iesy Repository GmbH - Irish Stock Exchange

equire a set-top box for the reception of digital programming and, additionally, a smart-card for premium cable television
services.
Cable network operators provide their subscribers with a basic package of analog television and radio programming.
Cable network operators also distribute premium cable television programming, including the digital program packages
offered by the German public broadcasters, ARD and ZDF. Premium cable television packages are also available either from
Premiere or one of the large Level 3 operators, each of which charges incremental subscription fees directly to subscribers of
such services (approximately €1.0 billion in 2004).
Cable network operators principally generate revenues from relationships with subscribers who pay subscription fees to
the cable network operators. In addition, Level 3 operators are compensated by the broadcasters, which pay carriage fees for
the transmission and distribution of their analog television signals to subscribers.
The structure of the German cable network is strongly influenced by historical factors, in particular the monopoly of
DTAG and its predecessors over telecommunications services and the manner in which the original build-out of the cable
network was implemented. The vast majority of the Level 2 and Level 3 cable television network was constructed by
DTAG’s predecessor between 1980 and 1988. Another wave of construction activity followed after the reunification of
Germany in 1990.
The network infrastructure was initially devised as, and its majority continues to be, a coaxial cable structure with a
bandwidth of 470 MHz. Within that band up to 36 channels and 17 channels are used for analog and premium cable
television services, respectively. Digital compression technologies enable each digital channel to carry up to 12 program
streams, while analog channels can only transmit one program stream. Technically, it is possible to convert every analog
channel into a digital channel by using specific digital headend equipment for such channels.
DTAG’s predecessor initially constructed the cable television network relying to a wide extent upon the infrastructure
of the telephony network it had constructed and was operating. Such joint infrastructure particularly includes cable ducts,
collocation facilities, towers and fiber optic systems, as well as power supply. Today, this infrastructure is owned and
operated by DTAG and, as a result, the Level 3 operators iesy, ish, KDG and KBW lease such infrastructure and purchase
electrical power from DTAG under long-term agreements, commonly known as Service Level Agreements (SLAs). These
SLAs are an essential component of the operations of the Level 3 operators and typically account for their single largest
expense item per year. See “Risk Factors—Risks Relating to Our Business—We rely on DTAG and certain of its affiliates
for a significant part of our network. Any disruption or termination of our arrangements with DTAG would materially and
adversely affect our business and results of operations”, “Business—Business of iesy—Supply—SLAs with DTAG” and
“Business—Business of ish—Supply—SLAs with DTAG”.
As a result of DTAG specifications, the cable network in Germany can be divided into five functional levels, ranging
from the generation of programming to the distribution of the signal to the end-user:
Level 1 encompasses the production of content, the transmission of the signal to the
satellite-earth station or a terrestrial transmitter, and the up-link to the satellite.
Level 2 is the part of the cable television network comprising (i) the down-link from the
satellite or the terrestrial transmitter, (ii) the satellite reception equipment, (iii) the signal
distribution from the satellite reception equipment to the master-headends and the
headends, (iv) the master-headend and headend functions and (v) the distribution of the
signals from the headends to the hubs.
Level 3 is the part of the cable television network which distributes the signal primarily
via co-axial cable from the headends to the home connection points.
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