Supplemental Disclosure Material - Ono

(4) “RGUs” are revenue generating units where each customer is counted as a revenue generating unit for each service for which such
customer subscribes, regardless of the number of services that customer receives from us. Thus a single customer who receives internet,
television and telephony services from us would account for three RGUs.
(5) “Net churn” means the percentage obtained by dividing the number of customers who cease to receive any of our services (either
voluntarily or involuntarily) in the last quarter of the relevant period by the average total number of customers during that quarter,
multiplied by four. The average number of customers for any period is calculated by adding the number of customers at the beginning of
the period to the number of customers at the end of the period and dividing by two. Excluded from net churn are customers who move
locations and terminate their subscription at their old location but resubscribe at their new location.
(6) We do not report numbers of customers in the “large accounts & corporations” and “wholesale & other” business segments because such
data are not meaningful.
(7) Audited.
The following are key factors affecting our results during the periods under review:
Transformation Process
Towards the end of 2008, faced with weakening international economic conditions, we commenced a
transformation process. The transformation focused on adjusting our business model to the changed economic environment
and stabilizing its operations following a period of rapid expansion, with the aim of creating a more efficient platform for
future growth. This process also coincided with significant changes in our senior management. Largely completed by the end
of 2009, the transformation process included a wide range of initiatives focused on maximizing cash flow, implementing cost
efficiencies, reshaping our organization and attracting and retaining high-quality customers. As a result of the transformation,
we believe we have become a more resilient and efficient company. Our EBITDA increased from €730 million in 2009 to
€748 million in 2011, our EBITDA margin increased from 48.3% in 2009 to 50.4% in 2011 and operating free cash flow
decreased from €510 million in 2009 to €456 million in 2011.
Customer Focus and Effects of Recession
As part of our transformation process, we developed and began to implement a new strategy focused on the
acquisition and retention of high-quality customers and on product superiority (including our high-speed internet packages
and our next generation TV service—TiVo). Previously our focus had been on customer acquisition, which included the use
of short-term promotions and mass market advertising, resulted in relatively high levels of net churn at the end of the
promotion period. Our new strategy involves focusing our marketing and customer care efforts on attracting and retaining
more creditworthy customers whom we judge less likely to churn and to whom we believe we can successfully market our
double- and triple-play bundled packages. We believe that the success of this new strategy is reflected in our improved ARPU
and RGU numbers during 2009, 2010 and 2011 in the residential and SME segments.
However, the economic recession in Spain that resulted from the financial and economic crisis started in 2008 has
significantly impacted our financial and operational performance, partially offsetting the effect of our revised customer focus
strategy in the periods under review. In this sense, although certain operational metrics have improved during the periods
under review, largely as a result of our new strategy and despite the adverse economic climate, our revenues were essentially
unchanged between 2009 and 2010. Revenues recorded positive growth in 2011 and increased by 0.9% as compared to 2010.
The combined effect of our new customer strategy and the impact of the adverse economic climate in Spain on our
residential fiber customer numbers, net churn, ARPU and RGUs is described below:
Residential fiber customers: Our residential fiber customer base decreased by 0.8% in 2010, by 0.2% in 2011 and
by 1.7% in the twelve months ended March 31, 2012, to reach approximately 1.8 million customers. The slight decline in our
residential fiber customer numbers between 2009 and 2011 was primarily driven by the shift in our focus to more
creditworthy customers through the introduction of a credit scoring system, additional activation and installation fees and
reductions in promotions, as well as by the challenging economic and industry environments in Spain. The decrease
experienced in the twelve months ended March 31, 2012 was primarily driven by the slowdown in the number of broadband
additions experienced in the market coupled with the new dynamics experienced in the Spanish telecom market by which
most operators shifted from aggressive customer acquisition strategies to strategies focused on customer retention.
Residential fiber net churn: Our net churn (based on the last quarter of each period) for our residential fiber
business increased from 13.9% in 2009 to 18.8% in 2011. This increase was primarily driven by some customers dropping
their telecommunication services to preserve their disposable incomes, along with the increased promotional activity
experienced in the Spanish telecommunication market that has impacted a portion of our most price sensitive customers
(mainly single play customers). In the quarter ended March 31, 2012, our residential fiber net churn increased by 3.6% as
compared to the same quarter of the previous year to reach 18.4%. This increase was primarily driven by some customers
dropping their telecommunication services to preserve their disposable incomes, along with the increased promotional activity
experienced in the market that impacted a portion of our most price sensitive customers (mainly single play customers). Going
forward we intend to continue focusing on stabilizing net churn with the implementation of a series of initiatives to promote
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