billion term loan facility maturing in full on April 1, 2010; (ii) Facility H, a new 1.5 billion term loan facility maturing in full on September 30, 2012, of which $1.25 billion was denominated in U.S. dollars and then swapped into euros through a 7.5 year cross-currency swap; and (iii) Facility I, a new 500 million revolving credit facility maturing in full on April 1, 2010. In connection with this amendment, 167 million of Facility A, the previously existing revolving credit facility, was cancelled, reducing Facility A to a maximum amount of 500 million. The proceeds from Facilities G and H were used primarily to prepay all amounts outstanding under existing term loan Facilities B, C and E, to fund certain acquisitions and pay transaction fees. Borrowings under Facilities A and I can be used to fund acquisitions and for general corporate purposes. As a result of this amendment, the weighted average maturity of the UPC Broadband Bank Facility was extended from 4 years to 6 years, with no amortization payments required until 2010, and the weighted average interest margin on the UPC Broadband Bank Facility was reduced by 0.25% per annum. The amendment also provides for additional flexibility on certain covenants and the funding of acquisitions.
On July 29, 2005, UPC Holding, the owner of our 100% interest in UPC Broadband Holding, issued 500 million ($607 million at the borrowing date) aggregate principal amount of its 7.75% Senior Notes. The net proceeds were used for general corporate purposes. In addition, on October 10, 2005, UPC Holding issued 300 million ($363 million at the borrowing date) principal amount of 8.625% Senior Notes. The net proceeds of this offering were ultimately used to finance the acquisition of Cablecom. Both of these issues of Senior Notes mature on January 15, 2014, and are secured by a first ranking pledge of all shares of UPC Holding.
On October 7, 2005, pursuant to a PIK Loan Facility Agreement dated September 30, 2005, as amended and restated on October 10, 2005, LG Switzerland borrowed a 550 million ($667 million at the borrowing date) PIK Loan with a split-coupon floating rate, maturing in 9.5 years. The net proceeds from the PIK Loan, less 50 million ($60.9 million at the borrowing date) placed in escrow to secure cash interest payments, were used to finance the acquisition of Cablecom. The PIK Loan is an unsecured senior debt of LG Switzerland that is structurally subordinated to all indebtedness of Cablecom and its subsidiaries.
At the time of our acquisition of Cablecom, its subsidiary Cablecom Luxembourg SCA (Cablecom Luxembourg) had outstanding senior fixed rate notes and senior secured floating rate notes (Cablecom

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Luxembourg Senior Notes). Pursuant to the indentures governing the Cablecom Luxembourg Senior Notes, Cablecom Luxembourg was required to make an offer to purchase the Cablecom Luxembourg Senior Notes at 101% of their principal amount as a result of our obtaining control of Cablecom. On December 8, 2005, Cablecom Luxembourg purchased the tendered Cablecom Luxembourg Senior Notes. On January 20, 2006, Cablecom Luxembourg redeemed the balance of the floating rate Cablecom Luxembourg Senior Notes not tendered in the “change of control” offer for 102% of their principal amount. The purchase of Cablecom Luxembourg Senior Notes pursuant to the change of control offer and the optional redemption was funded by borrowings of term loans under a facilities agreement entered into by Cablecom Luxembourg and its subsidiary, Cablecom GmbH, dated December 5, 2005 (the Cablecom Luxembourg Bank Facility). The Cablecom Luxembourg Bank Facility provides for two term loan facilities to Cablecom Luxembourg with maximum aggregate borrowings of CHF1.33 billion ($1.011 billion). In addition, Cablecom GmbH has a CHF150 million ($114 million) revolving credit facility.
On December 15, 2005, J:COM executed a ¥155 billion ($1.314 billion) credit facility agreement with a syndicate of banks led by The Bank of Tokyo-Mitsubishi, Ltd., Mizuho Corporate Bank, Ltd. and Sumitomo Mitsui Banking Corporation (the J:COM Credit Facility). Borrowings may be made under the J:COM Credit Facility on a senior, unsecured basis pursuant to three facilities: a ¥30 billion five-year revolving credit loan; a ¥85 billion five-year amortizing term loan; and a ¥40 billion seven-year amortizing term loan. On December 21, 2005, the proceeds of the term loans were used, together with available cash, to repay in full outstanding loans totaling ¥128 billion ($1.1 billion at the transaction date) under J:COM’s then existing credit facilities. Borrowings under the revolving loan may be used by J:COM for general corporate purposes.
In addition to the above financings, during 2005, certain of our subsidiaries entered into other smaller financings. VTR modified its Chilean peso-denominated senior secured credit facility, originally consummated in December 2004 (VTR Bank Facility), increasing the VTR Bank Facility to CLP$175.5 billion ($341.4 million). Borrowings under this facility during 2005 were used to repay debt to third parties assumed in the Metrópolis acquisition, partially repay debt to our subsidiaries and pay in full debt to an affiliate of VTR’s other stockholder, CCC. In connection with our acquisition of IPS, an indirect wholly owned subsidiary entered into a secured credit facility for 65 million ($76.9 million). Borrowings from this facility were used to purchase the remaining 50% of IPS.
* * * *
Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Annual Report are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties. In particular, statements under Item 1. Business, Item 2. Properties, Item 3. Legal Proceedings, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures About Market Risk contain forward-looking statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
  •  economic and business conditions and industry trends in the countries in which we operate;
 
  •  currency exchange risks;
 
  •  consumer disposable income and spending levels, including the availability and amount of individual consumer debt;
 
  •  changes in television viewing preferences and habits by our subscribers and potential subscribers;
 
  •  consumer acceptance of existing service offerings, including our newer digital video, voice and Internet access services;

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  •  consumer acceptance of new technology, programming alternatives and broadband services that we may offer such as our digital migration project in The Netherlands;
 
  •  our ability to manage rapid technological changes and grow our digital video, voice and Internet access services;
 
  •  the regulatory and competitive environment in the broadband communications and programming industries in the countries in which we, and the entities in which we have interests, operate;
 
  •  competitor responses to our products and services, and the products and services of the entities in which we have interests;
 
  •  continued consolidation of the foreign broadband distribution industry;
 
  •  uncertainties inherent in the development and integration of new business lines and business strategies;
 
  •  spending on foreign television advertising;
 
  •  capital spending for the acquisition and/or development of telecommunications networks and services;
 
  •  our ability to successfully integrate and recognize anticipated efficiencies from the businesses we acquire;
 
  •  problems we may discover post-closing with the operations, internal controls and financial statements of businesses we acquire;
 
  •  uncertainties associated with product and service development and market acceptance, including the development and provision of programming for new television and telecommunications technologies;
 
  •  future financial performance, including availability, terms and deployment of capital;
 
  •  the ability of suppliers and vendors to timely deliver products, equipment, software and services;
 
  •  the outcome of any pending or threatened litigation;
 
  •  availability of qualified personnel;
 
  •  changes in, or failure or inability to comply with, government regulations in the countries in which we operate and adverse outcomes from regulatory proceedings, including regulatory initiatives in The Netherlands;
 
  •  government intervention that opens our broadband distribution networks to competitors;
 
  •  our ability to successfully negotiate rate increases with local authorities;
 
  •  changes in the nature of key strategic relationships with partners and joint venturers;
 
  •  uncertainties associated with our ability to satisfy conditions imposed by competition and other regulatory authorities in connection with acquisitions; and
 
  •  events that are outside of our control, such as political unrest in international markets, terrorist attacks, natural disasters, pandemics and other similar events.
You should be aware that the video, voice and Internet access services industries are changing rapidly, and, therefore, the forward-looking statements of expectations, plans and intent in this Annual Report are subject to a greater degree of risk than similar statements regarding many other industries.
These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Annual Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

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Financial Information About Operating Segments
Financial information about our reportable segments appears in note 21 to our consolidated financial statements included in Part II of this report.
Narrative Description of Business
Overview
Broadband Distribution
We offer a variety of broadband distribution services over our cable television systems, including analog video, digital video, Internet access and telephony. Available service offerings depend on the bandwidth capacity of our cable systems and whether they have been upgraded for two-way communications. In select markets, we also offer video services through direct-to-home satellite, or “DTH”, or through multi-point microwave distribution systems, or “MMDS”. In select markets, we also offer mobile telephony services using third party networks. We operate our broadband distribution businesses in Europe principally through UGC Europe; in Japan principally through J:COM, a subsidiary of Super Media; in The Americas principally through VTR and Liberty Cablevision of Puerto Rico Ltd. (LCPR); and in Australia principally through Austar. Each of UGC Europe, Super Media, VTR, LCPR and Austar is a consolidated subsidiary.

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The following table presents certain operating data, as of December 31, 2005, with respect to the broadband distribution systems of our subsidiaries in Europe, Japan, The Americas and Australia. For purposes of this presentation, we refer to Puerto Rico, the islands of the Caribbean and the countries of Central and South America collectively as The Americas. This table reflects 100% of the operational data applicable to each subsidiary regardless of our ownership percentage.
Consolidated Operating Data*
December 31, 2005
                                                                                                     
                    Video   Internet   Telephone
        Two-way                    
    Homes   Homes   Customer   Total   Analog Cable   Digital Cable   DTH   MMDS   Homes       Homes    
    Passed(1)   Passed(2)   Relationships(3)   RGUs(4)   Subscribers(5)   Subscribers(6)   Subscribers(7)   Subscribers(8)   Serviceable(9)   Subscribers(10)   Serviceable(11)   Subscribers(12)
                                                 
Europe**
                                                                                               
 
The Netherlands
    2,645,800       2,521,600       2,239,500       3,009,700       2,150,300       85,300                   2,521,600       478,100       2,396,300       296,000  
 
Switzerland(13)
    1,802,200       1,710,100       1,571,300       2,043,900       1,410,900       106,300                   1,467,400       340,500       1,417,600       186,200  
 
France
    4,611,700       3,361,600       1,618,800       1,921,800       928,600       563,800                   3,361,600       295,000       2,370,500       134,400  
 
Austria
    957,500       954,200       584,100       926,100       455,900       44,000                   954,200       275,900       920,500       150,300  
 
Ireland
    887,200       225,800       576,900       601,800       321,500       141,000             113,900       225,800       25,000       24,200       400  
 
Sweden
    421,600       287,500       298,500       389,100       240,000       58,600                   287,500       90,500              
 
Belgium
    156,600       156,600       146,500       167,800       127,000       5,500                   156,600       35,300              
                                                                         
   
Total Western Europe
    11,482,600       9,217,400       7,035,600       9,060,200       5,634,200       1,004,500             113,900       8,974,700       1,540,300       7,129,100       767,300  
                                                                         
 
Poland
    1,914,800       932,200       1,023,300       1,124,600       1,000,900                         932,200       122,500       825,200       1,200  
 
Hungary
    1,035,700       885,700       996,300       1,145,900       731,400             171,100             885,700       135,200       888,200       108,200  
 
Czech Republic
    743,000       402,100       431,400       486,400       298,300             112,500             402,100       75,600              
 
Romania
    1,913,800       944,100       1,338,100       1,411,600       1,333,900       4,000                   818,800       55,200       661,100       18,500  
 
Slovak Republic
    429,200       238,000       305,000       323,300       256,900             17,300       28,300       223,200       20,800              
 
Slovenia
    125,300       79,300       108,300       126,400       108,300                         79,300       18,100              
                                                                         
   
Total Central and Eastern Europe
    6,161,800       3,481,400       4,202,400       4,618,200       3,729,700       4,000       300,900       28,300       3,341,300       427,400       2,374,500       127,900  
                                                                         
   
Total Europe
    17,644,400       12,698,800       11,238,000       13,678,400       9,363,900       1,008,500       300,900       142,200       12,316,000       1,967,700       9,503,600       895,200  
                                                                         
Japan**
                                                                                               
 
J:COM
    7,296,600       7,288,000       2,002,800       3,460,400       1,064,100       620,800                   7,288,000       864,200       6,624,200       911,300  
                                                                         
The Americas**
                                                                                               
 
Chile
    2,171,900       1,285,100       900,400       1,425,700       751,200       6,800                   1,285,100       303,000       1,281,700       364,700  
 
Puerto Rico
    331,000       331,000       114,400       160,700       56,700       55,600                   331,000       32,000       331,000       16,400  
 
Brazil
    15,100       15,100       15,100       16,600                         15,100       15,100       1,500              
 
Peru
    66,800       30,300       12,300       14,100       10,800                         30,300       3,300              
                                                                         
   
Total The Americas
    2,584,800       1,661,500       1,042,200       1,617,100       818,700       62,400             15,100       1,661,500       339,800       1,612,700       381,100  
                                                                         
Australia**
                                                                                               
 
Austar
    2,417,500             471,900       474,800             8,000       466,800                                
                                                                         
Total Continuing Operations
    29,943,300       21,648,300       14,754,900       19,230,700       11,246,700       1,699,700       767,700       157,300       21,265,500       3,171,700       17,740,500       2,187,600  
                                                                         
Disc Operations — Norway
    523,000       270,800       375,700       464,300       334,300       31,000                   270,800       69,500       178,200       29,500  
                                                                         
Grand Total
    30,466,300       21,919,100       15,130,600       19,695,000       11,581,000       1,730,700       767,700       157,300       21,536,300       3,241,200       17,918,700       2,217,100  
                                                                         

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  * Excludes systems owned by affiliates that were not consolidated for financial reporting purposes as of December 31, 2005, or that were acquired after December 31, 2005. Also excludes 3.1 million households to which J:COM provides only retransmission services of terrestrial television signals. Subscriber information for recently acquired entities is preliminary and subject to adjustment until we have completed our review of such information and determined that it is presented in accordance with our policies.
  **    With respect to Chile, Japan and Puerto Rico, residential multiple dwelling units with a discounted pricing structure for video, Internet or telephony services are counted on an equivalent bulk unit (EBU) basis. Commercial contracts such as hotels and hospitals are counted by all our subsidiaries on an EBU basis. EBU is calculated by dividing the bulk price charged to accounts in an area by the most prevalent price charged to non-bulk residential customers in that market for the comparable tier of service.
 
  (1)  Homes Passed are homes that can be connected to our networks without further extending the distribution plant, except for DTH and MMDS homes. Our Homes Passed counts are based on census data that can change based on either revisions to the data or from new census results. With the exception of Austar, we do not count homes passed for DTH. With respect to Austar, we count all homes in the areas that Austar is authorized to serve. With respect to MMDS, one home passed is equal to one MMDS subscriber.
 
  (2)  Two-way Homes Passed are homes passed by our networks where customers can request and receive the installation of a two-way addressable set-top converter, cable modem, transceiver and/or voice port which, in most cases, allows for the provision of video and Internet services and, in some cases, telephone services.
 
  (3)  Customer Relationships are the number of customers who receive at least one level of service without regard to which service(s) they subscribe. We exclude mobile customers from customer relationships.
 
  (4)  Revenue Generating Unit is separately an Analog Cable Subscriber, Digital Cable Subscriber, DTH Subscriber, MMDS Subscriber, Internet Subscriber or Telephone Subscriber. A home may contain one or more RGUs. For example, if a residential customer in our Austrian system subscribed to our digital cable service, telephone service and high-speed broadband Internet access service, the customer would constitute three RGUs. Total RGUs is the sum of Analog Cable, Digital Cable, DTH, MMDS, Internet and Telephone Subscribers. In some cases, non-paying subscribers are counted as subscribers during their free promotional service period. Some of these subscribers choose to disconnect after their free service period.
 
  (5)  Analog Cable Subscriber is comprised of video cable customers that are counted on a per connection basis. In Europe, we have 1.37 million “lifeline” customers that are counted on a per connection basis, representing the least expensive regulated tier of basic cable service, with only a few channels. An analog cable subscriber is not counted as a digital cable subscriber.
 
  (6)  Digital Cable Subscriber is a customer with one or more digital converter boxes that receives our digital video service. We count a subscriber with one or more digital converter boxes that receives our digital video service as just one subscriber. A digital subscriber is not counted as an analog subscriber. In The Netherlands where our mass digital migration project is underway, a subscriber is moved from the analog cable subscriber count to the digital cable subscriber count when such subscriber accepts delivery of our digital converter box and agrees to accept digital video service regardless of when the subscriber begins to receive our digital video service. The digital video service and the digital converter box are provided at the analog rate for six months after which the subscriber has the option to discontinue the digital service or pay an additional amount to continue to receive the digital service.
 
  (7)  DTH Subscriber is a home or commercial unit that receives our video programming broadcast directly to the home via a geosynchronous satellite.
 
  (8)  MMDS Subscriber is a home or commercial unit that receives our video programming via a multipoint microwave (wireless) distribution system.

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  (9)  Internet Homes Serviceable are homes that can be connected to our broadband networks, where customers can request and receive Internet access services.
(10)  Internet Subscriber is a home or commercial unit or EBU with one or more cable modems connected to our broadband networks, where a customer has requested and is receiving high-speed Internet access services. Such numbers do not include customers that receive services via resale arrangements.
(11)  Telephone Homes Serviceable are homes that can be connected to our networks, where customers can request and receive voice services.
 
(12)  Telephone Subscriber is a home or commercial unit or EBU connected to our networks, where a customer has requested and is receiving voice services. Telephone subscribers as of December 31, 2005, exclude an aggregate of 92,800 mobile telephone subscribers in The Netherlands, Switzerland and Australia. Mobile telephone services generate a significantly lower average revenue per unit than broadband or Voice-over-Internet Protocol or “VOIP” telephone services. Also, such numbers do not include customers that receive services via resale arrangements.
 
(13)  Included in the subscribers for Switzerland are 25,000 digital cable, 35,800 Internet access and 19,300 telephony subscribers serviced over partner networks, but for which we have the direct customer billing relationship.
Programming Services
We own programming networks that provide video programming channels to multi-channel distribution systems owned by us and by third parties. We also represent programming networks owned by others. Our programming networks distribute their services through a number of distribution technologies, principally cable television and DTH. Programming services may be delivered to subscribers as part of a video distributor’s basic package of programming services for a fixed monthly fee, or may be delivered as a “premium” programming service for an additional monthly charge or on a video-on-demand, or “VOD”, or pay-per-view basis. Whether a programming service is on a basic or premium tier, the programmer generally enters into separate affiliation agreements, providing for terms of one or more years, with those distributors that agree to carry the service. Basic programming services derive their revenue from per-subscriber license fees received from distributors and the sale of advertising time on their networks or, in the case of shopping channels, retail sales. Premium services generally do not sell advertising and primarily generate their revenue from subscriber fees. Programming providers generally have two sources of content: (1) rights to productions that are purchased from various independent producers and distributors, and (2) original productions filmed for the programming provider by internal personnel or contractors. We operate our programming businesses in Europe principally through our subsidiary chellomedia; in Japan principally through our affiliate Jupiter TV Co., Ltd., formerly known as Jupiter Programming Co., Ltd. (Jupiter TV); in the Americas principally through our subsidiary Pramer S.C.A. and a joint venture interest in MGM Networks Latin America, LLC; and in Australia principally through our joint venture interest in XYZ Networks Pty. Ltd.
Operations
Europe — UGC Europe, Inc.
Our European operations are conducted through our wholly owned subsidiary, UGC Europe, which provides services in 13 countries in Europe, excluding Norway in which our operations were sold in January 2006. UGC Europe’s operations are currently organized into two principal divisions: Europe Broadband and chellomedia. Through its Europe Broadband division, UGC Europe provides video, high-speed Internet access, telephony and mobile services over its networks and operates the largest cable network in each of The Netherlands, Austria, Poland, Hungary, Czech Republic, Slovak Republic, Slovenia and Switzerland and the second largest cable network in France, in each case in terms of number of video subscribers. UGC Europe’s high-speed Internet access service is provided over the Europe Broadband network infrastructure generally under the brand name chello. Depending on the capacity of the particular network, UGC Europe may provide up to seven tiers of high-speed Internet access. For information concerning the chellomedia division, see “— chellomedia and Other.”

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Provided below is country-specific information with respect to the broadband distribution services of the Europe Broadband division:
The Netherlands
The Europe Broadband division’s networks in The Netherlands, which we refer to as Broadband-Netherlands, passed 2.6 million homes and had 2.2 million analog cable subscribers, 85,300 digital cable subscribers, 478,100 Internet subscribers, 296,000 telephony subscribers and 61,300 mobile telephony subscribers as of December 31, 2005. Forty percent of The Netherlands households receive at least analog cable service from Broadband-Netherlands. Broadband-Netherlands’ subscribers are located in six broad regional clusters, including the major cities of Amsterdam and Rotterdam. Its networks are 95% upgraded to two-way capability, with 95% of its video cable subscribers served by a network with a bandwidth of at least 860 MHz.
Broadband-Netherlands provides video cable services to almost 100% of its homes passed. Eighty-two percent of Broadband-Netherlands’ homes passed are capable of receiving digital cable service. Broadband-Netherlands offers its digital cable subscribers a digital entry package of 42 channels and a digital basic tier with 72 channels with an option to subscribe for up to 15 additional general entertainment, movie, sports, music and ethnic channels and an electronic program guide. Broadband-Netherlands’ digital cable service also offers 56 channels of near-video-on-demand, or “NVOD”, services and interactive services, including television-based email.
Broadband-Netherlands offers five tiers of chello brand high-speed Internet access service with download speeds ranging from 384 Kbps to 20 Mbps. Twenty-one percent of its video cable subscribers also receive its Internet access service, representing 99% of its Internet subscribers. Multi-feature telephony services are also available from Broadband-Netherlands to 91% of its homes passed. Thirteen percent of its video cable subscribers also receive its telephony services, representing almost 100% of its telephony subscribers. At December 31, 2005, 2.4 million two-way homes in Broadband-Netherlands’ service area were VoIP ready for service.
Through arrangements with an incumbent telecommunications operator, Broadband-Netherlands began testing in 2005 an offer of its high speed Internet access service products and its VoIP telephony products to 660,000 households outside its existing footprint using asymmetric digital subscriber line, or “ADSL”, technology. These services are provided as a bundled offer on the unbundled local loop of the telecommunications operator’s network and currently there are 3,000 customers.
Broadband-Netherlands offers a self-install option for all of its Internet access services, allowing subscribers to install the technology themselves and save money on the installation fee. Broadband-Netherlands also offers a self-install option for its digital cable services. Ninety percent of its new Internet subscribers have chosen to self-install their new service, and almost all of its new digital subscribers have chosen to self-install their new service.
In August 2005, Broadband-Netherlands launched a mobile offer into the market available to all consumers in The Netherlands. The product is a pre-paid mobile offering. Broadband-Netherlands is operating as a mobile virtual network operator reselling leased network capacity. Broadband-Netherlands had 61,300 mobile customers at December 31, 2005.
On October 1, 2005 Broadband-Netherlands started a new digital migration project, which we refer to as “digital-for-all” (D4A). D4A is a long-term project with the objective to give almost all (2 million of the 2.2 million) of the Broadband-Netherlands video cable customers a digital interactive television box within the next two years. D4A is a combination of a push strategy and a pull strategy. Broadband-Netherlands will proactively and systematically offer the new box to different groups of customers (push) and actively market the new digital interactive product (pull). The box and the digital service are provided at no extra cost for the first six months after the box is accepted at the door. Thereafter, the consumer will have the option to discontinue the digital service or to pay an additional amount, on top of the standard analog rate, to continue the digital service.

