UNITEDGLOBALCOM INC - 10-K Annual Report

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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ý Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

FISCAL YEAR ENDED DECEMBER 31, 2003

o Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from to to

Commission File No. 000-496-58

UnitedGlobalCom, Inc.
(Exact name of Registrant as specified in its charter)

State of Delaware		84-1602895
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4643 South Ulster Street, Suite 1300
Denver, CO 80237
(Address of principle executive offices)

Registrant's telephone number, including area code: (303) 770-4001

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01 per share

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. Yes ý 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 an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o

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, as of the last business day of the registrant's most recently completed second fiscal quarter: $507.7 million.

The registrant's outstanding common stock as of March 12, 2004 consisted of:

Class A common stock – 387,666,548 shares of a total authorized of 1,000,000,000
Class B common stock – 10,493,461 shares of a total authorized of 1,000,000,000
Class C common stock – 385,828,203 shares of a total authorized of 400,000,000

TABLE OF CONTENTS


PART I
ITEM 1.		BUSINESS
ITEM 2.		PROPERTIES
ITEM 3.		LEGAL PROCEEDINGS
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5.		MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6.		SELECTED FINANCIAL DATA
ITEM 7.		MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A.		CONTROLS AND PROCEDURES
PART III
ITEM 10.		DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.		EXECUTIVE COMPENSATION
ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14.		PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15.		EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

PART I

ITEM 1. BUSINESS

(a) General Development of Business

We are the largest international broadband communications provider of video, voice and Internet services with operations in 15 countries outside the United States. Our networks reach approximately 12.7 million homes and serve approximately 7.5 million video subscribers, 733,000 voice subscribers and 924,200 Internet access subscribers. UGC Europe, Inc. (together with its subsidiaries "UGC Europe"), our largest consolidated operation, is a leading pan-European broadband communications company. Through its broadband networks, UGC Europe provides video, high-speed Internet access, telephone and programming services. UGC Europe's operations are currently organized into two principal divisions – UPC Broadband and chellomedia. UPC Broadband delivers video, high-speed Internet access and telephone services to residential customers. chellomedia provides broadband Internet and interactive digital products and services, produces and markets thematic channels, operates our digital media center and operates a competitive local exchange carrier ("CLEC") business providing telephone and data network solutions to the business market under the brand name Priority Telecom. Our primary Latin American operation, VTR GlobalCom S.A., ("VTR") is Chile's largest multi-channel television and high-speed Internet access provider in terms of homes passed and number of subscribers, and Chile's second largest provider of residential telephone services, in terms of lines in service. We also have an approximate 19% interest in SBS Broadcasting S.A. ("SBS"), a European commercial television and radio broadcasting company, and an approximate 34% interest in Austar United Communications Ltd. ("Austar United"), a leading pay-TV provider in Australia.

UnitedGlobalCom, Inc. (together with its subsidiaries the "Company", "UGC", "we", "us", "our" or similar terms) was formed in February 2001 as part of a series of planned transactions with Old UGC, Inc. ("Old UGC", formerly known as UGC Holdings, Inc., now our wholly owned subsidiary) and Liberty Media Corporation (together with its subsidiaries and affiliates "Liberty"), which restructured and recapitalized our business. Old UGC has operated international broadband communications companies since 1989.

Recent Organizational and Financial Developments

United Pan-Europe Communications N.V. Reorganization

In September 2003, as a result of the consummation of UPC's plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code and insolvency proceedings under Dutch law, UGC Europe acquired all of the stock of, and became the successor issuer to, UPC. Prior to UPC's reorganization, we were the majority stockholder and largest single creditor of UPC. We became the holder of approximately 67% of UGC Europe's common stock in consideration for the equity and debt of UPC that we owned prior to UPC's reorganization.

UGC Europe Exchange Offer and Merger

On December 18, 2003, we completed an exchange offer pursuant to which we offered to exchange 10.3 shares of our Class A common stock for each outstanding share of UGC Europe common stock not owned by us. On December 19, 2003, we effected a short-form merger between UGC Europe and one of our subsidiaries on the same terms offered in the exchange offer. We issued approximately 172.2 million shares of our Class A common stock to third parties in connection with the exchange offer and merger. We now own all of the outstanding equity securities of UGC Europe.

