SOUTH HERTFORDSHIRE UNITED KINGDOM FUND LTD - 10-K Annual Report

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: þ Yes o No

Aggregate market value of the voting stock held by non-affiliates of the registrant: N/A

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (e229 405) 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. þ

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:


	Certain statements contained herein constitute “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. When used in this Form 10-K, the words, “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” and similar expressions identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Registrant, or industry results, to be materially different from those contemplated or projected, forecasted, estimated or budgeted, whether expressed or implied, by such forward-looking statements. Such factors include, among others, those set forth under the caption “Risk Factors” in this Form 10-K as well as: the ability of the Partnership to continue as a going concern; the ability of the Partnership to obtain trade credit and shipments and terms with vendors and service providers for current orders; the Partnership’s ability to maintain contracts that are critical to its operations; potential adverse developments with respect to the Partnership’s liquidity or results of operations; the ability to fund and execute its business plan; the ability to attract, retain and compensate key executives and associates; the ability of the Partnership to attract and retain customers; general economic and business conditions; technological developments; the Partnership’s ability to continue to design networks; install facilities; obtain and maintain any required governmental licenses or approvals; and finance construction and development, all in a timely manner at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services, the impact of restructuring and integration actions, the impact of new business opportunities requiring significant up-front investment and interest rate and currency exchange rate fluctuations.

	In this Annual Report on Form 10-K, the “Partnership,” “we,” “us,” and “our” refer to South Hertfordshire United Kingdom Fund, Ltd. and its consolidated subsidiary, NTL (South Herts) Limited, except where we expressly state that we are only referring to South Hertfordshire United Kingdom Fund, Ltd. or the context otherwise requires that we are referring only to South Hertfordshire United Kingdom Fund, Ltd.

South Hertfordshire United Kingdom Fund, Ltd., formerly known as Jones United Kingdom Fund, Ltd., (the “Partnership”), is a Colorado limited partnership that was formed in December 1991 pursuant to the public offering of limited partnership interests (the “Interests”) in the Partnership for the purpose of acquiring one or more cable television/telephony systems in the UK and Northern Ireland. Upon acquisition of its system, the Partnership’s primary investment objective was to obtain capital appreciation in the value of its systems over the term they are held by the Partnership. See “Risk Factors” beginning on page 20 for a description of the risks associated with holding Partnership Interests.

On January 31, 2002, NTL Incorporated (“NTL Incorporated” and, together with its consolidated subsidiaries, “NTL”), which is the indirect parent of the General Partner of the Partnership, announced that it had appointed Credit Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic and recapitalization alternatives to strengthen its balance sheet, reduce debt and put an appropriate capital structure in place for our business. Since then, NTL has been evaluating various recapitalization alternatives to effect a comprehensive consensual recapitalization in a timely manner and to minimize negative effects on its business operations. NTL has been engaged in discussions with an unofficial committee of bondholders, the majority of which hold a majority in principal amount of the public debt of NTL, and France Telecom, which owns a significant amount of NTL Incorporated’s common and preferred stock. On April 16, NTL announced that it had reached an agreement in principle with the unofficial committee on a comprehensive recapitalization of NTL. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “Risk Factors” for a more detailed description of the proposed recapitalization plan and the associated uncertainties.

The Partnership was formed upon the receipt of subscriptions for Interests exceeding the minimum offering of $10,000,000. The general partner of the Partnership was initially Jones Global Funds, Inc., a Colorado corporation (“Jones Global Funds”). As of August 15, 1992, when the initial offering by the Partnership terminated, the Partnership had raised $16,548,000 in gross offering proceeds from the sale of 16,548 Interests, or $14,272,650 net of sales commissions and other organizational and offering costs. On September 14, 1992, the Partnership commenced a second offering of Interests. As of April 1994, when the second offering terminated, the Partnership had raised a total of $56,935,000 in gross offering proceeds from the sale of 56,935 limited partnership interests, or $48,817,997 net of sales commissions and other organizational and offering costs, from both its initial and its second public offerings.

On February 20, 1992, upon receipt of approval from UK regulatory authorities, the Partnership acquired, through nominees, the beneficial ownership of all of the shares of NTL (South Herts) Limited (formerly Cable & Wireless Communications (South Hertfordshire) Limited and Jones Cable Group of South Hertfordshire Limited) (“NTL South Herts” or the “Company”) from Jones Global Funds, Inc. and certain of its affiliates (the “Former Owners”). NTL South Herts is a UK corporation which holds the cable and telecommunications licenses necessary to build and operate a cable television/telephony system in the South Hertfordshire franchise area, located adjacent to the north-west perimeter of Greater London (the “South Herts System”). The acquisition by the Partnership of all of the shares of NTL South Herts resulted in the Partnership acquiring an indirect beneficial ownership interest in the South Herts System. The Partnership paid the Former Owners a total of $4,996,700, representing, at cost, their expenses in connection with obtaining, holding and maintaining the licenses for the South Herts System and their capital expenditures during and before the Partnership acquired the beneficial ownership of NTL South Herts, plus the amount of operating and interest expenses in excess of operating receipts incurred during such period. Subsequent to the

Partnership’s investment in NTL South Herts, cost reimbursements have been and will continue to be made to the general partner (or its affiliates) for construction costs of the South Herts System. Partnership funds are used to reimburse the general partner (or its affiliates) at cost on a monthly basis for expenditures incurred by the general partner (or its affiliates) for the South Herts System’s construction and operation.

The South Herts System’s ownership by NTL South Herts, a UK corporation, rather than directly by the Partnership, results from an intention to insulate the limited partners of the Partnership (the “Limited Partners”) from potential UK taxation upon the eventual sale of the South Herts System. Under current UK tax laws, the sale of the UK cable television/telephony system by a U.S. limited partnership may give rise to limited partner tax liability in the UK whereas the sale of shares in a UK corporation by a U.S. limited partnership does not give rise to limited partner tax liability in the UK on the basis that the limited partnership is not itself trading in the UK through a permanent establishment there. The shares of NTL South Herts are held indirectly by the Partnership through corporate nominees. This indirect ownership structure is intended to afford the Limited Partners more certain protection from UK tax liability.