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France
The Europe Broadband division’s networks in France (including Noos), which we refer to as Broadband-France, passed 4.6 million homes and had 928,600 analog cable subscribers, 563,800 digital cable subscribers, 295,000 Internet subscribers and 134,400 telephony subscribers as of December 31, 2005. Its major operations are located in Paris and its suburbs, including the Marne la Vallee area east of Paris, Strasbourg, Orleans, Le Mans, the suburbs of Lyon, the southeast region, and other operations spread throughout France. Its network is 73% upgraded to two-way capability, with 96% of its video cable subscribers served by a network with a bandwidth of at least 750 MHz.
Broadband-France’s digital cable platform is available to 90% of its homes passed. The digital platform offers a number of options in terms of packages — from 52 channels for the entry-level tier to more than 100 channels for the premium tier. Programming includes series, general entertainment, youth, sports, news, documentary, music, lifestyle and foreign channels. With all tiers, Broadband-France offers a number of movie premium packages, a pay-per-view service, numerous “a la carte” channels and several Canal+ channels. Broadband-France intends to migrate most of its analog cable subscribers to this new digital platform through attractive bundling offers. Broadband-France also provides lifeline service typically consisting of five to ten channels depending on the area.
Broadband-France offers three tiers of chello and Noos brand high-speed Internet access service with download speeds ranging from 512 Kbps to 10 Mbps. Fourteen percent of its video cable subscribers also receive Internet service, representing 73% of its Internet subscribers. Eight percent of its Internet subscribers subscribe to its telephony services, but not to its video cable services.
During 2005, Broadband-France has been extending the telephony service footprint of its network through the deployment of VoIP telephony service and as a consequence multi-feature telephony services were available from Broadband-France to 51% of its homes passed as of December 31, 2005. Seven percent of its video cable subscribers also receive telephony service, representing 72% of its telephony subscribers. Eighteen percent of its telephony subscribers subscribe to its Internet services, but not to its video cable services.
Switzerland
The Europe Broadband division’s networks in Switzerland, which we refer to as Broadband-Switzerland, passed 1.8 million homes and provided video cable services to 1.4 million analog subscribers and 106,300 digital subscribers, broadband Internet services to 340,500 subscribers and telephony services to 186,200 subscribers as of December 31, 2005. Included in these subscriber numbers are 25,000 digital cable, 35,800 Internet and 19,300 telephony subscribers serviced over partner networks. Over 55% of Swiss television households receive analog cable service from Broadband-Switzerland. Its nationwide network with a bandwidth of 606 MHz is 70% upgraded to two-way capability.
Broadband-Switzerland markets analog cable services to 100% of its homes passed. For 70% of its 1.4 million analog subscribers, Broadband-Switzerland maintains billing relationships with landlords or housing associations, which typically provide analog cable service for an entire building and do not terminate service each time there is a change of tenant in the landlord’s or housing association’s premises. Seventy percent of Broadband-Switzerland’s homes passed are capable of receiving digital cable service. Broadband-Switzerland offers its digital cable subscribers a digital entry package consisting of 88 channels and a range of additional pay television programming in a variety of foreign language program packages. The third television product is NVOD services, which makes movies and other programs available on demand to all of the digital customers. In January 2006, Broadband-Switzerland announced the introduction of a digital television recorder (DVR), enabling users to create a personalized television experience. Its digital cable service is sold directly to the end user as an add-on to its analog cable services.
Broadband-Switzerland offers six tiers of broadband Internet access service with download speeds ranging from 150 Kbps to 6 Mbps. Seventy percent of Broadband-Switzerland’s homes passed are capable of receiving broadband Internet. Twenty percent of its video cable subscribers also receive its Internet access service. In addition, Broadband-Switzerland continues to offer dial-up Internet services on a limited basis.

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Telephony services are available from Broadband-Switzerland to 70% of its homes passed. Eleven percent of its video cable subscribers also receive its telephony services. In June 2005, Broadband-Switzerland launched “Unlimited 24”, the first flat rate telephone plan in Switzerland. In addition, Broadband-Switzerland has begun offering digital telephony services through VoIP.
Broadband-Switzerland offers managed wireless area networks and voice services as well as value-added services such as security, messaging and hosting to the business market in Switzerland. The acquisition of Unified Business Solutions in May 2005 provided Broadband-Switzerland with a suite of converged voice and data products and an established customer base. As of December 31, 2005, Broadband-Switzerland had 1,927 business customers.
Broadband-Switzerland provides full or partial analog television signal delivery, network maintenance services and engineering and construction services to other cable operators in Switzerland, which we refer to as “partner networks”. Broadband-Switzerland also offers digital television, broadband Internet and telephony service to the analog cable subscribers of those partner networks that enter into service operating contracts with Broadband-Switzerland. Broadband-Switzerland has the direct customer billing relations with the subscribers who take these services on the partner networks. These service operating contracts permit Broadband-Switzerland to offer some or all of its digital television, broadband Internet and fixed-line telephony products directly to those partner network subscribers and, as a result, have expanded the addressable markets for its digital products. In exchange for the right to provide digital products directly to the partner network subscribers, Broadband-Switzerland pays to each partner network a share of the revenue it generates from those subscribers.
With the launch of a mobile pre-paid offer in December 2005, Broadband-Switzerland is the first telecommunications provider in Switzerland to offer television, Internet, fixed line telephony and mobile telephony — also known as “quadruple play” — from a single provider.
Austria
The Europe Broadband division’s networks in Austria (excluding the Austrian portion of Broadband-Switzerland’s network), which we refer to as Broadband-Austria, passed 957,500 homes and had 455,900 analog cable subscribers, 44,000 digital cable subscribers, 275,900 Internet subscribers and 150,300 telephony subscribers as of December 31, 2005. Broadband-Austria’s subscribers are located in regional clusters encompassing the capital city of Vienna, two other regional capitals and two smaller cities. Each of the cities in which it operates owns, directly or indirectly, 5% of the local operating company of Broadband-Austria. Broadband-Austria’s network is almost entirely upgraded to two-way capability, with 98% of its video cable subscribers served by a network with a bandwidth of at least 750 MHz.
Broadband-Austria provides a single offering to its analog cable subscribers that consists of 34 channels, mostly in the German language. Broadband-Austria’s digital platform offers more than 100 basic and premium television channels, plus NVOD, interactive services, television-based e-mail and an electronic program guide. Broadband-Austria’s premium content includes first run movies and specific ethnic offerings, including Serb and Turkish channels.
Broadband-Austria offers four tiers of chello brand high-speed Internet access service with download speeds ranging from 256 Kbps to 2.6 Mbps and a student package. Broadband-Austria’s high-speed Internet access is available in all of the cities in its operating area. Forty-two percent of its video cable subscribers also receive its Internet access service, representing 76% of its Internet subscribers. Ten percent of its Internet subscribers subscribe to telephony services, but not to its video cable services.
Multi-feature telephony services are available from Broadband-Austria to 96% of its homes passed. Broadband-Austria offers basic dial tone service as well as value-added services. Broadband-Austria also offers a bundled product of fixed line and mobile telephony services in cooperation with the third largest mobile phone operator in Austria under the brand “Take Two.” More than 65% of its telephony subscribers subscribe to this product. Twenty-one percent of Broadband-Austria’s video cable subscribers also receive its telephony service, representing 71% of its telephony subscribers. Eighteen percent of its telephony subscribers subscribe

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to Internet service, but not to its video cable services. In March 2006, Broadband-Austria will begin offering telephony services through VoIP.
Sweden
The Europe Broadband division’s network in Sweden, which we refer to as Broadband-Sweden, passed 421,600 homes and had 240,000 analog cable subscribers, 58,600 digital cable subscribers and 90,500 Internet subscribers as of December 31, 2005. It operates in the greater Stockholm area on leased fiber from Stokab AB, a city controlled entity with exclusive rights to lay cable ducts for communications or broadcast services in the city of Stockholm. These lease terms vary from 10 to 25 years, and the majority expire beginning in 2012 through 2018. Its network is 68% upgraded to two- way capability, with all of its video cable subscribers served by a network with a bandwidth of at least 550 MHz.
Broadband-Sweden provides all of its video cable subscribers with a lifeline service consisting of four “must-carry” channels. In addition to this lifeline service, Broadband-Sweden offers an analog cable package with 12 channels and a digital cable package with up to 80 channels. Its program offerings include domestic, foreign, sport and premium movie channels, as well as digital event channels such as seasonal sport and real life entertainment events. Twenty-three percent of the homes served by Broadband-Sweden’s network subscribe to the lifeline analog cable service only. To complement its digital offering, Broadband-Sweden also offers its subscribers 32 channels of NVOD service.
Broadband-Sweden offers four tiers of chello brand high-speed Internet access service with download speeds ranging from 128 Kbps to 24 Mbps, including symmetrical options up to 8 Mbps. Thirty percent of its video cable subscribers subscribe to its Internet service, representing almost 100% of its Internet subscribers.
Ireland
The Europe Broadband division’s network in Ireland, which we refer to as Broadband-Ireland, which comprises the networks of NTL Ireland and Chorus Communications Ltd., passed 887,200 homes and had 321,500 analog cable subscribers, 141,000 digital subscribers, 113,900 MMDS subscribers, 25,000 Internet subscribers and 400 telephony subscribers as of December 31, 2005. Broadband-Ireland is Ireland’s largest video cable service provider, based on customers served. Its cable network is 25% upgraded to two-way capability, with all of its video cable subscribers served by a network with a bandwidth of at least 860 MHz.
Broadband-Ireland offers an analog cable package with up to 22 channels and a digital cable package with up to 89 channels. Its program offerings include domestic, foreign, sport and premium movie channels, as well as digital event channels such as seasonal sport and real life entertainment events. Broadband-Ireland also distributes up to seven Irish channels and produces a local sports channel. To complement its digital offering, Broadband-Ireland also offers its subscribers 22 channels of premium service.
Broadband-Ireland offers three tiers of chello brand high-speed Internet access service with download speeds ranging from 1 Kbps to 3 Mbps. Eight percent of its video cable subscribers subscribe to its Internet service, representing almost 100% of its Internet subscribers.
Belgium
The Europe Broadband division’s network in Belgium, which we refer to as Broadband-Belgium, passed 156,600 homes and had 127,000 analog cable subscribers, 5,500 digital cable subscribers and 35,300 Internet subscribers as of December 31, 2005. Its operations are located in certain areas of Leuven and Brussels, the capital city of Belgium. Broadband-Belgium’s network is fully upgraded to two-way capability, with all of its video cable subscribers served by a network with a bandwidth of 860 MHz.
Broadband-Belgium’s analog cable service, consisting of all Belgium terrestrial channels, regional channels and selected European channels, offers a basic package of 41 channels in Brussels and 40 channels in Leuven. In Leuven, Broadband-Belgium also offers an expanded analog cable package, including a “starters pack” of three channels that can be upgraded to 15 channels. This programming generally includes a selection of European and United States thematic satellite channels, including sports, kids, nature, movies and general

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entertainment channels. Broadband-Belgium also distributes three premium channels that are provided by Telenet (Prime) in Leuven. In the Brussels area, Broadband-Belgium also offers, in cooperation with BeTV S.A., a digital pay television package consisting of 6 premium channels and 58 thematic channels.
Broadband-Belgium offers five tiers of chello brand high-speed Internet access service with download speeds ranging from 256 Kbps to 16 Mbps as well as a student package. Sixteen percent of its video cable subscribers also receive Internet access service, representing 61% of its Internet subscribers.
Poland
The Europe Broadband division’s networks in Poland, which we refer to as Broadband-Poland, passed 1.9 million homes and had one million analog cable subscribers, 122,500 Internet subscribers and 1,200 telephony subscribers as of December 31, 2005. Broadband-Poland’s subscribers are located in regional clusters encompassing eight of the ten largest cities in Poland, including Warsaw and Katowice. Forty-nine percent of its networks are upgraded to two-way capability, with 98% of its video cable subscribers served by a network with a bandwidth of at least 550 MHz. Broadband-Poland continues to upgrade portions of its network that have bandwidths below 550 MHz to bandwidths of at least 860 MHz and anticipates to upgrade a further 20% of all homes passed in 2006.
Broadband-Poland offers analog cable subscribers three packages of cable television service. Its lowest tier, the broadcast package, includes four to 12 channels and the intermediate package includes 13 to 22 channels. Eighteen percent of the homes served by Broadband-Poland’s network subscribe to lifeline analog cable service only. The higher tier, the full package, includes the broadcast package, plus up to 30 additional channels with such themes as sports, kids, science/educational, news, film and music. For an additional monthly charge, Broadband-Poland offers two premium television services, the HBO Poland service and Canal+ Multiplex, a Polish-language premium package of three movie, sport and general entertainment channels.
Broadband-Poland offers five different tiers of chello brand high-speed Internet access service in portions of its network with download speeds ranging from 256 Kbps to 12 Mbps. Throughout 2005, Broadband-Poland has been aggressively expanding its Internet ready network in Warsaw, Krakow, Gdansk and Katowice to extend its offering of Internet access services to more of its existing cable footprint. Ten percent of its video cable subscribers also receive its Internet service, representing 82% of its Internet subscribers.
During the fourth quarter of 2005, Broadband-Poland rolled out VoIP multi-feature telephony services to 43% of its homes passed. Broadband-Poland offers basic dial tone service as well as value-added services. Approximately 0.1% of Broadband-Poland’s video cable subscribers also receive its telephony service, representing 98% of its telephony subscribers.
Hungary
The Europe Broadband division’s networks in Hungary, which we refer to as Broadband-Hungary, passed one million homes and had 731,400 analog cable subscribers, 171,100 DTH subscribers, 135,200 Internet subscribers and 108,200 telephony subscribers, as of December 31, 2005. Eighty-six percent of its networks are upgraded to two-way capability, with 64% of its video cable subscribers served by a network with a bandwidth of at least 750 MHz.
Broadband-Hungary offers up to four tiers of analog cable programming services (between four and 60 channels) and two premium channels, depending on the technical capability of the network. Five percent of the homes served by Broadband-Hungary’s network subscribe to the lifeline analog cable service only. Programming consists of the national Hungarian terrestrial broadcast channels and selected European satellite and local programming that consists of proprietary and third party channels.
Broadband-Hungary offers three tiers of chello brand high-speed Internet access service with download speeds ranging from 512 Kbps to 3 Mbps. Broadband-Hungary provides these broadband Internet services to 126,200 subscribers in 18 cities, including Budapest. It also had 9,000 ADSL subscribers at December 31, 2005, on its twisted copper pair network located in the southeast part of Pest County. Ten percent of its video cable

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subscribers also receive its Internet service, representing 56% of its Internet subscribers. Five percent of its Internet subscribers subscribe to telephony services, but not to its video cable services.
Broadband-Hungary offers traditional switched telephony services over a twisted copper pair network in the southeast part of Pest County. Broadband-Hungary offers VoIP telephony services over its cable network in Budapest. As of December 31, 2005, Broadband-Hungary’s telephony subscribers included 46,300 VoIP customers. Nine percent of Broadband Hungary’s video cable subscribers also receive its telephony service representing 61% of its telephony subscribers. Six percent of its telephony subscribers subscribe to its Internet services, but not to its video cable services.
Czech Republic
The Europe Broadband division’s network in the Czech Republic, which we refer to as Broadband-Czech, passed 743,000 homes and had 298,300 analog cable subscribers, 112,500 DTH subscribers and 75,600 Internet subscribers as of December 31, 2005. Its operations are located in more than 80 cities and towns in the Czech Republic, including Prague and Brno, the two largest cities in the country. Fifty-four percent of its networks are upgraded to two-way capability, with 51% of its video cable subscribers served by a network with a bandwidth of at least 860 MHz. Broadband-Czech offers two tiers of analog cable programming services, with up to 31 channels, and two premium channels. Twenty-two percent of the homes served by Broadband-Czech’s network subscribe to the lifeline analog service only.
Broadband-Czech offers four tiers of chello brand high-speed Internet access service with download speeds ranging from 256 Kbps to 6 Mbps. Ten percent of its video cable subscribers also receive its Internet service, representing 73% of its Internet subscribers.
Romania
The Europe Broadband division’s networks in Romania, which we refer to as Broadband-Romania, passed 1.9 million homes and had 1.3 million analog cable subscribers 4,000 digital cable subscribers, 55,200 Internet subscribers and 18,500 telephony subscribers, as of December 31, 2005. Broadband-Romania’s systems served nine of the top 12 cities in Romania with 54% of its subscriber base in nine cities. Forty-nine percent of its networks are upgraded to two-way capability, with 65% of its video cable subscribers served by a network with a bandwidth of at least 600 MHz. Broadband-Romania continues to upgrade its medium size systems to 600 MHz.
Broadband-Romania offers analog cable service with 24 to 40 channels in all of its cities, which include Romanian terrestrial broadcast channels, European satellite programming and regional local programming. Three extra basic packages of six to 18 channels each and Premium Pay TV (HBO Romania, Telesport and Adult) are offered in the main cities.
Broadband-Romania offers three tiers of high-speed Internet access service branded UPC and Astral Online with download speeds ranging from 256 Kbps to 1.5 Mbps. Four percent of its video cable subscribers also receive its Internet service, representing 97% of its Internet subscribers.
During the fourth quarter of 2005, Broadband-Romania extended the VoIP telephony deployment of its acquired subsidiary Astral to its own networks and has rolled out VoIP multi-feature telephony services to 34% of its homes passed in the aggregate. Broadband-Romania offers basic dial tone service as well as value-added services. One percent of Broadband-Romania’s video cable subscribers also receive its telephony service representing 100% of its telephony subscribers.
Broadband-Romania, through Astral, also offers a wide range of voice, leased line and high speed broadband data products to 4,000 large business customers and over 9,000 small office at home or “SOHO” customers.
Slovak Republic
The Europe Broadband division’s network in the Slovak Republic, which we refer to as Broadband-Slovak, passed 429,200 homes and had 256,900 analog cable subscribers, 17,300 DTH subscribers, 28,300 MMDS

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subscribers and 20,800 Internet subscribers as of December 31, 2005. Fifty-five percent of its networks are upgraded to two-way capability, with 52% of its video cable subscribers served by a network with a bandwidth of at least 750 MHz. In some areas like Bratislava, the capital city, its network is 99% upgraded to two-way capability.
Broadband-Slovak offers two tiers of analog cable service and three premium services. Its lower-tier, the lifeline package, includes four to nine channels. Fifteen percent of the homes served by Broadband-Slovak’s network subscribe to the lifeline analog service only. Broadband-Slovak’s most popular tier, the basic package, includes 16 to 42 channels that generally offer all Slovak terrestrial, cable and local channels, selected European satellite programming and other third-party programming. For an additional monthly charge, Broadband-Slovak offers three premium services — HBO, Private Gold and the UPC Komfort package consisting of six thematic third-party channels.
In Bratislava, Broadband-Slovak offers five tiers of chello brand high-speed Internet access service with download speeds ranging from 256 Kbps to 4 Mbps. Seven percent of its video cable subscribers also receive Internet access service, representing 80% of its Internet subscribers.
Slovenia
The Europe Broadband division’s network in Slovenia, which we refer to as Broadband-Slovenia, passed 125,300 homes and had 108,300 analog cable subscribers and 18,100 Internet subscribers at December 31, 2005. Sixty-three percent of its networks are upgraded to two-way capability, with 100% of its analog cable subscribers served by a network with a bandwidth of at least 860 MHz. Broadband-Slovenia systems mainly serve Ljubljana, the capital city.
Broadband-Slovenia’s most popular tier, the basic package, includes on average 50 video and 20 radio channels and generally offers all Slovenian terrestrial, cable and local channels, selected European satellite programming and other third-party programming. For an additional monthly charge, Broadband-Slovenia offers one premium movie service.
Broadband-Slovenia offers five tiers of high-speed Internet access service with download speeds ranging from 256 Kbps to 5 Mbps. Seventeen percent of its video cable subscribers also receive Internet access service, representing 98% of its Internet subscribers.
chellomedia and Other
UGC Europe’s chellomedia division provides interactive digital products and services, produces and markets thematic channels, operates a digital media center, operates a competitive local exchange carrier business under the brand name Priority Telecom and owns or manages our investments in various businesses in Europe. Below is a description of the operations of the chellomedia division:
  •  Interactive Services. Interactive television services and entertainment accessed over the Internet are both expected to play a significant role in the Europe Broadband division’s businesses. chellomedia’s Interactive Services division develops and delivers applications and services for television and personal computers. For television, these include electronic program guides, interactive portals and enhanced services such as multiscreen mosaics. For the web, the division’s services include entertainment portals across the Europe Broadband footprint, video on demand to personal computers and television streaming to personal computers. This group aggregates content for the interactive television and web portals, publishes these portals and handles the group’s business relationships with partners in advertising and sponsorship and sells television and web services to third parties. Interactive services have been launched by Broadband-Netherlands and Broadband-Austria, as discussed above.
 