Liberty Acquisition of Controlling Interest

On January 5, 2004, Liberty acquired approximately 8.2 million shares of Class B common stock from our founding stockholders in exchange for securities of Liberty and cash (the "Founders Transaction"). Upon the completion of this exchange and subsequent acquisitions of our stock, Liberty owns approximately 55% of our common stock, representing approximately 92% of the voting power. Beginning with the next annual meeting of our stockholders, the holders of our Class A, Class B and Class C common stock will vote together as a single class in the election of our directors. Liberty now has the ability to elect our entire board of directors and otherwise to generally control us. The closing of the Founders Transaction resulted in a change of control of us.

Upon closing of the Founders Transaction, our existing standstill agreement with Liberty terminated, except for provisions of that agreement granting Liberty preemptive rights to acquire shares of our Class A common stock. These preemptive rights will survive indefinitely, as modified by an agreement dated November 12, 2003, between Liberty and us. The former standstill agreement restricted the amount of our stock that Liberty could acquire and restricted the way Liberty could vote our stock. On January 5, 2004,

Liberty entered into a new standstill agreement with us that generally limits Liberty's ownership of our common stock to 90% or less, unless Liberty makes an offer or effects another transaction to acquire all of our common stock. Except in the case of a short-form merger in which our stockholders are entitled to statutory appraisal rights, such offer or transaction must be at a price at or above a fair value of our shares determined through an appraisal process if a majority of our independent directors has voted against approval or acceptance of such transaction.

Rights Offering

We distributed to our stockholders of record on January 21, 2004, transferable subscription rights to purchase shares of our Class A, Class B and Class C common stock at a per share subscription price of $6.00. The rights offering, which expired on February 12, 2004, was fully subscribed, resulting in gross proceeds to us of approximately $1.0 billion. We issued approximately 83.0 million shares of our Class A common stock, 2.3 million shares of our Class B common stock and 84.9 million shares of our Class C common stock in the rights offering.

Noos Transaction

On March 15, 2004, we signed a share purchase agreement with SUEZ, a French utility group, to acquire France's largest cable operator, Noos. The price of the transaction values the enterprise at approximately 7.25 times its annualized 2004 EBITDA at closing, capped at a maximum price of €660.0 million. SUEZ will acquire a 20% interest in our combined French operations. The transaction is subject to regulatory approval.

(b) Financial Information About Industry Segments

Financial information about industry segments appears in our financial statements included in Item 8 – Financial Statements and Supplementary Data.

(c) Narrative Description of Business

Broadband Services

We offer a variety of services over our cable networks, including analog video, digital video, high-speed Internet access and telephone services. Available service offerings depend on the bandwidth capacity of our cable networks. As bandwidth increases, the information-carrying capacity of the system increases. When we upgrade our network, we replace parts of the coaxial cable with fiber optic lines and upgrade the remaining coaxial cable to provide for two-way transmission and increase transmission speed and bandwidth. This upgrading allows signals to be sent to and from the subscriber's home, enabling us to provide enhanced video, telephone, and Internet access services. As of December 31, 2003, approximately 59% of our network is capable of handling two-way communications.

We plan to continue increasing our growth in average revenue per subscriber, commonly known as "ARPU", through rate increases for our video services, migrating more customers to our digital offerings, which include premium programming and enhanced pay-per-view services, and increasing penetration in higher ARPU services such as high-speed Internet access and telephone services. We receive the majority of our revenues from subscription services. Subscribers typically pay us on a monthly basis and generally may discontinue services at any time (subject to a notice period that varies by country and other contractual restrictions). Monthly subscription rates and related charges vary according to the type of service selected and the type of equipment used by subscribers.

Analog Video Services

We offer a full range of analog video services. 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 analog video service offerings vary by country, but generally include the following:

•: Basic programming. Our basic cable service typically consists of between 10-30 channels of programming (with the exception of Chile, where over 50 channels of basic programming are provided). This service generally consists of programming provided by national television networks, local broadcast television stations, locally originated programming, including governmental and public access, and limited satellite-delivered programming. In some countries we have a lifeline service, representing the lowest regulated tier of video services, with only a few channels.

•: Expanded basic programming. Our expanded basic cable service, which may vary in size depending on the system's channel capacity, generally includes from 5 to 15 satellite-delivered or non-broadcast channels in addition to the basic channel line-up.

Some of our subscribers in Eastern Europe and Chile receive our video services broadcast directly to the home via geosynchronous satellites, commonly known as "DTH".

