iesy Repository GmbH - Irish Stock Exchange

terminated several nationwide carriage agreements administered by MSG under Term Sheet 4 with effect from December 31,
2005 and has announced its intention to terminate several others by the end of 2006. As a consequence of such termination,
these agreements would no longer be administered by MSG under Term Sheet 4 and the scope of services rendered under this
Term Sheet would therefore be largely reduced.
Furthermore, ish, MSG and all other Level 3 operators have entered into an agreement under which MSG renders
certain services related to the distribution of ish’s foreign-language programming packages in addition to the services
provided under Term Sheet 1. This agreement expired on December 31, 2004 but has been prolonged for the purpose of the
currently ongoing renegotiations of the digital platform services related to the foreign-language package. ish expects to be
technically able to carry out such services in its NOC by the end of 2005. But see “Risk factors—We rely on MSG, a
subsidiary of KDG, for the provision of certain digital playout services and because of changes in our relationship with MSG,
our premium cable television services could be disrupted or become more expensive in the future.”
In addition, ish and MSG entered into an agreement with respect to the transitional provision of certain additional
conditional access services for existing MSG smart cards, especially the use of an “ish zone” on MSG smart cards which
allows the individual activation and deactivation of ish’s digital offering. Unless the parties agree otherwise, this agreement
will expire on July 31, 2005 and the “ish zone” will be removed from the MSG smart cards. ish expects to be technically able
to carry out such services for ish or other adequate smart cards in its NOC by the end of 2005. But see “Risk factors—We
rely on MSG, a subsidiary of KDG, for the provision of certain digital playout services and because of changes in our
relationship with MSG, our premium cable television services could be disrupted or may lead to higher costs. Existing
contracts of MSG with third parties, especially Premiere, as well as our current agreements with MSG could adversely affect
the development of our digital strategy.”
Other
In addition, ish licenses the programs for its foreign language television offerings from Mediapool, a program provider
who acquires content on its behalf, for a monthly fee that varies per program per subscriber. The initial term of ish’s contract
with Mediapool expires on December 31, 2009. ish procures content for its other premium cable television offerings directly
from broadcasters and procures its pay-per-view content from arrivo. ish pays a fixed amount per subscriber to these content
providers. Pursuant to its agreement with arrivo, ish pays a minimum sum. ish’s programming costs may increase in the
future with an enhancement or expansion of our premium cable television services. See “Risk Factors—Risks Relating to Our
Business—We do not have guaranteed access to programs and are dependent on agreements with third parties for our content
and carriage fees, which may adversely affect our business” and “Business of ish—Products and Services—Premium Cable
Television—ish’s Programming Content and Payments.”
Personnel Expenses
Personnel expenses include salaries and wages, and social security, and other pension costs of the permanent staff. It
also includes other forms of compensation such as overtime and stand-by pay, and does not include temporary staff costs,
which are included as other operating expenses. In the three months ended March 31, 2005, personnel expenses were €14.5
million and €65.8 million for the year ended December 31, 2004. In 2002, ish began to restructure its business. This
restructuring included significant headcount reductions in 2003 and 2002, which resulted in a decrease in personnel expenses
in 2004 and the first three months of 2005.
ish has negotiated various collective bargaining agreements directly with one of its labor unions. These collective
bargaining agreements cover the general labor conditions of ish’s employees (other than executives), such as working hours,
holidays, termination, redundancy protection and general payment schemes for wages. ish intends to negotiate new and
renegotiate existing collective bargaining agreements in 2005 to simplify structures and to increase workforce flexibility as
ish introduces new products and services. During 2004 and 2005, ish renegotiated a significant number of its works council
agreements. See “Risk Factors—Risks Related to Our Business—Strikes or other industrial actions as well as the negotiation
of a new collective bargaining agreement could disrupt our operations or make it more costly to operate our facilities” and
“Business of ish—Employees.”
Depreciation and Amortization
ish records depreciation and amortization expenses relating to the annual charge for regular amortization and
depreciation on the broadband cable network, leasehold improvements, and the co-utilization rights for cable ducts. Although
ish’s depreciation and amortization has remained fairly stable, except for an extraordinary depreciation of €29.2 million in
2004 mainly relating to network construction in progress and leasehold improvements at technical sites, ish expects
depreciation and amortization to decrease in the future as certain business expansion expenses capitalized in 2001 come to
the end of their depreciation lives.
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