  •  Programming. chellomedia’s programming operations include the following:
Transactional Television. Transactional television is another component of the Europe Broadband division’s digital service offerings and currently offers 56 channels of NVOD programming through Broadband- Netherlands and Broadband-Austria, 32 channels of NVOD programming through Broad-

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band-Sweden, and 16 channels of NVOD programming through Broadband-Switzerland. Transactional television provides digital customers with a wide range of Hollywood blockbusters and other movies. Transactional television is also in the process of developing VOD services for the Europe Broadband division and third-party cable operators. The VOD service will provide VOD subscribers with enhanced playback functionality and will give subscribers access to a broad array of on-demand programming, including movies, live events, local drama, music videos, kids programming and adult programming.
 
Global Thematics. chellomedia produces and markets a number of widely distributed multiterritory thematic channels. These channels target the following genres: extreme sports and lifestyles (Extreme), Horror films (Horror), real life stories (RealityTV), women’s information and entertainment (Club and Romantica) and art house basic movies (Europa Europa). In addition, chellomedia has a channel representation business, which represents both wholly owned and third party channels across Europe. In January 2005, chellomedia acquired an 87.5% interest in Zone Vision, which owns and operates three of our thematic programming channels.
 
chellomedia Benelux. With the acquisition of the content business of Canal+ Netherlands in October 2005, chellomedia now delivers a premium sports channel (Sport 1) and a premium movie channel (Film 1) in The Netherlands.
 
The channels originate from chellomedia’s digital media center, or “DMC,” located in Amsterdam. The DMC is a technologically advanced production facility that services Europe Broadband and third-party clients with channel origination, post-production and satellite and fiber transmission. The DMC delivers high-quality, customized programming by integrating different video elements, languages (either in dubbed or sub-titled form) and special effects, then transmits the final product to various customers in numerous countries through affiliated and unaffiliated cable systems and DTH platforms.
 
chellomedia Iberia. In November 2005, chellomedia acquired the remaining 50% interest in IPS that it did not already own, which owns and manages a suite of seven thematic channels carried on most major pay television platforms in Spain and Portugal. IPS has five wholly owned thematic channels (Canal Hollywood, Odisea, Sol Musica, Panda and Canal Cocina) and two joint venture channels with A&E (Canal de Historia and The Biography).
  •  Priority Telecom. Priority Telecom NV (Priority Telecom) is a facilities-based business telecommunications provider that provides voice services, high-speed Internet access, private data networks and customized network services to over 7,800 business customers primarily in its core metropolitan markets in The Netherlands, Austria and Norway. The current direct and indirect shareholding of chellomedia in Priority Telecom is 62% of the outstanding ordinary shares and, as a result of chellomedia’s holding, directly or indirectly, of 100% of Priority Telecom’s A shares and convertible preference shares, 98% of the total issued share capital. In February 2006, chellomedia announced that it intends to make a cash offer for the outstanding ordinary shares of Priority Telecom that it does not already own. This offer is subject to certain conditions, including receipt of a fairness opinion.
 
  •  Investments. chellomedia is an investor in branded equity ventures for the development of country-specific programming, including Xtra Music, MTV Networks Polska, Fox Kids Poland and Sports 1. chellomedia also owns or manages UGC Europe’s minority interests in other European businesses. These include a 25% interest in PrimaCom AG, which owns and operates a cable television and broadband network in Germany; a 50% interest in Melita Cable PLC, the only cable television and broadband network in Malta; a 25% interest in Telewizyjna Korporacja Partycypacyjna S.A., a DTH programming platform in Poland; and the indirect investment in Telenet, which is the largest provider of broadband cable services in Belgium and which investment is described below.
chellomedia Investments purchased 7.7 million shares of Telenet in its initial public offering that closed in October 2005. As a result of the purchase, chellomedia Investments and Belgian Cable Investors, a partnership majority owned and controlled by our indirect wholly owned subsidiary Belgian Cable Holdings, increased their combined economic ownership in the ordinary shares of Telenet from

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14.1% to 19.89%. In addition, Belgian Cable Investors holds certain call options, expiring in 2007 and 2009 (subject to earlier expiration in certain circumstances), to acquire an additional 10.1% and 15.3%, respectively, of the outstanding equity of Telenet from existing shareholders. The call options are priced at 20 per share as to 6.8 million shares and 25 per share as to 18.7 million shares.
 
Belgian Cable Investors holds its indirect 12.18% interest in Telenet common stock through two entities, which we refer to as the Investcos. The Investcos hold in the aggregate 12.86% of the Telenet common stock. Through a shareholders agreement among Belgian Cable Investors and the other unaffiliated investors in the Investcos, Belgian Cable Investors controls the voting and disposition of the Telenet common stock owned by the Investcos, plus an additional 0.93% of the Telenet common stock directly owned by certain of the other investors in the Investcos for a total of 13.79% of the Telenet common stock. Through these arrangements and chellomedia Investment’s ownership of 7.71% of the Telenet common stock purchased in the Telenet initial public offering, we control, subject to the shareholders agreement in effect between the Investcos, Belgian Cable Investors and certain other large shareholders of Telenet, the voting and disposition of 21.5% of the currently outstanding common stock in Telenet.
 
We hold 78.4% of the common equity interests and 100% of the preferred equity interests in Belgian Cable Investors. Pursuant to an agreement with the unaffiliated investor that holds the remaining 21.6% of the common interests in Belgian Cable Investors, such investor has the right to require Belgian Cable Holdings to purchase all of such interest in Belgian Cable Investors for the then appraised fair value of such interest during the first 30 days of every six-month period beginning in December 2007. Belgian Cable Holdings has the corresponding right to require the investor to sell all of its interest in Belgian Cable Investors to Belgian Cable Holdings for the appraised fair value during the first 30 days of every six-month period following December 2009. In addition, the Investco shareholders agreement and the Telenet shareholders agreement both contain rights of first offer and rights of first refusal that run for the benefit of Belgian Cable Investors and the Investcos, respectively, and in some circumstances burden their interests.
Japan
Our Japanese operations are conducted primarily through Super Media and its subsidiary J:COM, and through Jupiter TV. As of December 31, 2005, we owned a 58.66% controlling ownership interest in Super Media and Super Media owned a 62.65% controlling ownership interest in J:COM. As described above under “Recent Developments”, we began accounting for Super Media and J:COM as consolidated subsidiaries, effective as of January 1, 2005. As of December 31, 2005, we owned a 50% ownership interest in our affiliate Jupiter TV.
Jupiter Telecommunications Co., Ltd.
J:COM is a leading broadband provider of bundled entertainment, data and communication services in Japan. J:COM is currently the largest multiple-system operator, or “MSO”, in Japan, as measured by the total number of homes passed and customers. J:COM passed 7.3 million homes and had one million analog cable subscribers, 620,800 digital subscribers, 864,200 Internet subscribers and 911,300 telephony subscribers at December 31, 2005. J:COM operates its broadband networks through 19 managed local cable companies, which J:COM refers to as its managed franchises, 17 of which were consolidated subsidiaries as of December 31, 2005. J:COM owns a 45% equity interest and a 50% equity interest in its two unconsolidated managed franchises. J:COM’s two unconsolidated managed franchises served 111,400 video cable subscribers (analog and digital), 47,600 Internet subscribers and 59,100 telephony subscribers as of December 31, 2005.
Eighteen of J:COM’s managed franchises are clustered around three metropolitan areas of Japan, consisting of the Kanto region (which includes Tokyo), the Kansai region (which includes Osaka and Kobe) and the Kyushu region (which includes Fukuoka and Kita-Kyushu). In addition, J:COM owns and manages a local franchise in the Sapporo area of Japan that is not part of a cluster.

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Each managed franchise consists of headend facilities receiving television programming from satellites, traditional terrestrial television broadcasters and other sources, and a distribution network composed of a combination of fiber-optic and coaxial cable, which transmits signals between the headend facility and the customer locations. Almost all of J:COM’s networks are upgraded to two-way capability, with all of its cable subscribers served by a system with a bandwidth of 750 or 770 MHz. J:COM provides its managed franchises with experienced personnel, operating and administrative services, sales and marketing, training, programming and equipment procurement assistance and other management services. Each of J:COM’s managed franchises uses J:COM’s centralized customer management system to support sales, customer and technical services, customer call centers and billing and collection services.
J:COM offers analog and digital cable services in all of its managed franchises. J:COM’s basic analog service consists of approximately 47 channels of cable programming and analog terrestrial broadcasting and broadcast satellite channels, not including premium services. A typical channel line-up includes popular channels in the Japanese market such as Movie Plus, a top Japanese movie channel, the Shop Channel, a home-shopping network, J Sports 1, 2, 3 and Sports-i, four popular sports channels, the Discovery Channel, the Golf Network, the Disney Channel and Animal Planet, in addition to retransmission of analog terrestrial and satellite television broadcasts. J:COM’s basic digital service currently includes approximately 66 channels of cable programming, digital terrestrial broadcasting, and broadcast satellite channels, not including audio and data channels and premium services. The channel line-up for the basic digital service includes 15 high-definition channels. For an additional fee, digital cable subscribers may also receive VOD and up to nine pay-per-view channels not available to J:COM’s analog cable subscribers. J:COM also offers both its basic analog and digital subscribers optional subscriptions for an additional fee to premium channels, including movies, sports, horseracing and other special entertainment programming, either individually or in packages. J:COM offers package discounts to customers who subscribe to bundles of J:COM services. In addition to the services offered to its cable television subscribers, J:COM also provides terrestrial broadcast retransmission services to 3.1 million additional households in its consolidated managed franchises as of December 31, 2005.
J:COM offers high-speed Internet access in all of its managed franchises through its wholly owned subsidiary, @NetHome Co., Ltd, and through its affiliate, Kansai Multimedia Services (KMS). These Internet access services offer downstream speeds of either 8 Mbps or 30 Mbps. At December 31, 2005, J:COM held a 25.8% interest in KMS, which provides high-speed Internet access in the Kansai region of Japan. On January 6, 2006, KMS became a consolidated subsidiary when J:COM acquired an additional 38.2% of KMS. Since August 2005, J:COM offers the J:COM NET Hikari service for multiple dwelling units connected to J:COM’s network by optical fiber cables. J:COM NET Hikari offers speeds up to 100 Mbps. At December 31, 2005, 77% of the Internet subscribers in J:COM’s consolidated managed franchises also received its video cable services.
J:COM currently offers telephony services over its own network in 14 of its consolidated franchise areas. In these franchise areas, J:COM’s headend facilities contain equipment that routes calls from the local network to J:COM’s telephony switches, which in turn transmit voice signals and other information over the network. J:COM currently provides a single line to the majority of its telephony customers, most of whom are residential customers. J:COM charges its telephony subscribers a fee for basic telephony service (together with charges for calls made) and offers additional premium services, including call-waiting, call-forwarding, caller identification and three way calling, for a fee. At December 31, 2005, 79% of the telephony subscribers in J:COM’s consolidated managed franchises also received video cable services. In April 2005, J:COM launched a telephony service using VoIP technology in its Sapporo franchise. In October 2005 and in December 2005, J:COM began offering VoIP telephony service in a system in its Kansai franchise and in its Chofu franchise, respectively.
In addition to its 19 managed franchises, J:COM owns non-controlling equity interests, between 5.5% and 20.0%, in two cable franchises and an MSO that are operated and managed by third-party franchise operators.
J:COM sources its programming through multiple suppliers including its affiliate, Jupiter TV. J:COM’s relationship with Jupiter TV enables the two companies to work together to identify and bring key programming genres to the Japanese market and to expedite the development of quality programming

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services. J:COM and Jupiter TV each currently owns a 50% interest in Jupiter VOD Co., Ltd., a joint venture formed in 2004 to obtain VOD programming content to offer VOD services to J:COM franchises. J:COM began offering VOD services to its digital customers in all of its franchises in 2005. Because J:COM is usually a programmer’s largest cable customer in Japan, J:COM is generally able to negotiate favorable terms with its programmers.
Our interest in J:COM is currently held through Super Media, an entity that is owned 58.66% by us and 41.34% by Sumitomo Corporation. Pursuant to the operating agreement of Super Media between Sumitomo and us, our and Sumitomo’s entire interest in J:COM is now held through Super Media. Sumitomo and we are generally required to contribute to Super Media any additional shares of J:COM that either of us acquires and to permit the other party to participate in any additional acquisition of J:COM shares during the term of Super Media.
Our interest in Super Media is held through five separate corporations, four of which are wholly owned. Four individuals, including one of our executive officers, an officer of one of our subsidiaries and one of LMI’s former directors, own common stock representing an aggregate of 18.75% of the common equity in the fifth corporation, which owns a 4.3% indirect interest in J:COM.
Super Media is managed by a management committee consisting of two members, one appointed by us and one appointed by Sumitomo. The management committee member appointed by us has a casting or tie-breaking vote with respect to any management committee decision that we and Sumitomo are unable to agree on, which casting vote will remain in effect for the term of Super Media. Certain decisions with respect to Super Media require the consent of both members rather than the management committee. These include a decision to engage in any business other than holding J:COM shares, sell J:COM shares, issue additional units in Super Media, make in-kind distributions or dissolve Super Media, in each case other than as contemplated by the Super Media operating agreement. While Super Media effectively has the ability to elect J:COM’s entire board, pursuant to the Super Media operating agreement, Super Media is required to vote its J:COM shares in favor of the election to J:COM’s board of three non-executive directors designated by Sumitomo and three non-executive directors designated by us.
Because of our casting vote, we indirectly control J:COM through our control of Super Media, which owns a controlling interest in J:COM, and therefore consolidate J:COM’s results of operations for accounting purposes. Super Media will be dissolved five years after our casting vote became effective on February 18, 2005, unless Sumitomo and we mutually agree to extend the term. Super Media may also be dissolved earlier under certain circumstances.
Jupiter TV Co., Ltd.
Jupiter TV is a joint venture between Sumitomo and us that primarily develops, manages and distributes pay television services in Japan on a platform-neutral basis through various distribution infrastructures, principally cable and DTH service providers, and more recently, alternative broadband service providers using fiber-to-the-home or “FTTH”, and ADSL platforms. As of December 31, 2005, Jupiter TV owned four channels through wholly or majority-owned subsidiaries and had investments ranging from 10% to 50% in 14 additional channels. Jupiter TV’s majority owned channels are a movie channel (Movie Plus), a golf channel (Golf Network), a shopping channel (Shop Channel, in which Jupiter TV has a 70% interest and Home Shopping Network has a 30% interest), and a women’s entertainment channel (LaLa TV). Channels in which Jupiter TV holds investments include four sports channels owned by J Sports Broadcasting Corporation (J Sports Broadcasting), which is a 34% owned joint venture with Sony Broadcast Media Co. Ltd. (Sony), Fuji Television Network, Inc., SOFTBANK Broadmedia Corporation, Skyperfect Communications Inc. and Itochu Corporation; Animal Planet Japan, a one-third owned joint venture with Discovery Networks and BBC Worldwide; Discovery Channel Japan and Discovery HD through a 50% owned joint venture with Discovery Networks; AXN Japan, a 35% owned joint venture with Sony; and Reality TV Japan, a 50% owned joint venture with Zone Vision Enterprises. Jupiter TV provides affiliate sales services and in some cases advertising sales and other services to channels in which it has an investment for a fee.

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The market for multi-channel television services in Japan is highly complex with multiple cable systems, DTH satellite platforms, and more recently, alternative broadband service providers. Cable systems in Japan served 18.2 million homes at December 31, 2005. A large percentage of these homes, however, are served by systems (referred to as compensation systems) whose service principally consists of retransmitting free television services to homes whose reception of such broadcast signals has been blocked. Higher capacity systems and larger cable systems that offer a full complement of cable and broadcast channels, of which J:COM is the largest in terms of subscribers, currently serve 5.8 million households. The majority of channels in which Jupiter TV holds an interest are marketed as basic television services to cable system operators, with distribution at December 31, 2005, ranging from 15.4 million homes for Shop Channel (which is carried in many compensation systems as well as in multi-channel cable systems) to 0.6 million homes for more recently launched channels, such as Reality TV Japan.
Each of the channels in which Jupiter TV has an interest, except for Discovery HD, is also currently offered on SkyPerfecTV1, a digital satellite platform that delivers approximately 180 channels a la carte and in an array of basic and premium packages, from two satellites operated by JSAT Corporation (JSAT). Each of the channels, except for Reality TV Japan and Discovery HD, is also offered on SkyPerfecTV2, another satellite platform in Japan, which delivers a significantly smaller number of channels. Under Japan’s complex regulatory scheme for satellite broadcasting, a person engaged in the business of broadcasting programming must obtain a broadcast license that is perpetual, although subject to revocation by the relevant governmental agency, and then lease from a satellite operator the bandwidth capacity on satellites necessary to transmit the programming to cable and other distributors and direct-to-home satellite subscribers. In the case of distribution of Jupiter TV’s 33% or greater owned channels on SkyPerfecTV1, these licenses and satellite capacity leases are held through its subsidiaries, Jupiter Satellite Broadcasting Corporation (JSBC) and Jupiter Satellite Broadcasting Corporation 2 (JSBC2), except for AXN Japan and the J Sports Broadcasting channels which hold their own licenses. The broadcast licenses and satellite capacity leases for those of Jupiter TV’s 33% or greater owned channels that are delivered by SkyPerfecTV2 are held by four other companies that are majority owned by unaffiliated entities. JSBC’s leases with JSAT for bandwidth capacity on JSAT’s two satellites expire between 2006 and 2011. The leases for bandwidth capacity with respect to the SkyPerfecTV2 platform expire between 2012 and 2014. JSBC, JSBC2 and other licensed broadcasters then contract with the platform operator, such as SkyPerfecTV, for customer management and marketing services (sales and marketing, billing and collection) and for encoding services (compression, encoding and multiplexing of signals for transmission) on behalf of the licensed channels. The majority of channels in which Jupiter TV holds an interest are marketed as basic television services to DTH subscribers with distribution at December 31, 2005, ranging from 3.5 million homes for Shop Channel (which is carried as a free service to all DTH subscribers) to 0.5 million homes for more recently launched channels, such as Reality TV Japan.
Distribution of multichannel television services in Japan, through alternative broadband platforms, such as FTTH and ADSL, is not yet widespread. The majority of channels in which Jupiter TV holds an interest are marketed as basic television services to alternative broadband subscribers with distribution at December 31, 2005, ranging from 0.1 million homes for Shop Channel (which is carried as a free service to broadband television subscribers) to 0.01 million homes for lesser distributed channels, such as Movie Plus.
Jupiter TV operates Jupiter VOD, a 50% owned joint venture with J:COM, which has access to 0.6 million VOD-enabled digital cable subscribers at December 31, 2005. Jupiter TV also operates Online TV, a 55% owned joint venture with SECOM Co. Ltd., Tohokushinsha Film Corporation and Nikkei Shinbun. Online TV is a content aggregation platform for broadband television services supplying channels, including the majority of channels in which Jupiter TV holds an interest, to several Internet service providers.
Eighty-six percent of Jupiter TV’s consolidated revenue for 2005 was attributable to retail revenue generated by the Shop Channel. Cable operators are paid distribution fees to carry the Shop Channel, which are either fixed rate per subscriber fees or the greater of fixed rate per subscriber fees and a percentage of revenue generated through sales to the cable operator’s viewers. SkyPerfecTV is paid a fixed rate per subscriber distribution fee to provide the Shop Channel to its DTH subscribers. Alternative broadband platforms are also paid a fixed rate fee per subscriber that is able to view Shop Channel through their platform. After Shop Channel, J Sports Broadcasting’s four sports channels generate the most revenue of the channels in which

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Jupiter TV has an interest. The majority of this revenue is derived from cable and satellite subscriptions. Currently, advertising sales are not a significant component of Jupiter TV’s revenue.
Sumitomo and we each own a 50% interest in Jupiter TV. Pursuant to a stockholders agreement we entered into with Jupiter TV and Sumitomo, Sumitomo and we each have preemptive rights to maintain our respective equity interests in Jupiter TV, and Sumitomo and we each appoint an equal number of directors provided we maintain our equal ownership interests. No board action may be taken with respect to certain material matters without the unanimous approval of the directors appointed by us and Sumitomo, provided that Sumitomo and we each own 30% of Jupiter TV’s equity at the time of any such action. Sumitomo and we each hold a right of first refusal with respect to the other’s interests in Jupiter TV, and Sumitomo and we have each agreed to provide Jupiter TV with a right of first opportunity with respect to the acquisition of more than a 10% equity position in, or the management of or any similar participation in, any programming business or service in Japan and any other country to which Jupiter TV distributes its signals, in each case subject to specified limitations.
Japan — Other
We also own an interest in Mediatti Communications, Inc. (Mediatti), a provider of cable television and high speed Internet access services in Japan that served 102,500 video cable subscribers (analog and digital) and 58,500 Internet subscribers at December 31, 2005. Our interest in Mediatti is held through Liberty Japan MC, LLC (Liberty Japan MC), a company of which, as of December 31, 2005, we owned 94.6% and Sumitomo owned 5.4%.
At December 31, 2005, Liberty Japan MC owned a 36.4% voting interest in Mediatti and an additional 6.64% interest that had limited veto rights. In January 2006, Liberty Japan MC converted its limited voting shares into ordinary common shares. In February 2006, Liberty Japan MC acquired additional shares of Mediatti increasing its voting interest to 46.09%, all of which now consists of ordinary common shares. As of February 2006, we owned 95.2% of Liberty Japan MC and Sumitomo owned 4.8%. Until February 2006, Sumitomo had the option to increase its ownership interest in Liberty Japan MC to up to 50% but did not exercise that option.
Liberty Japan MC, Olympus Mediacom L.P. (Olympus) and two minority shareholders of Mediatti have entered into a shareholders agreement pursuant to which Liberty Japan MC has the right to nominate three of Mediatti’s seven directors and which requires that significant actions by Mediatti be approved by at least one director nominated by Liberty Japan MC.
The Mediatti shareholders who are party to the shareholders agreement have granted to each other party whose ownership interest is greater than 10% a right of first refusal with respect to transfers of their respective interests in Mediatti. Each shareholder also has tag-along rights with respect to such transfers. Olympus has a put right that is first exercisable during July 2008 to require Liberty Japan MC to purchase all of its Mediatti shares at fair market value. If Olympus exercises such right, the two minority shareholders who are party to the shareholders agreement may also require Liberty Japan MC to purchase their Mediatti shares at fair market value. If Olympus does not exercise such right, Liberty Japan MC has a call right that is first exercisable during July 2009 to require Olympus and the minority shareholders to sell their Mediatti shares to Liberty Japan MC at the then fair market value. If both the Olympus put right and the Liberty Japan MC call right expire without being exercised during the first exercise period, either may thereafter exercise its put or call right, as applicable, until October 2010.
The Americas
Our operations in the Americas are conducted primarily through our 80% owned subsidiary VTR in Chile and our wholly owned subsidiary Liberty Cablevision of Puerto Rico. We also have subsidiaries that are broadband providers operating in Brazil and Peru and a joint venture interest in MGM Networks Latin America and a subsidiary in Argentina, both of which offer programming content to the Latin America market. Our partner in VTR, CCC, has a put right which will allow CCC to require us to purchase all, but not less than all, of its 20% interest in VTR at fair value, subject to a minimum price, such put right being exercisable beginning on April 13, 2006 and ending on April 13, 2015.