Digital Cable Services

Digital compression technology enables us to substantially increase the number of channels our cable systems can carry, thereby providing a significant number of additional programming choices to our subscribers, such as near video-on-demand and video-on-demand, commonly known as "NVOD" and "VOD", interactive television and customizable programming guides. At the home, a set-top video terminal, often referred to as a "digital set-top box," converts the digital signal into analog signals that can be viewed on a television set. Subscribers typically pay us on a monthly basis for digital cable services and generally may discontinue services at any time. Monthly rates vary generally according to the level of service and the number of digital set-top boxes selected by the subscriber. Our digital service offerings vary by country, but generally include:

•: Basic services. Our digital basic package generally includes over 50 channels of programming in various genres.
•: Premium services. Our premium services generally offer, without commercial interruption, movies, live and taped sporting events, concerts and other special features. The charge for premium services depends upon the type and number of premium channels selected by the subscriber.
•: Pay-per-view programming. Our pay-per-view service permits our subscribers to order, for a separate fee, movies and special event programs, such as professional sports and concerts on an unedited, commercial-free basis.

High-Speed Internet Services

We offer Internet services in ten countries in Europe and four in Latin America. Residential subscribers can access the Internet via cable modems connected to their personal computers at faster speeds than that of conventional modems. Our product offerings, (branded chello in Europe and Banda Ancha in Chile), include several tiers of always on, unlimited-use services, from 64 Kbps of access speed to 5 Mbps (high). Pricing for each different tier of service is determined by speed, data limits and other features.

Telephone Services

We offer telephone services in six countries in Europe and Chile. In addition to basic dial tone service, we offer a full complement of services to subscribers including caller identification, call waiting, call forwarding, call blocking, speed dial, distinctive ringing, three-way calling, voice mail and second lines.

Operating Data

The following tables present certain subscriber data for systems we control and consolidate the results of operations in our financial statements:

			December 31, 2003
							Video			Internet		Telephone
			Homes in Service Area(1)	Homes Passed(2)	Two-way Homes Passed(3)	Customer Relationships(4)	Analog Cable Subscribers(5)	DTH Subscribers(6)	Digital Cable Subscribers(7)	Homes Serviceable(8)	Subscribers(9)	Homes Serviceable(10)	Subscribers(11)	Total RGUs(12)
Europe:
	The Netherlands		2,651,300	2,603,000	2,372,500	2,403,000	2,313,200	–	50,400	2,372,500	324,300	1,605,900	158,600	2,846,500
	Austria		1,081,400	923,300	920,100	567,300	497,300	–	24,700	920,100	205,800	899,700	153,900	881,700
	France		2,656,600	1,384,600	695,000	500,100	467,100	–	6,500	695,000	26,200	695,000	58,400	558,200
	Norway		529,000	484,400	221,700	340,600	340,600	–	33,300	221,700	37,000	141,700	23,600	434,500
	Sweden		770,000	421,600	271,300	281,700	281,700	–	24,300	271,300	68,600	–	–	374,600
	Belgium		530,000	154,200	154,200	144,200	131,800	–	–	154,200	27,400	–	–	159,200

		Total Western Europe	8,218,300	5,971,100	4,634,800	4,236,900	4,031,700	–	139,200	4,634,800	689,300	3,342,300	394,500	5,254,700

	Poland		1,875,300	1,875,300	400,900	988,900	988,900	–	–	400,900	32,600	–	–	1,021,500
	Hungary		1,170,400	986,100	600,600	851,600	708,200	103,000	–	568,400	41,300	87,200	64,800	917,300
	Czech Republic		913,000	720,900	287,500	386,400	299,900	76,700	–	287,500	25,400	17,700	2,400	404,400
	Romania		659,600	458,400	–	333,300	333,300	–	–	–	–	–	–	333,300
	Slovak Republic		517,800	399,800	80,200	296,300	283,800	12,100	–	76,100	2,500	–	–	298,400

		Total Central and Eastern Europe	5,136,100	4,440,500	1,369,200	2,856,500	2,614,100	191,800	–	1,332,900	101,800	104,900	67,200	2,974,900

		Total Europe	13,354,400	10,411,600	6,004,000	7,093,400	6,645,800	191,800	139,200	5,967,700	791,100	3,447,200	461,700	8,229,600

Latin America:
	Chile		2,350,000	1,752,100	1,030,700	596,100	488,000	5,500	–	1,030,700	129,200	1,020,600	271,300	894,000
	Brazil		650,000	463,000	463,000	16,200	9,000	–	6,500	463,000	700	–	–	16,200
	Peru		140,000	66,800	30,300	13,600	12,300	–	–	30,300	2,700	–	–	15,000
	Uruguay		–	–	8,000	500	–	–	–	8,000	500	–	–	500