In order to provide additional funding for the construction of the South Herts System, two additional participants invested in NTL South Herts in 1993 and 1994. Jones Intercable of South Hertfordshire, Inc. invested £3,400,000 in NTL South Herts in exchange for 34,000 Class A shares in November 1993. Also in November 1993, affiliates of Sandler Capital Management (the “Sandler Group”) committed to invest £6,800,000 in NTL South Herts, of which £2,266,600 was funded in November 1993 for 22,666 Class B shares. In June 1994, the Sandler Group invested £3,273,232 for 32,732 Class B shares and Jones Intercable of South Hertfordshire, Inc. invested £503,283 for 5,033 Class A shares. In July 1994, the Sandler Group invested £1,800,000 for 18,000 Class B shares and Jones Intercable of South Hertfordshire, Inc. invested £466,800 for 4,668 Class B shares.

On June 10, 1994, Jones Global Group, Inc., Jones Intercable, Inc. and certain of their subsidiaries (collectively, “Jones”) and the Sandler Group entered into agreements to transfer all of their interests in their UK cable television/telephony operations and franchises, including Jones Intercable of South Hertfordshire, Inc.’s interest in NTL South Herts, Jones Global Funds, Inc.’s general partner interest in the Partnership and the Sandler Group’s interest in NTL South Herts, to Bell Cablemedia plc (“BCM”) in exchange for ordinary shares (in the form of American Depository Shares (“ADSs”)) to be issued by BCM in connection with a planned public equity offering of ADSs by BCM. At that date, BCM was indirectly owned 80 percent by BCI Telecom Holding Inc (formerly Bell Canada International Inc.) (“BCITH”) and 20 percent by Cable and Wireless plc (“C&W”).

On July 22, 1994, in connection with the closing of the public equity offering by BCM, Jones and the Sandler Group completed the exchange of their interests in United Kingdom cable television/telephony operations and franchises for ordinary shares (in the form of ADSs) issued by BCM. At closing, BCM acquired Jones Intercable of South Hertfordshire, Inc.’s interest in NTL South Herts, the Sandler Group’s interest in NTL South Herts and the general partner interest in the Partnership. These acquisitions are collectively referred to herein as the “BCM Acquisition.” In October 1994, the Partnership invested £5,108,900 in NTL South Herts for 51,089 Class A shares and BCM invested £2,554,600 in NTL South Herts for 25,546 Class A shares. In November 1994, the Partnership invested £1,410,000 in NTL South Herts for 14,100 Class A shares and BCM invested £705,000 in NTL South Herts for 7,050 Class A shares. As a result of these transactions, as of November 1994, NTL South Herts was owned 66.7 percent by the Partnership and 33.3 percent by BCM, and the general partner of the Partnership was Fawnspring Limited, a wholly owned subsidiary of BCM (the “General Partner”). The General Partner provides consulting services to the Partnership. The General Partner may delegate some or all of the consulting services to BCM or to other affiliates.

On October 21, 1996, BCM entered into a number of agreements relating to the acquisition of control of the outstanding shares of Videotron Holdings Plc (“Videotron”). Prior to the acquisition, BCM owned 26.2% of Videotron and did not control Videotron’s operations. Pursuant to an agreement entered into on October 21, 1996 and consummated on December 17, 1996, BCM acquired control of an additional 55.6% of Videotron, increasing its direct and indirect shareholding in Videotron to 81.8%. Subsequently, certain share options of

Videotron were exercised, and as of January 8, 1997, BCM owned 81.7% of Videotron’s ordinary shares. Also on December 17, 1996, a subsidiary of C&W subscribed for additional shares in BCM, increasing its stake in the company to 32.5%, with BCI’s indirect stake reducing to 32.5%.

On January 8, 1997, BCM made an offer to acquire all the remaining public and employee shares of Videotron and subsequently acquired all of the current issued ordinary share capital of Videotron.

On October 22, 1996, C&W, BCITH and Bell Atlantic (at that time, NYNEX) announced that they had entered into an agreement, pursuant to which, subject to the satisfaction of certain conditions precedent, the parties agreed to combine: (i) Mercury Communications Limited (“Mercury”), (ii) BCM (as enlarged by the acquisition of Videotron), and (iii) NYNEX CableComms Group PLC and NYNEX CableComms Group Inc. (collectively “NYNEX CableComms”) under one company to be called Cable & Wireless Communications plc (“CWC Comms”). On completion of this combination, CWC Comms became the largest provider of integrated telecommunications and television entertainment services in the UK.


	(a) the proposed separation of CWC Comms into its corporate, business, Internet protocol and wholesale operations (“CWC DataCo”) and its residential cable, business cable, indirect residential telephony, residential Internet and digital television development and services businesses, including ownership of the General Partner (Fawnspring Limited) and 33.3% of the equity of South Herts (“CWC ConsumerCo”);

	(b) the proposed indirect acquisition by C&W of the 47.3 per cent interest in CWC DataCo which is not currently attributable to it (thereby achieving 100 per cent ownership of CWC DataCo); and

	(c) the proposed indirect acquisition by NTL of CWC ConsumerCo (together with the proposed separation of CWC Comms and the C&W acquisition, the “Transaction”).

Following the approval of shareholders, bondholders and the competition authorities the Transaction completed on May 30, 2000. Following completion, CWC Comms changed its name to NTL (CWC) limited (“NTL (CWC)”). To fund the cash element of the consideration, NTL Incorporated placed $4.5 billion of common and preferred stock with France Telecom.