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VTR GlobalCom S.A.
Our primary Latin American operation, VTR, is Chile’s largest multi-channel television provider in terms of homes passed and number of subscribers, and is a leading high-speed Internet access provider, and Chile’s second largest provider of residential telephony services in terms of lines in service. VTR provides services in Santiago, Chile’s largest city, the large regional cities of Iquique, Antofagasta, Concepción, Viña del Mar, Valparaiso and Rancagua, and smaller cities across Chile. VTR’s network passed 2.2 million homes and had 751,200 analog cable subscribers, 6,800 digital cable subscribers, 303,000 Internet subscribers and 364,700 telephony subscribers at December 31, 2005.
All of VTR’s video subscribers are served via wireline cable, with the vast majority via aerial plant. VTR’s network is 59.2% upgraded to two-way capability with a bandwidth of 750 MHz. VTR has an approximate 89% market share of cable television services throughout Chile and an approximate 98% market share within Santiago. VTR’s channel lineup consists of 32 to 81 channels segregated into two tiers of analog cable service: a basic service with 32 to 68 channels and a premium service with 11 channels. VTR offers basic tier programming similar to the basic tier program lineup in the United States, including more premium channels such as HBO, Cinemax and Cinecanal on the basic tier. As a result, subscription to its existing premium service package is limited because its basic analog package contains similar channels. VTR obtains programming from the United States, Europe, Argentina and Mexico. Domestic cable television programming in Chile is only just beginning to develop around local events such as soccer matches. VTR also offers a digital platform with programming options similar to its analog premium service. During 2006, VTR plans to move its premium analog customers to its digital platform.
VTR offers several alternatives of always on, unlimited-use high-speed Internet access to residences and SOHO offices under the brand name Banda Ancha in 30 communities within Santiago and 19 cities outside Santiago. Subscribers can purchase one of 17 services with download speeds ranging from 128 Kbps to 10 Mbps. For a moderate to heavy Internet user, VTR’s Internet service is generally less expensive than a dial-up service with its metered usage. To provide more flexibility to the user, VTR also offers Banda Ancha Flex, where a low monthly flat fee includes the first 200 minutes, with metered usage above 200 minutes. Thirty-three percent of VTR’s video cable subscribers also receive Internet service, representing 83% of its Internet subscribers.
VTR offers telephony service to customers in 25 communities within Santiago and 18 cities outside Santiago. VTR offers basic dial tone service as well as several value-added services. VTR primarily provides service to residential customers who require one or two telephony lines. It also provides service to SOHO customers. VTR also offers telephony services to its two-way homes passed by applying VoIP. Fourteen percent of VTR’s telephony subscribers are served using VoIP technology. Thirty-three percent of VTR’s video cable subscribers also receive telephony service, representing 68% of its telephony subscribers.
VTR is subject to certain regulatory conditions as a result of the combination with Metropolis in April 2005. The most significant conditions require that the combined entity (i) re-sell broadband capacity to third party Internet service providers on a wholesale basis; (ii) activate two-way to two million homes passed within five years from the consummation date of the combination; and (iii) for three years after the consummation date of the combination, limit basic tier price increases to the rate of inflation, plus a programming cost escalator. In December 2005, the Subsecretaria de Telecomunicaciones of Chile awarded VTR regional concessions for wireless local telephone service in the frequency band of 3400-3600 MHz. Using this spectrum, VTR plans to offer broadband telephony and data services through Worldwide Interoperability for Microwave Access (WiMax) technology. WiMax is a wireless alternative to cable and DSL for the last mile of broadband access. WiMax will allow VTR to expand its service area by 1.3 million homes and increase the number of two-way homes passed by 540,000 on a more cost-effective basis than cable. The issuance of the WiMax license has, however, been challenged by a third party. VTR believes the challenge is without merit but it may delay its construction plans for WiMax.

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Regulatory Matters
Overview
Video distribution, Internet, telephony and content businesses are regulated in each of the countries in which we operate. The scope of regulation varies from country to country, although in some significant respects regulation in European markets is harmonized under the regulatory structure of the European Union or “EU.” Adverse regulatory developments could subject our businesses to a number of risks. Regulation could limit growth, revenue and the number and types of services offered. In addition, regulation may restrict our operations and subject them to further competitive pressure, including pricing restrictions, interconnect and other access obligations, and restrictions or controls on content, including content provided by third parties. Failure to comply with current or future regulation could expose our businesses to various penalties.
Foreign regulations affecting distribution and programming businesses fall into several general categories. Our businesses are generally required to obtain licenses, permits or other governmental authorizations from, or to notify or register with, relevant local or regulatory authorities to own and operate their respective distribution systems and to offer services across them. In some countries, these licenses and registrations are non-exclusive and of limited duration. In most countries where we provide video programming services, we must comply with restrictions on programming content. Local or national regulatory authorities in some countries where we provide video services also impose pricing restrictions and subject certain price increases to prior approval or subsequent control by the relevant local or national authority.
Europe
Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and the United Kingdom are Member States of the EU. As such, these countries are required to enact national legislation that implements EU directives. Although not an EU Member State, Romania is seeking to join the EU in 2007 and its laws are strongly influenced by EU directives since it will need to comply with these directives in order to join the EU. As a result, most of the markets in Europe in which our businesses operate have been significantly affected by the regulatory framework that has been developed by the EU. The exception to this is Switzerland, which is not an EU Member State and is currently not seeking any such membership. Regulation in Switzerland is discussed separately below.
Communications Services and Competition Directives
A number of legal measures, which we refer to as the Directives, have revised the regulatory regime concerning communications services across the EU. They include the following:
  •  Directive for a New Regulatory Framework for Electronic Communications Networks and Services (referred to as the Framework Directive);
 
  •  Directive on the Authorization of Electronic Communications Networks and Services (referred to as the Authorization Directive);
 
  •  Directive on Access to and Interconnection of Electronic Communications Networks and Services (referred to as the Access Directive);
 
  •  Directive on Universal Service and Users’ Rights relating to Electronic Networks and Services (referred to as the Universal Service and Users’ Rights Directive);
 
  •  Directive on Privacy and Electronic Communications (referred to as the Privacy Directive); and
 
  •  Directive on Competition in the Markets for Electronic Communications and Services (referred to as the Competition Directive).
In addition to the Directives, the European Parliament and European Council made a decision intended to ensure the efficient use of radio spectrum within the EU. Existing EU member countries were required to implement the Framework, Authorization, Access and the Universal Service and Users’ Rights Directives by

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July 25, 2003. The Privacy Directive was to have been implemented by October 31, 2003. The Competition Directive is self-implementing and does not require any national measures to be adopted. The 10 countries that joined the EU on May 1, 2004 were to ensure compliance with the Directives as of the date of accession. Measures seeking to implement the Directives are in force in most Member States. Of those EU countries in which we operate, only Belgium still needs to bring into force laws seeking substantially to implement the Directives.
The Directives seek, among other things, to harmonize national regulations and licensing systems and further increase market competition. These policies seek to harmonize licensing procedures, reduce administrative fees, ease access and interconnection, and reduce the regulatory burden on telecommunications companies. Another important objective of the new Directives is to implement one new regime for the development of communications networks and communications services, including the delivery of video services, irrespective of the technology used.
Many of the obligations included within the Directives apply only to operators or service providers with “Significant Market Power” (SMP) in a relevant market. For example, the provisions of the Access Directive allow Member States to mandate certain access obligations only for those operators and service providers that are deemed to have SMP. For purposes of the Directives, an operator or service provider will be deemed to have SMP where, either individually or jointly with others, it enjoys a position of significant economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and consumers.
As part of the implementation of certain of the Directives, the National Regulatory Authority or “NRA” is obliged to analyze 18 markets predefined by the Commission of European Communities (EC Commission) to determine if any operator or service provider has SMP. Such markets are referred to as the 18 predefined markets. We have been found to have SMP in some markets in some countries and further such findings are possible. In particular, in those markets where we offer telephony services, we will often be found to have SMP in the termination of calls on our own network. In addition, in some countries we may be found to have SMP in the wholesale distribution of television channels. Some national regulators may also seek to find that we have SMP in the wholesale broadband Internet market. Although we would vigorously dispute this last finding, there can be no assurance that such finding will not be made. NRAs might also seek to define us as having SMP in another of the 18 predefined markets or define and analyze additional markets, such as the retail market for the reception of radio and television packages. In the event that we are found to have SMP in any particular market, a NRA could impose certain conditions on us to prevent abusive behavior by us.
Under the Directives, the EC Commission has the power to veto the assessment by a NRA of SMP in any market not set out in their predefined list as well as any finding by a NRA of SMP in any market whether or not it is set out in the list.
Certain key elements introduced by the Directives are set forth below, followed by a discussion of certain other regulatory matters and a description of regulation for five countries where we have large operations. This description in not intended to be a comprehensive description of all regulation in this area.
Licensing. Individual licenses for electronic communications services are not required for the operation of an electronic communications network or the offering of electronic communications services. A simple registration is required in these cases. Member States are limited in the obligations that they may place on someone who has so registered; the only obligations that may be imposed are specifically set out in the Authorizations Directive.
Access Issues. The Access Directive sets forth the general framework for interconnection of, and third party access to, networks, including cable networks. Public telecommunications network operators are required to negotiate interconnection agreements on a non-discriminatory basis with each other. In addition, some specific obligations are provided for in this Directive such as an obligation to distribute wide-screen television broadcasts in that format and certain requirements to provide access to conditional access systems. Other access obligations can be imposed on operators identified as having SMP in a particular market. These obligations are based on the outcomes that would occur under general competition law.

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“Must Carry” Requirements. In most countries where we provide video and radio services, we are required to transmit to subscribers certain “must carry” channels, which generally include public national and local channels. In some European countries, we may be obligated to transmit quite a large number of channels by virtue of these requirements. Until recently, there was no meaningful oversight of this issue at the EU level. This changed when the Directives came into effect. Member States are only permitted to impose must carry obligations where they are necessary to meet clearly defined general interest objectives and where they are proportionate and transparent. Any such obligations must be subject to periodic review. It is not clear what effect this new rule is having in practice but we expect it to lead to a reduction of the size of must-carry packages in some countries.
Consumer Protection Issues and Pricing Restrictions. Under the Directives, we may face various consumer protection restrictions if we are in a dominant position in a particular market. However, before the implementation of the Directives, local or national regulatory authorities in many European countries where we provide video services already imposed pricing restrictions. This is often a contractual provision rather than a regulatory requirement. Often, the relevant local or national authority must approve basic tier price increases. In certain countries, price increases will only be approved if the increase is justified by an increase in costs associated with providing the service or if the increase is less than or equal to the increase in the consumer price index, or “CPI”. Even in countries where rates are not regulated, subscriber fees may be challenged if they are deemed to constitute anti-competitive practices.
Other. Our European operating companies must comply with both specific and general legislation concerning data protection, data retention, content provider liability and electronic commerce. These issues are broadly harmonized or being considered for harmonization at the EU level. For example, the EU recently agreed a new Directive on data retention, which will likely increase the amount of data we must store for law enforcement purposes and the length of time we must store it.
In late 2005, the EC Commission announced a call for input on a review of the regulatory framework described above. In early 2006, they made comments on their future views of the 18 predefined markets. Their review will progress through 2006 and, at some point, may lead to fresh EU level legislation and/or a review of the list of the 18 predefined markets. Any such processes could lead to material changes in the regime described above.
Broadcasting. Broadcasting is an area outside the scope of the Directives. Generally, broadcasts originating in and intended for reception within a country must respect the laws of that country. However, pursuant to another Directive, EU Member States are required to allow broadcast signals of broadcasters in another EU Member State to be freely transmitted within their territory so long as the broadcaster complies with the law of the originating EU Member State. An international convention extends this right beyond the EU’s borders into the majority of territories in which we operate. This EU directive also establishes quotas for the transmission of European-produced programming and programs made by European producers who are independent of broadcasters. The EU legal framework governing broadcast television currently is under review and the EC Commission issued a proposal for a new Directive at the end of 2005. The draft will be subject to amendment and adoption by the European Council and the European Parliament. Any new Directive adopted by these institutions would then be transposed into the laws of the various Member States over a defined timescale. Such a process could lead to substantial changes in the regulation of broadcasting.
Competition Law and Other Matters
EU directives and national consumer protection and competition laws in many of our European markets impose limitations on the pricing and marketing of bundled packages of services, such as video, telephony and Internet access services. Although our businesses may offer their services in bundled packages in European markets, they are sometimes not permitted to make subscription to one service, such as cable television, conditional upon subscription to another service, such as telephony. In addition, providers cannot abuse or enhance a dominant market position through unfair anti-competitive behavior. For example, cross-subsidization having this effect would be prohibited.

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As our businesses become larger throughout the EU and in individual countries in terms of service area coverage and number of subscribers, they may face increased regulatory scrutiny. Regulators may prevent certain acquisitions or permit them only subject to certain conditions.
Austria
Austria has a communications law that broadly transposes the Directives. The NRA is in the process of analyzing the 18 predefined markets to determine if any operator or service provider has SMP. We have been found to have SMP in the call termination market on our own telecommunications network, together with all other network operators. This has led to a system of call termination price control via benchmarking with prices charged by the incumbent operator.
France
France has a communications law that broadly transposes the Directives. The NRA is in the process of analyzing the 18 predefined markets to determine if any operator or service provider has SMP. We have been found to have SMP in the call termination market on our own telecommunications network, together with all other network operators. This has led to a variety of requirements, including the obligation to provide interconnection and access to, and use of, specific network facilities, non-discrimination, transparency and a prohibition against charging excessive prices.
Hungary
Hungary has a communications law that broadly transposes the Directives. The NRA has virtually finished the process of analyzing the 18 predefined markets to determine if any operator or service provider has SMP with the only exception of relevance to our business being the ongoing analysis of the wholesale broadcast transmission market. The operations of our telephony subsidiary, Monor Telefon Tarsasag RT (Monor) have been found to have SMP in the call termination and origination market on our own telecommunications network, as well as in the markets for wholesale unbundled access and for wholesale broadband access, together with all other similar network operators. This has led to a variety of requirements, including the need to provide interconnection and access to, and use of, specific network facilities, non-discrimination, transparency, accounting separation and price control. We are also required to produce a wholesale ADSL offer on the Monor telecommunication network based on a discount from our retail prices.
Monor has further been found to have SMP in a variety of retail markets relating to the provision of network access to business and to residential customers where our price increases have been capped at the rise in the CPI and in the markets for long distance and international calls for residential and business customers where we have been required to offer carrier pre-selection services.
The Netherlands
Historically, in many parts of The Netherlands, Europe Broadband has been a party to contracts with local municipalities that control aspects of our Netherlands business, including, in some cases, pricing and package composition. Most of these contracts have been eliminated by agreement, although some contracts are still in force and under negotiation. In some cases there is litigation ongoing with certain municipalities resisting our attempts to move away from the contracts.
The Netherlands has a communications law that broadly transposes the Directives. Onafhankelijke Post en Telecommunicatie Autoriteit (OPTA), The Netherlands NRA, has, with one exception, finished its analysis of the 18 predefined markets in order to determine which, if any, operator or service provider has SMP. OPTA has concluded that we do not have SMP in The Netherlands broadband market and so no obligations have been placed on us there.
At the end of December 2005, we were declared by OPTA to have SMP in the market related to call termination on our own network. Obligations imposed are to provide access to interconnecting operators on a

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transparent and reasonable basis along with tariff regulation, which will be derived from the regulated interconnect charges of Royal KPN N.V. (KPN).
As to the wholesale broadcast market, we have been held to have SMP in the distribution of both free to air and pay television programming. As a result, OPTA may require us to provide access to content providers and packagers who are seeking to distribute content over our network using their own conditional access platform, which content is not already part of our own basic tier television offering. This access must be offered at cost oriented prices regulated by OPTA. Further we would be obliged to grant program providers access to our basic tier offering in certain circumstances in line with current laws and regulations. OPTA has indicated that requests for access must be reasonable and that a request by a third party that has an alternative infrastructure or that would result in disproportionate use of available network capacity would not likely be considered reasonable. We have not yet, however, seen a final decision from OPTA as to the exact scope of these obligations. This decision is expected in the first quarter of 2006.
In addition, since late 2005, OPTA has been discussing with the EC Commission a market outside the 18 predefined markets relating to the retail delivery of radio and television packages in The Netherlands and the obligations it proposes to impose. The proposed obligation included retail price regulation on a cost oriented basis of the analog package, a requirement to indicate to customers which part of the subscription fees relate to network costs and which relate to programming costs, and a requirement to unbundle analog video services from other services. In December 2005, the EC Commission approved OPTA’s revised proposal for regulation in this retail market on the basis that it was limited to one year and that OPTA would not intervene in cable operators’ retail prices as long as these do not increase by more than the CPI increase. OPTA may, while monitoring the market, seek further powers to regulate cable end-user pricing in the future. We have not yet seen a final decision from OPTA as to the exact scope of proposed obligations. This is expected in the first quarter of 2006.
Switzerland
As Switzerland is not a member of the European Union, it is not obliged to follow European Union legislation. However, the liberalization of the Swiss telecommunications market to a certain extent has moved in parallel, although delayed, with liberalization in the EU. The current regulatory framework governing telecommunications services in Switzerland was established on January 1, 1998, with the enactment of the Telecommunications Act and a concurrent restatement of the Radio and Television Act (RTVA). This new regulatory regime opened both the telecommunications and cable television markets to increased competition.
The RTVA regulates the operation, distribution and redistribution, and receipt of radio and television programs. A distributor who creates a program and aims to broadcast such program requires a programming license. The redistribution of programs requires a redistribution license. As in the EU, must-carry rules require us to redistribute certain national and regional television and radio programs, such as programs of the Swiss Broadcasting Corporation. The RTVA is currently undergoing a comprehensive restatement in order to keep current with technological and market developments such as digitalization and convergence and a new version is expected to enter into force in 2007. This could lead to material changes in the Swiss regulatory regime.
The transmission of voice and data information through telecommunications devices is regulated by the Telecommunications Act. Such Act requires any operator that provides telecommunications services and independently operates a significant portion of a network to obtain a license. Dominant telecommunications service providers must provide interconnection to other providers on a non-discriminatory basis and in accordance with a transparent and cost-based pricing policy, stating the conditions and prices separately for each interconnection service. We have not been found to have a dominant market position under the Telecommunications Act, but cannot exclude the possibility that we might be in the future.
The Telecommunications Act is currently under review aiming to strengthen competition in the telecommunication markets and to increase transparency for customers. If implemented as currently discussed in the Swiss Parliament, such new legislation would replace the licensing system by a system of notification and introduce unbundling of the local loop for telephony and data services. Any form of unbundling, however, would be restricted to the network of Swisscom AG (Swisscom), the incumbent telecommunications operator. The new

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Telecommunications Act is expected to enter into force at the earliest in 2006. This could lead to material changes in the Swiss regulatory regime.
Under the Act on the Surveillance of Prices, the Swiss Price Regulator has the power to prohibit price increases or to order price reductions in the event a company with market power implements prices that are deemed to be abusively high, unless the Swiss Price Regulator and the company can come to a mutual agreement. For purposes of the Swiss Price Regulation Act, a price is considered to be abusively high if it is not the result of effective competition. We are subject to price regulation regarding our analog television offering and have entered into a contract with the price regulator that determines the retail prices for analog television services until the end of 2006.
Under the Swiss Act on Cartels and other Restraints of Competition, or Cartels Act, in preliminary proceedings we have been obliged to provide access to our network to a content provider in Switzerland that has exclusive rights to a significant portion of the premium and sports content distributed in Switzerland. Although the injunction has been lifted by the Federal Court, the main proceedings are pending and we may be forced to continue allowing this third party content provider to provide its service over our network through its own conditional access platform.
Japan
Regulation of the Cable Television Industry. The two key laws governing cable television broadcasting services in Japan are the Cable Television Broadcast Law and the Wire Telecommunications Law. The Cable Television Broadcast Law was enacted in 1972 to regulate the installation and operation of cable television facilities and the provision of cable television services. The Wire Telecommunications Law is the basic law in Japan governing wire telecommunications, and it regulates all wire telecommunications equipment, including cable television facilities.
Under the Cable Television Broadcast Law, any business seeking to install cable television facilities with more than 500 drop terminals must obtain a license from the Ministry of Internal Affairs and Communications, commonly referred to as the MIC. Under the Wire Telecommunications Law, if these facilities have fewer than 500 drop terminals, only prior notification to the MIC is required. If a license is required, the license application must provide an installation plan, including details of the facilities to be constructed and the frequencies to be used, financial estimates, and other relevant information. Generally, the license holder must obtain prior permission from the MIC in order to change any of the items included in the original license application. The Cable Television Broadcast Law also provides that any business that wishes to furnish cable television services must file prior notification with the MIC before commencing service. This notification must identify the service areas, facilities and frequencies to be used (unless the facilities are owned by the provider) and outline the proposed cable television broadcasting services and other relevant information, regardless of whether these facilities are leased or owned. Generally, the cable television provider must notify the MIC of any changes to these items.
Prior to the commencement of operations, a cable television provider must notify the MIC of all charges and tariffs for its cable television services. Those charges and tariffs to be incurred in connection with the mandatory re-broadcasting of television content require the approval of the MIC. A cable television provider must also give prior notification to the MIC of all amendments to existing tariffs or charges (but MIC approval of these amendments is not required).
A cable television provider must comply with specific guidelines, including: (1) editing standards; (2) making its facilities available for third party use for cable television broadcasting services, subject to the availability of broadcast capacity; (3) providing service within its service area to those who request it absent reasonable grounds for refusal; (4) obtaining retransmission consent where retransmission of television broadcasts occur, unless such retransmission is required under the Cable Television Broadcast Law for areas having difficulties receiving television signals; and (5) obtaining permission to use public roads for the installation and use of cable.