		Total Latin America	3,140,000	2,281,900	1,532,000	626,400	509,300	5,500	6,500	1,532,000	133,100	1,020,600	271,300	925,700

		Grand Total	16,494,400	12,693,500	7,536,000	7,719,800	7,155,100	197,300	145,700	7,499,700	924,200	4,467,800	733,000	9,155,300

			December 31, 2002
						Video			Internet		Telephone
			Homes in Service Area(1)	Homes Passed(2)	Two-way Homes Passed(3)	Analog Cable Subscribers(5)	DTH Subscribers(6)	Digital Cable Subscribers(7)	Homes Serviceable(8)	Subscribers(9)	Homes Serviceable(10)	Subscribers(11)	Total RGUs(12)
Europe:
	The Netherlands		2,650,700	2,580,300	2,332,000	2,332,600	–	52,200	2,332,000	303,600	1,587,900	170,000	2,858,400
	Austria		1,081,400	923,300	920,100	502,200	–	18,700	920,100	177,600	899,700	148,600	847,100
	France		2,656,600	1,350,200	661,600	459,800	–	8,300	661,600	20,400	661,600	54,200	542,700
	Norway		529,000	481,700	190,700	336,400	–	32,200	190,700	31,200	132,400	21,800	421,600
	Sweden		770,000	421,600	257,400	273,000	–	14,900	257,400	61,700	–	–	349,600
	Belgium		530,000	153,500	153,500	130,500	–	–	153,500	24,100	–	–	154,600

		Total Western Europe	8,217,700	5,910,600	4,515,300	4,034,500	–	126,300	4,515,300	618,600	3,281,600	394,600	5,174,000

	Poland		1,869,000	1,869,000	190,800	994,900	–	–	190,800	13,900	–	–	1,008,800
	Hungary		1,001,100	952,800	481,800	686,900	79,100	–	420,200	28,200	84,900	65,100	859,300
	Czech Republic		913,000	678,100	238,300	295,400	52,000	–	238,300	15,300	17,700	3,100	365,800
	Romania		659,600	458,400	–	324,100	–	–	–	–	–	–	324,100
	Slovak Republic		517,800	381,000	17,300	297,400	9,900	–	–	–	–	–	307,300

		Total Central and Eastern Europe	4,960,500	4,339,300	928,200	2,598,700	141,000	–	849,300	57,400	102,600	68,200	2,865,300

		Total Europe	13,178,200	10,249,900	5,443,500	6,633,200	141,000	126,300	5,364,600	676,000	3,384,200	462,800	8,039,300

Latin America:
	Chile		2,350,000	1,692,200	971,200	462,600	6,900	–	958,100	70,300	971,200	228,100	767,900
	Brazil		650,000	463,000	463,000	8,800	–	8,900	463,000	300	–	–	18,000
	Peru		140,000	66,600	29,100	11,600	–	–	29,100	1,800	–	–	13,400
	Uruguay		–	–	6,300	–	–	–	6,300	500	–	–	500

		Total Latin America	3,140,000	2,221,800	1,469,600	483,000	6,900	8,900	1,456,500	72,900	971,200	228,100	799,800

		Grand Total	16,318,200	12,471,700	6,913,100	7,116,200	147,900	135,200	6,821,100	748,900	4,355,400	690,900	8,839,100

