iesy Repository GmbH - Irish Stock Exchange

segment by an average of 31.1% and decreased installation fees for all subscribers. iesy experienced increased churn
following each of these price increases. See “—Factors Affecting Our Results of Operations—Subscribers.” Due to the 2004
price increase, we have experienced some additional churn in early 2005 as subscribers with annual contracts renew such
contracts for the first time since our 2004 price increase. See “Risk Factors—Risks Relating to Our Business—Customer
churn, or the threat of customer churn, may adversely affect our business.”
Historically, as part of iesy’s pricing arrangements with customers, iesy offers several discounts to the standard rate
card. For example:
• For all customers, iesy offers a standard 5% discount to those who prepay the monthly subscription fees on an
annual basis.
• For iesy’s residential customers, it offers a discount if they subscribed prior to 1991. The pre-1991 discount of
approximately 8% reflects the subsidy paid by these customers related to the original installation of the Level 4
cable network.
• For certain housing associations, iesy has offered additional discounts if they agreed to enter into multi-year
agreements with iesy.
• For certain professional Level 4 operators, iesy has, historically, offered additional discounts. These discounts
combined with the network element-based costing in iesy’s standard rate card create incentives for these operators
to lower their rates by clustering subscribers behind individual connection points.
We are seeking to adjust several discounts and other pricing related anomalies. For example, we expect the discount for
residential subscribers who subscribed before 1991 will be eliminated over time as these subscribers sign new contracts with
iesy or receive new products, eventually leading to a single tariff scheme for all single dwelling unit subscribers. In addition,
iesy seeks to address the significantly lower ARPU generated by the professional Level 4 customers as compared to iesy’s
other subscriber segments. In particular, iesy has allowed its contracts with BN and EWT to expire, resulting in some of their
subscribers being disconnected from iesy’s network, while the remaining BN and EWT subscribers became subject to iesy’s
standard rate card. Because the ARPU for a large professional Level 4 operator such as BN and EWT tends to be
comparatively low, the revenue impact of such subscriber losses is not as significant as it would be for other customers and
may be significantly offset by the reduced discount on the remaining subscribers. Accordingly, the average revenue per
subscriber generated by the remaining BN and EWT subscribers is higher because they are now subject to iesy’s standard rate
card. See “—Factors affecting our results of operations—Subscribers” and “—Factors Affecting Our Results of Operations—
ARPU.” For more information on our pricing and customer segments, see “Business—Business of iesy—Products and
Services.”
iesy’s pricing is currently subject to regulatory review by RegTP. As a result of the new regulatory regime
implementing the recently introduced EU’s “New Framework,” we could become subject to more regulation in the future.
See “Risk Factors—Risks Relating to Regulatory and Legislative Matters—We do not have complete control over the prices
that we charge to broadcasters and customers, including Level 4 operators, and this may adversely affect our future cash
flows and profitability” and “Regulation.”
We believe that iesy will maintain its market share in basic cable by continuing to focus its sales and marketing
activities on specific market segments, to implement customer retention programs to reduce customer churn, and to put in
place more stringent detection measures to ensure that only paying subscribers have access to iesy’s network. iesy also
believes the introduction of new premium cable television and high speed Internet products and services will complement its
basic cable offering and help retain subscribers. See “Risk Factors—Risks Relating to Our Business—We operate in
competitive industries, and competitive pressures could have a material adverse effect on our business” and “—If we fail to
introduce new or enhanced products or services successfully, our revenues and margins could be lower than expected.”
Carriage Fees
iesy receives carriage fees from national, regional and local broadcasters for the distribution of their programs over its
network. Carriage fees amounted to €1.9 million (5.7%) of total revenues for the three months ended March 31, 2005, and
€8.0 million (5.9%) of the total revenues for the year ended December 31, 2004.
Carriage fees are paid by broadcasters in order to reach the maximum number of viewers. At the same time, iesy
depends on the provision of programs by these broadcasters in order to attract subscribers to its network. In general, carriage
fees are charged based on analog reach. For a significant part of iesy’s analog programming, iesy does not have direct
contracts with broadcasters but relies on nationwide carriage agreements concluded between broadcasters and DTAG, its
predecessors or subsidiaries, as the case may be. For these contracts, carriage fees are billed by MSG and are based upon a
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