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The MIC may revoke a facility license if the license holder breaches the terms of its license; fails to comply with technical standards set forth in, or otherwise fails to meet the requirements of, the Cable Television Broadcast Law; or fails to implement a MIC improvement order relating to its cable television facilities or its operation of cable television services.
Regulation of the Telecommunications Industry. As providers of high-speed Internet access and telephony, our businesses in Japan also are subject to regulation by the MIC under the Telecommunications Business Law. The Telecommunications Business Law previously regulated Type I and Type II carriers. Type I carriers were allowed to carry data over telecommunications circuit facilities which they install or on which they hold long-term leases meeting certain criteria. Type I carriers included common carriers, as well as wireless operators. Type II carriers, including telecommunications circuit resale carriers and Internet service providers, carried data over facilities installed by others. Under the Telecommunications Business Law, Type I carriers were allowed to offer the same kinds and categories of services as Type II carriers. Because our businesses carry data over telecommunications circuit facilities, which they installed in connection with their telephony and high-speed Internet access and existing cable lines, our businesses were Type I carriers.
Effective April 1, 2004, amendments to the Telecommunications Business Law eliminated the distinction between Type I (facilities-based) and Type II (service-based) carriers. Type I carriers previously were subject to more stringent licensing and tariff requirements than Type II carriers. The amendments will make it easier for entities to enter the Japanese telecommunications market, particularly those carriers who wish to own and operate their own facilities on a limited scale. Larger carriers with facilities exceeding a certain size will be required to register with the MIC, while smaller carriers may enter the market just by providing notice to the MIC. The amendments also allow any carrier to discontinue business by providing notice to their users and ex-post notification to the MIC.
Under these amendments, carriers who provide Basic Telecommunications Services, defined as telecommunications that are indispensable to the lives of the citizenry as specified in MIC ordinances, will be required to provide such services in an appropriate, fair and stable manner. Carriers providing Basic Telecommunications Services must do so pursuant to terms and conditions and for rates that have been filed in advance with the MIC. The MIC may order modifications to contract terms and conditions it deems inappropriate for certain specified reasons. The terms and conditions as well as charges and tariffs for the provision of telecommunications services for Type I carriers were strictly regulated, but under these amendments, carriers may generally negotiate terms and conditions with their users (including fees and charges) except those relating to Basic Telecommunications Services.
Under these amendments, interconnection with telecommunications carriers was also deregulated. Telecommunications carriers, other than those exceeding certain standards specified in the Telecommunications Business Law (such as Nippon Telephone & Telegraph (NTT)), may set interconnection tariffs and terms and conditions through independent negotiations without MIC approval.
Telecommunication carriers that own their telecommunication circuit facilities are required to maintain such facilities in conformity with specified technical standards. The MIC may order a carrier that fails to meet such standards to improve or repair its telecommunication facilities.
The Americas
Chile
Cable and telephony applications for permits and concessions are submitted to the Ministry of Transportation and Telecommunications, which, through the Subsecretary of Telecommunications, or Subtel, is responsible for regulating, granting permits and concessions, registering and supervising all telecommunications providers. Wireline cable television permits are non-exclusive and granted for indefinite terms. Wireless television permits have renewable terms of 10 years, while telecommunication concessions (for example, for fixed or mobile telephony) have renewable 30-year terms. Wireline and wireless permits and concessions require operation in accordance with a technical plan submitted by the licensee together with the permit or concession

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application. VTR has cable permits in most major and medium sized markets in Chile. Cross ownership between cable television, Internet access and telephony is also permitted.
In general, the General Telecommunications Law of Chile allows telecommunications companies to provide service and develop telecommunication infrastructure without geographic restrictions or exclusive rights to serve. Chile currently has a competitive, multi-carrier system for international and local long distance telecommunications services. Regulatory authorities currently determine prices charged to customers for local telecommunications services provided by incumbent local fixed telephony operators until the market is determined to be competitive. Charges for access (prices for terminating calls in fixed or mobile networks), other interconnection services and unbundling services are determined for all operators, whether or not incumbent. To date, the regulatory authorities have determined prices charged to customers by the dominant local wireline telephony providers and the interconnection and unbundling tariffs for several other operators (including our local telephony company). In all cases, the authorities determine a maximum rate structure that shall be in force for a five year period. Local service providers with concessions are obligated to provide service to all customers that are within their service area or are willing to pay for an extension to receive service. Local providers, whether or not incumbent, must also give long distance service providers equal access to their network connections at regulated prices.
Competition
Markets for broadband distribution, including cable and satellite distribution, Internet access and telephony services, and video programming generally are highly competitive and rapidly evolving. Consequently, our businesses expect to face increased competition in these markets in the countries in which they operate, and specifically as a result of deregulation in the EU. The percentage information for Europe Broadband on market share is based on information published by Screen Digest and Dataxis for the third quarter of 2005. For Japan, all percentage information on market share is based on information obtained from the website of the Japanese Ministry of Internal Affairs and Communications. For Chile, the percentage information is based on internal market studies, information obtained from public filings by competitors and market information published by the International Data Corporation.
Broadband Distribution
Video Distribution
Our businesses compete directly with a wide range of providers of news, information and entertainment programming to consumers. Depending upon the country and market, these may include: (1) over-the-air broadcast television services; (2) DTH satellite service providers (systems that transmit satellite signals containing video programming, data and other information to receiving dishes of varying sizes located on the subscriber’s premises); (3) satellite master antenna television systems, commonly known as SMATVs, which generally serve condominiums, apartment and office complexes and residential developments; (4) MMDS operators; (5) digital terrestrial television, or “DTT”, broadcasters; (6) other cable operators in the same communities that we serve; (7) other fixed-line telecommunications carriers and broadband providers, including the incumbent telecommunications operators, offering video products using DSL or ADSL technology or over fiber optic lines of FTTH networks; and (8) movie theaters, video stores and home video products. Our businesses also compete to varying degrees with more traditional sources of information and entertainment, such as newspapers, magazines, books, live entertainment/concerts and sporting events.
In Poland and Romania, our businesses face significant competition from other cable operators where our systems are over built, while in other countries the primary competition is from DTH satellite service providers, DTT broadcasters and/or other distributors of video programming using broadband networks. In some of our largest markets, including The Netherlands, France and Japan, we are facing increasing competition from video services offered by or over the network of the incumbent telecommunications operator. We seek to compete by offering attractive content as well as expanding our new services, such as digital television, VOD, high-definition television, and personal video recorders.

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  •  Europe. The competitive situation in Europe tends to vary from country to country, which is partly reflective of the respective country’s history. For example in some countries, such as Belgium, Switzerland and The Netherlands, there has long been high cable penetration and in Austria and France there are long-established satellite platforms. Nevertheless, broad competitive trends can be seen in many of the European countries in which we operate.
For video services the key competition has traditionally come either from over the air broadcasts or from satellite distribution. In other countries competition from SMATV or MMDS can be a factor. DTT is increasingly a competitive reality in Europe via a range of different business models from full-blown encrypted pay television offers on DTT to free-to-air. DTT is a growing service in most countries and further launches are expected.
 
Also, television over DSL networks is either provided directly by the owner of that network or by a third party and is fast becoming a significant part of the competitive environment. The ability of incumbent operators to now offer the so-called “Triple Play” of video, Internet and telephony services is expected to exert growing competitive pressure on cable-delivered video services. FTTH networks are, so far, rare in Europe although they are present or planned in a number of countries. In addition, there is increasing willingness from government and quasi-government entities in Europe to consider investing their money in such networks which would create a new source of competition.
 
Austria. In Austria we are the largest cable company based on number of video cable subscribers. Our primary competition for video services is from free-to-air television received via satellite and from digital DTH platforms. Approximately 50% of Austrian households receive free television compared to approximately 37% of Austrian households served by cable services. Within the footprint covered by Broadband-Austria, 52% of the homes passed subscribe to our cable services (analog and digital). Broadband-Austria may face increased competition in the future from developing technologies. An incumbent telecommunications operator, Telekom Austria AG (Telekom Austria), has recently launched television via a broadband internet connection, or “IPTV”, and the public broadcaster, ORF, has announced it will launch DTT services in early 2006.
 
France. France is one of the most competitive markets in which we operate, with multiple video distribution platforms, including cable, satellite, ADSL, DTT and, more recently, mobile telephony. The penetration of pay television services is significantly lower in France than other European countries. Within the footprint of Broadband-France, 33% of the homes passed subscribe to our cable services (digital and analog). This represents slightly less than 6% of the total market, compared to a slightly higher percentage for NC Numericable SA (the largest cable operator). Broadband-France also competes with DTH satellite service and IPTV operators. Satellite television penetration is approximately 17% of the total market and the two largest operators, CanalSat S.A. and TPS (television par satellite), have announced an agreement to merge. According to New Television Insider (February 21, 2006), the combined subscriber base of the two platforms would be approximately 3.7 million. Subscriptions for IPTV services offered by five providers, including the incumbent telecommunications operator, are expected to grow as these operators can offer bundled services. To maintain and improve its market share, Broadband-France offers attractive digital programming packages.
 
Hungary. In Hungary, we are the largest cable service provider based on number of video cable subscribers. Of the Hungarian households receiving cable television, 36% subscribe to our service. In addition, Broadband-Hungary provides satellite service to 4% of the Hungarian households. Broadband-Hungary faces competition from Antenna Hungaria Rt., a digital MMDS provider (recently purchased by Swisscom), and from the incumbent telecommunication company Magyar Telekom Rt. (in which Deutshe Telekom purchased a majority stake), which has announced plans to offer a DSL-IPTV service later this year and is currently offering a VOD service to Internet subscribers of its ISP subsidiary.
 
Netherlands. The Netherlands has one of the highest cable penetration rates in Europe with 94% of all households having a cable service. Broadband-Netherlands services 37% of the total video households.

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Satellite television penetration is 8% of the total video households. In addition to satellite television, we face competition from the DTT service, Digitenne, and from IPTV products.
 
KPN, the incumbent telecommunications operator, provides a wireless digital television product and has announced the launch of its IPTV service in the second quarter of 2006, which would include VOD, an electronic program guide and a personal video recorder. With its nationwide telecommunications network and ability to offer bundled triple play services, KPN is expected to be a significant competitor.
 
Switzerland. Currently, we are the largest cable television provider in Switzerland based on number of video cable subscribers and are the sole provider in substantially all of our network area. There is limited terrestrial television in Switzerland and DTT is at present only available in parts of Switzerland. DTH satellite services are also limited due to various legal restrictions such as construction and zoning regulations or rental agreements that prohibit or impede installation of satellite dishes. Given technical improvements, such as the availability of smaller satellite antennae, as well as the continuous improvements of DTH offerings, we expect increased competition from satellite television operators. Swisscom, the incumbent telecommunications operator, has announced plans to launch IPTV in 2006. In 2005, Swisscom acquired a controlling interest in Cinetrade Group which, among other things, packages and distributes premium pay television content through its subsidiary, Teleclub AG, including sports and movies for which it holds exclusive rights. Swisscom has also launched a wholesale digital television service for cable network operators, including set top boxes and exclusive content, and we expect Swisscom to seek to establish relationships with other cable network operators in Switzerland, including our partner networks, by offering this service.
  •  Japan. Our principal competition in our Japanese cable television business comes from alternative distributors of television signals, including DTH satellite television providers and DTT, as well as from other distributors of video programming using broadband networks. Our current competitors in the satellite television industry include Japan Broadcasting Corporation and WOWOW Inc., which offer broadcast satellite analog and broadcast satellite digital television, and SkyPerfecTV for communications satellite digital television. An amendment to the Law Concerning Broadcast on Telecommunications Service, which became effective in January 2002, has given broadcast companies, which do not have their own facilities, the ability to provide broadcasting services over lines owned by other telecommunications companies. As a result, our Japanese operations face increasing competition from video services offered by broadband providers, established fixed-line telecommunications providers, including NTT and KDDI Corporation (KDDI), and other FTTH-based video service providers, including Opticast, Inc. and K-Opticom Corporation. Other cable television companies are not considered significant competitors in Japan due to the fact that their franchise areas rarely overlap with ours, and the investments required to install new cable would not be justified considering the competition in overlapping franchise areas. As of December 31, 2005, J:COM’s share of the multi-channel video market in Japan was 7%.
 
  •  The Americas. In Chile, VTR competes primarily with DTH satellite service providers in Chile. As of December 31, 2005, VTR’s share of the video market in Chile was 87%, compared to 7% for DTH satellite service providers and 6% for all others. VTR may face competition in the future from video services offered by or over the networks of fixed-line telecommunications operators using DSL or ADSL technology or FTTH networks or new DTH carriers which might enter into the market. For example, CTC has announced plans to launch IPTV in 2006. To effectively compete, VTR plans to test its digital platform in additional neighborhoods in 2006.
Internet
With respect to Internet access services and online content, our businesses face competition in a rapidly evolving marketplace from incumbent and non-incumbent telecommunications companies, other cable-based Internet service providers (ISPs), non-cable-based ISPs and Internet portals, many of which have substantial resources. The Internet services offered by these competitors include both traditional dial-up Internet services

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and high-speed Internet access services using DSL, ADSL or FTTH, in a range of product offerings with varying speeds and pricing, as well as interactive computer-based services, data and other non-video services to homes and businesses. As the technology develops, competition from wireless services using WiMax and other technologies may become significant in the future. We seek to compete on speed and price, including by increasing the maximum speed of our connections and offering varying tiers of service and varying prices, as well as a bundled product offering.
  •  Europe. Across Europe, our key competition in this product market is from the offering of Internet access products using various DSL based technologies both by the incumbent phone companies and third parties. In some countries, third party ISPs now offer services with speeds up to 20 Mbps (enabled by local loop unbundling and improved ADSL technologies (ADSL2+)). These services are priced very competitively and have allowed these ISPs to gain market share. It is expected that the same will occur in other markets as local loop unbundling fees are lowered. The relative lack of FTTH networks at present means that these have, so far, posed a competitive threat in only limited areas. Equally, broadband wireless services are not yet well established. However, increased competitive pressure from both these directions is likely.
Broadband-Austria’s largest competitor with respect to Internet access services is an incumbent telecommunications company, Telkom Austria. Telkom Austria provides services via DSL. In addition, Broadband-Austria faces competition from unbundled local loop access by operators who can offer Internet services for lower costs. To compete, Broadband-Austria is offering its triple play option at a discount for subscribers who switch from another provider.
 
In France, our largest competitors are the DSL operators, with the incumbent telecommunications companies serving 65% of the market, followed by DSL operators with access to the unbundled local loop. As a result, cable operators, including Broadband-France, have only a 6% market share of the total broadband Internet subscribers. Broadband-France has 51% of cable broadband subscriptions.
 
In Hungary, the Internet market is growing rapidly. Our primary competitor is the incumbent telecommunications company Magyar Telekom. Currently, Broadband-Hungary provides Internet services to 21% of the total broadband Internet market.
 
In The Netherlands, we face competition from KPN, the largest provider, and unbundled local loop providers. Currently, Broadband-Netherlands provides Internet services to 12% of the total broadband Internet market.
 
In Switzerland, Swisscom is the largest provider of Internet access services, with an estimated market share of two-thirds of all broadband Internet customers. Broadband-Switzerland serves 20% of all residential broadband Internet customers and 55% of such customers in its network coverage area. As fully unbundled, shared or bitstream access to Swisscom’s network has not yet been implemented in Switzerland, alternative DSL services providers are currently reliant on Swisscom’s wholesale offering or are required to construct their own access network to provide Internet access services.
  •  Japan. In Japan, we compete directly with ADSL providers, such as Softbank Corporation, that offer broadband access to subscribers. ADSL providers often offer their Internet access services at a cost lower than ours. We also compete with FTTH providers that offer broadband Internet access through fiber-optic lines. FTTH-based players, including NTT, Usen Corporation, Tokyo Electric Power Company Incorporated, KDDI and K-Opticom Corporation, currently offer Internet access services through FTTH. Internet access using FTTH technology has become more widely available, and pricing for these services has declined. If continued technological advances or investments by our competitors further improve the services offered through ADSL or FTTH, or make them more affordable or more widely available, cable modem Internet access may become less attractive to our existing or potential subscribers. As of December 31, 2005, J:COM’s share of the high-speed (128 kbps and greater) Internet access market in Japan was 4%.
 
  •  The Americas. In Chile, VTR faces competition primarily from non-cable-based Internet service providers such as Telefónica S.A and Entel S.A. VTR expects increased pricing pressure as these

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  companies bundle their Internet access service with other services. As of December 31, 2005, VTR’s share of the high-speed (128 kbps and greater) Internet access market in Chile was 43%, compared to 38% for Telefónica and 19% for all others.
Telephony
With respect to telephony services, our businesses face competition from the incumbent telecommunications operator in each country. These operators have substantially more experience in providing telephony services, greater resources to devote to the provision of telephony services and longstanding customer relationships. In many countries, our businesses also face competition from other cable telephony providers, wireless telephony providers, FTTH-based providers or other indirect access providers. Competition in both the residential and business telephony markets will increase with certain market trends and regulatory changes, such as general price competition, the introduction of carrier pre-selection, number portability, continued deregulation of telephony markets, the replacement of fixed-line with mobile telephony, and the growth of VoIP services. As a result, we seek to compete on pricing as well as product innovation, such as personal call manager and unified messaging, and increasing the services we offer.
  •  Europe. Across Europe our telephony businesses are generally rather small compared to the existing business of the incumbent phone company. The incumbent telephone companies remain our key competitor but mobile operators and new entrant VoIP operators offering service across broadband lines are also important in these markets. Generally, we expect telephony markets to remain extremely competitive.
In Austria and in Hungary, the incumbent telephone companies dominate the telephony market. Most of the competition to the incumbent telephone operators in these countries is from entities that provide carrier pre- select services. Carrier pre-select allows the end user to choose the voice services of operators other than the incumbent while using the incumbent’s network. We also compete with ISPs that offer VoIP services. In Austria, we serve our subscribers via our time division multiplex telephony platform and in Hungary via our copper wire telephony network and via VoIP over our cable plant. In France, in addition to the incumbent telephone company France Telecom S.A.’s dominance of the telephony market, the national unbundling of the local loop has allowed ISPs to provide VoIP services at competitive prices. To effectively compete in France, Broadband-France has been offering telephony services via VoIP since mid 2005.
 
In The Netherlands, KPN is the dominant telephony provider, but all of the large MSOs, including Broadband-Netherlands, as well as ISPs, are now offering VoIP services and gaining market share. In Switzerland, we are the largest VoIP service provider, but Swisscom is the dominant fixed telephony service provider followed by two carriers that offer pre-select services. In the future we may face increased competition as the unbundling of the local loop is implemented.
 
In addition to our fixed line telephony service, we offer mobile telephony in Austria, The Netherlands and Switzerland. In Austria, we offer a bundle of fixed line and mobile telephony in a co-branding arrangement with the telephony operator One GmbH. In August 2005, we began offering a prepaid mobile service in The Netherlands via the Orange network owned by France Telecom SA. Recently we began offering mobile telephony services in Switzerland under the Cablecom brand for business and residential customers.
  •  Japan. In Japan, our principal competition in our telephony business comes from NTT and KDDI. We also face increasing competition from new common carriers in the telephony market, as well as ISPs, such as Softbank Corporation, and FTTH-based providers, including K-Opticom Corporation. Further, in December 2004, Japan Telecom Co. Ltd., and in February 2005, KDDI, introduced low-cost fixed-line telephony services. Many of these carriers offer VoIP, and call volume over fixed line services has generally declined as VoIP and mobile phone usage have increased. If competition in the fixed-line telephony market continues to intensify, we may lose existing or potential subscribers to our competitors. As of December 31, 2005, J:COM’s share of the fixed-line telephone market in Japan was

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  2%. J:COM also intends to offer a mobile telephony service in a co-branding arrangement in 2006 with WILLCOM, Inc.
 