NTL South Herts is one of a number of franchise areas which NTL manages and controls from its headquarters in Hook, Hampshire. Management control is exercised by Fawnspring Limited, a UK corporation, which is a wholly-owned indirect subsidiary of NTL Incorporated and is the General Partner of the Partnership, although it is delegated to other affiliated companies of NTL. As indirect parent of the General Partner, NTL believes that returns are maximized by management as an integral part of a larger group to reap the benefits of synergy. NTL performs all billing and collection functions and other NTL group companies procure all services on behalf of NTL South Herts. Pursuant to the arrangement between NTL and NTL South Herts contained in the letter of appointment and agreement, NTL South Herts has the legal right to offset amounts receivable from NTL against amounts payable to NTL. Consequently, the net balance payable by NTL South Herts to NTL is disclosed under accounts payable to affiliates and related parties in the accompanying financial statements.

The Partnership does not generate sufficient cash flow from its operations to fund its operational expenses and has historically relied upon NTL for the additional cash necessary for operations. It is likely that NTL will not be able to provide cash to the Partnership, at least in the short term future. See “Risk Factors” regarding the Partnership’s dependency on Funds from its subsidiary and the parent companies of its general partner to meet its obligations and the substantial doubt about its ability to continue as a going concern.

The South Hertfordshire franchise area comprises the three administrative areas of Three Rivers, Watford and Hertsmere, with a population of approximately 240,000. The franchise area covers commuter

suburbs of London, and many people who reside in the franchise area use the available fast rail and motorway services to travel to work in central London. South Hertfordshire has benefited from the completion in 1986 of the M25 London Motorway, which makes commuting from the franchise area to other areas in or near London more convenient. An M1 motorway link exists to give London-bound commuters direct access from Watford to the London highway system. The M1 link is half a mile from the South Herts System headend. There are approximately 94,000 homes in the franchise area, of which approximately 91,500 have been passed by the South Herts System cable television/telephony network. Construction in the franchise area is substantially complete. The average housing density in the South Herts franchise area is approximately 1,150 homes per square mile.

The South Hertfordshire franchise area contains approximately 7,000 businesses, 80 percent of which are small or medium-sized. In addition, there are several business parks containing predominantly industrial and manufacturing concerns.

Construction of a cable television-only network in the South Hertfordshire franchise area commenced in early 1991 and, an integrated cable television/telephony network architecture was developed for this franchise in late 1991. As of December 31, 2001, approximately 91,500 homes, or 97% per cent of total homes, in this area had been passed. Cable television services commenced in April 1992 and telephony services commenced in February 1993, following completion of the installation of a telephony switch. In January 2000, NTL commenced the rollout of digital cable television services within the South Herts franchise and in 2001 commenced Broadband Internet Access services. At December 31, 2001, NTL South Herts serviced 27,231 basic cable television customers including 20,001 digital cable customers, 30,198 residential telephony lines and 122 Broadband customers. As of December 31, 2001, NTL South Herts serves a total of 33,402 customers representing a penetration level of 37%.

Four main types of service are offered by NTL South Herts: cable television (mainly to the home but also to businesses), residential telephony services, Internet access services and telecommunications services for business customers.

Cable Television Services. NTL South Herts offers a range of programming, marketed in a series of packages: basic packages, which include cable exclusive programming and premium packages, which are based on films, sporting events, Asian programming and adult programming. Pay-per-view (“PPV”) facilities are also available, providing a way for customers to buy television programming, including movies, sports and music events. NTL South Herts uses its return path network to encourage viewers to order the PPV events directly using their set top box and remote control, rather than having to place an order over the telephone, which direct-to-home (“DTH”) television subscribers must do. NTL South Herts has converted a high proportion of its cable television customers to digital television services. Digital television is a technology that allows customers to have access to a much higher channel capacity. The increased capacity can be used for more broadcast channels, as well as for PPV, near video-on-demand, broadband Internet access, games, home shopping/banking and a wide range of other interactive services. The primary aim of digital television will be to give more choice to the customer.

Residential Telephony Services. NTL South Herts offers local and long distance and international telephony services to its customers, including advanced services such as call monitoring, call barring, three-way calling, alarm calls, itemized billing, call waiting, call divert, call screening and speed dialing.

Internet services. With the growth in the home PC market fuelling the rapid growth in demand for Internet access and other on-line information services, NTL South Herts is well placed to offer both narrowband and broadband services into the home, making use of its sophisticated “return path” network to offer full interactivity. Broadband Internet Access provides customers with a high-speed, always connected Internet service using either the set top box modem or a stand-alone modem. Broadband Internet Access

Business Telecommunications Services. NTL South Herts offers businesses a range of services alongside basic telephony, including fax, private circuits and virtual private networks. A Centrex service, which offers customers the facilities they would expect from a private switchboard without the need to buy or maintain their own switching equipment, has been introduced.

NTL offers within its franchise areas multiple product cable television and telephony packages (“Dual Product Packages”) and together with Broadband Internet Access (“Triple Product Packages”). These Dual and Triple Product Packages provide customers within these areas with a range of cable television packages integrated with its telephony and Internet access services. These services are priced to compete with the prices of similar products offered separately by BSkyB and BT. They include both a range of basic television packages together with the option to add certain “Premium” channels (including sports and movie channels) and provide the customer with the additional benefit of dealing with just one communications company. Both existing and new customers of NTL take subscriptions with the main interest being the entry-level package, a mid-range package and a big basic package. Based on past experience, NTL believes that customers with both cable television and telecommunications services are less likely to terminate service than those with the cable television service only. Add on packages are designed to provide the consumer with greater choice and flexibility. They are also intended to increase the rate of uptake of dual packaged services in addition to stimulating higher penetration levels.

As a result of the regulation of BT’s prices and increased competition, telephony prices in the UK telecommunications market have declined significantly over the past few years. Price remains an important factor in the residential, small office and home business segments, although in its other business segments, NTL’s pricing strategy is to sell predominantly on value rather than on price alone. NTL’s tariffs for both domestic and international telephone calls are set on the basis of per minute rate, which varies according to the destination and time of call. Except for a minimum fixed charge, NTL charges customers only for the actual time elapsed during a call. Leased circuit services are charged at a fixed rate regardless of usage.

NTL South Herts’ cable television/telephony network passed approximately 97% of homes in the South Hertfordshire franchise area at December 31, 2001.

Network Architecture. NTL South Herts’ network is designed to take integrated two-way broadband cable television systems. Such systems will incorporate a digital overlay telephony network to service the homes and businesses within the franchise area.

NTL South Herts’ network makes extensive use of fiber optic cable. The main benefits of deploying fiber in place of traditional coaxial cable or copper wire result from its smaller size, greater capacity, increased functionality and decreased requirements for periodic amplification of the signal. These factors contribute to lower installation and maintenance costs and increase the variety and quality of the services provided.

The cable television system has the capacity to carry between 200 and 300 channels of television plus radio, teletext, telecommunications and other related services. The network is also capable of conveying video and high speed data transmissions, thus providing the basis for video conference facilities, television surveillance services and computer communications.

Because of the nature of moving picture video, substantial transmission capacity, known as bandwidth, is required to provide a cable television program to the customer. A network’s transmission capacity requirement increases proportionally as additional cable television programs are broadcast to customers. The inherent bandwidth limitations of twisted pair copper wire historically used in telephone networks have to date presented a substantial obstacle to the use of existing telephone networks for the provision of cable television

services. Coaxial cable provides substantially greater bandwidth than twisted pair copper wire and fiber optic cable can provide substantially greater bandwidth than coaxial cable.

NTL South Herts’ telephony network employs an open architecture, using a combination of SDH and PDH Technology for system resilience. Voice and high speed data services may be provided across the network. Multipair copper cable is used to connect fiber optic nodes serving approximately 600 homes to distribution points housed in street cabinets serving 40 homes. From these cabinets, twisted pair copper cable is pulled to the customer’s home.

NTL South Herts’ telephony switch has multiple interconnects to the NTL, C&W and the BT networks.

Network Construction Costs. Construction of integrated cable television/telephony systems is capital intensive, requiring substantial investment for “network costs” including “construction costs” (including trenching and laying underground ducts, cable television and telephony plant, network electronics and headend equipment), “customer costs” (including converters, customer electronics and installation of cable from the network to the customer’s home), and “other costs” (such as switching offices, land and buildings, computers, and capitalization of pre-operating costs and labor). Total capital expenditure by NTL South Herts on its cable television/ telephony systems up to December 31, 2001 was approximately £76.1 million ($110.7 million based on a December 31, 2001 exchange rate of £1=$1.4543).

Construction costs for the South Herts System varies depending upon housing density, geographical terrain and the types of underground conditions encountered. Construction expenses in the UK have been higher than comparable costs in the United States, primarily because of the logistics in laying the fiber optic and coaxial cables for the networks necessitated by the UK’s prohibition on aerial construction. The UK does not have an infrastructure of existing telephone poles, overhead lines or electrical conduits in which to run new fiber optic and coaxial cable. Therefore, nearly all cable installation in the UK requires hand or machine excavation, backfill to specification and permanent reinstatement of surfaces in compliance with the New Roads and Street Works Act 1991 (the “Street Works Act”). The Street Works Act has, however, standardized fees for inspection of construction works by local government authorities and standardized specifications for reinstatement of property following excavation. As a result, construction delays previously experienced by cable operators because of separate and often lengthy negotiations with local government authorities have been reduced.

Domestic Interconnect. Tariffs for national calls are influenced by interconnect charges payable to BT, the dominant operator in the UK telecommunications market. BT’s interconnect rates are regulated by OFTEL. BT’s interconnect charges are, at present, controlled through a price control mechanism linked to the UK Retail Price Index. The interconnect rate entitles an operator to compensation for (i) terminating in its network a call that has originated in another network, (ii) providing its customers with access to those services of another network operator which are invoiced by such other network operator, and (iii) transit of traffic between two networks. Interconnection with other licensed operators is an important component of NTL network, since the majority of the traffic handled by NTL originates from or terminates on BT’s or on other licensed operators’ networks. NTL operates under interconnection agreements with BT and a number of other licensed operators, including cellular, PCN, ISR and cable operators.

International Interconnect. Turnover from international telephone services is derived from outgoing calls made by customers in the United Kingdom and from receipts from overseas telecommunication operators for incoming calls which are passed to the NTL South Herts network for delivery to their final destinations within the United Kingdom or overseas. In turn, NTL South Herts makes payments to overseas operators for the international use of their facilities to deliver the outgoing calls from NTL South Herts customers.

We face significant competition from established and new competitors in the areas of residential telephony, business telecommunications services, Internet and cable television. We believe that competition will intensify in each of these business areas, particularly business telecommunications and Internet.

We compete primarily with BT in providing telephone services to residential customers in the UK. BT occupies an established market position and manages fully built networks and has resources substantially greater than ours. According to the Office of Telecommunications, or OFTEL, in September 2001, BT serviced 81.29% of UK residential telephone exchange line customers. Our growth in telecommunications services, therefore, depends upon our ability to convince BT’s customers to switch to our telecommunications services. We believe that value for money is currently one of the most important factors influencing the decision of UK customers to switch from BT to a competing telecommunications service. BT has, however, introduced price reductions in some categories of calls and, due to regulatory price controls, BT will be making further reductions in its telecommunications prices. Accordingly, although we intend to remain competitive, in the future we may be unable to offer residential telephone services at rates lower than those offered by BT. In this case, we may not achieve desired penetration rates and may experience a decline in total revenues. There can be no assurance that any such decline in revenues or penetration rates will not adversely affect us. In addition to BT, other telecommunications competitors could prevent us from increasing our share of the residential telecommunications market. In particular, carrier pre-selection for all calls (except for some special categories) was launched in 2001 which may increase the appeal of indirect access operators, whose discounted call charges may undercut us.

We believe that we have a competitive advantage in the residential market because we offer integrated telephone, cable television, telecommunications services (including Internet, interactive and on-line services) and multi-product packages designed to encourage customers to subscribe to multiple services. However, there can be no assurance that this competitive advantage will continue. Indeed, BT and all other operators have been permitted to provide and convey cable television services throughout the UK from January 1, 2001, and exclusive franchises will no longer be awarded.

British Sky Broadcasting Limited, or BSkyB, currently markets telecommunications services on an indirect access basis, which requires the customer to dial additional digits before entering the primary telephone number, thus diverting calls onto another operator’s network.

Our cable television systems compete with direct reception over-the-air terrestrial broadcast television, DTH satellite services (i.e., BSkyB) and satellite master antenna systems. In addition, pay television and pay-per-view services offered by us compete to varying degrees with other communications and entertainment media, including home video, cinema exhibition of feature films, live theater and newly emerging multimedia services. We expect that, in the future, we may face competition from programming provided by video-on-demand services.

BT and Cable & Wireless are our principal competitors in providing business telecommunications services. In the future, we may compete with additional entrants to the business telecommunications market. Competition is based on price, range and quality of services, and we expect price competition to intensify if existing and other new market entrants compete aggressively. Most of these competitors have substantial resources and there can be no assurance that these or other competitors will not expand their businesses in our existing markets or that we will be able to continue to compete successfully with such competitors in the business telecommunications market.

Telecommunications service industries in the UK are governed by legislation under the Telecommunications Act 1984, the Broadcasting Act 1990, and the Broadcasting Act 1996. The operator of a full-service telecommunications system in the UK requires the following two principal non-exclusive licenses:


	•	a telecommunications license, granted under the Telecommunications Act by the Secretary of State and supervised by the Department of Trade and Industry, or DTI, and OFTEL, which authorizes the


		installation and operation of the telecommunications network used to provide cable television and cable telephone services; and

	•	a cable television license granted under the Broadcasting Act and supervised by the Secretary of State and the Independent Television Commission, or ITC, which authorizes the provision of broadcasting services.

Each type of license described above contains various conditions, and in the event of the breach of such conditions, the Director General of Telecommunications (the head of OFTEL) or the ITC, as appropriate, could issue an enforcement order and ultimately commence proceedings to require compliance or to revoke such licenses.

BT is currently subject to controls over the prices it may charge customers. In particular, BT may not increase charges for certain services by more than the amount of the percentage change in the retail price index. In Autumn 1999, OFTEL began the process of examining what price controls, if any, should apply to BT after 2001. In February 2001, OFTEL announced that current retail price controls would be extended until July 2002 with a roll over provision for a further year. In January 2002, OFTEL issued a new consultation setting out proposals for the progressive removal of price controls along with certain new measures to stimulate further retail competition.

NTL is not subject to the same scrutiny and control by OFTEL of its retail telephone prices as BT, given NTL’s non-dominant status in the market. However, NTL is subject to prohibitions on undue preference and undue discrimination in its cable television pricing. NTL is also required to publish our standard prices, terms and conditions for cable television services.

The European Union agreed in 1998 to a revision to the Interconnection Directive that made it a requirement for Member States to mandate number portability. Implementing regulations came into force on January 19, 2000 requiring that number portability should be provided on request to all customers switching between different operators and providers of fixed telecommunications services. We have a process in place to comply with our existing obligations and are now in the process of negotiating more service establishment arrangements with other operators.

In November 1999, an OFTEL policy statement mandated the unbundling of BT’s local loop to rival providers, enabling them to offer a range of higher bandwidth services using Digital Subscriber Line (DSL) technology. On August 8, 2000 conditions in BT’s license were brought into force setting out the requirements under which BT must provide services necessary for local loop unbundling. OFTEL published the wholesale prices for BT’s unbundled local loops on December 2000 and prices for shared access were published in 2001 although discussions continue as to the appropriate wholesale charges. In addition, BT is currently rolling out ADSL over its own network. ADSL will allow consumers access to high speed information services. In practice, few companies have taken up the LLU option.

In February 2002, BT announced reductions in its wholesale charges to ISPs (including its own tied ISP) for wholesale ADSL services. These reductions will lead to commensurate reductions in retail rates.

Other subsidiaries of NTL, namely NTL Group Ltd. and National Transcommunications Limited, have Annex II status giving them rights of interconnection at wholesale rates to other operators with similar status.

In April 2000, OFTEL issued a public consultation document on regulated access to cable infrastructure (“open access”). The preliminary conclusion reached by OFTEL was that no case existed for mandating open access to cable infrastructure at that time.

In December 2000, the Office of Fair Trading (OFT) announced that it was commencing an investigation under the UK Competition Act into BSkyB’s activities, in particular the wholesale prices offered to rival distributors of pay television services. This investigation is ongoing. In December 2001, the OFT announced its preliminary finding that BSkyB had been abusing its market power through its pricing practices. The OFT also said that it was aiming to complete the investigation into BSkyB’s pricing by summer 2002.

In addition, in February 2002, the OFT announced that it had decided not to give a decision on whether an agreement entered into by NTL with BSkyB for the carriage of programming at discounted rates, notice of which was given to the OFT in October 2000, was anti-competitive. The OFT’s investigation into BSkyB’s behavior continues.

The Competition Act, which came into force in March 2000, introduced a prohibition on the abuse of a dominant position and on anti-competitive agreements and introduced third party rights, stronger investigative powers, interim measures and effective enforcement powers (including fines of up to 10% of UK turnover). The Competition Act enables third parties to bring enforcement actions directly against telecommunications operators who are in breach of the prohibitions and seek damages, rather than have to wait for the Director General of Telecommunications to make an enforcement order.

In February 2000, OFTEL issued specific guidance on the application of the Competition Act in the telecommunications sector. This guidance states that OFTEL would follow closely the general principles of competition law in its application of the new prohibitions. In addition, the regulators must not reach decisions which are inconsistent with EC law.

On December 12, 2001, OFTEL announced that it has referred to the Competition Commission its proposal to impose a cap on the amount mobile phone operators can charge for receiving calls, onto their networks, OFTEL’s conclusion was that mobile termination rates were substantially in excess of cost and that there was little incentive for operators to reduce the charges. Accordingly, OFTEL has proposed a charge cap on future termination rates of RPI (12)% over four years.

The Competition Commission has six months to reach a decision, which can be extended for a further six months.

In addition to direct UK legislation the activities of NTL are further regulated by the EU under various European Commission Directives. In February 2002, the European Union Commission adopted a package of legislative measures which set out a new framework for electronic communication and ensures that the legislation is more technology neutral. The proposed new framework consists of five harmonization Directives, including a framework Directive and four specific Directives on authorization, access and interconnection, universal service and users’ rights, and data protection in telecommunications services, a Regulation on unbundling the local loop, a draft liberalization Directive and a decision on Community radio spectrum policy.

A White Paper issued in December 2000 — A New Future for Communications — proposed the creation of a new body ‘OFCOM’ to regulate the communications industry. This will merge the functions of, among others, OFTEL, the Radiocommunications Agency and ITC and it is intended that it will provide a more flexible framework for regulating a converging industry.

NTL South Herts owns a freehold property located at Greycaine Road, Watford, United Kingdom for use as offices and to house network equipment.

The Partnership is from time to time subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of the management, the amount of ultimate liability with respect to these actions will not materially affect the Partnership’s financial position, results of operations or liquidity.

There were no matters that were submitted to a vote of the Partners during the quarter ended December 31, 2001.

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

While the Partnership’s Interests are publicly held, there is no established public market for the Interests, and it is not expected that such a market will develop in the future. As of March 31, 2002, the approximate number of holders of the Partnership Interests was 5,200.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Partnership required significant amounts of capital to finance construction of its networks, connection of customers to the networks, other capital expenditures and for working capital needs. The Partnership historically met these liquidity requirements through issuances of limited partnership units and by borrowing from commercial banks and NTL. Both the equity and debt capital markets have recently experienced periods of significant volatility, particularly for securities issued by telecommunications and technology companies. The ability of telecommunications companies to access those markets as well as their ability to obtain financing provided by bank lenders and equipment suppliers has become more restricted and financing costs have increased. During some recent periods, the capital markets have been largely unavailable to new issues of securities by telecommunications companies. NTL Incorporated’s public equity is no longer trading on the New York Stock Exchange, and NTL’s public debt securities are trading at or near all time lows. These factors, together with the Partnership’s substantial leverage, mean the Partnership does not currently have access to its historic sources of capital.

In addition, NTL’s UK credit facilities are fully drawn and NTL’s Swiss subsidiaries are currently unable to draw the remaining undrawn amounts under their credit facility. NTL Communications Corp., a wholly-owned subsidiary of NTL Incorporated, did not pay cash interest on certain series of its notes that was due on April 1, 2002 and April 15, 2002. NTL Incorporated and NTL (Delaware), Inc., a wholly-owned subsidiary of NTL Incorporated, also did not pay cash interest and related fees on a series of their notes that was due on April 15, 2002. As of December 31, 2001, NTL had approximately $505 million in cash and cash equivalents on hand and, on April 4, 2002, received approximately $303 million net cash proceeds from the sale of its Australian business. NTL and the Partnership will require cash for working capital and capital expenditures in 2002. If NTL makes scheduled and overdue interest payments on its notes, then NTL and the Partnership will not have sufficient cash resources to meet its liquidity needs through the third quarter of 2002.

These liquidity concerns raise substantial doubt about the Partnership’s ability to continue as a going concern in view of the Partnership’s dependency upon NTL.

NTL needs to restructure its outstanding debt and/or raise new funds through the issuance of equity or additional debt. On January 31, 2002, NTL Incorporated announced that it had appointed Credit Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic and recapitalization alternatives to strengthen NTL’s balance sheet and reduce debt and put an appropriate capital structure in place for its business. Since then, NTL has been evaluating various recapitalization alternatives to effect a comprehensive consensual reorganization in a timely manner to minimize negative effects on its business operations.

On April 16, 2002, NTL Incorporated announced that NTL and an unofficial committee of its public bondholders had reached an agreement in principle on a comprehensive recapitalization of NTL. The members of the committee hold in the aggregate over 50% of the face value of NTL and its subsidiaries’ public bonds. The recapitalization would result in a conversion of approximately $10.6 billion in debt into equity.

To implement the proposed recapitalization, NTL Incorporated, NTL (Delaware), Inc., NTL Communications Corp., Diamond Cable Communications Limited and Diamond Holdings Limited would file a pre-negotiated recapitalization plan in a Chapter 11 case under the U.S. Bankruptcy Code. NTL’s operating subsidiaries would not be included in the Chapter 11 filing. The agreement in principle is subject to various conditions, including mutually acceptable terms with NTL’s bank lenders. The recapitalization transaction contemplates that the bank debt will remain in place as part of the recapitalization.

To facilitate the recapitalization, certain members of the unofficial committee of bondholders would commit to provide up to $500 million of new debt financing to NTL’s UK and Ireland operations during the Chapter 11 process and for the post-recapitalized NTL. The new financing will ensure that NTL’s business operations have access to sufficient liquidity to continue ordinary operations.

Under the agreement in principle, NTL would be split into two companies, one tentatively called NTL UK and Ireland and holding all of its UK and Ireland assets, and one tentatively called NTL Euroco and holding certain of its continental European and other assets.

Holders of notes of NTL Incorporated, NTL (Delaware), Inc., NTL Communications Corp. and Diamond Cable Communications Limited would in the aggregate receive 100% of the initial common stock of NTL UK and Ireland and approximately 86.5% of the initial common stock of NTL Euroco. NTL (Delaware), Inc. bondholders would have the option to reinvest all or a portion of NTL (Delaware), Inc. cash in additional shares of NTL UK and Ireland common stock, or to receive such cash in the recapitalization. Notes of Diamond Holdings Limited and NTL (Triangle) LLC would remain outstanding and will be kept current in interest payments. Current preferred and common stockholders, including France Telecom, would participate in a package of rights (to be priced at a $10.5 billion enterprise value) and warrants entitling them to purchase primary common stock of NTL UK and Ireland at the consummation of the proposed plan, in the case of the rights, and for the duration of the eight-year warrants at prescribed prices. If fully exercised, those rights and warrants would entitle the current preferred stockholders to acquire approximately 23.6% and the current common stockholders to acquire approximately 8.9% of the entity’s primary common stock.

Current NTL preferred stockholders other than France Telecom would receive approximately 3.2% and current common stockholders, other than France Telecom, would receive approximately 10.3% of the primary equity of NTL Euroco. It is contemplated that subject to consummation of the recapitalization France Telecom would also receive NTL Incorporated’s 27% interest in Noos, pursuant to a pledge of such interests to France Telecom given at the time of its acquisition by NTL.

During the recapitalization process, NTL has maintained normal and regular trade terms with its suppliers and customers. There can be no assurance that NTL’s suppliers will continue to provide normal trade credit or credit on acceptable terms, if at all, or that customers will continue to do business or enter into new business with NTL. See also “Risk Factors” for a summary of risks related to NTL’s business in general and the recapitalization process in particular.

Before NTL could commence negotiations with the unofficial committee of bondholders, it was necessary to obtain waivers from the lenders under its credit facilities. Effective March 8, 2002, these lenders granted waivers which, until March 29, 2002, provided that the commencement of negotiations with bondholders with a view to rescheduling its debt would not constitute an event of default under the credit facilities.

But for the initial waivers, the commencement of negotiations with bondholders would have been an event of default under the credit facilities. If an event of default were to occur, it would entitle the lenders under the credit facilities to declare the principal amount of the outstanding debt immediately due and payable. If this right was exercised, it would result in an event of default under all of NTL’s outstanding notes, except for those issued by Diamond Cable Communications, Diamond Holdings and NTL Triangle, entitling the trustee or 25% of the holders of a series to accelerate the repayment of that series of notes. NTL does not have sufficient cash resources to repay its outstanding indebtedness if it is declared immediately due and payable.


	•	to provide the lenders with a 13 week rolling cash flow projection (updated every two weeks);

	•	to keep the lenders informed of, and to provide documents in connection with, negotiations with bondholders or strategic investors or concerning proposed asset dispositions;

	•	not to repurchase NTL notes; and

	•	not to make an exchange offer for NTL notes or enter into an agreement with NTL bondholders, subject to some exceptions, without the consent of the lenders.

Effective March 28, 2002, the lenders under the credit facilities agreed to amend the initial waivers. The amendments to the initial waivers extend the duration of the initial waivers to April 30, 2002 in the case of the UK credit facilities or May 14 in the case of the Cablecom facility, unless the missed interest payments on April 1, 2002 are remedied or a sufficient number of bondholders agree to forbear in respect of such non-payment, in which case, the UK credit facilities waivers will be extended to May 14, 2002. As a condition to the waivers’ continuing effectiveness, the UK lenders required NTL Delaware to loan £90 million to NTL (UK) Group, Inc. following receipt of the proceeds from the sale of NTL Australia. This loan is structurally senior to the outstanding public notes issued by NTL Communications Corp. but contractually subordinated to the UK credit facilities. In connection with the amendments to the waivers, NTL affirmed the provisions of the initial waivers and in addition, NTL agreed, among other things, to:


	•	provide the bank lenders a timeline setting forth the steps proposed to be taken in connection with the recapitalization and the dates by which such steps are to be taken;

	•	use reasonable endeavors to consider with the lenders under the Cablecom credit facility possible means of credit enhancement;

	•	provide the lenders under the Cablecom credit facility, by April 12, 2002, with an updated structure chart of NTL as well as a contingency business plan for Cablecom in the event that sufficient additional funding for Cablecom is not obtained; and

	•	pay legal, accounting and other advisory fees of the agent or coordinators of the Cablecom credit facility.

The amended waivers prevent NTL from making an exchange offer with respect to its outstanding notes or from entering into an agreement with bondholders without the consent of the lenders under each of the credit facilities. The amended waivers also prohibit NTL from commencing voluntary dissolution proceedings, including proceedings under Chapter 11 of the U.S. bankruptcy code, without the consent of these lenders.

As a consequence, NTL cannot enter into a binding agreement with the unofficial bondholder committee or implement the proposed plan without the consent of its bank lenders.

Cablecom GmbH is the principal trading company of NTL’s Swiss group. There are a number of technical defaults under the Swiss credit facility made available to Cablecom and various of its subsidiaries. In addition, as of December 31, 2001, Cablecom’s and various of its subsidiaries’ liabilities exceeded their respective assets. As a consequence, under Swiss law, those entities were deemed to be “overindebted”. This also constituted an event of default under the Cablecom credit facility which entitles the lenders to accelerate repayment. Such an acceleration would result in an event of default under NTL Incorporated’s and NTL Delaware’s 5.75% convertible subordinated notes due 2011 and 5.75% convertible subordinated notes due 2009, entitling the trustee or the holders of 25% of each series of notes to accelerate repayment. Under Swiss law, unless the over indebtedness is rectified, those entities would be required to commence an insolvency proceeding in Switzerland. A plan has been formulated to rectify this overindebtedness. Implementation of this plan prior to April 30, 2002 will mean those entities will not be required to commence an insolvency proceeding. Those proceedings would likely either be a court supervised moratorium in which an independent administrator, or commissioner, would be appointed to supervise the running of each company during a restructuring or, if there is no viable restructuring plan, a bankruptcy. The commencement of those insolvency proceedings would also constitute an immediate event of default and acceleration of the maturity of the convertible subordinated notes referred to above.

NTL is currently in discussions with the lenders under the Swiss credit facility regarding proposals to resolve the over indebtedness issue as well as requesting that they waive various additional covenant breaches under the credit facility. There can be no assurance that NTL will reach agreement on the resolution of the over indebtedness issue within the time period required or obtain the requested waivers.

NTL has substantial interest payment obligations under its existing indebtedness. NTL Communications Corp. did not make scheduled interest payments due April 1, 2002, in the aggregate amount of $74.3 million, in respect of its 9 1/2% notes due 2008, 11 1/2% notes due 2008 and 11 7/8% notes due 2010. In addition, NTL Communications did not make interest payments falling due on April 15, 2002, totaling $20.2 million, in respect of the 12 3/4% Senior Deferred Coupon Notes due 2005 and NTL Incorporated and NTL Delaware did not make interest payments and payment of related fees falling due on April 15, 2002 in respect of their 5 3/4% Convertible Subordinated Notes due 2011. Those payments were not made after consideration by NTL of requests by the unofficial bondholder committee not to make those payments. Interest payments of $18.9 million were made, when due, on April 2, 2002 in respect of Diamond Cable Communications 13.25% senior discount notes due 2004. On May 15, 2002, interest totaling $94.0 million is due on outstanding notes of NTL Triangle and NTL Communications.

If the applicable issuer does not pay interest on these notes after a 30 day grace period expires (on April 30, 2002 in the case of the missed interest payments due April 1, 2002), there is an event of default under the indenture in respect of the notes on which the interest is due and unpaid. An event of default entitles the trustee under the indenture or the holders of 25% of the outstanding notes to declare the principal amount of those notes to be immediately due and payable. Even if the maturity of those notes is not accelerated after April 30, 2002, such an event of default would also result in an event of default in respect of other debt (commonly called cross defaults) under all of NTL’s other notes, except for those issued by NTL Triangle, Diamond Cable Communications or Diamond Holdings. As a result, upon the expiration of the grace period, on April 30, 2002, events of default for failure to pay interest would occur under the relevant indentures at NTL Communications and, contemporaneously, cross defaults would occur under NTL’s other indentures at NTL Communications, NTL Delaware, NTL Incorporated and under NTL’s UK credit facilities and could occur under NTL’s Cablecom facility. This would give holders of the outstanding series of debt at these entities the right to accelerate repayment of those debts by declaring the principal amount of the debts to be immediately due and payable unless NTL obtains waivers or forbearance agreements from sufficient percentages of its creditors. If that right to accelerate was exercised, NTL would not have sufficient cash resources to repay those debts, which could ultimately lead to voluntary or involuntary bankruptcy proceedings relating to the entities so affected. In addition, the lenders under NTL’s UK credit facilities have security over the assets of NTL’s UK operating subsidiaries, except for the Diamond and NTL Triangle groups of companies. In the event that there was an event of default under those facilities, the lenders could seek to take control of those assets under applicable UK insolvency law.


Colorado		#84-1145140
(State of Organization)		(IRS Employer Identification No.)


Bartley Wood Business Park		Secretary, NTL Incorporated
Hook		110 East 59th Street
Hampshire RG27 9UP		New York, NY 10022
United Kingdom		(212) 906-8440
(Address of Principal Executive Offices)		(Name, address and telephone number of agent for service)


		Page

PART I
Item 1.	Business		2
Item 2.	Properties		11
Item 3.	Legal Proceedings		11
Item 4.	Submission of Matters to a Vote of Security Holders		11
PART II
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters		12
Item 6.	Selected Financial Data		12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 7a.	Quantitative and Qualitative Disclosures about Market Risk		19
Risk Factors			20
Item 8.	Financial Statements and Supplementary Data		23
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		24
Item 10.	Directors and Executive Officers of the Registrant		24
PART III
Item 11.	Executive Compensation		25
Item 12.	Security Ownership of Certain Beneficial Owners and Management		25
Item 13.	Certain Relationships and Related Transactions		25
PART IV
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		26
Exhibit Index			27
Signatures			28



	Years Ended December 31

	2001			2000			1999			1998			1997

Income Statement Data:
Revenues	$	28,354,653		$	26,310,898		$	28,345,316		$	28,396,020		$	23,603,312
Cost of Goods Sold		(12,277,725	)		(10,366,295	)		(10,837,197	)		(11,785,683	)		(11,474,356	)
Selling, General and Administrative		(253,634	)		(99,892	)		(224,211	)		(228,330	)		(2,174,490	)
Management Fees and Allocations from General Partner		(11,901,237	)		(13,128,873	)		(10,447,802	)		(8,173,374	)		(6,058,801	)
Depreciation and Amortization		(14,629,055	)		(4,759,437	)		(6,279,976	)		(4,119,297	)		(6,177,968	)
Write down of fixed assets		—			—			—			—			(6,562,400	)

Operating (Loss)/Income		(10,706,998	)		(2,043,599	)		556,130			4,089,336			(8,844,703	)
Interest Income		—			—			—			39,777			78,749
Interest Expense		(1,577,428	)		(3,217,052	)		(3,322,569	)		(3,743,532	)		(3,599,912	)
Restructuring costs		(2,307,942	)		—			—			—			—

Net (Loss)/Income before Minority Interests		(14,592,368	)		(5,260,651	)		(2,766,439	)		385,581			(12,365,866	)
Minority Interests		4,723,504			1,665,805			797,107			(249,713	)		3,975,339

Net (Loss)/Income	$	(9,868,864	)	$	(3,594,846	)	$	(1,969,332	)	$	135,868		$	(8,390,527	)

Net (Loss)/Income per Limited Partnership Unit	$	(171.60	)	$	(62.51	)	$	(34.24	)	$	2.36		$	(145.90	)
Weighted Average Number of Limited Partnership Units Outstanding		56,935			56,935			56,935			56,935			56,935
Balance Sheet Data:
Total Assets	$	59,167,848		$	70,366,262		$	73,021,980		$	77,814,972		$	76,963,343
Accounts Payable to Affiliates and Related Parties		58,145,703			32,690,227			21,114,583			19,157,847			18,335,570
Long-term debt		—			21,618,413			29,014,559			32,028,350			31,756,220
General Partner’s Deficit		(489,488	)		(390,799	)		(354,851	)		(335,158	)		(336,517	)
Limited Partners’ Capital		540,874			10,311,049			13,869,947			15,819,586			15,685,077
Minority Interests		739,160			5,645,599			7,883,670			8,912,532			8,588,899


	þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


	Regulation


	*European Union Legislation*