(1): "Homes in Service Area" are homes in our franchise areas that can potentially be served, based on census data and other market information.
(2): "Homes Passed" are homes that can be connected to our broadband network without further extending the distribution plant.
(3): "Two-way Homes Passed" are homes passed by our network where customers can request and receive the installation of a two-way addressable set-top computer, cable modem, transceiver and/or voice port which, in most cases, allows for the provision of video, telephone and Internet services.
(4): "Customer Relationships" are the number of customers who receive at least one level of service (video/telephone/Internet) without regard to which service(s) they subscribe.
(5): "Analog Cable Subscriber" is comprised of basic analog customers and lifeline customers that are counted on a per connection basis. Commercial contracts such as hotels and hospitals are counted on an equivalent bulk unit ("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.
(6): "DTH Subscriber" is a home or commercial unit that receives our video programming broadcast directly to the home via geosynchronous satellites.
(7): "Digital Cable Subscriber" is a home or commercial unit connected to our distribution network with one or more digital converter boxes that receives our digital video service. A Digital Cable Subscriber is also counted as an Analog Cable Subscriber.
(8): "Internet Homes Serviceable" are homes that can be connected to our broadband network where customers can request and receive Internet access services.
(9): "Internet Subscriber" is a home or commercial unit with one or more cable modems connected to our broadband network, where a customer has requested and is receiving high-speed Internet access services.
(10): "Telephone Homes Serviceable" are homes that can be connected to our broadband network (or twisted pair network in Hungary), where customers can request and receive voice services.
(11): "Telephone Subscriber" is a home or commercial unit connected to our broadband network (or twisted pair network in Hungary), where a customer has requested and is receiving voice services.
(12): "Revenue Generating Unit" ("RGU") is separately an Analog Cable Subscriber, DTH Subscriber, Digital Cable 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 analog cable service, digital cable service, telephone service and high-speed Internet access service, the customer would constitute four RGUs. "Total RGUs" is the sum of Analog, DTH, Digital Cable, Internet and Telephone Subscribers.

Broadband Services by Country

The Netherlands

We operate the largest cable network in The Netherlands in terms of number of subscribers. We provide services to over 30% of Dutch households. Our subscribers are located in six regional clusters, including the major cities of Amsterdam and Rotterdam. Our network is approximately 91% upgraded to two-way capability, with approximately 94% of our cable subscribers served by a system with a bandwidth of at least 860 MHz.

We offer analog television services to approximately 91% of the households in our footprint. We launched digital cable service in 1999, and approximately 82% of our homes passed are capable of receiving digital television. We offer our digital cable subscribers a basic package of 58 channels with an option for 15 additional general entertainment, movie, sports, music and ethnic channels or packages and an electronic program guide. Our digital cable service offers NVOD services, interactive services and is capable of emailing via the television to 57% of our homes passed.

We offer five tiers of high-speed Internet access service under the brand name chello, with download speeds ranging from 128 Kbps to 4.6 Mbps. chello starter, chello entry, chello light, chello classic and chello plus offer download speeds of 128 Kbps, 400 Kbps, 1.0 Mbps, 2.6 Mbps and 4.6 Mbps, respectively.

We launched telephone services in 1998, and are capable of providing multi-feature services to approximately 62% of the homes in our networks. We offer several extra telephone features such as voice mail and wake up service. During 2004, we plan to begin offering telephone services to our two-way upgraded homes by applying IP-based technology.

In September 2003, we began offering incentives to customers who subscribe to more than one service other than the basic analog subscription. Bundles consist of two or more combinations of our three main services—digital cable, high-speed Internet access and telephone service, and their variants. During 2004, we plan to offer a variety of up to ten bundles. The incentives we provide to our subscribers vary from a monthly recurring discount to 30 free call minutes or a free NVOD movie.

In 2004, we launched self-install for all of our Internet access services which allows subscribers to install themselves and save money on the installation fee. We also plan to launch self-install for our digital cable and telephone services during 2004. Currently 50% of our new chello Internet access subscribers have chosen to self-install their new service.

Austria

We own and operate the largest cable television system in Austria in terms of number of homes passed and number of subscribers. Our subscribers are located in regional clusters encompassing the capital city of Vienna, two other regional capitals and two smaller cities. Each of the respective cities in which we operate owns, directly or indirectly, 5% of our operating company. Our network in Austria is over 99% upgraded to two-way capability, with 97% of our cable subscribers served by a system with a bandwidth capacity of at least 750 MHz. Our system that serves Vienna operates one of the largest clusters of cable systems in Europe in terms of subscribers served from a single headend.

We provide a single offering for analog TV that consists of 34 channels, mostly in the German language. We initially launched an expanded basic tier of analog TV and a pay-per-view service in 1997. This was replaced in the second half of 2001 when we launched digital video services in Austria. Our digital platform is one of the most sophisticated in Europe, offering more than 100 regular and premium TV channels, plus NVOD, interactive services, e-mail functionality and an electronic program guide. Later in 2004 we plan to offer subscription video-on-demand, or "SVOD", and true-video-on-demand, commonly known as "TVOD". Our premium content includes first run movies, as well as specific ethnic offerings, for example Serb and Turkish channels.

High-speed Internet access services were launched in 1997 and we currently offer five tiers of service to subscribers under the chello brand, in all the cities in our footprint. Download speeds for these tiers range from 256 Kbps to 2 Mbps. Most of our Internet access subscribers use services with a transfer speed of 1.024 Mbps download and 128 Kbps upload, branded chello classic. We started to diversify our Internet access services by launching chello plus (premium tier with 1.536 Mbps download speed) in Q2 2001 and launched chello light (lower tier) in late 2003. We also provide a chello professional product to small office/home office, or "SOHO", subscribers and a chello student product to university students. Approximately 32% of our cable subscribers also receive Internet access service, representing approximately 90% of our Internet access subscribers in Austria.

Telephone services were launched in 1998 and we are technically capable of providing multi-feature telephone lines to the vast majority of our residential subscribers. We offer basic dial tone service as well as several value-added services, including voice mail, caller ID, speed dial, wake-up service, call waiting, call forwarding, local bill detail, access control service, and unlisted number, some of which are provided as part of the normal monthly line rental charge. We primarily provide service to residential customers who require one or two telephone lines. We also have cooperation with the third largest mobile phone operator in Austria to offer a bundled product of fixed line and mobile telephone services under the brand "Take Two". More than 100,000 of our customers subscribe to this product.

In 2001 we introduced bundled services and have focused on selling product bundles rather than individual services since then. Currently we have a ratio of approximately 1.5 services per subscriber. Our product offering, market communication and sales structure are based on promoting product bundles.

France

We are one of the largest cable television providers in France in terms of homes passed and number of subscribers. Our major operations are located in suburban Paris, the Marne la Vallee area east of Paris and Lyon, with our other operations spread throughout France. Our network is approximately 50% upgraded to two-way capability, with 83% of our cable subscribers served by a system with a bandwidth capacity of at least 750 MHz. In 2003 we launched a new digital TV platform throughout 90% of our homes passed. This platform offers two basic packages—63 channels and 78 channels (including set-top-box rental). Programming includes series, general entertainment, youth, sports, news, documentary, music, lifestyle and foreign channels. With the expanded basic tier, we provide three movie premium packs, a pay-per-view service, two "a la carte" channels and several Canal+ channels. We intend to migrate most of our analog subscribers to this new digital tier. Approximately 29% of our analog cable subscribers subscribe to a bundled service (telephone and/or Internet).

High-speed Internet access service is available to 53% of our homes passed on two tiers, with an additional two tiers planned for launch. We launched a chello light service in June 2003, with download speeds at 128 Kbps. We increased the speed of our chello classic service from 512 Kbps to 768 Kbps in November 2003, and plan to increase the speed to 1 Mbps in mid 2004. Approximately 75% of all our Internet subscribers also subscribe to another service (video and/or telephone).

We launched telephony services to selected areas of our network in 1998. We are capable of providing multi-feature telephone service to 50% of our homes passed. Local number portability was introduced in 2003, which allows subscribers to change to our network and retain their current telephone number. Approximately 63% of our telephone customers subscribe to a bundled service (video and/or Internet).

Norway

We are Norway's second largest cable television operator in terms of number of subscribers. Our main network is located in Oslo and our other systems are located primarily in the southeast and along the southwestern coast. Our network in Norway is approximately 46% upgraded to two-way capability, with 30% of our cable subscribers served by a system with a bandwidth capacity of at least 860 MHz. Digital TV services were launched in 2001 and 37% of our network is digital TV ready.

Our basic analog cable package is the plus-package with 23 channels in various genres. In addition to the plus-package, customers can subscribe to pairs of channels from the upper level tier. Our highest analog tier, the total-package, includes the plus-package and 12 additional channels. All analog customers can also subscribe to different movie, sports, entertainment and ethnic channels. Approximately 60% of our customer base consists of multi-dwelling units ("MDUs"), with a discounted pricing structure. On March 1, 2004, we launched a new lower-tier analog cable package with 15 channels.

Our basic digital TV package consists of 27 channels. The upper level package is our total-DTV package, with an additional 23 channels. Basic DTV customers can subscribe to pairs of channels from the Total-DTV package for an additional fee. DTV customers can choose different movie, sports, entertainment and ethnic channels from an a la carte menu by paying per channel.

We were the first company in Norway to launch high-speed Internet access in 1999. Currently we offer our customers three different tiers: chello light (256 Kbps/64 Kbps download/upload speed); chello classic (768 Kbps/128 Kbps); and chello plus (1.024 Mbps/256 Kbps). chello light was launched in 2003 and is currently the cheapest Internet access subscription fee in Norwa