  •  The Americas. In Chile, VTR faces competition from the incumbent telecommunications operator, CTC, and other telecommunications operators such as Telsur, GTD Chile S.A. and Entel S.A. CTC and Telsur operators have substantial experience in providing telephony services, resources to devote to the provision of telephony services and longstanding customer relationships. VTR is also facing stiff competition from wireless telephony providers such as Telefónica Móviles S.A., Smartcom PCS and Entel PCS Telecomunicaciones S.A. and indirect access providers. Competition in both the residential and business telephony markets is expected to increase over time with certain market trends and regulatory changes, such as general price competition, number portability, the replacement of fixed-line with mobile telephony, and the growth of VoIP services. VTR offers its telephony over its cable network or via VoIP. As of December 31, 2005, VTR’s share of the fixed-line telephony market in Chile was 12%, compared to 73% for CTC and 15% for all others.
Programming Services
The business of providing programming for cable and satellite television distribution is highly competitive. Our programming businesses directly compete with other programmers for distribution on a limited number of channels. Once distribution is obtained, these programming services compete, to varying degrees, for viewers and advertisers with other cable and over the air broadcast television programming services as well as with other entertainment media, including home video (generally video rentals), online activities, movies and other forms of news, information and entertainment.
Employees
As of December 31, 2005, our consolidated subsidiaries and we had an aggregate of approximately 21,600 employees, certain of which belong to organized unions and works councils. We believe that our employee relations are good.
Financial Information About Geographic Areas
Financial information related to the geographic areas in which we do business appears in note 21 to our consolidated financial statements included in Part II of this report.
Available Information
All our filings with the Securities and Exchange Commission as well as amendments to such filings are available on our Internet website free of charge generally within 24 hours after we file such material with the SEC. Our website address is www.lgi.com. The information on our website is not incorporated by reference herein.

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PART II
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and should be read in conjunction with our consolidated financial statements. This discussion is organized as follows:
  •  Overview. This section provides a general description of our business and recent events.
 
  •  Results of Operations. This section provides an analysis of our results of operations for the years ended December 31, 2005, 2004 and 2003.
 
  •  Liquidity and Capital Resources. This section provides an analysis of our corporate and subsidiary liquidity, consolidated cash flow statements, and our off balance sheet arrangements and contractual commitments.
 
  •  Critical Accounting Policies, Judgments and Estimates. This section discusses those accounting policies that contain uncertainties and require significant judgment in their application.
 
  •  Quantitative and Qualitative Disclosures about Market Risk. This section provides discussion and analysis of the foreign currency, interest rate and other market risks that our company faces.
Unless otherwise indicated, convenience translations into U.S. dollars are calculated as of December 31, 2005.
Overview
We are an international broadband communications provider of video, voice and Internet access services with consolidated broadband operations in 19 countries (excluding Norway) outside of the continental United States at December 31, 2005, primarily in Europe, Japan and Chile. Through our indirect wholly owned subsidiaries, UPC Holding and LG Switzerland (collectively, Europe Broadband), we provide video, voice and Internet access services in 13 European countries. LG Switzerland holds our 100% ownership in Cablecom, a broadband communications operator in Switzerland. Through our indirect controlling ownership interest in J:COM, we provide video, voice and Internet access services in Japan. Through our indirect 80%-owned subsidiary VTR, we provide video, voice and Internet access services in Chile. We also have (i) consolidated direct-to-home satellite operations in Australia, (ii) consolidated broadband communications operations in Puerto Rico, Brazil and Peru, (iii) non-controlling interests in broadband communications companies in Europe and Japan, (iv) consolidated interests in certain programming businesses in Europe and Argentina, and (v) non-controlling interests in certain programming businesses in Europe, Japan, Australia and the Americas. Our consolidated programming interests in Europe are primarily held through chellomedia, which also provides telecommunication and interactive digital services and owns or manages investments in various businesses in Europe. Certain of chellomedia’s subsidiaries and affiliates provide programming and other services to Europe Broadband.
As a result of the June 15, 2005 consummation of the LGI Combination, our ownership interest in UGC, the ultimate parent of UPC Holding and VTR prior to the LGI Combination, increased from 53.4% to 100%. However, in connection with VTR’s April 13, 2005 acquisition of a controlling interest in Metrópolis, a broadband communications provider in Chile, UGC’s ownership interest in VTR decreased from 100% to 80%. At December 31, 2005, we owned an indirect 36.75% interest in J:COM through our 58.66% controlling interest in Super Media and Super Media’s 62.65% controlling interest in J:COM. We began consolidating Super Media and J:COM on January 1, 2005. Prior to that date we used the equity method to account for our investment in Super Media/ J:COM.
In addition to the LGI Combination and the consolidation of Super Media/ J:COM, we have completed a number of acquisitions during the past 18 months that have expanded our footprint and the scope of our business. In Europe, we acquired (i) Noos, a broadband communications provider in France, on July 1, 2004, (ii) PHL, the immediate parent of Chorus, a broadband communications provider in Ireland, on May 20,

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2004, (iii) Telemach, a broadband communications provider in Slovenia, on February 10, 2005, (iv) a controlling interest in Zone Vision, a video programming company in Europe, on January 7, 2005, (v) Astral, a broadband communications provider in Romania, on October 14, 2005, and (vi) Cablecom, a broadband communications provider in Switzerland on October 24, 2005. In another transaction in Europe, UPC Ireland, through its contractual relationship with MS Irish Cable and MSDW Equity, began consolidating NTL Ireland, a broadband communications provider in Ireland, effective May 9, 2005, and on December 12, 2005, UPC Ireland acquired a 100% interest in NTL Ireland through its acquisition of MS Irish Cable from MSDW Equity. In the following discussion and analysis of our results of operations, we collectively refer to the May 9, 2005 consolidation, and the December 12, 2005 acquisition of NTL Ireland as the “acquisition” of NTL Ireland, with such acquisition considered to be effective as of May 1, 2005 for purposes of comparing our 2005 and 2004 operating results. In Japan, J:COM acquired an approximate 92% ownership interest in Chofu Cable on February 25, 2005 and a 100% interest in J:COM Setamachi on September 30, 2005. Chofu Cable and J:COM Setamachi are broadband communications providers in Japan. As noted above, VTR acquired a controlling interest in Metrópolis on April 13, 2005. In addition, on December 14, 2005 we completed a transaction that increased our indirect ownership of Austar from a 36.7% non-controlling ownership interest to a 55.2% controlling interest. Prior to this transaction, we accounted for our investment in Austar using the equity method of accounting. We have also completed a number of less significant acquisitions in Europe and Japan.
For additional information concerning our closed acquisitions, see note 5 to our consolidated financial statements.
As further discussed in note 5 to our consolidated financial statements, our consolidated financial statements have been reclassified to present our broadband operations in Norway as discontinued operations. Accordingly, in the following discussion and analysis, the operating statistics, results of operations and financial condition that we present and discuss are those of our continuing operations.
In general, we are seeking to build a portfolio of broadband and video programming businesses that have strong prospects for future revenue and operating cash flow (as defined below and in note 21 to our consolidated financial statements) growth. Therefore, we seek to acquire entities that have strong growth potential at prudent prices and sell businesses that we believe do not meet this profile. In this regard, we began an auction process in the fourth quarter of 2005 with respect to our Scandinavian assets which led to the sale of UPC Norway in January 2006 and we continue to evaluate a possible sale of our broadband operating segment in Sweden. We also seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk.
Through our subsidiaries and affiliates, we are the largest broadband communications operator outside the United States in terms of subscribers. At December 31, 2005, our consolidated subsidiaries owned and operated networks that passed approximately 29.9 million homes and served approximately 19.2 million revenue generating units (RGUs), consisting of approximately 13.8 million video subscribers, 3.2 million broadband Internet subscribers and 2.2 million telephony subscribers.
In general, we are focused on growing our subscriber base and average total monthly revenue from all sources (including non-subscription revenue such as installation fees or advertising revenue) per average RGU (ARPU) by launching bundled entertainment, information and communications services, upgrading the quality of our networks where appropriate, leveraging the reach of our broadband distribution systems to create new content opportunities and entering into strategic alliances and acquisitions in order to increase our distribution presence and maximize operating efficiencies.
Including the effects of acquisitions, we added a total of 5.7 million RGUs during 2005. Excluding the effects of acquisitions, we added total RGUs of 1.3 million during 2005, including RGUs added by entities that we acquired or began consolidating during 2005 after their respective acquisition or consolidation dates. Most of our internal RGU growth is attributable to the growth of our Internet access and digital telephony services, as significant increases in digital video RGUs were largely offset by declines in analog video RGUs. In addition to RGU growth, we also focus on increasing the average revenue we receive from each household by increasing the penetration of new services through product bundling or other means. We plan to continue increasing

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revenue and operating cash flow in 2006 by making acquisitions, selectively extending and upgrading our existing networks to reach new customers, and migrating more customers to our digital video offerings, which include premium programming and enhanced pay-per-view services.
Our analog video service offerings include basic programming and expanded basic programming in some markets. We tailor both our basic channel line-up and our additional channel offerings to each system according to culture, demographics, programming preferences and local regulation. Our digital video service offerings include basic programming, premium services and pay-per-view programming, including near video-on-demand (NVOD) and video on demand (VOD) in some markets. We offer broadband Internet access services in all of our broadband markets. Our residential subscribers can access the Internet via cable modems connected to their personal computers at faster speeds than that of conventional dial-up modems. We determine pricing for each different tier of Internet access service through analysis of speed, data limits, market conditions and other factors.
We offer telephony services in eight countries in Europe, and in Japan, Chile and Puerto Rico, primarily over our broadband networks. We also have begun offering digital telephony services in The Netherlands, Switzerland, France, Austria, Hungary, Poland, Romania, Japan, Chile and Puerto Rico through Voice over Internet Protocol (VoIP), and in 2006, we plan to launch VoIP telephony services in most of our remaining broadband markets in Europe.
From an operational perspective, we expect that our ability to maintain or improve our organic growth rates (i.e., growth rates excluding the effects of foreign currency exchange rate fluctuations and acquisitions) for revenue and operating cash flow will be impacted primarily by our ability to continue to achieve organic RGU growth during 2006. In general, we expect that RGU growth in our digital video, telephony and broadband Internet services will more than offset declines in subscribers to our analog video services. In Europe, the positive impact of organic RGU growth during 2006 is expected to be somewhat offset by relatively flat, and in some cases, lower prices charged for Europe Broadband’s existing services as a result of competitive and, to a lesser extent, regulatory factors. Our ability to maintain our organic growth rates for revenue in Europe will also be impacted by Europe Broadband’s ability to migrate customers from analog to digital video services in The Netherlands and successfully grow VoIP telephony services by increasing penetration in markets already launched or launching this product in new markets. Europe Broadband’s operating and SG&A costs are expected to increase on an organic basis in 2006 as a result of higher network operations, customer care and customer acquisitions costs associated primarily with organic RGU growth and the migration of analog video subscribers to digital video services in The Netherlands. In both Japan and Chile, we expect to rely primarily on continued RGU growth to maintain or improve our organic growth rates for revenue and operating cash flow in 2006 as we expect prices charged for all broadband services offered by J:COM and VTR to remain relatively flat. No assurance can be given that our expectations with respect to the factors that will influence our 2006 organic growth rates will not vary from actual results.
The video, telephony and Internet access businesses in which we operate are capital intensive. Significant capital expenditures are required to add customers to our networks, including expenditures for equipment and labor costs. As video, telephony and Internet access technology changes and competition increases, we may need to increase our capital expenditures to further upgrade our systems to remain competitive in markets that might be impacted by the introduction of new technology. No assurance can be given that any such future upgrades could be expected to generate a positive return or that we would have adequate capital available to finance such 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.
Results of Operations
Due in large part to the January 1, 2005 change from the equity method to the consolidation method of accounting for our investment in Super Media/ J:COM, our historical revenue and expenses for 2005 are not comparable to the corresponding 2004 amounts. Additionally, due to the January 1, 2004 change from the equity method to the consolidation method of accounting for our investment in UGC, our historical revenue

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and expenses for 2004 are not comparable to the corresponding 2003 amounts. Accordingly, in addition to the Discussion and Analysis of our Historical Operating Results, we have also included an analysis of our operating results based on the approach we use to analyze our reportable segments. As further described below, we believe that the Discussion and Analysis of our Reportable Segments that appears below provides a more meaningful basis for comparing our revenue, operating expenses and SG&A expenses than does our historical discussion. The Discussion and Analysis of our Historical Operating Results immediately follows the Discussion and Analysis of our Reportable Segments.
The comparability of our operating results during 2005, 2004 and 2003 are also affected by acquisitions, including our acquisitions of Noos and Chorus during 2004, our acquisitions of Cablecom, NTL Ireland, Astral, Telemach, Zone Vision, and Metrópolis, and J:COM’s acquisitions of Chofu Cable and J:COM Setamachi, during 2005. As we have consolidated UGC since January 1, 2004, the primary effect of the LGI Combination for periods following the June 15, 2005 transaction date has been an increase in depreciation and amortization expense as a result of the application of purchase accounting. In the following discussion, we quantify the impact of acquisitions on our results of operations. The acquisition impact is calculated as the difference between current and prior year amounts that is attributable to the timing of an acquisition.
Changes in foreign currency exchange rates have a significant impact on our operating results as all of our operating segments, except for Puerto Rico, have functional currencies other than the U.S. dollar. Our primary exposure is currently to the euro and Japanese yen. In this regard, 40% and 32% of our U.S. dollar revenue during 2005 was derived from subsidiaries whose functional currency is the euro and Japanese yen, respectively. In addition, our operating results are impacted by changes in the exchange rates for the Swiss franc, Chilean peso, Hungarian forint and other local currencies in Europe.
At December 31, 2005, we owned an 80% interest in VTR and, through our interest in Super Media, an indirect 36.75% interest in J:COM. However, as we control both VTR and Super Media/ J:COM, GAAP requires that we consolidate 100% of the revenue and expenses of these entities in our consolidated statements of operations. The minority owners’ interests in the operating results of VTR, J:COM and other less significant majority owned subsidiaries are reflected in minority interests in losses (earnings) of subsidiaries, net in our consolidated statements of operations. For additional information, see note 5 to our consolidated financial statements. It should be noted that our ability to consolidate J:COM is dependent on our ability to continue to control Super Media, which will be dissolved in February 2010 unless we and Sumitomo mutually agree to extend the term. If Super Media is dissolved and we do not otherwise control J:COM at the time of any such dissolution, we will no longer be in a position to consolidate J:COM. When reviewing and analyzing our operating results, it is important to keep in mind that other third party entities own significant interests in J:COM and VTR and that Sumitomo effectively has the ability to prevent our company from consolidating J:COM after February 2010.
          Discussion and Analysis of our Reportable Segments
For purposes of evaluating the performance of our reportable segments, we compare and analyze 100% of the revenue and operating cash flow of our reportable segments regardless of whether we use the consolidation or equity method to account for such reportable segments. Accordingly, in the following tables, we have presented 100% of the revenue, operating expenses, SG&A expenses and operating cash flow of our reportable segments, notwithstanding the fact that we used the equity method to account for our investment in (i) UGC during 2003 and (ii) J:COM during 2004 and 2003. The revenue, operating expenses, SG&A expenses and operating cash flow of UGC for 2003 and J:COM for 2004 and 2003 are then eliminated to arrive at the reported amounts. It should be noted, however, that this presentation is not in accordance with GAAP since the results of equity method investments are required to be reported on a net basis. Further, we could not, among other things, cause any non-controlled affiliate to distribute to us our proportionate share of the revenue or operating cash flow of such affiliate. Additionally, our reportable segments have been reclassified for all periods to present our broadband operations in Norway as discontinued operations.
All of the reportable segments set forth below provide broadband communications services, including video, voice and Internet services. The Europe Broadband operating segments provided services in 13 European

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countries at December 31, 2005. Other Western Europe includes our operating segments in Ireland, Sweden and Belgium. Other Central and Eastern Europe includes our operating segments in Poland, Czech Republic, Slovak Republic, Romania and Slovenia. VTR provides video, voice and Internet access services in Chile. J:COM provides video, voice and Internet access services in Japan. Our corporate and other category includes (i) certain less significant operating segments that provide DTH satellite services in Australia, and video programming and other services in Europe and Argentina, broadband communication services in Puerto Rico, Brazil and Peru, and (ii) our corporate segment. Intersegment eliminations primarily represents the elimination of intercompany transactions between Europe Broadband and chellomedia.
For additional information concerning our reportable segments, including a discussion of our performance measures and a reconciliation of total segment operating cash flow to our consolidated earnings (loss) before income taxes, minority interests and discontinued operations, see note 21 to our consolidated financial statements.
The tables presented below in this section provide a separate analysis of each of the line items that comprise operating cash flow (revenue, operating expenses and SG&A expenses) as well as an analysis of operating cash flow by reportable segment for 2005, as compared to 2004, and 2004, as compared to 2003. In each case, the tables present (i) the amounts reported by each of our reportable segments for the comparative periods, (ii) the U.S. dollar change and percentage change from period to period, (iii) the percentage change from period to period, after removing foreign currency effects (FX), and (iv) the percentage change from period to period, after removing FX and the effects of acquisitions. The comparisons that exclude FX assume that exchange rates remained constant during the periods that are included in each table. As discussed under Quantitative and Qualitative Disclosures about Market Risk below, we have significant exposure to movements in foreign currency rates.
As discussed above, acquisitions have significantly affected the comparability of the results of operations of our reportable segments. For additional information, see the discussion under Overview above and note 5 to our consolidated financial statements.

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Revenue of our Reportable Segments
Revenue — Years ended December 31, 2005 and 2004
                                                       
                    Increase (decrease)
                    excluding
             
    Year Ended December 31,   Increase (decrease)       FX and
                acquisitions
    2005   2004   $   %   FX %   %
                         
    amounts in thousands, except % amounts
Europe (Europe Broadband)
                                               
 
The Netherlands
  $ 780,934     $ 730,483     $ 50,451       6.9       6.9       6.9  
 
Switzerland
    122,078             122,078       N.M.       N.M.        
 
France
    513,762       312,948       200,814       64.2       64.2       6.5  
 
Austria
    322,196       306,479       15,717       5.1       5.0       5.0  
 
Other Western Europe
    321,377       174,389       146,988       84.3       85.1       7.0  
                                     
   
Total Western Europe
    2,060,347       1,524,299       536,048       35.2       35.2       6.4  
                                     
 
Hungary
    281,707       217,429       64,278       29.6       27.7       27.7  
 
Other Central and Eastern Europe
    370,560       252,064       118,496       47.0       35.6       13.9  
                                     
   
Total Central and Eastern Europe
    652,267       469,493       182,774       38.9       31.9       20.3  
                                     
     
Total Europe (Europe Broadband)
    2,712,614       1,993,792       718,822       36.1       34.5       9.7  
Japan (J:COM)
    1,662,105       1,504,709       157,396       10.5       13.5       11.0  
Chile (VTR)
    444,161       299,951       144,210       48.1       35.6       17.6  
Corporate and other
    407,564       285,507       122,057       42.8       43.2       20.7  
Intersegment eliminations
    (75,112 )     (47,361 )     (27,751 )     (58.6 )     (58.9 )     (58.9 )
                                     
Total LGI before elimination of equity affiliates
    5,151,332       4,036,598       1,114,734                          
Elimination of equity affiliate (J:COM)
          (1,504,709 )     1,504,709                          
                                     
 
Total consolidated LGI
  $ 5,151,332     $ 2,531,889     $ 2,619,443                          
                                     
 
N.M. — Not Meaningful
The Netherlands. The Netherlands’ revenue increased 6.9% during 2005, as compared to 2004, on both a U.S. dollar and local currency basis. The majority of the local currency increase during 2005 is attributable to higher average RGUs, as increases in broadband Internet and telephony RGUs were only partially offset by declines in video RGUs. Higher ARPU also contributed to the local currency increase during 2005. The increase in ARPU reflects the net effect of the positive impact of rate increases in January 2005 for video services and the negative impact of decreases in ARPU from broadband Internet services due to competitive factors and an increase in the proportion of broadband Internet customers selecting lower priced tiers. The decrease in broadband Internet ARPU, which was only partially offset by an increase in broadband Internet RGUs, resulted in a 2.6% decrease in The Netherlands’ revenue from broadband Internet services during 2005, as compared to 2004. We believe that the competitive factors that gave rise to the decline in The Netherlands’ broadband Internet revenue during 2005 will continue to impact our ability to increase broadband Internet revenue in The Netherlands during 2006.
In October 2005, we initiated a program to migrate substantially all of our analog video subscribers to digital video services in The Netherlands by providing digital set-top boxes to analog video subscribers at no charge and discounting the digital video services for a limited period of time following subscriber acceptance of the digital set-top box. To the extent that digital video subscribers are retained after the promotional pricing period has elapsed, we will experience an increase in ARPU derived from video services in The Netherlands. No assurance can be given as to the percentage of new digital video subscribers that will be retained after the

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promotional period has elapsed, and accordingly, as to the impact of this program on our future operating results.
Certain rate increases implemented by UPC NL in The Netherlands had been under investigation by NMA, the Dutch competition authority. On September 28, 2005, the NMA informed UPC NL that it had closed its investigation with respect to the price increases for our analog video services in 2003-2005. The NMA concluded that our price increases were not excessive and therefore UPC NL did not abuse what NMA views as our dominant position in the analog video services market. The incumbent telecommunications operator in The Netherlands has filed an appeal of the NMA decision. UPC NL believes the appeal is inadmissible. The NMA is expected to make a decision during the first quarter of 2006. In another matter, OPTA, the Dutch national regulatory agency, had proposed imposing retail price regulation on a cost oriented basis for UPC NL’s analog cable television offerings and requiring the unbundling of analog video services from other services. Following consultation with the European Commission, OPTA’s proposal was approved on the basis that it would be limited to a period of one year and that OPTA will only intervene if price increases exceed the CPI increase. After 2006, OPTA may again seek approval from the European Commission to maintain or expand its regulatory powers in this retail market. Adverse outcomes from future regulatory initiatives by OPTA could have a significant negative impact on UPC NL’s ability to maintain or increase its revenue in The Netherlands. For additional information, see note 20 to our consolidated financial statements.
France. France’s revenue increased $200,814,000 during 2005, as compared to 2004. The effect of the July 1, 2004 Noos acquisition accounted for $180,734,000 of the 2005 increase. Excluding the increase associated with the Noos acquisition and foreign exchange rate fluctuations, France’s revenue increased $20,198,000 or 6.5% during 2005, as compared to 2004. The majority of the local currency increase is attributable to increases in the average number of broadband Internet, telephony and digital video RGUs during 2005. Higher ARPU resulting primarily from growth in France’s digital video and broadband Internet services also contributed to the increase.
Austria. Austria’s revenue increased 5.1% during 2005, as compared to 2004. Excluding the effects of foreign exchange rate fluctuations, Austria’s revenue increased $15,324,000 or 5.0%. This increase is primarily attributable to increases in the average number of broadband Internet RGUs during 2005. A slight increase in ARPU also contributed to the increase during 2005. The increase in ARPU reflects the net effect of (i) higher ARPU associated with rate increases in January 2005 for analog video services, (ii) lower ARPU from broadband Internet services reflecting competitive factors and an increase in the proportion of subscribers selecting lower tiered products and (iii) a decrease in ARPU from digital video services, due primarily to increased competition.
Other Western Europe. Other Western Europe’s revenue increased $146,988,000 during 2005, as compared to 2004. The effects of the Chorus and NTL Ireland acquisitions accounted for $136,317,000 of such increase. Excluding the increases associated with these transactions and foreign exchange rate fluctuations, Other Western Europe’s revenue increased $12,127,000 or 7.0% during 2005, as compared to 2004. The increase during 2005 is due primarily to an increase in ARPU and, to a somewhat lesser extent, increases in the average number of broadband Internet and digital video RGUs. The increase in ARPU is primarily due to increases in the proportion of video subscribers selecting the digital product.
Hungary. Hungary’s revenue increased 29.6% during 2005, as compared to 2004. Excluding the effects of foreign exchange rate fluctuations, such increase was $60,228,000 or 27.7%. The majority of this increase is attributable to higher ARPU, due primarily to rate increases in January 2005 for video services. Increases in the average number of broadband Internet, telephony and DTH RGUs and, to a lesser extent, analog RGUs, also contributed significantly to the increase during 2005. The increase in telephony RGUs was primarily driven by VoIP telephony sales. Approximately one fifth of the overall local currency increase during 2005 relates to growth in the comparatively low margin telephony transit service business. Due to the expiration of the contract for telephony transit service this revenue may not recur in 2006.
Other Central and Eastern Europe. Other Central and Eastern Europe’s revenue increased $118,496,000 during 2005, as compared to 2004. The effects of the Telemach and Astral acquisitions and another less significant acquisition accounted for $54,658,000 of such increase. Excluding the increases associated with

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these acquisitions and foreign exchange rate fluctuations, Other Central and Eastern Europe’s revenue increased $35,036,000 or 13.9% during 2005, as compared to 2004. The majority of the increase is attributable to growth in average RGUs. Higher ARPU also contributed significantly to the increase in 2005. The growth in RGUs during 2005 is primarily attributable to increases in the average number of broadband Internet and video RGUs, with most of the broadband Internet growth in Poland and the Czech Republic, and most of the video growth in Romania.
Japan (J:COM). J:COM’s revenue increased $157,396,000 during 2005, as compared to 2004. The effect of the Chofu Cable and J:COM Setamachi acquisitions and another less significant acquisition accounted for approximately $37,696,000 of such increase. Excluding the increases associated with these acquisitions and the effects of foreign exchange rate fluctuations, J:COM’s revenue increased $165,518,000 or 11.0% during 2005, as compared to 2004. This increase is primarily attributable to increases in the average number of telephony, broadband Internet and video RGUs during 2005, as compared to 2004. The effect of J:COM’s RGU growth was partially offset during 2005 by lower ARPU. The lower ARPU is attributable to the negative effects of a decrease in customer call volumes, an increase in the amount of bundling discounts as a result of a higher number of services per household and lower installation revenue. The negative effects of these factors on ARPU were partially offset by the positive effects of increases in the proportion of subscribers selecting digital video services over analog video services and the higher-speed broadband Internet services over the lower-speed alternatives. The lower installation revenue is primarily attributable to an increase in promotional discounts offered to new customers, partially offset by an increase in the number of installations performed.
Chile (VTR). VTR’s revenue increased $144,210,000 during 2005, as compared to 2004. The estimated effects of the Metrópolis acquisition accounted for approximately $53,972,000 of such increase. Excluding the increase associated with the Metrópolis acquisition and foreign exchange rate fluctuations, VTR’s revenue increased $52,791,000 or 17.6% during 2005, as compared to 2004. This increase is due primarily to growth in the average number of VTR’s broadband Internet, telephony and video RGUs. Higher ARPU also contributed to the increase.

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Revenue — Years ended December 31, 2004 and 2003
                                                       
                    Increase (decrease)
                    excluding
             
    Year Ended December 31,   Increase (decrease)       FX and
                acquisitions
    2004   2003   $   %   FX %   %
                         
    amounts in thousands, except % amounts
Europe (Europe Broadband)
                                               
 
The Netherlands
  $ 730,483     $ 617,488     $ 112,995       18.3       7.7       7.7  
 
France
    312,948       113,842       199,106       174.9       150.2       3.1  
 
Austria
    306,479       266,387       40,092       15.1       4.7       4.7  
 
Other Western Europe
    174,389       106,962       67,427       63.0       52.4       6.8  
                                     
   
Total Western Europe
    1,524,299       1,104,679       419,620       38.0       26.0       6.4  
                                     
 
Hungary
    217,429       165,310       52,119       31.5       18.8       18.8  
 
Other Central and Eastern Europe
    252,064       197,108       54,956       27.9       18.6       18.6  
                                     
   
Total Central and Eastern Europe
    469,493       362,418       107,075       29.5       18.7       18.7  
                                     
     
Total Europe (Europe Broadband)
    1,993,792       1,467,097       526,695       35.9       24.2       9.4  
Japan (J:COM)
    1,504,709       1,233,492       271,217       22.0       12.7       12.7  
Chile (VTR)
    299,951       229,835       70,116       30.5       15.8       15.8  
Corporate and other
    285,507       263,020       22,487       8.5       3.2       3.2  
Intersegment eliminations
    (47,361 )     (55,169 )     7,808       14.2       21.9       21.9  
                                     
Total LGI before elimination of equity affiliates
    4,036,598       3,138,275       898,323                          
Elimination of equity affiliates
    (1,504,709 )     (3,029,885 )     1,525,176                          
                                     
 
Total consolidated LGI
  $ 2,531,889     $ 108,390     $ 2,423,499                          
                                     
The Netherlands. The Netherlands’ revenue increased 18.3% in 2004, as compared to 2003. Excluding the effects of foreign exchange rate fluctuations, such increase was 7.7%. This increase is primarily attributable to an increase in ARPU, due primarily to higher average rates for video services and the increased penetration of broadband Internet services. These factors were somewhat offset by reduced tariffs for telephony services as lower outbound interconnect rates were passed through to the customer to maintain the product at a competitive level in the market. The average number of RGUs in 2004 was slightly higher than the comparable number in 2003 as increases in broadband Internet and telephony RGUs were largely offset by a decline in video RGUs.
France. France’s revenue increased 174.9% in 2004, as compared to 2003. The effect of the Noos acquisition on July 1, 2004 accounted for $167,524,000 of the increase. Excluding the increase associated with the Noos acquisition and foreign exchange rate fluctuations, France’s revenue increased $3,529,000 or 3.1% during 2004, as compared to 2003. This increase is primarily attributable to an increase in the average RGUs in 2004, as compared to 2003. Video, broadband Internet and telephony services all contributed to this increase. A decrease in the ARPU from telephony services partially offset the positive impact of the RGU increases. The lower telephony revenue is attributable to lower tariffs from telephony services, as lower outbound interconnect rates were passed through to the customer to maintain the service at a competitive level in the market, as well as reduced outbound telephony traffic as more customers migrate from dial-up Internet access to broadband Internet access and migrate from fixed-line telephone usage to cellular phone usage.
Austria. Austria’s revenue increased 15.1% during 2004, as compared to 2003. Excluding the effects of foreign exchange rate fluctuations, such increase was 4.7%. This increase is primarily attributable to growth in

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the average number of RGUs during 2004, as compared to 2003. This subscriber growth is primarily attributable to an increase in broadband Internet service RGUs.
Other Western Europe. Other Western Europe’s revenue increased $67,427,000 during 2004, as compared to 2003. The effects of Chorus accounted for $48,693,000 of such increase. Excluding the increase associated with the Chorus acquisition and foreign exchange rate fluctuations, Other Western Europe’s revenue increased $7,325,000 or 6.8% during 2004, as compared to 2003. This increase is due to increases in both average RGUs and ARPU. Both video and broadband Internet RGUs increased in 2004, as compared to 2003.
Hungary. Hungary’s revenue increased 31.5% during 2004, as compared to 2003. Excluding the effects of foreign exchange rate fluctuations, such increase was 18.8%. This increase is due to increases in both the ARPU and the average number of RGUs in 2004, as compared to 2003, which resulted primarily from growth in direct-to-home satellite distribution (DTH) and analog television services and, to a lesser extent, broadband Internet services.
Other Central and Eastern Europe. Other Central and Eastern Europe’s revenue increased 27.9% during 2004, as compared to 2003. Excluding the effects of foreign exchange rate fluctuations, such increase was 18.6%. This increase is due primarily to an increase in the ARPU and the average number of RGUs, which resulted primarily from the continued successful sale of broadband Internet services. An overall increase in the average number of broadband Internet, analog cable and DTH RGUs in 2004, as compared to 2003, also contributed to the increase.
Japan (J:COM). J:COM’s revenue increased $271,217,000 during 2004, as compared to 2003. Excluding the effects of foreign exchange rate fluctuations, such increase was 12.7%. The local currency increase is primarily attributable to a significant increase in the average number of RGUs in 2004, as compared to 2003. Most of this RGU increase is attributable to growth within J:COM’s telephony and broadband Internet services. An increase in ARPU also contributed to the increase in local currency revenue. The increase in ARPU is primarily attributable to the full-year effect of cable television service price increases implemented during 2003 and increased penetration of J:COM’s higher-priced broadband Internet service. These factors were somewhat offset by a reduction in the price for one of J:COM’s lower-priced broadband Internet services and a decrease in customer call volumes for J:COM’s telephony service.
Chile (VTR). Chile’s revenue increased $70,116,000 during 2004, as compared to 2003. Excluding the effects of foreign exchange rate fluctuations, such increase was 15.8%. This increase is due primarily to growth in the average number of subscribers to video, broadband Internet and telephony services during 2004, as compared to 2003. This RGU growth is due primarily to improved direct sales, mass marketing initiatives and lower subscriber churn. Chile’s ARPU remained relatively flat from period to period.

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Operating Expenses of our Reportable Segments
Operating expenses — Years ended December 31, 2005 and 2004
                                                       
                    Increase (decrease)
                    excluding
             
    Year Ended December 31,   Increase (decrease)       FX and
                acquisitions
    2005   2004   $   %   FX %   %
                         
    amounts in thousands, except % amounts
Europe (Europe Broadband)
                                               
 
The Netherlands
  $ 251,828     $ 205,802     $ 46,026       22.4       22.7       22.7  
 
Switzerland
    51,631             51,631       N.M.       N.M.        
 
France
    257,569       165,489       92,080       55.6       55.5       0.4  
 
Austria
    119,098       115,373       3,725       3.2       3.2       3.2  
 
Other Western Europe
    144,134       71,568       72,566       101.4       102.4       2.4  
                                     
   
Total Western Europe
    824,260       558,232       266,028       47.7       47.9       9.5  
                                     
 
Hungary
    122,073       93,247       28,826       30.9       29.0       29.0  
 
Other Central and Eastern Europe
    145,340       103,255       42,085       40.8       29.9       7.3  
                                     
   
Total Central and Eastern Europe
    267,413       196,502       70,911       36.1       29.5       17.6  
                                     
     
Total Europe (Europe Broadband)
    1,091,673       754,734       336,939       44.6       43.1       11.6  
Japan (J:COM)
    690,127       621,035       69,092       11.1       14.4       11.6  
Chile (VTR)
    177,543       116,131       61,412       52.9       39.8       14.1  
Corporate and other
    291,162       216,386       74,776       34.6       35.0       13.9  
Intersegment eliminations
    (64,990 )     (36,758 )     (28,232 )     (76.8 )     (77.4 )     (77.4 )
                                     
Total LGI before elimination of equity affiliates
    2,185,515       1,671,528       513,987                          
Elimination of equity affiliate (J:COM)
          (621,035 )     621,035                          
                                     
 
Total consolidated LGI
  $ 2,185,515     $ 1,050,493     $ 1,135,022                          
                                     
 
N.M. — Not Meaningful
General. Operating expenses include programming, network operations, customer operations, customer care and other direct costs. Programming costs, which represent a significant portion of our operating costs, are expected to rise in future periods as a result of the expansion of service offerings and the potential for price increases. Any cost increases that we are not able to pass on to our subscribers through service rate increases would result in increased pressure on our operating margins.
Europe Broadband. Europe Broadband’s operating expenses increased $336,939,000 during 2005, as compared to 2004. The aggregate effects of the Noos, Cablecom, NTL Ireland, Chorus, Astral and Telemach acquisitions and another less significant acquisition, accounted for $237,744,000 of such increase. Excluding the increases associated with these acquisitions and foreign exchange rate fluctuations, Europe Broadband’s operating expenses increased $87,407,000 or 11.6% during 2005, as compared to 2004, primarily due to the following factors:
  •  Increases in direct programming and copyright costs of $34,995,000 during 2005 primarily due to subscriber growth on the digital and DTH platforms, and to a lesser extent, increased content, higher intercompany charges from chellomedia for programming and consumer price index rate increases, offset, in part, by the termination of an unfavorable programming contract in May 2005.
 
  •  Increases in interconnect costs of $10,913,000 during 2005, primarily due to growth in telephony transit service activity in Hungary and growth in VoIP telephony subscribers in The Netherlands, France,

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  Hungary, Poland and Romania. A portion of the Hungary increase may not recur in 2006 due to the expiration of Hungary’s telephony transit service contract.
 
  •  Increases in salaries and other staff related costs of $24,100,000 during 2005, primarily reflecting increased staffing levels including increased use of temporary personnel, particularly in the customer care and customer operations areas, to sustain the higher levels of activity resulting from:
  •  higher subscriber numbers;
 
  •  the greater volume of calls per subscriber in The Netherlands and elsewhere that the increased proportion of digital video, broadband Internet and telephony subscribers give rise to compared to an analog video subscriber;
 
  •  The Netherlands’ program to migrate subscribers from analog video to digital video services, which was launched in October 2005 and is expected to continue throughout 2006;
 
  •  increased customer service standard levels; and
 
  •  annual wage increases.
  •  Increases in network related expenses of $8,515,000 during 2005, primarily driven by higher costs in The Netherlands and Hungary.
 
  •  Increases in bad debt and collection expenses of $4,896,000 due largely to the significant increase in revenue.
 
  •  Increases in outsourced labor and consultancy fees of $4,000,000 during 2005, driven by projects to increase service levels, network improvements and development of new products in certain of our operations, primarily the launch of mass-market digital service in The Netherlands.
Japan (J:COM). J:COM’s operating expenses increased $69,092,000 during 2005, as compared to 2004. The effects of the Chofu Cable and J:COM Setamachi acquisitions and another less significant acquisition accounted for approximately $16,890,000 of such increase. Excluding the increases associated with these acquisitions and the effects of foreign exchange rate fluctuations, J:COM’s operating expenses increased $72,040,000 or 11.6% during 2005, as compared to 2004. This increase primarily is due to increases of (i) $23,708,000 in salaries and other staff related costs as a result of increased staffing levels; (ii) $22,814,000 in programming and related costs as a result of growth in the number of digital video customers; and (iii) $10,988,000 in telephony interconnect costs due primarily to growth in telephony customers. Increases in network operating expenses, maintenance and technical support costs associated with RGU growth and the expansion of J:COM’s network and the effects of other individually insignificant items accounted for the remaining increase.
Chile (VTR). VTR’s operating expenses increased $61,412,000 during 2005, as compared to 2004. The estimated effects of the Metrópolis acquisition accounted for approximately $29,834,000 of such increase. Excluding the increase associated with the Metrópolis acquisition and foreign exchange rate fluctuations, VTR’s operating expenses increased $16,374,000 or 14.1% during 2005, as compared to 2004. This increase, which is primarily attributable to growth in VTR’s subscriber base, includes (i) increases in labor and other staff related costs; (ii) increases in local and cellular access charges, due primarily to an increase in customer traffic, and in the case of local access charges, an increase in rates and (iii) increases in technical service and maintenance costs.

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Operating expenses — Years ended December 31, 2004 and 2003
                                                       
                    Increase (decrease)
                    excluding
             
    Year Ended December 31,   Increase (decrease)       FX and
                acquisitions
    2004   2003   $   %   FX %   %
                         
    amounts in thousands, except % amounts
Europe (Europe Broadband)
                                               
 
The Netherlands
  $ 205,802     $ 204,186     $ 1,616       0.8       (8.5 )     (8.5 )
 
France
    165,489       64,676       100,813       155.9       132.4       3.7  
 
Austria
    115,373       100,720       14,653       14.5       4.0       4.0  
 
Other Western Europe
    71,568       36,505       35,063       96.0       84.8       9.6  
                                     
   
Total Western Europe
    558,232       406,087       152,145       37.5       25.4       (1.8 )
                                     
 
Hungary
    93,247       73,800       19,447       26.4       13.8       13.8  
 
Other Central and Eastern Europe
    103,255       83,529       19,726       23.6       14.4       14.4  
                                     
   
Total Central and Eastern Europe
    196,502       157,329       39,173       24.9       14.1       14.1  
                                     
     
Total Europe (Europe Broadband)
    754,734       563,416       191,318       34.0       22.3       2.6  
Japan (J:COM)
    621,035       542,242       78,793       14.5       5.7       5.7  
Chile (VTR)
    116,131       96,965       19,166       19.8       5.9       5.9  
Corporate and other
    216,386       189,681       26,705       14.1       7.2       7.2  
Intersegment eliminations
    (36,758 )     (45,505 )     8,747       19.2       26.6       26.6  
                                     
Total LGI before elimination of equity affiliates
    1,671,528       1,346,799       324,729                          
Elimination of equity affiliates
    (621,035 )     (1,284,023 )     662,988                          
                                     
 
Total consolidated LGI
  $ 1,050,493     $ 62,776     $ 987,717                          
                                     
Europe Broadband. Europe Broadband’s operating expenses increased $191,318,000 during 2004, as compared to 2003. The aggregate effects of the Noos and Chorus acquisitions accounted for $110,661,000 of such increase. Excluding the increases associated with these acquisitions and foreign exchange rate fluctuations, Europe Broadband’s operating expenses increased $14,830,000 or 2.6% during 2004, as compared to 2003, primarily due to the following factors:
  •  an increase in customer operation expenses as a result of higher numbers of new and reconnecting subscribers during 2004, as compared to 2003. This higher activity level required Europe Broadband to hire additional staff and use outsourced contractors;
 
  •  an increase in direct programming costs related to subscriber growth and, in certain markets, an increase in channels on the analog and digital platforms;
 
  •  a decrease due to net cost reductions across network operations, customer care and billing and collection activities. These reductions were due to improved cost controls across all aspects of the business, including more effective procurement of support services, lower billing and collections charges, with bad debt charges in particular reduced in The Netherlands, and the increased operational leverage of the business;
 
  •  an increase in intercompany costs for broadband Internet services under the revenue sharing agreement between Europe Broadband and chellomedia;
 
  •  a decrease related to reduced telephony direct costs in 2004, as compared to 2003, primarily due to decreases in outbound interconnect rates;

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  •  an increase due to annual wage increases; and
 
  •  a decrease due to cost savings in The Netherlands resulting from a restructuring plan implemented in the second quarter of 2004 whereby the management structure was changed from a three-region model to a centralized management organization.
Japan (J:COM). J:COM’s operating expenses increased $78,793,000 during 2004, as compared to 2003. Excluding the effects of foreign exchange fluctuations, such increase was $30,908,000 or 5.7%. These local currency increases primarily are due to an increase in programming costs as a result of subscriber growth and improved service offerings. Increases in network maintenance and technical support costs associated with the expansion of J:COM’s network also contributed to the increases.
Chile (VTR). VTR’s operating expenses increased $19,166,000 during 2004, as compared to 2003. Excluding the effects of foreign exchange fluctuations, such increase was $5,721,000 or 5.9%. The local currency increase primarily is due to increases in (i) domestic and international access charges, (ii) programming costs, and (iii) the cost of maintenance and technical services. Such increased costs were largely driven by RGU growth.
SG&A Expenses of our Reportable Segments
SG&A expenses — Years ended December 31, 2005 and 2004
                                                       
                    Increase (decrease)
                    excluding
             
    Year Ended December 31,   Increase (decrease)       FX and
                acquisitions
    2005   2004   $   %   FX %   %
                         
    amounts in thousands, except % amounts
Europe (Europe Broadband)
                                               
 
The Netherlands
  $ 168,182     $ 148,943     $ 19,239       12.9       12.9       12.9  
 
Switzerland
    26,922             26,922       N.M.       N.M.        
 
France
    158,946       101,685       57,261       56.3       56.8       6.1  
 
Austria
    65,851       68,799       (2,948 )     (4.3 )     (4.1 )     (4.1 )
 
Other Western Europe
    66,075       39,141       26,934       68.8       70.0       9.5  
                                     
   
Total Western Europe
    485,976       358,568       127,408       35.5       35.8       7.3  
                                     
 
Hungary
    51,256       41,727       9,529       22.8       21.7       21.7  
 
Other Central and Eastern Europe
    77,950       54,331       23,619       43.5       32.6       15.6  
                                     
   
Total Central and Eastern Europe
    129,206       96,058       33,148       34.5       27.8       18.3  
                                     
     
Total Europe (Europe Broadband)
    615,182       454,626       160,556       35.3       34.1       9.6  
Japan (J:COM)
    335,681       294,077       41,604       14.1       17.3       13.0  
Chile (VTR)
    115,168       75,068       40,100       53.4       40.3       18.9  
Corporate and other
    139,063       120,518       18,545       15.4       16.6       13.4  
Inter-segment eliminations
    (10,122 )     (10,603 )     481       4.5       4.8       4.8  
                                     
Total LGI before elimination of equity affiliates
    1,194,972       933,686       261,286                          
Elimination of equity affiliate (J:COM)
          (294,077 )     294,077                          
                                     
 
Total consolidated LGI
  $ 1,194,972     $ 639,609     $ 555,363                          
                                     
 
N.M. — Not Meaningful
General. SG&A expenses include human resources, information technology, general services, management, finance, legal and marketing costs and other general expenses.

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Europe Broadband. Europe Broadband’s SG&A expenses increased $160,556,000 during 2005, as compared to 2004. The aggregate effects of the Noos, Cablecom, NTL Ireland, Chorus, Astral, and Telemach acquisitions, and another less significant acquisition, accounted for $111,405,000 of such increase. Excluding the increases associated with these acquisitions and foreign exchange rate fluctuations, Europe Broadband’s SG&A expenses increased $43,816,000 or 9.6% during 2005, as compared to 2004, primarily due to:
  •  Increases in sales and marketing expenses and commissions of $28,320,000 during 2005, reflecting the cost of marketing campaigns designed to promote RGU growth, and support the growth of VoIP telephony services, and the launch of mass-market digital video services in The Netherlands. An increase in the number of gross subscriber additions for broadband Internet and telephony services, particularly in The Netherlands, also contributed to the increase.
 
  •  Increases in salaries and other staff related costs of $8,243,000 during 2005, reflecting increased staffing levels, particularly in The Netherlands, in sales and marketing and information technology functions, as well as annual wage increases.
 
  •  Increase in outsourced labor and consultancy cost of $7,083,000 during 2005, reflecting the development of new products in certain of our operations, primarily the launch of mass-market digital service in The Netherlands.
The increase in Europe Broadband’s SG&A expenses were partially offset by decreases in certain SG&A expenses, primarily the decrease of audit and legal expenses of $9,604,000 reflecting the conclusion of certain litigation and lower fees attributable to our internal controls attestation process.
Japan (J:COM). J:COM’s SG&A expenses increased $41,604,000 during 2005, as compared to 2004. The effects of the Chofu Cable and J:COM Setamachi acquisitions and another less significant acquisition accounted for approximately $12,660,000 of such increase. Excluding the increase associated with these acquisitions and the effects of foreign exchange rate fluctuations, J:COM’s SG&A expenses increased $38,230,000 or 13.0% during 2005, as compared to 2004. This increase primarily is attributable to increases in labor and related overhead costs associated with an increase in the scope of J:COM’s business. The increase also reflects higher marketing, advertising and promotional costs, including costs incurred in connection with J:COM’s rebranding initiative during the first half of 2005.
Chile (VTR). VTR’s SG&A expenses increased $40,100,000 during 2005, as compared to 2004. The estimated effects of the Metrópolis acquisition accounted for approximately $16,057,000 of such increase. Excluding the increase associated with the Metrópolis acquisition and foreign exchange rate fluctuations, VTR’s SG&A expenses increased $14,188,000 or 18.9% during 2005, as compared to 2004. This increase, which is largely attributable to growth in VTR’s subscriber base, reflects increases in labor and related costs and in sales commissions.

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SG&A expenses — Years ended December 31, 2004 and 2003
                                                       
                    Increase (decrease)
                    excluding
             
    Year Ended December 31,   Increase (decrease)       FX and
                acquisitions
    2004   2003   $   %   FX %   %
                         
    amounts in thousands, except % amounts
Europe (Europe Broadband)
                                               
 
The Netherlands
  $ 148,943     $ 126,357     $ 22,586       17.9       7.0       7.0  
 
France
    101,685       37,231       64,454       173.1       147.9       9.5  
 
Austria
    68,799       57,714       11,085       19.2       8.2       8.2  
 
Other Western Europe
    39,141       24,254       14,887       61.4       50.0       10.7  
                                     
   
Total Western Europe
    358,568       245,556       113,012       46.0       32.9       8.0  
                                     
 
Hungary
    41,727       31,029       10,698       34.5       21.0       21.0  
 
Other Central and Eastern Europe
    54,331       46,917       7,414       15.8       7.0       7.0  
                                     
   
Total Central and Eastern Europe
    96,058       77,946       18,112       23.2       12.6       12.6  
                                     
     
Total Europe (Europe Broadband)
    454,626       323,502       131,124       40.5       28.0       9.1  
Japan (J:COM)
    294,077       262,932       31,145       11.8       3.5       3.5  
Chile (VTR)
    75,068       62,919       12,149       19.3       6.3       6.3  
Corporate and other
    120,518       111,693       8,825       7.9       1.6       1.6  
Intersegment eliminations
    (10,603 )     (9,664 )     (939 )     (9.7 )     (0.8 )     (0.8 )
                                     
Total LGI before elimination of equity affiliates
    933,686       751,382       182,304                          
Elimination of equity affiliates
    (294,077 )     (723,515 )     429,438                          
                                     
 
Total consolidated LGI
  $ 639,609     $ 27,867     $ 611,742                          
                                     
Europe Broadband. Europe Broadband’s SG&A expenses increased $131,124,000 during 2004, as compared to 2003. The aggregate effects of the Noos and Chorus acquisitions accounted for $61,061,000 of such increase. Excluding the increases associated with these acquisitions and foreign exchange rate fluctuations, Europe Broadband’s SG&A expenses increased $29,521,000, or 9.1% during 2004, as compared to 2003, primarily due to:
  •  an increase in marketing expenditures to support subscriber growth and new digital programming services, particularly in The Netherlands;
 
  •  annual wage increases; and
 
  •  increased consulting and other information technology support costs associated with the implementation of new customer care systems in several countries and a subscriber management system in Austria.
These increases were partially offset by continuing cost control across all aspects of the business and cost savings resulting from The Netherlands’ restructuring that was implemented during the second quarter of 2004.
Japan (J:COM). J:COM’s SG&A expenses increased $31,145,000 during 2004, as compared to 2003. Excluding the effects of foreign exchange rate fluctuations, such increase was $9,203,000 or 3.5% during 2004, as compared to 2003. This local currency increase primarily is attributable to the net effect of (i) increased labor and other overhead costs associated primarily with increases in J:COM’s RGUs, and (ii) reduced marketing personnel and advertising and promotion expenses.
Chile (VTR). VTR’s SG&A expenses increased $12,149,000 during 2004, as compared to 2003. Excluding the effects of foreign exchange rate fluctuations, such increase was $3,964,000 or 6.3%. The local currency

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increase primarily is due to (i) an increase in commissions as a result of subscriber growth, (ii) an increase in marketing costs in response to increased competition, (iii) annual wage increases, and (iv) higher legal, accounting and other professional advisory fees due in part to the initiation of our internal controls attestation process. The impact of the foregoing items was partially offset by a one-time credit of $4,695,000 in December 2004 for the reversal of accrued withholding tax as a result of the forgiveness of management fees payable to UGC.
Operating Cash Flow of our Reportable Segments
Operating cash flow is the primary measure used by our chief operating decision maker to evaluate segment operating performance and to decide how to allocate resources to segments. As we use the term, operating cash flow is defined as revenue less operating and SG&A expenses (excluding depreciation and amortization, stock-based compensation and impairment, restructuring and other operating charges or credits). We believe operating cash flow is meaningful because it provides investors a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that is used by our internal decision makers. Our internal decision makers believe operating cash flow is a meaningful measure and is superior to other available GAAP measures because it represents a transparent view of our recurring operating performance and allows management to readily view operating trends, perform analytical comparisons and benchmarking between segments in the different countries in which we operate and identify strategies to improve operating performance. For example, our internal decision makers believe that the inclusion of impairment and restructuring charges within operating cash flow would distort the ability to efficiently assess and view the core operating trends in our segments. In addition, our internal decision makers believe our measure of operating cash flow is important because analysts and investors use it to compare our performance to other companies in our industry. For a reconciliation of total segment operating cash flow to our consolidated earnings (loss) before income taxes, minority interests and discontinued operations, see note 21 to our consolidated financial statements. Investors should view operating cash flow as a measure of operating performance that is a supplement to, and not a substitute for, operating income, net earnings, cash flow from operating activities and other GAAP measures of income.

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Operating Cash Flow — Years ended December 31, 2005 and 2004
                                                       
                    Increase (decrease)
                    excluding
             
    Year Ended December 31,   Increase (decrease)       FX and
                acquisitions
    2005   2004   $   %   FX %   %
                         
    amounts in thousands, except % amounts
Europe (Europe Broadband)
                                               
 
The Netherlands
  $ 360,924     $ 375,738     $ (14,814 )     (3.9 )     (4.2 )     (4.2 )
 
Switzerland
    43,525             43,525       N.M.       N.M.        
 
France
    97,247       45,774       51,473       112.5       111.4       28.8  
 
Austria
    137,247       122,307       14,940       12.2       11.9       11.9  
 
Other Western Europe
    111,168       63,680       47,488       74.6       74.9       10.5  
                                     
   
Total Western Europe
    750,111       607,499       142,612       23.5       23.2       3.1  
                                     
 
Hungary
    108,378       82,455       25,923       31.4       29.1       29.1  
 
Other Central and Eastern Europe
    147,270       94,478       52,792       55.9       43.5       20.1  
                                     
   
Total Central and Eastern Europe
    255,648       176,933       78,715       44.5       36.8       24.3  
                                     
     
Total Europe (Europe Broadband)
    1,005,759       784,432       221,327       28.2       26.3       7.9  
Japan (J:COM)
    636,297       589,597       46,700       7.9       10.7       9.3  
Chile (VTR)
    151,450       108,752       42,698       39.3       27.7       20.3  
Corporate and other
    (22,661 )     (51,397 )     28,736       55.9       55.3       26.6  
                                     
Total LGI before elimination of equity affiliates
    1,770,845       1,431,384       339,461                          
Elimination of equity affiliate (J:COM)
          (589,597 )     589,597                          
                                     
 
Total
  $ 1,770,845     $ 841,787     $ 929,058                          
                                     
 
N.M. — Not Meaningful
On a local currency basis, Europe Broadband and VTR, and to a lesser extent, J:COM experienced declines in their respective 2005 operating cash flow margins (operating cash flow divided by revenue). We expect that Europe Broadband’s overall operating cash flow margins will improve slightly in 2006 as the positive effects of (i) cost reductions and efficiencies resulting from the integration of our 2005 acquisitions and (ii) higher utilization of customer fulfillment and billing platforms are expected to more than offset the negative effects of (i) increased direct costs associated with new voice and digital video customers, (ii) higher customer acquisition costs associated with RGU growth and (iii) the continuing effects of increased competition. In The Netherlands, our program to migrate subscribers from analog to digital video services, our ongoing launch of VoIP, and competitive factors are expected to adversely impact operating cash flow margins during 2006. J:COM management expects that J:COM’s operating cash flow margin will be somewhat negatively impacted by (i) increased programming costs related to increased high definition television content and anticipated increases in digital video subscribers, (ii) the negative initial impact on margins of recent acquisitions, and (iii) costs associated with new initiatives. In Chile, we expect that operating cash flow margins will improve somewhat in 2006 if we are able to continue to achieve efficiencies and cost reductions from the integration of the operations of VTR and Metrópolis. No assurance can be given that our expectations with respect to operating cash flow margins will not vary from actual results. For additional discussion of the factors contributing to the changes in operating cash flow of our reportable segments, see the above analyses of revenue, operating expenses and SG&A expenses.

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Operating Cash Flow — Years ended December 31, 2004 and 2003
                                                       
                    Increase (decrease)
                    excluding
             
    Year Ended December 31,   Increase (decrease)       FX and
                acquisitions
    2004   2003   $   %   FX %   %
                         
    amounts in thousands, except % amounts
Europe (Europe Broadband)
                                               
 
The Netherlands
  $ 375,738     $ 286,945     $ 88,793       30.9       19.5       19.5  
 
France
    45,774       11,935       33,839       283.5       255.5       (21.0 )
 
Austria
    122,307       107,953       14,354       13.3       3.5       3.5  
 
Other Western Europe
    63,680       46,203       17,477       37.8       28.0       2.6  
                                     
   
Total Western Europe
    607,499       453,036       154,463       34.1       22.8       12.9  
                                     
 
Hungary
    82,455       60,481       21,974       36.3       23.8       23.8  
 
Other Central and Eastern Europe
    94,478       66,662       27,816       41.7       31.8       31.8  
                                     
   
Total Central and Eastern Europe
    176,933       127,143       49,790       39.2       28.0       28.0  
                                     
     
Total Europe (Europe Broadband)
    784,432       580,179       204,253       35.2       23.9       16.2  
Japan (J:COM)
    589,597       428,318       161,279       37.7       27.2       27.2  
Chile (VTR)
    108,752       69,951       38,801       55.5       38.0       38.0  
Corporate and other
    (51,397 )     (38,354 )     (13,043 )     (34.0 )     (17.7 )     (17.7 )
                                     
Total LGI before elimination of equity affiliates
    1,431,384       1,040,094       391,290                          
Elimination of equity affiliates
    (589,597 )     (1,022,347 )     432,750                          
                                     
 
Total
  $ 841,787     $ 17,747     $ 824,040                          
                                     
          Discussion and Analysis of our Historical Operating Results
Years ended December 31, 2005 and 2004
General
As noted above, the effects of our January 1, 2005 consolidation of Super Media/ J:COM, and acquisitions have affected the comparability of our results of operations during 2005 and 2004. Unless otherwise indicated in the discussion below, the significant increases in our historical revenue, expenses and other items during 2005, as compared to 2004, are primarily attributable to the effects of these transactions. For more detailed explanations of the changes in our revenue, operating expenses and SG&A expenses, see the Discussion and Analysis of Reportable Segments that appears above.
Revenue
Our total consolidated revenue increased $2,619,443,000 during 2005, as compared to 2004. The effects of acquisitions and the consolidation of Super Media/ J:COM accounted for $2,274,023,000 of such increase. Excluding the effects of these transactions and foreign exchange rate fluctuations, total consolidated revenue increased $277,312,000 or 11.0% during 2005, as compared to 2004. As discussed in greater detail under Discussion and Analysis of Reportable Segments above, most of these increases are attributable to RGU growth.
Operating expense
Our total consolidated operating expense increased $1,135,022,000 during 2005, as compared to 2004. The effects of acquisitions and the consolidation of Super Media/ J:COM accounted for $1,003,367,000 of such

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increase. Excluding the effects of these transactions and foreign exchange rate fluctuations, total consolidated operating expense increased $105,315,000 or 10.0% during 2005, as compared to 2004. As discussed in more detail under Discussion and Analysis of Reportable Segments above, these increases generally reflect increases in (i) programming costs, (ii) labor costs, (iii) interconnect costs, and (iv) less significant increases in other expense categories. Most of these increases are a function of increased volumes or levels of activity associated with the increase in our customer base.
SG&A expense
Our total consolidated SG&A expense increased $555,363,000 during 2005, as compared to 2004. The effects of acquisitions and the consolidation of Super Media/ J:COM accounted for $466,971,000 of such increase. Excluding the effects of these transactions and foreign exchange rate fluctuations, total consolidated SG&A expense increased $74,631,000 or 11.7% during 2005, as compared to 2004. As discussed in more detail under Discussion and Analysis of Reportable Segments above, these increases generally reflect increases in (i) marketing, advertising and commissions and (ii) labor costs. The increases in our marketing, advertising and commissions expenses primarily are attributable to our efforts to increase our RGUs and launch new product initiatives. The increases in our labor costs primarily are a function of the increased levels of activity associated with the increase in our customer base.
Stock-based compensation expense
A summary of our stock-based compensation expense is set forth below:
                   
    Year Ended December 31,
     
    2005   2004
         
    amounts in thousands
LGI common stock
  $ 29,011     $ 135,455  
J:COM common stock
    23,147       7,221  
Other
    7,073        
             
 
Total
  $ 59,231     $ 142,676  
             
We record stock-based compensation that is associated with LGI common stock, J:COM common stock, and certain other subsidiary common stock. The stock-based compensation expense associated with J:COM common stock consists of the amounts recorded by J:COM pursuant to its stock compensation plans, and amounts recorded by LGI with respect to LGI’s subsidiary stock plan pursuant to which certain LGI officers have an indirect interest in J:COM. As a result of adjustments to certain terms of the former UGC and LMI stock incentive awards in connection with (i) their respective rights offerings in February 2004 and July 2004 and (ii) the LGI Combination in June 2005, most of the LGI stock incentive awards outstanding at December 31, 2005 are accounted for as variable-plan awards. The stock-based compensation expense for 2004 includes a $50,409,000 charge to reflect a change from fixed-plan accounting to variable-plan accounting as a result of modifications to the terms of UGC stock options in connection with UGC’s February 2004 rights offering. Other fluctuations in our stock-based compensation expense during 2005 are largely a function of changes in the market price of the underlying common stock. The increase in J:COM stock-based compensation expense is primarily attributable to an increase in J:COM’s stock price since its IPO in March 2005. Due to the use of variable-plan accounting for most of the outstanding LGI and J:COM stock incentive awards, stock-based compensation expense with respect to such stock incentive awards is subject to adjustment in future periods based on the market value of the underlying common stock and vesting schedules, and ultimately on the final determination of market value when the incentive awards are exercised. For additional information concerning stock-based compensation, see notes 3 and 14 to our consolidated financial statements.

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Depreciation and amortization
Our total consolidated depreciation and amortization expense increased $539,115,000 during 2005, as compared to 2004. The effects of the consolidation of Super Media/ J:COM, acquisitions and the LGI Combination accounted for $636,031,000 of such increase. Excluding the effect of these transactions and foreign exchange rate fluctuations, depreciation and amortization expense decreased $102,240,000 or 11.2% during 2005, as compared to 2004. This decrease is due primarily to (i) the impact of certain of Europe Broadband’s information technology and other assets becoming fully depreciated during the last half of 2004 and (ii) the impact during the 2004 periods of Europe Broadband’s acceleration of the depreciation of certain customer premise equipment that was targeted for replacement.
Impairment of long-lived assets
We incurred impairment charges of $8,320,000 and $69,353,000 during 2005 and 2004, respectively. The 2005 amount includes a $7,550,000 impairment charge to reduce the carrying value of the intangible asset associated with our franchise rights in Puerto Rico to its estimated fair value of $155,900,000. The 2004 amount includes (i) a $26,000,000 impairment charge as a result of our assessment of the recoverability of enterprise level goodwill that was associated with one of our consolidated subsidiaries, (ii) a $16,623,000 impairment charge recorded by UGC to write-down the long-lived assets of certain telecommunications operations in Europe, (iii) $10,955,000 related to the write-down of certain of Europe Broadband’s tangible fixed assets in The Netherlands, and (iv) other less significant charges.
Restructuring and other operating charges (credits), net
We incurred restructuring and other operating charges (credits) of $(2,753,000) and $28,901,000 during 2005 and 2004, respectively. The 2004 amount includes $21,660,000 related to the restructuring of Europe Broadband’s operations in The Netherlands. The 2005 amount includes (i) a $7,709,000 reversal of the reserve recorded by The Netherlands during 2004 due to our 2005 decision to reoccupy a building and (ii) other individually insignificant amounts. For additional information, see note 17 to our consolidated financial statements.
Interest expense
Our total consolidated interest expense increased $147,146,000 during 2005, as compared to 2004. Excluding the effects of foreign currency exchange rate fluctuations, interest expense increased $149,502,000 during 2005, as compared to 2004. This increase is primarily attributable to a $5,122,226,000 increase in our outstanding indebtedness during 2005, most of which is attributable to debt incurred or assumed in connection with the Cablecom Acquisition, the consolidation of Super Media/ J:COM and other acquisitions. The increase also includes the net effect of (i) a $35,170,000 increase associated with non-cash interest expense representing the net increase during 2005 in the estimated fair value of certain mandatorily redeemable securities issued by the Investcos, (ii) a $7,790,000 increase in the interest expense incurred during 2005 on the UGC Convertible Notes, which were issued in April 2004, and (iii) a $7,484,000 decrease in interest expense resulting from lower amortization of deferred financing costs, due primarily to debt extinguishments and the application of purchase accounting. Most of the net increase in the estimated fair value of the mandatorily redeemable securities of the Investcos is associated with the increased liquidity of the underlying Telenet shares following the Telenet IPO. For additional information concerning Telenet, see note 6 to our consolidated financial statements. An increase in our weighted average interest rate during 2005 also contributed to the overall increase in interest expense.
Interest and dividend income
Our total consolidated interest and dividend income increased $12,155,000 during 2005, as compared to 2004 due primarily to dividends received on shares of ABC Family Worldwide, Inc. Series A preferred stock. We acquired a 99.9% interest in this preferred stock from Liberty Media in connection with the June 2004 spin off. The impact of this increase was partially offset by a decrease in guarantee fees received from J:COM, due

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primarily to the elimination of most of such guarantees in connection with J:COM’s December 2004 bank refinancing. An increase in the interest earned on our weighted average cash and cash equivalent balances also contributed to the increase.
Share of earnings (losses) of affiliates, net
The following table reflects our share of earnings (losses), net of affiliates including any other-than-temporary declines in value:
                   
    Year Ended December 31,
     
    2005   2004
         
    amounts in thousands
Jupiter TV
  $ 27,759     $ 14,644  
Telenet
    (33,494 )      
Austar
    13,100       976  
Mediatti
    (6,909 )     (2,331 )
Metrópolis
    (6,782 )     (8,355 )
Super Media/ J:COM
          45,092  
Other
    (16,623 )     (11,316 )
             
 
Total
  $ (22,949 )   $ 38,710  
             
Our share of earnings (losses) of affiliates includes losses related to other-than-temporary declines in the value of our equity method investments of $29,187,000 and $25,973,000 during 2005 and 2004, respectively. For additional information, see note 6 to our consolidated financial statements.
Realized and unrealized gains (losses) on derivative instruments, net
The details of our realized and unrealized gains (losses) on derivative instruments, net are as follows for the indicated periods: