**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

## **Washington, D.C. 20549**

##  

**Form 10-K**

 

| **(Mark  One)** | ** ** | ** **                                                                                                                                   |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| x               |       | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                          |
|            |       | ** **                                                                                                                                   |
|            |       | **For the  fiscal year ended December 31, 2007**                                                                                        |
|            |       | **or**                                                                                                                                       |
| ** **      | ** ** | ** **                                                                                                                                   |
| o               |       | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                      |
|            |       | ** **                                                                                                                                   |
|            |       | **For the  transition period  from                 to** |

 

**Commission file number: 000-19889**

 

----

 

**South Hertfordshire United Kingdom Fund, Ltd.**

(Exact name of registrant asspecified in its charter)

 

| **Colorado**                     | ** ** | **84-1145140**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer    |
| incorporation or  organization)  |       | Identification No.) |

 

**Media House, Bartley Wood Business Park, Hook,Hampshire, England, RG27 9UP**

(Address and of principal executive offices including Zip Code)

 

**+44 1256 752000**

(Registrant’s telephonenumber, including area code)

 

Securities registered pursuant to Section 12(b) ofthe Act:

**None**

 

Securities Registered Pursuant to Section 12(g) ofthe Act:

**Limited Partnership Interests**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes  o    No  x

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes  o    No  x

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes  x    No  o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of the registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthe Form 10-K or any amendment to this Form 10-K.  x

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer x                        | Small reporting company o |
|---------------------------|---------------------|------------------------------------------------|---------------------------|
|                      |                | (Do not check if a smaller  reporting company) |                      |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).Yes  o    No  x

 

The aggregate market value of the registrant’slimited partnership interests held by non-affiliates as of June 30, 2007,based on a price per limited partnership interest of $92.00 which was theweighted average price at which limited partnership interests were transferredduring the second fiscal quarter of 2007, was $5,238,020.

 

As of March 18, 2008, there were 56,935 limitedpartnership interests of the registrant outstanding. There is no establishedpublic market for the registrant’s limited partnership interests.

 

----

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

None

 

 

----

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**FOR THE YEAR ENDED DECEMBER 31, 2007**

 

**TABLE OFCONTENTS**

 
| ** **                                                                    | ** ** | ** **                                                                                                          | ** ** | **Page** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I**                                                               | ** ** | ** **                                                                                                          | ** ** | **5**    |
| Item  1.                                                                      |       | Business                                                                                                            |       | 5        |
| Item  1A.                                                                     |       | Risk Factors                                                                                                        |       | 20       |
| Item 1B.                                                                      |       | Unresolved Staff  Comments                                                                                          |       | 29       |
| Item  2.                                                                      |       | Properties                                                                                                          |       | 29       |
| Item  3.                                                                      |       | Legal Proceedings                                                                                                   |       | 29       |
| Item 4.                                                                       |       | Submission of  Matters to a Vote of Security Holders                                                                |       | 29       |
|                                                                          |       |                                                                                                                |       |     |
| **PART II**                                                              | ** ** | ** **                                                                                                          | ** ** | **30**   |
| Item 5.                                                                       |       | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       | 30       |
| Item 6.                                                                       |       | Selected Financial  Data                                                                                            |       | 30       |
| Item 7.                                                                       |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       | 31       |
| Item 7A.                                                                      |       | Quantitative  and Qualitative Disclosures about Market Risk                                                         |       | 40       |
| Item 8.                                                                       |       | Financial  Statements and Supplementary Data                                                                        |       | 40       |
| Item 9.                                                                       |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |       | 42       |
| Item 9A.                                                                      |       | Controls and  Procedures                                                                                            |       | 42       |
| Item 9B.                                                                      |       | Other Information                                                                                                   |       | 42       |
|                                                                          |       |                                                                                                                |       |     |
| **PART III**                                                             | ** ** | ** **                                                                                                          | ** ** | **43**   |
| Item 10.                                                                      |       | Directors,  Executive Officers and Corporate Governance                                                             |       | 43       |
| Item 11.                                                                      |       | Executive  Compensation                                                                                             |       | 43       |
| Item 12.                                                                      |       | Security Ownership  of Certain Beneficial Owners and Management and Related Stockholder Matters                     |       | 43       |
| Item 13.                                                                      |       | Certain  Relationships and Related Transactions, and Director Independence                                          |       | 43       |
| Item 14.                                                                      |       | Principal  Accountant Fees and Services                                                                             |       | 44       |
|                                                                          |       |                                                                                                                |       |     |
| **PART IV**                                                              | ** ** | ** **                                                                                                          | ** ** | **46**   |
| Item 15.                                                                      |       | Exhibits and  Financial Statement Schedules                                                                         |       | 46       |
|                                                                          |       |                                                                                                                |
| Index to  Consolidated Financial Statements and Financial Statement Schedules |       | F-1                                                                                                                 |
|                                                                          |       |                                                                                                                |
| SIGNATURES                                                                    |       |                                                                                                                |       |     |
|                                                                          |       |                                                                                                                |       |     |
| EXHIBIT INDEX                                                                 |       |                                                                                                                |       |     |

 

 

----

 

**Historical Structure**

 

We are a Colorado limitedpartnership that was formed in December 1991 pursuant to the publicoffering of our limited partnership interests for the purpose of acquiring oneor more cable television/telephone systems in the U.K. Upon acquisition of oursystem, our primary investment objective was to obtain capital appreciation inthe value of our investment in the system over the term such investment is heldby us.

 

We hold 66.7% of theshares of NTL (South Hertfordshire) Limited, or NTL South Herts, which isprincipally engaged in the development, construction, management and operationof broadband communications networks for telephone, cable television andinternet services in the U.K. As a result of our ownership of 66.7% of the sharesof NTL South Herts, for accounting purposes we have consolidated the results ofNTL South Herts with our results. Virgin Media Inc. (formerly known as NTLIncorporated), or Virgin Media, indirectly holds the remaining 33.3% of theshares of NTL South Herts. We are reliant on the support of Virgin Media, theindirect parent company of NTL Fawnspring Limited, our General Partner, tocontinue our operations as a going concern.

 

The General Partner may,pursuant to our Partnership Agreement, provide consulting services to us ordelegate the performance of such consulting services to Virgin Media or otheraffiliates. The General Partner purchased one of our partnership interests bycontributing $1,000 to our capital.

 

On January 10, 2003, NTL Incorporated, or NTL, emerged fromreorganization under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to theplan of reorganization, which we refer to as the Plan, NTL’s former parent, NTLEurope, and its subsidiaries and affiliates were split into two separategroups, with NTL and NTL Europe each emerging as independent public companies.NTL was renamed NTL Incorporated and became the holding company for the formerNTL group’s principal U.K. and Ireland assets. NTL Europe became the holdingcompany for the former NTL group’s continental European and various otherassets. All of the outstanding securities of NTL’s former parent and some ofits subsidiaries, including NTL, were cancelled. NTL issued shares of itscommon stock and Series A warrants, and NTL Europe issued shares of itscommon stock and preferred stock, to various former creditors and stockholders.As a result, NTL is no longer affiliated with NTL Europe. NTL Europe has sincechanged its name to PTV Inc., or PTV.

 

On March 3,2006, NTL merged with a subsidiary of TelewestGlobal, Inc., or Telewest, which changed its name to NTL Incorporated.NTL changed its name to NTL Holdings Inc.

 

On July 4,2006, NTL acquired Virgin Mobile Holdings (UK) plc through a U.K. Scheme ofArrangement and also entered into a license agreement with Virgin EnterprisesLimited under which it is licensed to use certain Virgin trademarks within theUnited Kingdom and the Republic of Ireland. In February 2007, NTL rebranded its consumer and a large part ofits content businesses to “Virgin Media”. It also changed the name of itscorporate parent from NTL Incorporated to Virgin Media Inc., or Virgin Media,and changed the name of certain of its subsidiaries, including NTL GroupLimited to Virgin Media Limited and NTL Holdings Inc. to Virgin Media HoldingsInc.

 

In this annualreport, unless the context otherwise requires, the term “we”, “us”, “our” andsimilar terms refers to South Hertfordshire United Kingdom Fund, Ltd. and itssubsidiaries.

 

**“SafeHarbor” Statement under the Private Securities Litigation Reform Act of 1995:**

** **

Various statements contained in this document constitute “forward-lookingstatements” as that term is defined under the Private Securities LitigationReform Act of 1995. Words like “believe”, “anticipate”, “should”, “intend”, “plan”,“will”, “expects”, “estimates”, “projects”, “positioned”, “strategy” andsimilar expressions identify these forward-looking statements, which involveknown and unknown risks, uncertainties and other factors that may cause ouractual results, performance or achievements or industry results to bematerially different from those contemplated, projected, forecasted, estimatedor budgeted, whether expressed or implied, by these forward-looking statements.These factors include those set forth under the caption “Risk Factors” in this Form 10-Ksuch as risks relating to:

 

·   ourreliance on the continued support of Virgin Media;

 

·   the lack of an establishedtrading market for our partnership interests;

 

 

1

----

 

·   conflicts of interestbetween us and Virgin Media and its affiliates;

 

·   our reliance on a limitedfranchise area;

 

·   the risks to Virgin Media’sbusiness set forth below, which are risks that we share as a result of ourreliance on, and integration with, Virgin Media;

 

·   Virgin Media’s ability tocompete with a range of other communications and content providers;

 

·   Virgin Media’s ability tomanage customer churn;

 

·   Virgin Media’s continuedright to use the Virgin name and logo;

 

·   Virgin Media’s ability tomaintain and upgrade its networks in a cost-effective and timely manner;

 

·   possible losses in VirginMedia’s revenues due to systems failures;

 

·   Virgin Media’s ability toprovide attractive programming at a reasonable cost;

 

·   Virgin Media’s ability tocontrol unauthorized access to its network;

 

 ·   the effect oftechnological changes on Virgin Media’s businesses;

 

·   Virgin Media’s reliance onsingle-source suppliers for some equipment, software and services and thirdparty distributors of its mobile services;

 

·   Virgin Media’s ability to achieveits business plans;

 

·   Virgin Media’s ability tofund debt service obligations through operating cash flow;

 

·   Virgin Media’s ability toobtain additional financing in the future and react to competitive andtechnological changes;

 

·   Virgin Media’s ability tocomply with restrictive covenants in its indebtedness agreements; and

 

·   the extent to which VirginMedia’s future cash flow will be sufficient to cover its fixed charges.

 

We assume no obligation to update our forward-lookingstatements to reflect actual results, changes in assumptions or changes infactors affecting these statements.

 

2

----

 

 

**Summary Corporate Structure**

 

The following chart showson a condensed basis the corporate structure of Virgin Media and itsrelationship to us as of December 31, 2007. The chart does not show VirginMedia’s operating or other intermediate companies.

 

 

 

----

*                          NTLFawnspring Limited is an indirect wholly-owned subsidiary of Virgin Media andis our General Partner.

 

**                   NTL (South Hertfordshire) Limited is a subsidiaryowned 66.7% by us and 33.3% by Virgin Media.

 

**ExchangeRates**

 

Thefollowing table sets forth, for the periods indicated, the high, low, periodaverage and period end noon buying rate in the City of New York for cabletransfers as certified for customs purposes by the Federal Reserve Bank of NewYork expressed as U.S. dollars per £1.00. The noon buying rate of the poundsterling on March 18, 2008 was $2.0216 per £1.00.

 
| **Year Ended December 31,** | ** ** | **Period End** | ** ** | **Average(1)** | ** ** | **High**   | ** ** | **Low**    | ** ** |
|--------------------------------------------|------------|---------------------|------------|----------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | ** **          | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2004                                       |       | $                   | 1.92       |           | $          | 1.84       |       | $          | 1.95       |   | $ | 1.75 |   |
| 2005                                       |       | 1.72                |       | 1.81           |       | 1.93       |       | 1.71       |       |
| 2006                                       |       | 1.96                |       | 1.86           |       | 1.98       |       | 1.73       |       |
| 2007                                       |       | 1.98                |       | 2.00           |       | 2.11       |       | 1.92       |       |
| 2008 (through March 18, 2008)         |       | 2.02                |       | 2.00           |       | 2.03       |       | 1.94       |       |
|                                            |            |                     |            |                |            |            |            |            |            |  |  |  |  |

 

 

----

(1)                   The average rate is the average of the noon buyingrates on the last day of each month during the relevant period.

 

Theabove rates may differ from the actual rates used in the preparation of theconsolidated financial statements and other financial information appearing inthis annual report. Our inclusion of these exchange rates is not meant tosuggest that the pound sterling amounts actually represent these U.S. dollaramounts or that these amounts could have been converted into U.S. dollars atany particular rate, if at all.

 

3

----

 

Unlesswe otherwise indicate, all U.S. dollar amounts as of December 31, 2007 aretranslated to U.S. dollars at an exchange rate of $1.9843 to £1.00, and allamounts disclosed for the year ended December 31, 2007 are based on anaverage exchange rate of $2.0017 to £1.00. All amounts disclosed as of December 31,2006 are based on an exchange rate of $1.9586 to £1.00, and all amountsdisclosed for the year ended December 31, 2006 are based on an averageexchange rate of $1.8429 to £1.00. All amounts disclosed as of December 31,2005 are based on an exchange rate of $1.7188 to £1.00, and all amountsdisclosed for the year ended December 31, 2005 are based on an averageexchange rate of $1.8200 to £1.00. U.S. dollar amounts for any individualquarter are determined by multiplying the pound sterling financial result forthe period from January 1 to the end of the current quarter by the averageexchange rate for the same period and subtracting from this total the U.S.dollar converted financial result for the period from January 1 to the endof the previous quarter of that fiscal year as computed above. The variationamong the exchange rates for 2007, 2006 and 2005 has effected the dollarcomparisons significantly.

 

4

----

 

**PART I**

 

**Item 1.    Business**

 

**AboutSouth Hertfordshire U.K. Fund, Ltd.**

 

We are a Colorado limitedpartnership that was formed in December 1991 pursuant to the publicoffering of our limited partnership interests for the purpose of acquiring oneor more cable television/telephone systems in the U.K. Upon acquisition of oursystem, our primary investment objective was to obtain capital appreciation inthe value of our investment in the system over the term such investment is heldby us.

 

We hold 66.7% of theshares of NTL (South Hertfordshire) Limited, or NTL South Herts, which isprincipally engaged in the development, construction, management and operationof broadband communications networks for telephone, cable television andinternet services in the U.K. As a result of our ownership of 66.7% of theshares of NTL South Herts, for accounting purposes we have consolidated theresults of NTL South Herts with our results. Virgin Media indirectly holds theremaining 33.3% of the shares of NTL South Herts. We are reliant on the supportof Virgin Media, the ultimate parent company of the General Partner, tocontinue our operations as a going concern.

 

We, as well as VirginMedia, file annual, quarterly, and current reports with the SEC. You may readand copy any materials we or Virgin Media file with the SEC at the SEC’s PublicReference Room at 100 F Street, N.E., Washington D.C. 20549. You mayobtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330.  Youmay also access electronically the information we file with the SEC via itswebsite, located at http://www.sec.gov.

 

**About NTL South Herts**

 

***Franchise Area***

 

The area covered by ourcable system, which we refer to as the franchise area, comprises theadministrative areas in South Hertfordshire: Three Rivers, Watford andHertsmere. The franchise area covers commuter suburbs of London, and manypeople who reside in the franchise area use the available fast rail and motorwayservices to travel to work in central London. South Hertfordshire has benefitedfrom the completion in 1986 of the M25 London Motorway, which makes commutingfrom the franchise area to other areas in or near London more convenient. A M1motorway link exists to give London-bound commuters direct access from Watfordto the London highway system. The M1 link is half a mile from our headend.There are approximately 96,000 homes in the franchise area, all of which arepassed by our cable television/telephone network. Construction in the franchisearea is complete.

 

***Operations***

 

Construction of a cabletelevision-only network in the South Hertfordshire franchise area commenced inearly 1991 and, integrated cable television/telephone network architecture wasdeveloped for this franchise in late 1991. Cable television services commencedin April 1992 and telephone services commenced in February 1993,following completion of the installation of a telephone switch. In January 2000,we commenced the rollout of digital cable television services within the SouthHerts franchise and in 2001 we commenced broadband internet access services. Asof December 31, 2007, NTL South Herts serviced 24,152 digital televisionsubscribers, 29,012 residential telephony subscribers and 25,285 internetsubscribers, representing a total of 34,858 customers with a penetration levelof 36.5%.

 

Management control isexercised by NTL Fawnspring Limited, a U.K. corporation, which is a whollyowned indirect subsidiary of Virgin Media and is our General Partner, althoughmanagement control is delegated to other affiliated companies of Virgin Media.Our business is managed by Virgin Media Limited, or VML, a subsidiary of VirginMedia, from its headquarters in Hook, Hampshire. Virgin Media and we believethat management of our business as an integral part of the larger Virgin Mediagroup reaps the benefits of synergy and maximizes returns. VML performs avariety of management functions and procures services on our behalf. Pursuantto an agreement with VML, we have the legal right to offset amounts receivablefrom VML against amounts payable to VML. Consequently, the net balance payableto Virgin Media is disclosed under accounts payable to affiliates and relatedparties in the accompanying financial statements.

 

Our operations are fullyintegrated into the operations of Virgin Media. Accordingly, the followingbusiness description describes Virgin Media’s operations of which we comprise apart.

 

5

----

 

**Virgin Media’s Business**

 

Virgin Media isincorporated in the State of Delaware, United States. Its principal executiveoffices are located at 909 Third Avenue, Suite 2863, New York, New York10022, United States, and its telephone number is (212) 906-8440. Its U.K.headquarters are located outside of London, England in Hook, Hampshire, UnitedKingdom. Its website is www.virginmedia.com**and theinvestor relations section of its website can be accessed under the heading “AboutVirgin Media—Investors Information” or at www.virginmedia.com/investors, whereit makes available free of charge annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K, and any amendmentsthereto, as soon as reasonably practicable after they are filed with, orfurnished to, the SEC. The information on its website is not incorporated byreference into this annual report.

 

Virgin Media is aleading U.K. entertainment and communications business providing the first “quad-play”offering of television, broadband, fixed line telephone and mobile telephoneservices in the U.K. together with one of the most advanced TV on demandservices available in the U.K. market. By customer numbers, it is the U.K.’slargest residential broadband and mobile virtual network operator and thesecond largest provider in the U.K. of pay television and fixed line telephoneservices. Through ntl:Telewest Business, which also operates under the VirginMedia group, it provides a complete portfolio of voice, data and internetsolutions to leading businesses, public sector organizations and serviceproviders in the U.K.

 

Through VirginMedia Television, or Virgin Media TV, it also provides a broad range ofprogramming through its wholly-owned channels, such as Virgin 1, Livingand Bravo; through UKTV, its joint ventures with BBC Worldwide; and through theportfolio of retail television channels operated by sit-up tv.

 

Virgin Mediapresently manages its business through three reportable segments:

 

·              **Cable (76.8% of****Virgin Media’s****2007 revenue): **its cablesegment includes the distribution of television programming over its cablenetwork and the provision of broadband and fixed line telephone services toconsumers, businesses and public sector organizations, both on its cablenetwork and, to a lesser extent, off its network;

 

·              **Mobile (14.7% of****Virgin Media’s****2007 revenue): **its mobile segment includes the provision of mobiletelephone services under the name Virgin Mobile to consumers over cellular networksowned by third parties; and

 

·              **Content (8.5% of****Virgin Media’s****2007 revenue): **its content segment includes the operations of itsU.K. television channels, such as Virgin 1, which was launched on October 1,2007, as well as Living, Bravo, and sit-up’s portfolio of retail televisionchannels. Although not included in its content segment revenue, its contentsegment management team also oversees its interest in the UKTV televisionchannels through its joint ventures with BBC Worldwide.

 

NTL South Herts operatesentirely within Virgin Media’s Cable segment. As such, further discussion on Virgin Media’s business within thisdocument is limited to its Cable segment only.

 

On February 6,2007, NTL Incorporated changed its name to Virgin Media Inc. as part ofits rebrand to Virgin Media. Virgin is one of the most recognized consumerbrands in the world and gives Virgin Media a prominent profile in a crowdedcommunications marketplace. Virgin Media believe the strong heritage andreputation of the Virgin brand is a powerful competitive advantage and itsdistinctive approach to advertising, packaging and marketing differentiates itfrom its competitors.

 

***Cable Segment***

*** ***

In Virgin Media’s Cablesegment, it provides its services to residential consumers and businesscustomers.

 

*Consumer*

* *

Virgin Mediaprovides television, internet (broadband and dial-up) and fixed line telephoneservices under the Virgin Media brand to residential customers in the U.K. Itsservices are distributed principally via its wholly owned, cabled, local accesscommunications network and are available to an addressable market ofapproximately 12.6 million homes. The network covers parts of many majormetropolitan areas in England, Wales, Scotland and Northern Ireland. Inaddition, Virgin 

 

6

----

 

Media provides broadbandand telephone services to residential customers outside of its network viaaccess to other telecommunications networks, which it refers to in its annualreport as “off-net”.

 

*VirginMedia’s Network Advantage*

 

Virgin Mediabelieves that its deep fiber local access communications network provides itwith several competitive advantages in its addressable markets:

 

·                    Virgin Media, uniquely, has fiber already deployed tostreet cabinets. From there, its twin cable, consisting of both high capacitycoaxial cable and twisted copper-pair elements, provides it with theflexibility to deliver broadband services over either or both coaxial or coppercables. Currently, it provides its broadband internet services over coaxialcable, which it believes allows it to provide a superior broadband experienceto its customers as its network has fiber generally closer to a customer’s homethan BT or its other competitors who use BT’s access network. BT’s accessinfrastructure is copper pair technology over which broadband speeds cansignificantly diminish with distance from the local exchange. In 2008, VirginMedia plans to use its advantage to offer increasingly faster broadbandservices.

 

·                    It provides real two-way interactivity withresidential customers who are connected to the network, which enables VirginMedia to offer video on demand services through the set-top box.

 

·                    It enables Virgin Media to provide true “triple-play”bundled services of television, broadband, and fixed line telephone services toresidential customers in its franchise areas without relying on another serviceprovider or network.

 

In contrast:

 

·                    Direct to home satellite service providers do not havethe capacity to offer two-way interactivity except by adding a telephone linefrom another service provider or other cable facility.

 

·                    Communication service providers today have only alimited capacity to provide video over existing digital subscriber line, orDSL, technology, using BT’s access network, without significant capitalinvestment in their network.

 

*Multi-ServiceBundles*

* *

Virgin Media wasthe first U.K. provider of a residential “triple-play” offering of television,broadband and fixed line telephone services. Its packaging and pricing aredesigned to encourage residential customers to purchase multiple services andit frequently offers discounts to customers taking two or more products fromits portfolio. As of December 31, 2007, more than 79% of its residentialcustomers on its network, which it refers to as “on-net”, received multipleservices and approximately 49.5% of its on-net customers were “triple-play”.

 

With itsacquisition of Virgin Mobile in July 2006, Virgin Media began offering theU.K.’s first “quad-play” of television, broadband, fixed line telephone andmobile telephone services to residential customers. It expects to drive bothmobile and cable penetration through the two customer bases by applying itspast experience of cross selling products.

 

As part of itsrebrand in 2007, Virgin Media renamed its product offerings and bundles so theyare easy to understand. For each of its products, Virgin Media has a range ofpackages and tariffs for customers to choose from and have labeled them asMedium (M), Large (L) and Extra Large (XL). For example,Virgin Media currently offers a 2Mb broadband service as Medium, a 4Mb serviceas Large and a 20Mb service as Extra Large. In 2008, it plans to increase thespeed of its 4Mb service to 10Mb, strengthen the capacity of its 20Mb serviceand launch a 50Mb service, resulting in four tiers of broadband service at 2Mb,10Mb, 20Mb and 50Mb. From time to time, it may enhance the value of its M, L orXL bundles as it did in 2007 by increasing the speed of its 10Mb broadbandservice to 20Mb, and by offering the Setanta Sports channels to its XLcustomers at no additional cost.

 

7

----

* *

*CableTelevision*

* *

Virgin Media offersa wide range of digital, or DTV, and analog, or ATV, television services. As ofDecember 31, 2007, it provided cable television services to approximately3.5 million residential customers, of which approximately 3.3 millionreceived its DTV service and approximately 0.2 million received itsATV service.

 

Virgin Media’s DTVservice includes access to over 130 television channels, advanced interactivefeatures, and a range of premium and pay-per-view services. Its ATV servicepackages offer up to 60 television channels, including premium services.In addition to offering the basic and premium pay TV channels, Virgin Mediaalso offers its DTV customers one of the most comprehensive Video on Demand, orVOD, services in the U.K. called “Virgin TV On Demand”. See “Virgin TVOn Demand” below.

 

Virgin Media’snetwork technology enables it to deliver a significant range of digitalinteractive services over an ‘always on’ broadband connection from the networkto a customer’s home. Examples of interactive services provided include games,television email and access to news, entertainment and information servicesfrom an on-screen menu. Interactive services also include enhanced televisionfunctionality utilizing the “red button” applications from the BBC and other commercialbroadcasters. “Red button” functionality in the U.K. permits television viewersto press a red button on their remote control handset to receive additionalinteractive services including multiple broadcasts. For example, in a Wimbledontennis broadcast, a customer can press the red button and choose which match towatch.

 

In 2007, VirginMedia introduced “Free TV” for customers who purchase a Size M fixedline telephone service where, similar to Freeview, customers can access over40 linear channels and radio services such as Virgin 1, Five US,Five, E4 and UKTV History as well as Setanta Sports News. In addition,customers also have access to red button functionality and Virgin TV OnDemand.

 

*Virgin TVOn Demand*

 

Virgin TV OnDemand is a significant enhancement to Virgin Media’s existing DTV service,offering viewers choice over and above scheduled programming without anyrequirement for new equipment, installation or additional subscription. The VODservice provides access to thousands of hours of premium movies, music videos,and TV programs and series on demand. It appears within the existing electronicprogramming guide, and can be accessed and viewed at any time via the remotecontrol. The service offers DVD-style features including freeze frame,fast-forward and rewind. These features provide a customer with control overthe content and timing of their television viewing. This service is availableto almost all of Virgin Media’s digital customers. In 2007, VOD usage by VirginMedia customers increased to 33 million average monthly views in thefourth quarter from 14 million average monthly views in the first quarter.Virgin Media believes customers who use VOD are less likely to churn.

 

There are threeprimary types of content available within Virgin TV On Demand, a portionof which is refreshed on a daily basis. A selection of content is available towatch for free to all DTV customers irrespective of package size. This isprimarily focused within Virgin Media’s ‘catch-up’ TV service which offers aselection of more than 150 hours of top broadcast TV shows from theprevious seven days for no additional charge. Additionally, all DTV customershave access to pay-per-transaction content including over 1,300 pay-per-trackmusic videos and 500 current and library movies provided by ‘FilmFlex’. Intotal, Virgin Media has over 4,000 hours of on-demand content. New movieswithin this library are available on VOD up to nine months before they appearon scheduled TV movie channels. Pay-per-transaction programs are available for24 hours after purchase and can be watched as many times as a customerwishes during that period for only one single charge. Finally, DTV customersthat subscribe to Virgin Media’s Size XL Virgin TV package haveadditional access to a subscription VOD, or SVOD, package which includespremium TV shows and music videos, all included within the price of theirmonthly subscription. Customers on Virgin Media’s other TV packages can alsoreceive the SVOD package on payment of a monthly subscription charge.

 

In 2007, VirginMedia launched an innovative new kind of television channel called “VirginCentral”, which combines the simplicity of a traditional channel with thechoice and control of next generation TV-on-demand technology. The channelhosts a continuously refreshing showcase of entertainment around the clock. Aswith its other VOD offerings, by pressing one button and using a simpleon-screen guide, viewers have instant access to different episodes of the showthey select. They can then stop, rewind and pause—just like using a DVD player.Virgin Central includes free access to hit shows like Sopranos, The OC,Nip/Tuck, Grey’s Anatomy, Spooks, Cold Case and Lost. The content isupdated regularly and, unlike a traditional TV channel, subscribers do not needto wait for scheduled start times.

 

8

----

 

*Digital Video Recorders and High Definition Television*

* *

Virgin Media alsooffers one of the most advanced fully-supported digital video recorders, orDVRs, for a premium monthly rental option or an up-front payment as part of itstop bundle. The Virgin Media DVR box, which is called the “V+ Box”,is available to Virgin Media’s entire DTV customer base. The V+ Box has160 Gigabytes of storage space (up to 80 hours of broadcasttelevision), is high definition, or HD, enabled and has three tuners, allowingviewers to record two programs while watching a third. V+ Box customersthat also have an HD compatible television can access Virgin Media’s HD ondemand content. Digital video recorders are also known as personal videorecorders, or PVRs, in the United Kingdom. In 2008, Virgin Media plans tofurther enhance the functionality of its V+ Box.

 

*Broadband Internet*

* *

Virgin Mediadelivers high-speed broadband and dial-up internet access to customers withinreach of its access network by direct connection to its network. Virgin Mediaoffers broadband services at a selection of download speeds: 2Mb forSize M customers, 4Mb for Size L customers and 20Mb for Size XLcustomers. During 2008, Virgin Media plans to increase the speed of the 4Mbservice to 10Mb and launch a 50Mb service. All of its broadband services offerunlimited usage (subject to its fair usage policy) and PC security software.Premium broadband services (which are free for Size L and XL customers) includeadvanced security features such as anti-spyware and premium broadband content.Virgin Media plans to focus its efforts on increasing its market share in theU.K. by marketing the benefits of its high-speed broadband service to bothexisting and potential customers. As of December 31, 2007, Virgin Mediaprovided on-net broadband services to approximately 3.4 million customers,including 25,285 customers in the South Hertfordshire franchise area.

 

Virgin Mediaoperates a content destination site, virginmedia.com, which is regularly in thetop ten of most visited sites in the U.K. and in the top 15 by page ranking.There is a broad base of content available on its website, with a particularstrength in sports content. For example, exclusive near-live clips of Englishfootball programming over the internet are available on this website. VirginMedia also uses the website to cross-promote its entire product range and togenerate advertising revenues. Its customers can access their broadband emailservices as well as customer care information through the website.

 

*Fixed Line Telephone*

* *

Virgin Mediaprovides local, national and international telephone services to itsresidential customers who are within reach of its access network by directconnection to its network. Virgin Media enhances its basic telephone service byoffering additional services, such as call waiting, call barring (whichprevents unauthorized outgoing calls), call diversion (call forwarding),three-way calling, advanced voicemail, caller line identification and fullyitemized monthly billing. Virgin Media also provides national and internationaldirectory enquiry services.

 

In addition to acore line rental fee, Virgin Media offers Size M, L and XL variants of itsfixed line telephone service as alternatives to straight usage-based billing.These packages include “Talk Plans” that enable customers to makeunlimited local and national calls for a fixed monthly fee in addition to thestandard line rental. As of December 31, 2007, Virgin Media providedon-net telephone services to approximately 4.0 million residentialcustomers, including 29,012 customers in the South Hertfordshire franchisearea.

 

*Sales and Marketing*

* *

Virgin Media usesa variety of sales channels to sell its services to residential customers,including telesales, online and retail channels. Historically, telesales hasbeen the single largest channel for its consumer product sales. Virgin Mediaexpects, however, growth in the proportion of sales coming from online andretail channels. Retail channels include 13 own Virgin Media-branded stores asof December 31, 2007, as well as retail distribution partners such asZavvi (formerly Virgin Megastores), Carphone Warehouse and Phones 4U.

 

Prior to theacquisition of Virgin Mobile, Virgin Media’s consumer retail reach was limitedto concessions and third party retail channels. In 2007, Virgin Media leveragedVirgin Mobile’s retail experience with the launch of a series of VirginMedia-branded stores. In 2008, Virgin Media expects to open additional VirginMedia-branded stores.

 

These saleschannels are supported by direct marketing initiatives and national andregional television and press advertising. Virgin Media uses its residentialcustomer database to identify the profiles of its customers so that it candesign 

 

9

----

 

offers to match the needsof its customers. As Virgin Media, it has the scale and reach as a combinedcompany to justify larger television and radio campaigns. Virgin Media’s offersencourage customers to purchase new services and upgrade their existingservices. Its marketing balances acquisition marketing, or prospects, andcustomer marketing to ensure it optimizes growth from new and existingcustomers.

 

Since the February rebrandto Virgin Media, awareness of the “Virgin” brand as a telecoms/entertainmentsupplier has increased steadily, reaching 90% amongst prospective customers inits addressable market at year end. Brand consideration, which measures thelikelihood of a person considering to purchase a product from a particularcompany, also improved during 2007 for each of Virgin Media’s product lines.

 

*Customer Service*

* *

A combination ofin-house call centers and outsource partners handle Virgin Media’s customerservice calls. Its in-house call centers are located in the U.K. in Bellshill(Scotland), Manchester, Sheffield, Dudley, Nottingham, Glenrothes, Edinburgh,Gateshead, Teeside and Birmingham. As of December 31, 2007, Virgin Mediaemployed approximately 3,200 call center staff. Its outsourced call centers inthe U.K. are located in Swansea, Liverpool and Airdrie (Scotland) and itsoutsourced call centers off-shore are located in India in Delhi, Pune,Bangalore and Mumbai.

 

*Business*

* *

ntl:TelewestBusiness retains its focus on meeting the communications requirements of U.K.public and private sector organizations, and serving other telecommunicationsservice providers. Through the merger of NTL and Telewest in 2006 and thesubsequent integration of their networks, ntl:Telewest Business is now able toleverage one of the most advanced national access networks in the U.K.,delivering a wide portfolio of voice and data products to business customers.

 

While the widerorganization rebranded to Virgin Media, ntl:Telewest Business retained itslegacy brand. Being a business predicated upon customer relationships, a strongservice proposition and sector specific expertise, significant brand equity hasbeen created in the market over the past 15 years by each of the legacybusinesses.

 

*Products and Services*

* *

ntl:TelewestBusiness offers a wide portfolio of voice and data services, from analogtelephony to managed data networks and applications. Its product strategy isfocused on delivering managed services, such as customer contact solutions,national Ethernet and internet protocol virtual private networks, orIP VPN, products which as a result, have experienced strong growthsince 2005.

 

**VirginMedia’s Network**

** **

Virgin Media’sdeep fiber access network has enabled it to take a leading position in theroll-out of next generation broadband access technologies in the U.K. During2008 and 2009, Virgin Media plans to deploy the next generation of widebandcable broadband technology enabling ultra-fast broadband services of 50Mb andhigher. Its investment in the next generation broadband access technologies isthe latest in a series of significant infrastructure investments to ensure thatit remains at the forefront of communication and entertainment services inthe U.K.

 

Virgin Media’snetwork in the U.K. currently passes approximately 12.6 million homes inits regional service areas as well as passing a significant number ofbusinesses in these areas. Its service areas include parts of many of the majormetropolitan areas in the U.K., including Belfast, Birmingham, Bradford,Brighton, Bristol, Cambridge, Cardiff, Coventry, Derby, Dundee, Edinburgh,Exeter, Glasgow, Leeds, Leicester, Liverpool, London, Manchester, Newcastle,Nottingham, Oxford, Perth, Plymouth, Portsmouth, Reading, Sheffield,Southampton, Swansea, Teesside and Watford.

 

The core networkhas a fiber backbone that is approximately 23,000 kilometers long. Thisincludes over 15,500 kilometers which are owned and operated by Virgin Mediaand approximately 7,500 kilometers which are leased fiber from other networkowners. Over 157 switches direct telephone traffic around the core andlocal networks. In addition, Virgin Media has more than 600 hub sites,points of presence, repeater nodes or other types of network sites, andfacilities at over 140 radio sites.

##  

 

10

----

 

##  

 

 

Virgin Media’sdeep fiber access network delivers broadband, fixed line telephony and bothdigital and analog television services to its customers’ homes. The connectioninto each home from the fiber access network comprises of two componentscombined into a single “siamese” drop cable. First, to provide televisionservices and high-speed broadband internet access, Virgin Media makes use of ahigh capacity, two-way, coaxial cable which has considerable bandwidth and isable to support a full portfolio of linear and on demand TV services as well asultra-fast broadband services. Second, it uses short length twisted copper-pairto economically connect fixed line telephony services to its fiber accessnetwork via primary multiplexers. Virgin Media’s relatively short twistedcopper pairs (typically 500 meters in length) are also capable of supportingthe latest VDSL2 copper broadband technologies enabling speeds of 50Mb/sdownstream and 10Mb/s upstream. This capability provides it with a structuraladvantage over traditional all copper local distribution networks, which aretypically 3,250 meters in length, and are only capable of supporting theprevious generation of ADSL and ADSL2+ broadband technologies which are bothslower and much less capable in the upstream.

 

Because of theextensive use of fiber in its access networks, Virgin Media is also able toprovide high-speed ethernet services directly to business customers and providenationwide area networking to these customers via its core networks.

 

Virgin Media havea variety of alternative methods to connect its national telecommunicationsnetwork over the “last mile” to the premises of those customers that arelocated outside of its cabled areas, including:

 

·              it obtains permits to constructtelecommunications networks and build out its network to reach its customers.Although this is often the most costly means of reaching a customer, theexpense can be justified in the case of larger customers, or where asignificant level of traffic is obtained from a customer; and

 

·              itleases circuits and DSL connections on the local networks of other serviceproviders to connect to its customers’ premises. Although this may reduce theoperating margin on a particular account, it requires significantly lesscapital expenditure than a direct connection, can often be put into placerelatively quickly, and can be replaced with a direct connection at a laterdate if traffic volumes justify doing so.

 

Nationally,approximately 94% of the homes passed by Virgin Media’s cable network can receiveall of its broadband, digital television and fixed line telephone services.Virgin Media cannot however currently provide all three of the main services onsome older parts of the network. In 2007, it completed a cable network upgradeprogram targeting more than half a million homes in the London area, wherethere was an older, less robust cable network. These homes can now be offeredbroadband, interactive digital television and fixed line telephone services.

 

***Information Technology***

*** ***

The operation andsupport of Virgin Media’s information technology systems are performed by a mixof outsourced and internally managed services. These systems include billing,enterprise resource planning, business intelligence, corporate network,payroll, data center and desktop infrastructure.

 

The program ofintegrating its key information technology systems in order to improveoperational efficiency continued in 2007. A further 1.57 million customerswere migrated during the year onto its principal customer care and billingsystem. The billing system integration is largely completed with the remainderof Virgin Media’s on-net broadband customers, its off-net broadband customersand a portion of its ntl:Telewest Business customers expected to be migratedduring 2008. As a result of this program and other IT consolidation activitiesVirgin Media continues to reduce its dependency on high cost external supportand management services for a number of diverse software applications andhardware platforms that have now been decommissioned.

 

In April 2007,Virgin Media completed the consolidation of the majority of its finance,logistics, human resources and payroll functions into a single enterpriseresource planning system. Its consolidated enterprise resource planning systemhas facilitated a number of process efficiencies and governance enhancements.During 2008, it will continue to investigate further consolidation andenhancements, and will leverage cost savings and process benefits whereappropriate.

 

** **

** **

***11***

----

*** ***

** **

**Competition**

** **

*Consumer*

* *

Virgin Mediabelieves that it has a competitive advantage in the U.K. residential marketbecause it offers a wide range of communications services, including high-speedbroadband internet, fixed line and mobile telephone and television servicesusing its advanced network, while many of its competitors must rely on BT’snetwork to provide their services. Virgin Media offers most of its products ona stand alone basis or as part of bundled packages designed to encouragecustomers to subscribe to multiple services. Virgin Media offers broadbandinternet and telephone services nationally and currently offers televisionservices in its service areas only. Competition in each of these servicesindividually is significant and some of the other service providers havesubstantially greater resources than Virgin Media.

 

Key recentdevelopments amongst its primary competitors have included:

 

·              *BT Group plc. *During2007, BT Vision, a Freeview and IP-based pay television service, waslaunched nationally. BT also expanded its library of on-demand programmingthrough a number of agreements with content partners. In mid 2007,BT Vision Sport was launched, offering access to Setanta Sports andnear-live matches. BT Retail launched its second evolution ofBT Fusion in 2007, which offers a dual-mode mobile/WiFi handset thatallows a user to make Voice over Internet Protocol, or VoIP, based calls viaWiFi in the home and using the BT Openzone network on a handset which can alsomake traditional mobile calls outside the home. BT also acquired two smallinternet service providers, Plusnet plc and Brightview Group Limited.

 

·              *British Sky Broadcasting Group plc. *BSkyB, a long-time competitor in the pay televisionmarket, heavily markets triple play bundles (broadband, fixed line telephoneand television). BSkyB also has a limited video on demand service branded SkyAnytime for their customers with newer PVRs.

 

·              *Carphone Warehouse Group plc. *Carphone Warehouse resells mobile phone services(including Virgin Mobile) via its own retail distribution channels and offersfixed line telephone and broadband services under its TalkTalk brand. During2007, Carphone Warehouse continued to pursue an aggressive pricing policy byintroducing a cheaper TalkTalk fixed telephone line and broadband bundle andoffering free laptops with AOL broadband.

 

·              *Tiscali S.p.A. *Tiscalioffers fixed line telephone, broadband and, following the acquisition of VideoNetworks Limited in 2006, IP-based television services. During 2007, Tiscaliacquired Pipex Communications plc, which consisted of several smaller retailbroadband internet service providers, such as Bulldog and Toucan. Tiscali’sIP-based television service was re-launched in 2007 under the brand nameTiscali TV and offered as part of an aggressively priced bundle. In 2007,Tiscali also introduced a free line rental bundle which was available inselected areas.

 

·              *Orange. *Orange offers a triple play of mobilephone, fixed line phone and broadband services. During 2007, Orange entered thefixed line telephone market, having previously only offered VoIP calls, byoffering the service as part of a bundled package.

 

·              *Vodafone and O2. *Vodafonelaunched a fixed line and broadband package in early 2007. Following theacquisition of Be Internet in 2006, O2 launched a broadband service in late2007.

 

*Cable Television*

* *

Virgin Mediacompetes primarily with BSkyB in providing pay DTV to residential customers inthe U.K. BSkyB is the only pay-satellite television platform in the U.K. andhas a high market share of the U.K. pay television market. BSkyB owns the U.K.rights to various sports and movie programming content which it has used tocreate some of the most popular premium pay TV channels in the U.K. BSkyB istherefore both Virgin Media’s principal competitor in the pay televisionmarket, and an important supplier of premium television content to VirginMedia. The Office of Fair Trading, a U.K. regulatory agency which is referredto as the OFT, has previously determined that BSkyB is dominant in thewholesale supply of channels carrying certain premium sports content andpremium movies. Subject to a continuing finding of dominance, European and U.K.competition laws prevent BSkyB from abusing its market position in relation tothe supply of these channels to Virgin Media. Even so, Virgin Media believesthat the current terms for this content are not reasonable and should beimproved. Virgin Media currently trades on BSkyB’s rate card terms and pricingfor their premium movie and 

 

 

12

----

 

 

sports channels. Theseterms can be changed by BSkyB on 45 days’ notice. Additionally, BSkyB hasrefused to supply Virgin Media with certain enhancements to these services,such as High Definition TV content, some sports programming offered via “redbutton” functionality and other “red button” functionality features.

 

Residentialcustomers may also receive digital terrestrial television, or DTT. Digitalsignals are delivered to customer homes through a conventional televisionaerial and a separately purchased set-top box or an integrated digitaltelevision set. The free-to-air DTT service in the U.K. is branded Freeview.This service is provided by a consortium of operators, including the BBC, andoffers customers a limited range of television channels, which include thetraditional analog channels. Customers do not pay a monthly subscription fee forbasic Freeview service but must acquire a Freeview enabled set-top box or atelevision with a digital tuner. During 2007, according to the Office ofCommunications, or Ofcom, Freeview became the U.K.’s most popular digitaltelevision service. Other developments included the launch of a new range ofFreeview digital television recorders under the brand “Playback”. BSkyB hasalso announced its intention (subject to an Ofcom consultation) to remove itsfree channels (Sky News, Sky Sports News and Sky Three) from Freeview and tosubstitute pay channels in their place.

 

Top Up TV is a paytelevision service offering selected programs from over twenty pay televisionchannels for a fixed fee to subscribers who otherwise receive Freeview and havepurchased a Top Up TV digital video recorder.

 

During 2007, theavailability of IPTV services increased as BT Vision, a combined DTTtelevision service and a video on demand service over a DSL broadbandconnection, was launched nationally and Tiscali expanded coverage of theirservice beyond parts of the London metropolitan area. BSkyB also launched avideo on demand service over a DSL broadband connection and bundles thatservice with its other offerings.

 

There are a numberof new and emerging technologies which can be used to provide video servicesthat are likely to compete with Virgin Media’s DTV and video on demandservices. These include DSL services mentioned above and third generation, or3G, mobile telephony.

 

Telecommunicationsis a constantly evolving industry and Virgin Media expects that there willcontinue to be many advances in communications technology and in content. Theseadvances, together with changes in consumer behavior, and in the regulatory andcompetitive environments, mean that it will be difficult to predict how VirginMedia’s operations and businesses will be affected in the future.

 

The U.K.government has stated that it will terminate ATV transmission by 2012.Consumers wishing to receive television services will have to convert to DTV,currently available via digital satellite, DTT, DSL or cable. However, when ATVtransmission is terminated, the terrestrial DTV signal and network may bestrengthened. This will enable terrestrial DTV to be made available toadditional customers’ homes that cannot currently receive a signal. It may alsoprovide additional capacity to allow the Freeview channel line-up to beexpanded to include new channels.

 

There is also agrowing demand and supply of full-length video content via broadbandconnections to the personal computer. Content owners, online aggregators,television channel owners, etc. are increasingly using broadband as a newdigital distribution channel direct to consumers (primarily via downloading).Current business models tend to be on a pay-per-transaction basis. This doesrepresent a potential disintermediation threat to pay television platforms,though the actual demand and willingness to pay for broadband distributedcontent is unlikely to represent sufficient revenues and benefit to content ownersto displace pay television as a preferred distribution channel for the nearfuture.

 

*BroadbandInternet*

* *

Virgin Mediaprovides broadband and dial-up internet services to customers within reach ofits access network by direct connection to its network. Virgin Media alsoprovides broadband and dial-up internet services to customers not within reachof its access network by providing a connection to its network via BT’s localaccess network. Virgin Media’s internet services compete with BT, whichprovides broadband and dial-up internet access services over its own networkboth as a retail brand and as a wholesale service.

 

An increasingnumber of companies are deploying their own network access equipment in BTexchanges via a process known as local loop unbundling, or LLU. LLU allows anISP to reduce the recurring operating costs incurred through BT Wholesale byreducing the proportion of traffic that must travel directly over BT’s network.LLU deployment requires a substantial capital investment to implement, andrequires a large customer base to deliver a return on investment. By the end 

 

 

13

----

 

 

of 2007, both CarphoneWarehouse and BSkyB had rolled out significant LLU networks (with approximately70% coverage in the United Kingdom). Other operators such as Orange and Tiscaliwere deploying LLU to some degree.

 

BT and third partyservice providers use DSL technologies which, like Virgin Media’s network,permit internet access to be provided at substantially greater speeds thanconventional dial-up access.

 

In addition to theincreasing competition and pricing pressure in the broadband market arising asLLU players look to gain the customer scale to make a return on theirinvestment, there is the longer term threat of new access technology. 3G mobiletechnology, other wireless technologies such as Wi-Fi and Wi-Max, broadbandpower line (which utilizes existing electricity networks to deliver high-speedbroadband internet services) and mobile broadband may subject Virgin Media toincreased competition over time in the provision of broadband services.

 

*FixedLine Telephone*

* *

Virgin Mediaprovides fixed line telephone services to customers who are within reach of itsnetwork by direct connection to its network and, like Virgin Media’s internetservices, to customers off its network via BT’s local access network. VirginMedia competes primarily with BT in providing telephone services to residentialcustomers in the U.K. BT occupies an established market position. Virgin Mediaalso competes with other telecommunications companies that provide telephoneservices, either directly through LLU or indirectly, including CarphoneWarehouse under the brand name TalkTalk, BSkyB, Tiscali, Orange and Tesco.

 

Virgin Media alsocompetes with mobile telephone networks that may threaten the competitiveposition of its networks by providing a substitute to fixed line telephoneservices. Mobile telephone services also contribute to the downward pricepressure in fixed line telephone services. Through Virgin Media’s acquisitionof Virgin Mobile in July 2006, it now provides mobile telephony servicesto approximately 4.5 million customers but we do not provide a mobiletelephony service.

 

There is alsocompetition from companies offering VoIP services using the customer’s existingbroadband connection. These include services offered by independent providers,such as Vonage and Skype, as well as those affiliated with establishedcompetitors such as BT and Orange. These services generally offer free callsbetween users of the same service, but charge for calls made to normal phonenumbers either on a flat monthly rate for unlimited calls (typically restrictedto geographic calls) or on a pence per minute rate.

 

*Business*

* *

The U.K. businesstelecommunications market is characterized by strong competition and comprisedof traditional network operators such as BT and Cable &Wireless plc, or C&W, virtual network operators such asVanco plc, or Vanco, and systems integrators like Affiniti, a trading nameof Kingston Communications (Hull) Plc. While BT represents the maincompetitive threat nationally due to its network reach and product portfolio,other providers compete within product and geographic segments. Thus plc,Affiniti and COLT Telecom Group plc, for example, have network advantageswithin certain regions.

 

Within retailmarkets, traditional competitors are becoming increasingly focused, withorganizations such as C&W, and Thus plc targeting the largest nationaland multi-national corporations. Virgin Media continues to focus on small,medium and large nationally oriented businesses where leveraging its networkasset can provide an economic advantage.

 

Systemintegrators, or SIs, are also becoming an increasing competitive threat, as ITintegration, management and outsourcing begins to form an element of manylarger organizations requirements. ntl:Telewest Business seeks to address thisas an opportunity to drive sales of access network, the underlyinginfrastructure for integrated IT systems, and, in 2007, established an SIchannel within the Service Provider sales team.

 

In the future,further competition from mobile operators is expected, as they explorestrategies to enter the fixed line market with convergence propositions toVirgin Media’s target customers.

 

Competition in theU.K. market continues to be based on value for money, the key components ofwhich are quality, reliability and price. Customers, particularly largerorganizations that utilize the network to enable business-critical applicationsand solutions, accept higher price points in exchange for consistent deliveryand performance against service level agreements.

 

** **

***14***

----

*** ***

** **

**GovernmentRegulation**

** **

***Regulation in theEuropean Union (EU)***

*** ***

The EuropeanParliament and Commission regulate Virgin Media’s principal business activitiesthrough Directives and various other regulatory instruments.

 

In particular, in February 2002,the European Commission adopted a package of new Directives which, together,set out a new framework for the regulation of electronic communicationsnetworks and services throughout the EU. This new framework consisted of fourDirectives, namely:

 

·                     Directive 2002/21 on a common regulatory framework forelectronic communications networks and services (the Framework Directive);

 

·                     Directive 2002/20 on the authorization of electroniccommunications networks and services (the Authorization Directive);

 

·                     Directive 2002/19 on access to and interconnection ofelectronic communications networks and associated facilities (the Access andInterconnection Directive); and

 

·                     Directive 2002/22 on universal service and usersrights relating to electronic communications networks and services (theUniversal Service Directive).

 

This package of Directiveswas supplemented, subsequently, by the Communications and Privacy Directivewhich dealt, among other things, with data protection issues in relation to theprovision of electronic communications services.

 

The U.K.Government incorporated these Directives into its national laws under theCommunications Act 2003, which came into effect on July 25, 2003, and theCommunications Privacy Regulations, which came into effect on December 11,2003.

 

During 2006, theEuropean Commission commenced a review of these Directives (the RegulatoryFramework Review). This review led to the publication of a number of draftamending Directives in November 2007. It is anticipated that these draftDirectives will have their First Reading in the European Parliament in September 2008.One notable proposal under these draft Directives is for the creation of aEuropean Electronic Communications Market Authority which would have, as partof its remit, the duty to contribute towards the harmonization of regulationrelating to electronic communications across the EU. It is not intended,however, that this new Authority would replace national regulatory authoritiessuch as Ofcom (see below under “Regulation in the U.K.”). It is not currentlyanticipated that the proposals contained in the draft Directives will have anymaterial adverse impact on Virgin Media’s business.

 

***Regulation in theU.K.***

*** ***

Virgin Media issubject to regulation under the Communications Act 2003, the Broadcasting Acts1990 and 1996 and other U.K. statutes and subordinate legislation. TheCommunications Act 2003 established a regulatory authority, the Office ofCommunications (Ofcom), as the single regulatory authority for the entirecommunications sector.

 

Under theCommunications Act 2003, communications providers, such as Virgin Media, are nolonger required to hold individual licenses in order to provide electroniccommunications networks and services, although certain licenses are required(see below under “Cable TV Regulation”) in order to own or operate its TVchannels or to provide certain facilities such as electronic program guides onthe cable TV platform. Even so, all communications providers are subject to aset of basic conditions imposed by Ofcom, which are known as the GeneralConditions of Entitlement. Any breach of these conditions could lead to theimposition of fines by Ofcom and, ultimately, to the suspension or revocationof a company’s right to provide electronic communications networks andservices.

 

*The*General Conditionsof Entitlement and SMP Conditions

 

Full details ofthe General Conditions of Entitlement are available on Ofcom’s website(www.ofcom.org.uk). Some of the requirements under the General Conditions ofEntitlement include:

 

 

15

----

 

 

·                    a requirement to negotiate interconnectionarrangements with other network providers

 

·                    a requirement to ensure that any end-user can accessthe emergency services and that accurate customer location data is madeavailable to the emergency services

 

·                    a requirement to offer outbound number portability tocustomers wishing to switch to another network provider and to support inboundnumber portability where Virgin Media acquires a customer from another networkprovider

 

·                    a requirement to comply with a number of high-levelobligations designed to address consumer harm associated with broadbandmigrations

 

·                    a requirement to ensure that any end-user can access adirectory enquiry service

 

·                    a requirement to publish up-to-date price and tariffinformation

 

·                    a requirement to provide itemized billing on requestfrom each customer

 

In addition to theGeneral Conditions of Entitlement, Ofcom imposes further conditions onproviders of electronic communications networks or services who havesignificant market power (SMP) in identified markets. In regulatory terms, SMPequates to the competition law concept of dominance. The EU regulatoryframework adopted in 2002, required Ofcom to carry out a number of initialmarket reviews to establish which providers held SMP in these markets, andshould therefore be subject to further conditions, and to keep these marketsand any other relevant markets identified by Ofcom under regular review. Thisresulted in British Telecommunications plc (BT) being found to have SMP ina substantial number of markets and as a result, being made subject to furtherregulatory requirements in both wholesale and retail markets. Under theRegulatory Framework Review (see above under “Regulation in the European Union”)the number of markets that Ofcom is obliged to keep under review and where itis required to make SMP assessments has been reduced significantly with effectfrom November 2007. It is possible that this will lead, over time, to thelifting of a number of regulations previously imposed on BT, particularly inretail markets, with the result that BT will be able to compete moreaggressively in these markets. However, prior to any such regulation beingreduced in any market, Ofcom is obliged to undertake a further market review.Only if the market is deemed to be competitive will a reduction in regulationbe considered. Moreover, any reduction of specific SMP-related regulation wouldnot remove the requirement for BT to comply with remaining SMP-relatedregulation, the General Conditions of Entitlement and U.K. and EU competitionlaw.

 

Under one of theearlier reviews, all fixed operators, including Virgin Media, have been foundto possess SMP in relation to the termination of calls on their own networks.This has resulted in the imposition of a requirement on all fixed operators toprovide access to their networks on fair and reasonable terms for terminatingcalls, with additional requirements being imposed on BT and KingstonCommunications. Virgin Media has not been found to possess SMP in any of theother voice, data or internet markets in which it operates.

 

*TheStrategic Review of Telecommunications*

* *

Following thepassing of the Communications Act 2003, Ofcom announced that one of its firsttasks would be to carry out a strategic review of telecommunications in theU.K. (TSR).

 

The TSR commencedin April 2004 with the observation from Ofcom that, despite almost twentyyears of telecommunications liberalization in the U.K., BT remained dominant inalmost all telecommunications markets. Ofcom felt, therefore, that it shouldseek to increase competitive intensity by improving third party access to theBT network.

 

Having reachedthis conclusion, Ofcom has developed a concept known as “equivalence”. Broadly,this concept has been defined as enabling BT’s competitors to gain access to BT’snetwork infrastructure on exactly the same (i.e. equivalent) terms as BTitself enjoys.

 

At the conclusionof the TSR, BT offered and Ofcom accepted a number of undertakings to put theconcept of equivalence into practice in its dealings with competitors. This hasbeen achieved primarily through the creation of a new division within BT called“Openreach” which manages and sells network services to competitors and therest of BT on the same terms and conditions (including prices) and inaccordance with the same processes.

 

 

16

----

 

 

The efficacy ofthese undertakings was formally reviewed by Ofcom during 2007. Ofcom statedthat BT had made very significant progress in implementing the undertakings andhad committed considerable resources to meeting its obligations, including thecreation of Openreach as an independent business unit in January 2006.Ofcom stated that these changes had benefited competition and end consumers. Inaddition, Ofcom now wants to ensure that Openreach has clear incentives toimprove its performance levels to deliver better products and service to itsown retail business and to other communications providers and their customers.Virgin Media expects this matter to be addressed further during 2008.

 

*UniversalService*

* *

The concept ofuniversal service is designed to ensure that basic fixed linetelecommunications services are available at an affordable price to allcitizens across the EU. The scope of universal service obligations is definedby the Universal Service Directive (see above under “Regulation in the EuropeanUnion”) and is transposed into U.K. regulation by the Universal Service Order.This Order has been implemented by Ofcom which has imposed a number of specificuniversal service requirements on BT and Kingston Communications, both of whichhave been designated by Ofcom as universal service providers.

 

The EuropeanCommission has been considering the future scope of universal service obligationsas part of the Regulatory Framework Review (see above under “Regulation in theEuropean Union”). Some of the main changes proposed are intended to improve theprovision of information for customers and end-users and to facilitate the useof e-communications services by disabled users. Virgin Media would be affectedby any future decision to require it to provide or to contribute to the fundingof universal service in the U.K.

 

*ElectronicCommunications Code*

* *

Under theTelecommunications Act 1984, which was largely replaced by the CommunicationsAct 2003, licensed public telecommunications operators were eligible forenhanced legal powers under the electronic communications code annexed to theTelecommunications Act 1984, or Code Powers. Code Powers give enhanced legalrights of access to private land, exemption from some requirements of generalplanning law and the right to install equipment in the public highway.

 

Any operator whichpossessed Code Powers under the previous licensing regime automaticallyretained those powers under the Communications Act regime. Virgin Media’ssubsidiaries that provide electronic communications networks and services haveCode Powers.

 

Each operator isrequired to certify to Ofcom each year that it has sufficient and acceptablefinancial security in place to cover the costs which could be incurred by localcouncils or road authorities if they were required to remove equipment orrestore the public roads following the insolvency of that operator. Thissecurity is commonly described as “funds for liabilities.” Ofcom has indicatedthat it will generally require an operator to provide board level certificationof third party security for this purpose.

 

*Next*Generation Access

 

In September 2007,Ofcom launched a consultation process in respect of Next GenerationAccess (NGA), the focus of which was to consider whether changes tocurrent regulation were necessary in order to stimulate increased and furtherinvestment in high-speed broadband access networks. Virgin Media will continueto engage with Ofcom in this debate throughout 2008.

 

*WholesaleBroadband Access*

 

Ofcom concludedthe second phase of the Wholesale Broadband Market Review in February 2008.A statement and action plan is expected in summer 2008. This will remove certainregulatory obligations on BT to provide wholesale services currently used byoperators to provide broadband access in the most competitive areas of the U.K.Until the timing for these changes is proposed it is not possible to accuratelypredict the impact for Virgin Media’s business. The impact of any changes isunlikely to be seen until late 2009.

 

 

17

----

 

 

*Business*Connectivity

 

A market review ofBusiness Connectivity services was launched in January 2008. It is likelythis will determine that competition exists in certain areas and, as such, areduction in regulation over time is likely to be proposed. The impact of thesechanges is unlikely to be seen until late 2009.

 

*CableTV Regulation*

* *

Although Virgin Mediais no longer required to hold individual licenses to provide electroniccommunications networks and services, it is still required to hold individuallicenses under the Broadcasting Acts 1990 and 1996 for any television channelswhich it owns or operates and for the provision of certain other services(e.g. electronic program guides) on its cable TV platform.

 

Virgin Mediatherefore holds a number of Television Licensable Content Service Licenses(TLCS licenses) under the Broadcasting Act 1990 for the operation of televisionchannels and for the provision of its electronic program guide.

 

TLCS licenses aregranted and administered by Ofcom. The licenses require that each licensedservice complies with a number of Ofcom codes, including the Broadcasting Code,and with all directions issued by Ofcom. Breach of any of the terms of a TLCSlicense may result in the imposition of fines on the license holder and,ultimately, to the license being revoked.

 

Holders of TLCSlicenses are required to pay an annual fee to Ofcom. The fees are related tothe revenue earning capacity of each television service and are based on apercentage, set by Ofcom, of revenues from advertising, sponsorship,subscriptions and interactive services, with special rules applying toshopping channels.

 

In October 2006,Ofcom commenced a review of the various ways and the terms on which operatorsof digital TV platforms in the U.K. (including Virgin Media) allow access totheir platforms for third-party TV channels and content providers. This reviewhas not yet progressed beyond its initial stages. It is not possible,therefore, to predict the outcome of this review and whether access to digitalTV platforms in general or to specific platforms in particular, includingVirgin Media’s cable TV platform, will become more heavily regulated as aresult.

 

*U.K.Competition Law*

 

The CompetitionAct 1998 prohibits the abuse of a dominant market position and anti-competitiveagreements in essentially the same terms as Articles 81 and 82 of the EUTreaty. The Act also introduced third party rights, stronger investigative andenforcement powers and the ability for the competition authorities to issueinterim measures. The new enforcement powers include the ability to imposefines of up to 10% of worldwide turnover. The Competition Act is enforced bythe Office of Fair Trading (OFT) and gives concurrent investigative andenforcement powers in matters concerning communications to Ofcom.

 

The U.K.’scompetition law framework was further strengthened by the competitionprovisions of the Enterprise Act 2002, which came into force in June 2003.Under these provisions, among other things, decisions on mergers are now madeby the independent competition authorities, using competition based tests,rather than by the U.K. Government.

 

Under otherprovisions of the Enterprise Act, individuals who cause, encourage, participatein or, in some cases, even those who have knowledge of, the making ofagreements between competitors which are designed to fix prices, share markets,limit supply or production or rig bids in the U.K., can be prosecuted andpunished with unlimited fines and imprisonment for up to five years. The courtsmay also order the disqualification for up to fifteen years of directors whosecompanies have committed a breach of U.K. or EU competition law.

 

In addition, theEnterprise Act gives sector regulators such as Ofcom the ability to make a “MarketReference” to the Competition Commission where they have reasonable grounds tosuspect that any feature or combination of features of a market restricts ordistorts competition. If a reference to the Competition Commission is made onthese grounds, the Competition Commission will carry out a detailed inquiry andhas wide-ranging powers to impose structural and behavioral remedies or both.

 

 

18

----

 

 

*PayTV Market Investigation*

 

In January 2007,Virgin Media made a joint submission to Ofcom with BT, Setanta Sport HoldingsLimited (Setanta) and Top Up TV Europe Limited (Top Up)indicating that there are a number of features of the U.K. pay TV marketwhich result in competition being prevented, restricted or distorted and thatBSkyB is able to exploit these features to marginalize and even foreclosecompetitors at all levels of the pay TV market value chain.

 

Following thissubmission, Ofcom announced in March 2007 that it would be carrying out astudy of the U.K. pay TV market to determine whether a reference to theCompetition Commission was appropriate. Virgin Media made a further, moredetailed, joint submission to Ofcom with BT, Setanta and Top Up in July 2007.Ofcom published its consultation document in December 2007.

 

Ofcom willcontinue its study of the U.K. pay TV market throughout 2008 before decidingwhether to make a referral to the Competition Commission. Ofcom cannot imposeremedies itself (only the Competition Commission has power to impose remediesunder these provisions of the Enterprise Act) but once Ofcom has decided that areferral to the Competition Commission is appropriate, it can acceptundertakings from parties such as BSkyB, which can be structural and/orbehavioral in nature, to remedy the competition problems in lieu of a referralto the Competition Commission.

 

*WEEE*Directive

* *

On December 12,2006, the U.K. government adopted the Waste Electrical and Electronic EquipmentDirective (the WEEE Directive) previously adopted by the European Unionrelating to certain obligations associated with historical waste (as defined bythe WEEE Directive). The WEEE Directive became effective on January 2,2007 and imposes the responsibility for the disposal of waste electrical andelectronic equipment on the manufacturers of such equipment. The mainprovisions relate to separate collection, disposal and recycling; standards forits treatment at authorized facilities; and collection, recycling and recoverytargets. It requires distributors to allow consumers to return their wasteequipment free of charge, which would include the set-top boxes and cablemodems that Virgin Media provides to its customers.

 

**CorporateResponsibility**

 

Virgin Mediaregards corporate responsibility, or CR, as an important factor in the way itruns its business. During 2007, Virgin Media challenged itself to gain a betterunderstanding of the fundamental responsibilities it owes to its stakeholders.Consequently, its approach to CR encompasses basic ethical questions associatedwith its marketplace and workplace in addition to wider questions around socialand environmental sustainability. Virgin Media believes that its brand, peopleand products present a clear opportunity for using CR as a point ofdifferentiation both in its sector and beyond.

 

The need to engageits people, which is a key priority for senior management, has been augmented bythe strengthening of policies on issues such as employee well-being andlearning and development. Similarly, Virgin Media has worked alongside theVirgin Group’s charitable arm, Virgin Unite, in developing a series ofpartnerships with charities such as Foyer and Lucca Leadership that enable itto use its people, products and expertise to generate social benefit. VirginMedia has focused on generating an internal structure, consisting of regionaland local charity champions, through which it can significantly accelerate itsinvestment in charities and communities.

 

Virgin Media havesought to gain an accurate understanding of its environmental impact byestablishing baseline data in a number of key areas such as energy, transportand waste. It is also committed to the principle of sustainable procurement,details of which have been articulated in a new code of conduct that has formedthe basis of a constructive dialogue with suppliers around issues such as laborstandards and environmental sustainability.

 

**Seasonality**

** **

Some revenuestreams are subject to seasonal factors. For example, fixed line telephoneusage revenue by customers and businesses tends to be slightly lower duringsummer holiday months. Virgin Media’s customer churn rates include persons who disconnecttheir service because of moves, resulting in a seasonal increase in its churnrates during the summer months when higher levels of U.K. house moves occur andstudents leave their accommodation between school years.

 

** **

***19***

----

*** ***

*** ***

**Researchand Development**

** **

Virgin Media’sresearch and development activities involve the analysis of technologicaldevelopments affecting its cable television, telephone and telecommunicationsbusiness, the evaluation of existing services and sales and marketingtechniques and the development of new services and techniques.

 

**Patents,Trademarks, Copyrights and Licenses**

** **

Virgin Media doesnot have any material patents or copyrights nor does it believe that patentsplay a material role in its business. Virgin Media owns and has the right touse registered trademarks, which in some cases are, and in others may be, ofmaterial importance to its business, including the exclusive right to use the “Virgin”name and logo in connection with its corporate activities and in connectionwith the activities of its consumer and a large part of its content businessesunder license from Virgin Enterprises Limited. This license with VirginEnterprises Limited is for a 30-year term and exclusive to Virgin Media withinthe U.K. and Ireland. The license entitles Virgin Media to use the “Virgin”name for the TV, broadband internet, telephone and mobile phone services itprovides to its residential customers, as well as the acquisition and brandingof sports, movies and other premium television content and the sale of certaincommunications equipment, such as set top boxes and cable modems. For VirginMedia’s content operations, it is entitled to use the “Virgin Media Television”name for the creation, distribution and management of its wholly ownedtelevision channels, and to use the “Virgin” name for its recently launchedtelevision channel, Virgin 1. Virgin Media’s license agreement providesfor an annual royalty of 0.25% of certain consumer and content revenues,subject to a minimum annual royalty of £8.7 million, except forVirgin 1, where it pays an annual royalty of 0.5% of revenues received byVirgin 1, subject to a minimum of £100,000. As part of the agreement,Virgin Media has the right to adopt, and has adopted, a company name for itsparent, Virgin Media Inc., over which, together with the name “VirginMedia”, it retains worldwide exclusivity.

 

**Employees**

 

As the management of our business is performed by Virgin Media, we donot have any employees on our payroll. As of December 31, 2007, Virgin Media had 15,060employees, of whom 13,319 were permanent, and 1,741 were temporary or contract.Approximately 1,800 Service Operations, Network Operations, Design &Civils and Business Field Operations employees are covered by two recognitionagreements with the Communication Workers Union, or CWU, and the Broadcasting,Entertainment, Cinematograph and Theatre Union, or BECTU. Both of theseagreements are terminable by either the Union or Virgin Media with three months’written notice. Except for the CWU arrangements, no other employees are coveredby collective bargaining agreements. Virgin Media believes that itsrelationship with the CWU, BECTU and its employees is generally good.

 

Virgin Media’sstrategy is to become an employer of choice within its U.K. marketplace andtherefore continue to build a well trained and motivated workforce. VirginMedia is working on a number of initiatives to ensure that it builds this intothe way it works and has established specific milestones over the next18 months. These initiatives range from embedding a consistent performancemanagement process across the whole organization by setting clear annualobjectives (both business and personal), establishing incentive-based awards,through to the ongoing refurbishment and improvement of the workingenvironment. A number of other engagement initiatives are ongoing includingemployee satisfaction surveys and action plans, a recognition scheme, brand/culturetraining, and local charity and community activities.

 

**Item 1A.  Risk Factors**

 

*Ourbusiness, financial condition or results of operations could be materiallyadversely affected by any of the risks and uncertainties described below.  Additional risks not presently known to us,or that we currently deem immaterial, may also impair our business.*

 

**RisksRelating to Our Business**

 

***We rely on the continued support of Virgin Media.***

 

We do not directly employpersonnel of our own. The various personnel required to operate our network areemployed by Virgin Media Limited and its affiliates, and our business ismanaged by our General Partner, NTL Fawnspring Limited, a wholly ownedsubsidiary of Virgin Media Limited, from its headquarters in Hook, Hampshire.We also generally rely on Virgin Media’s management, organization, financing,structure and infrastructure to carry on our business operations. If

 

##  

20

----

 

Virgin Media were unable,or ceased, to provide us with these essential services, we would be unable toprovide services to our customers. Our reputation would be materially adverselyaffected and we would lose customers and revenue. We might not be able tocontinue the operation of our business.

 

***There is no established public trading market for ourlimited partnership interests and disposition thereof is restricted.***

 

While our limitedpartnership interests are publicly held, there is no established public tradingmarket for our limited partnership interests, nor is it expected or intendedthat such a market will develop in the future.

 

In addition, there arelimitations on the transferability of interests in the partnership, including acondition that our General Partner consent to any transfer. A limited partnermay therefore be unable to liquidate an investment whenever the limited partnerdecides and may be required to bear the risk of the investment for anindefinite period of time.

 

***There are conflicts of interests arising out of transactionsentered into with our General Partner and its affiliates.***

 

Our General Partner hasconcluded, on our behalf, various arrangements and agreements with itself andits affiliates to provide services to us, including the provision of consultingand management, financing, infrastructure, marketing, billing, basic televisionchannels and other services. Our General Partner and its affiliates could enterinto additional arrangements with us in the future, including merger,acquisition and disposition transactions. Some of these arrangements areincluded in our Partnership Agreement, while others are subject to standardsincluded in our Partnership Agreement. Additionally, some of these arrangementsinvolve reimbursement for direct and indirect expenses and charges allocated tous.

 

Our GeneralPartner has a duty to act in good faith and in our best interests in dealingwith us, and not to take advantage of (or permit its respective affiliates totake advantage of) the conflicts arising out of these relationships. However,none of the arrangements were negotiated at arm’s-length and there can be noassurance that the terms are as favorable as those available from unaffiliatedparties.

 

***We have incurred losses in the past and may not beprofitable in the future***

 

In 2007, we made a netprofit of $619,521, however we have incurred substantial aggregate net lossessince our inception. We may not to continue to make a net profit in the futureand may never be profitable on an aggregate basis. Additionally, failure toachieve profitability could adversely affect our ability to make requiredpayments or obtain additional required funds which would make it impossible forus to continue to operate our business.

 

***We operate in a limited geographical area.***

 

Our franchise areacomprises the three administrative areas of Three Rivers, Watford andHertsmere, in which there are approximately 96,000 homes. Given the relativelylimited size of our franchise area, material problems affecting our ability toprovide services to our customers would likely affect the totality of ourfranchise area. Consequently, any resulting loss of customers and revenueswould not be compensated by revenues from another part of our business thatwould not have been affected. Similarly, other local events maydisproportionately affect customers, business, and revenues.

 

***The IRS could treat us as a corporation for tax purposes,which would negatively affect our limited partners***.

 

The after-tax economic benefit of an investment inthe limited partnership units depends largely on our being treated as apartnership for federal income tax purposes. We have not requested, and do notplan to request, a ruling from the IRS on this or any other tax matteraffecting us.

 

If we were treated as acorporation for federal income tax purposes, we would pay federal income tax onour income at the corporate tax rate, which is currently a maximum of 35%.Distributions to our limited partners may be taxed again as corporatedividends, and no income, gains, losses or deductions would flow through tothem. Because a tax would be imposed upon us as a corporation, any cashavailable for distribution to our limited partners could be reduced.

 

Current law may change soas to cause us to be treated as a corporation for federal income tax purposesor otherwise subject us to entity-level taxation.

 

21

----

 

***Our limited partners may be required to pay taxes on incomefrom us even if they do not receive any cash distributions from us.***

 

Our limited partners willbe required to pay any federal income taxes on their share of our taxableincome even if they receive no cash distributions from us. Our limited partnersmay not receive cash distributions from us equal to their share of our taxableincome or even the tax liability that results from that income.

 

**RisksRelating to Virgin Media’s Business and Industry**

 

*We operate entirely within Virgin Media’s cable segment and ourservices are provided and sold to our customers by Virgin Media on anintegrated basis with Virgin Media services. As a result, the following VirginMedia risk factors are also relevant to our operations, and references to therisks to Virgin Media should, as appropriate, be read as risks to us.*

 

***Virgin Media is subject to significant competition.***

 

The level ofcompetition is intense in each of the markets in which Virgin Media competes,and Virgin Media expects competition to increase. In particular, Virgin Mediacompetes with BT, BSkyB, Carphone Warehouse (Talk Talk), Tiscali, Vodafone, O2,Orange and T-Mobile, each of whom has significant operational scale, resourcesand national distribution capacity. Virgin Media also competes with numerousinternet service providers and indirect telephone access operators that offertelephone, broadband and dial-up internet services over BT’s network. VirginMedia will face increasing competition from mobile telephone network providersand new market entrants, including those providing VoIP and IPTV. The increasein competition will be compounded by technological changes and businessconsolidation, which may permit more competitors to offer the “triple-play” ofdigital television, fixed line telephone and broadband services, or “quad-play”bundles including mobile telephone services.

 

In the digitaltelevision market, Virgin Media competes primarily with BSkyB in providingdigital pay television services. Competition increased as a result of thelaunch of Freeview in October 2002, which provides over 40 digitalterrestrial TV channels on a free-to-air basis to consumers who have purchaseda Freeview digital set-top box or digital television recorder. In March 2004,Top Up TV launched a pay television service offering approximately 120 programsfrom 19 channels for a fixed fee to subscribers who otherwise receiveFreeview and have purchased a Top Up TV set-top box. BT launched a personalcomputer download service of video on demand home entertainment content over abroadband connection called BT Vision. BSkyB, Tiscali and others offer asimilar service.

 

Virgin Media’sbroadband service faces increased competition from BT, BSkyB, CarphoneWarehouse (TalkTalk), Orange, O2 and others. Competitors may use newalternative access technology such as advanced, faster asymmetric digitalsubscriber lines, or ADSL+2, to deliver higher speeds. Local loop unbundlingmay decrease costs for new entrants and existing BT wholesale customers,leading to increased price competition.

 

Virgin Media’sfixed line telephony business competes with fixed line operators such as BT,telephone local loop unbundlers such as Carphone Warehouse (TalkTalk) andBSkyB, and several mobile telephone operators such as Vodafone, O2, Orange andT-Mobile.

 

Virgin Media’sbusiness services also face a wide range of competitors, including BT, C&W,COLT Telecom Group plc and Thus plc, and a number of regional serviceproviders. The nature of this competition varies depending on geography,service offerings and the size of the marketable area.

 

Many of VirginMedia’s competitors are part of large multinational groups, have substantialadvertising and marketing budgets, have greater retail presence and may benefitfrom greater economies of scale than Virgin Media does.

 

In order tocompete, Virgin Media has had to reduce the prices it charges for its servicesor increase the value of its services without being able to recoup associatedcosts. Reduced prices or increased costs have had a negative impact on VirginMedia’s margins and profitability and could continue to do so in the future. Inaddition, if Virgin Media is unable to compete successfully, even followingprice reductions or value enhancements, Virgin Media may not be able to attractnew customers, or retain existing customers.

 

22

----

 

***Failure to control customer churn may adversely affect******Virgin Media’s**********financialperformance.***

 

The successfulimplementation of Virgin Media’s business plan depends upon controllingcustomer churn. Customer churn is a measure of customers who stop using itsservices. Customer churn could increase as a result of:

 

·                  generalreduction in the quality of Virgin Media’s customer service, including billingerrors;

 

·                  customers movingto areas where Virgin Media cannot offer its digital television, or DTV,services;

 

·                  interruptions tothe delivery of services to customers over Virgin Media’s network and poorfault management;

 

·                  theavailability of competing services, some of which may, from time to time, beless expensive or technologically superior to those offered by Virgin Media oroffer content that Virgin Media does not offer; and

 

·                  thepotential loss of customers due to their required migration from its analogtelevision, or ATV, services to Virgin Media’s more expensive DTV services whenit stops transmitting its ATV signal.

 

An increase incustomer churn can lead to slower customer growth, or indeed loss of customers,and a reduction in revenue.

 

***VirginMedia******is licensed to use the Virgin name and logobut does not own it.***

 

In February 2007,Virgin Media rebranded certain areas of its business (including our business)as Virgin Media and renamed its corporate parent to Virgin Media Inc.under a 30-year license agreement with Virgin Enterprises Limited to use theVirgin name and logo. The use of the Virgin Media name and brand carriesvarious risks, including the following:

 

·                  VirginMedia will be substantially reliant on the general goodwill of consumerstowards the Virgin brand. Consequently, adverse publicity in relation to theVirgin Group or its principals, particularly Sir Richard Branson, who isclosely associated with the brand, or in relation to another Virgin namelicensee, could have a material adverse effect on Virgin Media’s and ourbusiness;

 

·                  the licenseagreement has a 30-year term, and Virgin Media is obligated to pay atermination payment if the license is terminated early under certaincircumstances; and

 

·                  Virgin Media isrequired to meet certain customer service level requirements which are groupedinto three key categories.

 

These servicelevel categories include: Base Service Levels which, in addition to ensuringthat employees are fully-trained, competent, courteous and respectful, setbasic standards against which to measure complaint handling, complaint levelsand call center performance. Technical Service Levels which measure certaintechnical requirements that affect Virgin Media’s customers’ experience, suchas service availability and service response times. Aspirational ServiceLevels, which are levels of service that Virgin Media and Virgin Group wish toachieve over time, to create new service measures and increase the demands oncertain existing measures, covering a range of matters including customersatisfaction, customer advocacy, complaint levels, call center performance andstaff satisfaction. A failure to meet its obligations under the licenseagreement could lead to a termination of the license.

 

If Virgin Medialoses the right to use the Virgin brand, it would need to rebrand those areasof its business that have been rebranded, which could result in increasedexpenditures and increased customer churn.

 

***If******Virgin Media******doesnot maintain and upgrade its networks in a cost-effective and timely manner, itcould lose customers.***

 

Maintaining anuninterrupted and high-quality service over its network infrastructure iscritical to Virgin Media’s ability to attract and retain customers. Providing acompetitive service level will depend in part on its ability to maintain andupgrade its networks in a cost-effective and timely manner. The maintenance andupgrade of its networks will depend upon, among other things, its ability to:

 

23

----

 

·                  modifynetwork infrastructure for new products and services, including fasterbroadband speeds;

 

·                  installand maintain cable and equipment; and

 

·                  financemaintenance and upgrades.

 

Financialcovenants in Virgin Media’s senior credit facility effectively restrict its useof cash. If these covenants affect its ability to replace network assets at theend of their useful lives or if there is any reduction in Virgin Media’sability to perform necessary maintenance on network assets, its networks mayhave an increased failure rate, which is likely to lead to increased customerchurn.

 

***A failure in******Virgin Media’s******critical systems could significantly disrupt its operations, which could reduceits customer base and result in lost revenues.***

 

Virgin Media’sbusiness is dependent on many sophisticated critical systems that support allof the various aspects of its cable network operations. Virgin Media’s systemsare vulnerable to damage from a variety of sources, includingtelecommunications failures, malicious human acts, theft, natural disasters,fire, power loss, gas build-up, war or other catastrophes or any other threatto business continuity. Virgin Media’s servers are potentially vulnerable tophysical or electronic break-ins, computer viruses and similar disruptiveproblems. Virgin Media does not currently have a formal company-wide disasterrecovery plan, however, it is in the process of creating plans for key areas ofrisk in its business. Unanticipated problems affecting its systems could causefailures in its information technology systems, including systems that arecritical for timely and accurate customer billing, or its customer servicecenters or interrupt the transmission of signals over its cable network.Sustained or repeated system failures that interrupt Virgin Media’s ability toprovide service to its customers, prevent it from billing and collectingrevenue due to it, or otherwise meet its business obligations in a timelymanner, would adversely affect its reputation and result in a loss of customersand revenue. Improvements to Virgin Media’s revenue collection processes maynot be successful or may not yield enhanced revenue collection. Inefficientcollection could result in an increase in bad debt.

 

***VirginMedia’s******inability to obtain popular programming,or to obtain it at a reasonable cost, could potentially materially adverselyaffect the number of customers or reduce margins.***

 

For the provisionof television programs and channels distributed via its cable network, VirginMedia enters into agreements with program providers, such as public andcommercial broadcasters, or providers of pay or on demand television. VirginMedia has historically obtained a significant amount of its premium programmingand some of its basic programming and pay-per-view sporting events from BSkyB,one of Virgin Media’s main competitors in the television services business.BSkyB is a leading supplier of programming to pay television platforms in theU.K. and is the exclusive supplier of some programming, including its SkySports channels and Sky Movie channels, which are the most popular premiumsubscription sports and film channels, respectively, available in the U.K.Virgin Media buys BSkyB wholesale premium content on the basis of BSkyB’s ratecard terms and pricing, which can be changed on 45 days’ notice by BSkyB,and not under a long term supply contract. Virgin Media’s agreement with BSkyBto purchase its basic programming channels expired on February 28, 2007,and Virgin Media lost the right to carry those channels. As a result, VirginMedia experienced increased churn and higher customer retention costs in 2007.

 

In addition toproviding programming to Virgin Media, BSkyB competes with Virgin Media byoffering its programming directly to its digital satellite customers. As aresult of BSkyB’s ownership of this content, it is able to charge Virgin Mediaa price for its content that makes it challenging for Virgin Media to competewith BSkyB’s own retail pricing and still maintain a profit margin on the saleof that premium programming. BSkyB also offers content, such as highdefinition, some sports programming and interactive content, exclusively to itsdigital satellite customers and not to Virgin Media.

 

In addition toBSkyB, Virgin Media’s significant programming suppliers include the BBC,ITV plc, Channel 4, Channel Five, Viacom Inc., HBO, DiscoveryCommunications Inc. and Turner, a division of Time Warner Inc. VirginMedia’s dependence on these suppliers for television programming could have amaterial adverse effect on its ability to provide attractive programming at areasonable cost. In addition, the loss of programs could negatively affect thequality and variety of the programming delivered to Virgin Media customers,which could have a material adverse effect on its business and results ofoperations and increase customer churn.

 

24

----

 

***Unauthorized access to******Virgin Media’s******network could result in a loss of revenue.***

 

Virgin Mediarelies on the integrity of its technology to ensure that its services areprovided only to identifiable paying customers. The number of devices availablein the U.K. which facilitate theft of service has increased. Any unauthorizedaccess to Virgin Media’s network could result in a loss of revenue, and anyfailure to respond to security breaches could raise concerns under itsagreements with content providers. Virgin Media continues to work oncontrolling unauthorized access to its networks.

 

***The sectors in which******Virgin Media******competes are subject to rapid and significant changes in technology, and theeffect of technological changes on its businesses cannot be predicted.***

 

The broadbandinternet, television, fixed line telephone and mobile telephone servicessectors are characterized by rapid and significant changes in technology. Theeffect of future technological changes on Virgin Media’s business cannot bepredicted. It is possible that products or other technological breakthroughs,such as VoIP (over fixed and mobile technologies), mobile instant messaging,wireless fidelity, or WiFi, WiMax (i.e., the extension of local WiFinetworks across greater distances) or internet protocol television, may resultin Virgin Media’s core offerings becoming less competitive and render itsexisting products and services obsolete. Virgin Media may not be able todevelop new products and services at the same rate as competitors or keep upwith trends in the technology market as well as its competitors.

 

The cost ofimplementing emerging and future technologies could be significant, and VirginMedia’s ability to fund that implementation may depend on its ability to obtainadditional financing.

 

***VirginMedia******depends on equipment and service suppliersthat may discontinue their products or seek to charge prices that are notcompetitive, either of which may adversely affect******Virgin Media’s******business and profitability.***

 

Virgin Media hasimportant relationships with several suppliers of customer equipment, hardware,software and services that it uses to operate its network and systems andtransmit its services. Virgin Media also outsources various customer services.In many cases, Virgin Media has made substantial investments in the equipmentor software of a particular supplier, making it difficult for Virgin Media inthe short-term to change supply and maintenance relationships in the event thatits initial supplier refuses to offer it favorable prices or ceases to produceequipment or provide the support that its network and systems require. Ifequipment or service suppliers were to discontinue their products or seek tocharge Virgin Media prices that are not competitive, its business andprofitability could be materially adversely affected.

 

Furthermore,Virgin Media relies upon outside contractors to install its equipment incustomers’ homes. Delays caused by these contractors, or quality issuesconcerning these contractors, could cause Virgin Media’s customers to becomedissatisfied and could produce additional churn or discourage potential newcustomers.

 

***The integration of******Virgin Media’s******billing systems may have an adverse effect on its customer service, customeracquisitions, customer churn rate and operating costs.***

 

As a result of itsgrowth through acquisitions, Virgin Media inherited numerous billing andcustomer service systems. Virgin Media continues to migrate its consumer cableand business customers to one central billing system. If it is not successfulwith this process, Virgin Media might not be able to achieve the expected costsavings and customer service improvements associated with the new system. It ispossible that billing errors and other customer service disruptions could occurduring further integration processes, potentially resulting in increasedcustomer churn or adverse effects on customer service, customer acquisitions,collections, customer numbers and the costs of maintaining its billing systemsgoing forward.

 

***Acquisitions and other strategic transactions present manyrisks, and******Virgin Media******may not realizethe financial and strategic goals that were contemplated at the time of anytransaction.***

 

From time to timeVirgin Media has made acquisitions, dispositions and has entered into otherstrategic transactions. In connection with such transactions, Virgin Media mayincur unanticipated expenses, fail to realize anticipated benefits, havedifficulty integrating the acquired businesses, disrupt relationships withcurrent and new employees, customers and suppliers, incur significantindebtedness, or have to delay or not proceed with announced transactions.These factors could harm Virgin Media’s business and its reputation.

 

25

----

 

***Regulation of the markets in which******Virgin Media******provides its services has been changing rapidly; unpredictable changes in U.K.and EU regulations affecting the conduct of its business, including priceregulations, may have an adverse impact on its ability to set prices, enter newmarkets or control its costs.***

 

Virgin Media’sprincipal business activities have historically been regulated and supervisedby various governmental bodies in the U.K. and by the regulatory initiatives ofthe European Commission. Regulatory changes have recently occurred, and may inthe future occur, at the U.K. or EU level with respect to licensingrequirements, price regulation, environmental regulation, accounting practices,interconnection arrangements, mobile termination rates, roaming regulation,number portability, carrier pre-selection, the ability to provide digitalservices, ownership of media companies, programming, local loop unbundling,data protection, the provision of open access by U.K. cable operators to othertelecommunications operators, the adoption of uniform digital technologystandards or the bundling of services. Regulatory changes relating to VirginMedia’s activities and those of its competitors, such as changes relating tothird party access to cable networks, the costs of interconnection with othernetworks or the prices of competing products and services, could adverselyaffect its ability to set prices, enter new markets or control costs.

 

In addition, itsbusiness and the industry in which Virgin Media operates are also at timesbeing reviewed or investigated by regulators, which could lead to enforcementactions, fines and penalties or the assertion of private litigation claims anddamages. Any such action could harm Virgin Media’s reputation and result inincreased costs to the business.

 

***There is no assurance that new products******Virgin Media******mayintroduce will achieve full functionality or market acceptance.***

 

Virgin Media’sstrategy includes the roll-out of 50Mb broadband to its addressable market andit cannot guarantee that this new service, or any other new products thatVirgin Media may develop in the future, will perform as expected when firstintroduced in the market. Should these new products and services fail toperform as expected or should they fail to gain market acceptance, Virgin Media’sresults of operations may be negatively effected.

 

***VirginMedia******depends on the ability to attract andretain key personnel without whom it may not be able to manage its businesslines effectively.***

 

Virgin Mediaoperates in a number of rapidly changing technologically advanced markets thatwill continue to challenge its senior management. There is significantcompetition in attracting and retaining qualified personnel in thetelecommunications industry, especially individuals with experience in thecable sector. Virgin Media believes that the unique combination of skills andexperience possessed by its senior management would be difficult to replace,and that the loss of its key personnel could have a material adverse effect onit, including the impairment of its ability to execute its business plan.Virgin Media’s future success is likely to depend in large part on itscontinued ability to attract and retain highly skilled and qualified personnel.

 

***Certain of******Virgin Media’s******significant stockholders could have an influence over its business and affairs.***

 

Certain persons orentities are Virgin Media’s significant stockholders. Based on SEC filings todate, the Virgin Group beneficially owns 10.5% of Virgin Media’s issued andoutstanding common stock; in addition, RiverSource Investments, LLCbeneficially owns 10.3%, Franklin Mutual Advisers, LLC beneficially owns9.7%, SRM Global Master Fund Limited Partnership beneficially owns 9.1% andGlenview Capital Management, LLC beneficially owns 5.0%, of Virgin Media’sissued and outstanding common stock. Each of these significant stockholderscould have an influence over the business and affairs of Virgin Media.

 

On April 3,2006, Virgin Media entered into a license agreement with Virgin EnterprisesLimited which provides for it to use the Virgin name and logo in its consumerand content businesses. In connection with this agreement, Virgin EnterprisesLimited had the right to propose a candidate to its Nominating Subcommittee tofill a single seat on its board. Virgin Enterprises Limited nominated Mr. GordonMcCallum, Director of Virgin Enterprises Limited, and he was appointed toVirgin Media’s board on September 11, 2006. As a result of Mr. McCallum’srelationship with Virgin Enterprises Limited, if conflicts between theinterests of Virgin Enterprises Limited and the interests of Virgin Media’sother stockholders should arise, this director may not be disinterested.

 

26

----

 

***VirginMedia******does not insure the underground portion ofits cable network and various pavement-based electronics associated with itscable network.***

 

Virgin Mediaobtains insurance of the type and in the amounts that it believes are customaryfor similar companies. Consistent with this practice, it does not insure theunderground portion of its (or our) cable network or various pavement-basedelectronics associated with its (or our) cable network. Almost all this cablenetwork is constructed underground. As a result, any catastrophe that affectsthe underground cable network or pavement-based electronics could prevent it(and us) from providing services to customers and result in substantialuninsured losses.

 

***VirginMedia******has limited capacity on its cableplatform.***

 

Virgin Media’sanalog television, digital television, broadband internet and video on demandservices are transmitted through its core and access networks, which havelimited capacity. Virgin Media has plans in place to add additional capacity toits core and access networks. Until these plans are implemented, Virgin Mediais therefore limited in the number of channels that can be transmitted as partof its digital television service. As new channels are developed, Virgin Mediamay be unable to carry them on its platform due to these capacity constraints.As such, Virgin Media’s digital television offering may not be as competitivewhich could result in an increase in customer churn and a decrease in revenue.

 

***VirginMedia******may be adversely affected by a generaldeterioration in economic conditions in the U.K.***

 

The risksassociated with certain segments of Virgin Media’s business become more acutein periods of a slowing economy or recession. In its content segment, a slowingeconomy could be accompanied by a decrease in advertising on Virgin Media’schannels. Generally, expenditures by advertisers are sensitive to economicconditions and tend to decline in recessionary periods and other periods ofuncertainty. In addition, consumers generally have less discretionary spendingto purchase goods and services. Virgin Media’s mobile segment may also besimilarly affected by an economic slowdown as customers reduce theirexpenditures on mobile phones and usage. While the impact of an economicslowdown on Virgin Media’s business is difficult to predict, it could result ina decline in revenue.

 

**RisksRelating to****Virgin Media’s****Financial Indebtedness and Structure**

 

***VirginMedia******may not be able to fund its debt serviceobligations through operating cash flow in the future.***

 

Virgin Media maynot achieve or sustain sufficient cash flow in the future for the payment ofprincipal or interest on its indebtedness when due. Consequently, Virgin Mediamay be forced to raise cash or reduce expenses by doing one or more of thefollowing:

 

·                  increasing,to the extent permitted, the amount of borrowings under new credit facilities;

 

·                  restructuringor refinancing its indebtedness prior to maturity, and/or on unfavorable terms;

 

·                  sellingor disposing of some of its assets, possibly on unfavorable terms; or

 

·                  foregoingbusiness opportunities, including the introduction of new products andservices, acquisitions and joint ventures.

 

Virgin Mediacannot be sure that any of, or a combination of, the above actions would besufficient to fund its debt service obligations, particularly in times ofturbulent capital markets.

 

***VirginMedia’s******current leverage is substantial, which mayhave an adverse effect on its available cash flow, its ability to obtainadditional financing if necessary in the future, its flexibility in reacting tocompetitive and technological changes and its operations.***

 

Virgin Media hadconsolidated total long-term debt of £6.0 billion as of December 31,2007. This high degree of leverage could have important consequences, includingthe following:

 

27

----

 

·                  asubstantial portion of Virgin Media’s cash flow from operations will have to bededicated to the payment of interest and principal on existing indebtedness,thereby reducing the funds available for other purposes;

 

·                  theability of Virgin Media to obtain additional financing in the future forworking capital, capital expenditures, product development, acquisitions orgeneral corporate purposes may be impaired;

 

·                  VirginMedia’s flexibility in reacting to competitive technological and other changesmay be limited;

 

·                  thesubstantial degree of leverage could make Virgin Media more vulnerable in theevent of a downturn in general economic conditions or adverse developments inits business; and

 

·                  VirginMedia may be exposed to risks inherent in interest rate and foreign exchangerate fluctuations.

 

***VirginMedia******has incurred losses in the past and maynot be profitable in the future.***

 

Virgin Media hadlosses from continuing operations for 2007 of £463.5 million and for 2006of £570.9 million (2006 is on a pro forma basis for the acquisition ofTelewest and Virgin Mobile). Virgin Media cannot be certain that it willachieve or sustain profitability in the future. Failure to achieve profitabilitycould diminish Virgin Media’s ability to sustain operations, meet financialcovenants, obtain additional required funds and make required payments onpresent or future indebtedness.

 

***The covenants under******Virgin Media’s******debtagreements limit its ability to operate its business.***

 

The agreementsthat govern Virgin Media’s indebtedness contain financial maintenance tests andrestrictive covenants that limit the discretion of its management over variousbusiness matters. For example, the financial maintenance tests includeliquidity, coverage and leverage ratios, and the restrictive covenants impactVirgin Media’s ability to:

 

·                  incuror guarantee additional indebtedness;

 

·                  pay dividends ormake other distributions, or redeem or repurchase equity interests orsubordinated obligations;

 

·                  makeinvestments;

 

·                  sell assets,including the capital stock of subsidiaries;

 

·                  enter into saleand leaseback transactions and certain vendor financing arrangements;

 

·                  create liens;

 

·                  enter intoagreements that restrict some of Virgin Media’s subsidiaries’ ability to paydividends, transfer assets or make intercompany loans;

 

·                  merge or consolidateor transfer all or substantially all of its assets; and

 

·                  enterinto transactions with affiliates.

 

These restrictionscould materially adversely affect Virgin Media’s ability to finance futureoperations or capital needs or to engage in other business activities that maybe in its best interests. Virgin Media may also incur other indebtedness in thefuture that may contain financial or other covenants more restrictive thanthose that will be applicable under its current indebtedness.

 

***VirginMedia******is a holding company dependent upon cashflow from subsidiaries to meet its obligations.***

 

VirginMedia and a number of its subsidiaries are holding companies with noindependent operations or significant assets other than investments in itssubsidiaries. Each of these holding companies depends upon the receipt ofsufficient funds from its subsidiaries to meet its obligations.

 

28

----

 

The terms ofVirgin Media’s senior credit facility and other debt securities limit thepayment of dividends, loan repayments and other distributions to or from thesecompanies under many circumstances. Various agreements governing the debt mayrestrict and, in some cases, may also prohibit the ability of thesesubsidiaries to move cash within their restricted group. Applicable tax lawsmay also subject such payments to further taxation.

 

Applicable law mayalso limit the amounts that some of Virgin Media’s subsidiaries will bepermitted to pay as dividends or distributions on their equity interests, oreven prevent such payments.

 

The inability totransfer cash among entities within their respective consolidated groups maymean that even though they may have sufficient resources to meet theirobligations, they may not be permitted to make the necessary transfers from oneentity in their restricted group to another entity in their restricted group inorder to make payments to the entity owing the obligations.

 

***VirginMedia is******subject to currency and interest raterisks.***

 

Virgin Media is subjectto currency exchange rate risks because substantially all of its revenues andoperating expenses are paid in U.K. pounds sterling, but it pays interest andprincipal obligations with respect to a portion of its indebtedness in U.S.dollars and euros. To the extent that the pound sterling declines in valueagainst the U.S. dollar and the euro, the effective cost of servicing its U.S.dollar and euro-denominated debt will be higher. Changes in the exchange rateresult in foreign currency gains or losses.

 

Virgin Media isalso subject to interest rate risks. Before taking into account the impact ofits current hedging arrangements, as of December 31, 2007, Virgin Mediawould have had interest determined on a variable basis on £4.8 billion, or81%, of its long term debt. An increase in interest rates of 0.25% wouldincrease unhedged gross interest expense by approximately £12 million peryear.

 

To manage these foreign exchange and interest raterisks, Virgin Media has entered into a number of derivative instruments,including interest rate swaps, cross-currency swaps and foreign currencyforward rate contracts. Virgin Media is required by its lenders under itssenior credit facility to fix the interest rate (whether through coupon orthrough derivatives) on not less than two thirds of the total debt representedby its senior credit facility and high yield notes, for a period of not lessthan three years from March 3, 2006. Accordingly, after giving effect tothese hedges, an increase in interest rates of 0.25% would increase VirginMedia’s gross interest expense by approximately £4 million per year.

 

**Item 1B.  Unresolved Staff Comments**

 

None.

 

**Item 2.     Properties**

 

NTL South Herts owns afreehold property at 9 Greycaine Road, Watford for use as offices and to housenetwork equipment. Other than this we do not own or lease any properties.

 

**Item 3.     Legal Proceedings**

 

We are involved invarious disputes and litigation arising in the ordinary course of our business.While we do not believe any of these litigation matters alone or in theaggregate will have a material adverse effect on our financial position orresults of operation, any adverse outcome in one or more of these matters couldbe material to our consolidated financial statements for any one period.

 

**Item 4.     Submission of Matters to a Vote of SecurityHolders**

 

There were no mattersthat were submitted to a vote of the holders of our limited partnershipinterests during the quarter ended December 31, 2007.

 

29

----

 

**PART II**

 

**Item 5.     Market for Registrant’s Common Equity,Related Stockholder****Matters and Issuer Purchases of Equity Securities**

 

While our limitedpartnership interests are publicly held, there is no established public tradingmarket for the limited partnership interests, and it is not expected that sucha market will develop in the future. As of March 18, 2008, the approximatenumber of holders of our limited partnership interests was 5,256. We have notmade any distributions to our limited partners in the past, and have no presentintention to do so.

 

**Item 6.     Selected Financial Data**

 

The following table sets forth certain consolidatedfinancial data as at December 31, 2007, 2006, 2005, 2004, and 2003 and forthe years then ended. This information should be read in conjunction with theconsolidated financial statements and notes and the information contained inour Management’s Discussion and Analysis of Financial Condition and Results ofOperations appearing elsewhere in this annual report. Historical results arenot necessarily indicative of future results.

 

 
| ** **                                                             | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                             | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Statement  of Operations Data:**                                     | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                               |       | $                                | 39,347,302 |   | $ | 38,796,127 |   | $ | 38,740,331 |   | $ | 38,042,360 |   | $ | 32,772,962 |   |
| Cost of goods  sold (exclusive of depreciation shown separately below) |       | (9,792,220                       | )          | (10,014,523 | ) | (10,430,813 | ) | (11,550,360 | ) | (10,662,169 | ) |
| Selling, general  and administrative expenses                          |       | (105,018                         | )          | (94,878 | ) | (92,063 | ) | (103,018 | ) | (130,840 | ) |
| Management fees  and allocated overhead from the General Partner       |       | (16,129,974                      | )          | (17,670,758 | ) | (17,063,743 | ) | (14,321,728 | ) | (13,544,514 | ) |
| Other charges                                                          |       | (274,963                         | )          | (1,349,828 | ) | (653,559 | ) | (602,691 | ) | (220,329 | ) |
| Depreciation                                                           |       | (6,978,619                       | )          | (6,975,343 | ) | (5,882,179 | ) | (6,621,976 | ) | (7,460,577 | ) |
| Operating income                                                       |       | 6,066,508                        |       | 2,690,797 |   | 4,617,974 |   | 4,842,587 |   | 754,533 |   |
| Interest expense                                                       |       | (5,417,314                       | )          | (6,062,897 | ) | (2,957,398 | ) | (2,203,792 | ) | (1,922,710 | ) |
| Exchange  (losses) gains                                               |       | (29,673                          | )          | (277,062 | ) | 219,959 |   | (143,217 | ) | (179,033 | ) |
| interest and  cumulative effect of changes in accounting principle     |       | 619,521                          |       | (3,649,162 | ) | 1,880,535 |   | 2,495,578 |   | (1,347,210 | ) |
| Minority  interest income                                              |       | —                           |       | 748,119 |   | (654,656 | ) | (94,898 | ) | — |   |
| Cumulative  effect of changes in accounting principle                  |       | —                           |       | (415,878 | ) | — |   | — |   | — |   |
| Net profit  (loss)                                                     |       | $                                | 619,521    |   | $ | (3,316,921 | ) | $ | 1,225,879 |   | $ | 2,400,680 |   | $ | (1,347,210 | ) |
|                                                                   |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net profit  (loss) per limited partnership unit                        |       | $                                | 10.77      |   | $ | (57.68 | ) | $ | 21.32 |   | $ | 41.74 |   | $ | (23.43 | ) |
| Average number  of limited partnership units outstanding               |       | 56,935                           |       | 56,935 |   | 56,935 |   | 56,935 |   | 56,935 |   |

 

30

----

 

 

 
| ** **                                           | ** ** | **As at December 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                           | ** ** | **2007**                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Balance  Sheet Data:**                             |       |                        |       |   |   |   |   |   |   |   |   |
| Total assets                                         |       | $                           | 61,517,485 |   | $ | 66,079,566 |   | $ | 63,195,826 |   | $ | 62,528,387 |   | $ | 61,450,329 |   |
| Accounts payable  to  affiliates and related parties |       | 66,040,564                  |       | 71,196,561 |   | 64,324,939 |   | 65,398,192 |   | 66,757,685 |   |
| Minority  interest                                   |       | —                      |       | — |   | 707,259 |   | 99,216 |   | — |   |
| General  Partner’s deficit                      |       | (528,556                    | )          | (534,751 | ) | (501,583 | ) | (513,842 | ) | (537,849 | ) |
| Limited  Partner’s deficit                      |       | (3,327,029                  | )          | (3,940,355 | ) | (656,602 | ) | (1,870,222 | ) | (4,246,895 | ) |
|                                                      |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

**Item 7.  Management’sDiscussion and Analysis of Financial Condition and Results****of Operations**

 

**Overview**

** **

We are a Colorado limitedpartnership that was formed in December 1991 pursuant to the publicoffering of our limited partnership interests for the purpose of acquiring oneor more cable television/telephone systems in the U.K. Upon acquisition of oursystem, our primary investment objective was to obtain capital appreciation inthe value of our investment in the system over the term such investment is heldby us.

 

We hold 66.7% of theshares of NTL South Herts, which is principally engaged in the development,construction, management and operation of broadband communications networks fortelephone, cable television and internet services in the U.K. As a result ofour ownership of 66.7% of the shares of NTL South Herts, for accountingpurposes we have consolidated the results of NTL South Herts with our results.Virgin Media indirectly holds the remaining 33.3% of the shares of NTL SouthHerts. We are reliant on the support of Virgin Media, the ultimate parentcompany of the General Partner, to continue our operations as a going concern.

 

We derive our revenueprincipally from monthly fees and usage charges. Our packaging of services andpricing are designed to encourage our residential customers to use multipleservices like dual telephone and broadband, dual telephone and television ortriple telephone, television and internet access.

 

The principal componentsof Virgin Media’s expenses include payroll and other employee-related costs;television programming costs; interconnect costs paid to other carriersrelating to call termination; facility-related costs, such as rent, utilitiesand rates; marketing and selling costs; repairs and maintenance costs; and allowancesfor doubtful accounts. Our expenses include certain costs that are charged by asubsidiary of Virgin Media for the provision of network services and support,the use of Virgin Media’s national backbone telephone network for carriage ofour telephone traffic, as well as the provision of technical infrastructure andnetwork capacity by Virgin Media for our subscription internet access serviceand digital television services, the provision of corporate services, includingfinance, legal, human resources and facility services, and for the provision ofIT services, including our use of the related IT equipment.

 

**Factors Affecting Our Business**

 

Our residentialcustomers account for the majority of our total revenue. The number ofresidential customers, the number and types of services that each customer usesand the prices we charge for these services drive our revenue. Our profit isdriven by the relative margins on the types of services we provide to thesecustomers and by the number of services that we provide to them. For example,broadband internet is more profitable than our television services and, onaverage, our “triple-play” customers are more profitable than “double-play” or “single-play”customers. Our packaging of services and our pricing are designed to encourageour customers to use multiple services such as television, telephone andbroadband at a lower price than each stand-alone product on a combined basis.Factors particularly affecting our profitability include customer churn,average revenue per user (ARPU), competition, capital expenditures, currencymovements and seasonality.

*** ***

 

31

----

 

***SelectedOperating Data***

 

We setforth in the following table certain data concerning our franchise area at December 31,2007 and 2006:

 
| ** **                         | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| Homes marketable (1)               |       | 95,514                |       | 96,886                |       |
| Total customers                    |       | 34,858                |       | 36,863                |       |
| Digital television subscribers     |       | 24,152                |       | 22,971                |       |
| Analog television subscribers      |       | 545                   |       | 1,007                 |       |
| Broadband internet subscribers     |       | 25,285                |       | 22,642                |       |
| Telephony subscribers              |       | 29,012                |       | 30,715                |       |
| Penetration (homes marketable) (2) |       | 36.5                  | %          | 38.0                  | %          |
| Average monthly churn (3)          |       | 1.5                   | %          | 1.8                   | %          |

----

 

(1)                   Homes marketable refers to the number ofhomes within our service area that can potentially be served by our networkwith minimal connection costs.

 

(2)                    Penetration measures the number ofsubscribers for our services divided by the number of homes marketable.

 

(3)                   Customer churn is calculated by takingthe total number of customers disconnecting from our services during the  month and dividing them by the average numberof customers during the month.  Averagemonthly churn during the quarter is the average of the three monthly churncalculations within the quarter.

 

***Customer Churn.********* Customer churn is a measure of the number ofcustomers who stop subscribing to our services. An increase in our customerchurn can lead to increased costs and reduced revenue. We continue to focus onimproving our customer service and enhancing and expanding our serviceofferings to existing customers in order to manage our customer churn rate. Ourability to reduce our customer churn rate beyond a base level is limited byfactors like competition and customers moving outside our network service area,in particular during the summer season. Managing our customer churn rate is asignificant component of our business plan. Our customer churn rate mayincrease if our customer service is seen as unsatisfactory, if we are unable todeliver our services over our network without interruption, or if we fail tomatch offerings by our competitors.

 

***ARPU.********* Average Revenue Per User, or ARPU, is ameasure we use to evaluate how effectively we are realizing potential revenuefrom our residential cable customers on our network. We believe that our “triple-play”cable offering of television, broadband and fixed line telephone services isattractive to our existing customer base and generally allows us to increaseour ARPU by facilitating the sale of multiple services to each customer.

 

***Competition.********* Ourability to acquire and retain customers and increase revenue depends on ourcompetitive strength. There is significant and increasing competition in themarket for our consumer services, including broadband and telephone services offeredby BT and resellers or local loop unbundlers, such as BSkyB and CarphoneWarehouse (Talk Talk), alternative internet access services like DSL, satellitetelevision services offered by BSkyB, digital terrestrial television offeredthrough Freeview, internet protocol television offered by Tiscali and BT. Ourbusiness services also face a range of competitors, including BT and Cable &Wireless. Certain competitors, such as BT and BSkyB, are dominant in markets inwhich we compete and may use their dominance in those markets to offer bundledservices that compete with our product offerings. As a result of increasedcompetition, we have had to, and may be required to continue to, adjust ourpricing and offer discounts to new and existing customers in order to attractand retain customers.

 

***Integration.********* Virgin Media continues tointegrate its legacy NTL and Telewest cable businesses. This involves theincurrence of substantial operating and capital expenditures and, in somecases, involves the outsourcing of key functions in an effort to achievesynergies through the integration of the businesses. Virgin Media will becompleting the final stages of the integration of its cable billing platformsduring 2008. Any issues that may arise in connection with its integration couldhave a material negative effect on our financial performance.

 

 

32

----

 

***Capital Expenditures.********* Our business requires substantial capitalexpenditures on a continuing basis for various purposes, including expanding,maintaining and upgrading our network, investing in new customer acquisitions,and offering new services. If Virgin Media and we do not continue to invest inour network and in new technologies, our ability to retain and acquire customersmay be hindered. Therefore, Virgin Media’s and our liquidity and theavailability of cash to fund capital projects are important drivers of ourrevenue. When Virgin Media’s and our liquidity is restricted, so is our abilityto meet our capital expenditure requirements.

 

***CurrencyMovements.*********Because substantially all of our revenue andoperating costs are earned and paid primarily in U.K. pounds sterling, but wereport our financial results in U.S. dollars, our financial results areimpacted by currency fluctuations which are unrelated to our underlying resultsof operations.

 

***Seasonality.***** Some revenue streams are subject to seasonalfactors. For example, telephone usage revenue by residential customers andbusinesses tends to be slightly lower during summer holiday months. Ourcustomer churn rates include persons who disconnect their service because ofmoves, resulting in a seasonal increase in our churn rates during the summermonths when higher levels of U.K. house moves occur and students leave their accommodationbetween academic years.

 

# **CriticalAccounting Policies**

#  

Our consolidatedfinancial statements and related financial information are based on theapplication of U.S. Generally Accepted Accounting Principles, or GAAP. GAAPrequires the use of estimates, assumptions, judgments and subjectiveinterpretations of accounting principles that have an impact on the assets,liabilities, revenue and expense amounts reported, as well as disclosures aboutcontingencies, risk and financial condition. The following critical accountingpolicies have the potential to have a significant impact on our financialstatements. An impact could occur because of the significance of the financialstatement item to which these policies relate, or because these policies requiremore judgment and estimation than other matters owing to the uncertaintyrelated to measuring, at a specific point in time, transactions that arecontinuous in nature.

 

These policies may needto be revised in the future in the event that changes to our business occur.

 

***Foreign Currency Translation:***

 

Our functional currencyis the pound sterling, while our reporting currency is the U.S. dollar. Theassets and liabilities of our U.K. subsidiary have been translated using theexchange rate in effect at the balance sheet date and revenue and expenses havebeen translated at the weighted average rates for the respective years.Exchange gains and losses on translation of our net equity investments in oursubsidiary are reported as a separate component of accumulated othercomprehensive income (loss) in partners’ capital (deficit). Foreign currencytransaction gains and losses are recorded in the statements of operations.

 

***Fixed Assets:***

 

Labor and overhead costsdirectly related to the construction and installation of fixed assets,including payroll and related costs of some employees and related rent andother occupancy costs, are capitalized. The payroll and related costs of someemployees that are directly related to construction and installation activitiesare capitalized based on specific time devoted to these activities whereidentifiable. In cases where the time devoted to these activities is notspecifically identifiable, we capitalize costs based upon estimatedallocations. Costs associated with initial customer installations arecapitalized. The costs of reconnecting the same service to a previouslyinstalled premise are charged to expense in the period incurred. Costs forrepairs and maintenance are charged to expense as incurred.

 

We assign fixed assets usefullives that impact the annual depreciation expense. The assignment of usefullives involves significant judgments and the use of estimates. Virgin Media’smanagement use their experience and expertise in applying judgments aboutappropriate estimates. Changes in technology or changes in intended use ofthese assets may cause the estimated useful life to change, resulting in higheror lower depreciation charges or asset impairment charges.

 

33

----

 

**Recent Accounting Pronouncements**

 

In September 2006,the FASB issued Statement No. 157, *FairValue Measurements,* or FAS 157. FAS 157 provides guidancefor using fair value to measure assets and liabilities. It also responds toinvestors’ requests for expanded information about the extent to whichcompanies measure assets and liabilities at fair value, the information used tomeasure fair value, and the effect of fair value measurements on earnings.FAS 157 applies whenever other standards require (or permit) assets orliabilities to be measured at fair value, and does not expand the use of fairvalue in any new circumstances. FAS 157 is effective for certain financialinstruments included in financial statements issued for fiscal years beginningafter November 15, 2007 and for all other non-financial instruments forfiscal years beginning after November 15, 2008. The provisions ofFAS 157 relating to certain financial instruments are required to beadopted by us in the first quarter of 2008 effective January 1, 2008. Whilewe are still addressing the impact of the adoption of this Standard it is notexpected to have a material impact on our consolidated financial statements.

 

In February 2007,the FASB issued Statement No. 159, *TheFair Value Option for Financial Assets and Financial Liabilities—Including anamendment of FASB Statement No. 115*, or FAS 159.FAS 159 allows companies to elect to measure certain assets andliabilities at fair value and is effective for fiscal years beginning after November 15,2007. We are currently evaluating the effect that the adoption of FAS 159will have on our consolidated financial statements and are not yet in aposition to determine its effects.

 

**Results of Operations**

 

***Years Ended December 31,2007 and 2006***

 

We present belowsummarized consolidated financial information for the years ended December 31,2007 and 2006:

 
| ** **                                                                                        | ** ** | **Year Ended**          | ** ** | ** **  | ** ** | **Year Ended**        | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------|------------|-----------------------|------------|------------|------------|
| ** **                                                                                        | ** ** | **December 31, %** | ** ** | **%**       | ** ** | **December 31,** | ** ** | **%**      | ** ** |
| ** **                                                                                        | ** ** | **2007**                | ** ** | **2006**    | ** ** | **Change**            | ** ** | **2007**   | ** ** | **2006** | ** ** | **Change** | ** ** |
| Revenue                                                                                           |       | $                       | 39,347,302 |        | $          | 38,796,127            |       | 1.4        |       |   | £ | 19,656,943 |   | £ | 21,051,672 |   | (6.6 | ) |   |
| Cost of goods  sold                                                                               |       | (9,792,220              | )          | (10,014,523 | )          | (2.2                  | )          |       | (4,891,952 | ) | (5,434,111 | ) | (10.0 | ) |   |
| Selling, general  and administrative expenses                                                     |       | (105,018                | )          | (94,878     | )          | 10.7                  |       |       | (52,464    | ) | (51,483 | ) | 1.9 |   |   |
|                                                                                              |       |                    |       |        |       |                  |       |       |       |   |   |   |   |   |   |
| Management fees  and allocated overhead                                                           |       | (16,129,974             | )          | (17,670,758 | )          | (8.7                  | )          |       | (8,058,138 | ) | (9,588,560 | ) | (16.0 | ) |   |
| Other charges                                                                                     |       | (274,963                | )          | (1,349,828  | )          | (79.6                 | )          |       | (137,365   | ) | (732,448 | ) | (81.2 | ) |   |
| Depreciation                                                                                      |       | (6,978,619              | )          | (6,975,343  | )          | 0.0                   |       |       | (3,486,346 | ) | (3,784,982 | ) | (7.9 | ) |   |
| Operating income                                                                                  |       | 6,066,508               |       | 2,690,797   |       | 125.5                 |       |       | 3,030,678  |   | 1,460,088 |   | 107.6 |   |   |
| Interest expense                                                                                  |       | (5,417,314              | )          | (6,062,897  | )          | (10.6                 | )          |       | (2,706,357 | ) | (3,289,868 | ) | (17.7 | ) |   |
| Exchange losses                                                                                   |       | (29,673                 | )          | (277,062    | )          | (89.3                 | )          |       | (14,824    | ) | (150,340 | ) | (90.1 | ) |   |
| Profit (loss)  before minority interest and cumulative effect of changes in accounting  principle |       | 619,521                 |       | (3,649,162  | )          | 117.0                 |       |       | 309,497    |   | (1,980,120 | ) | 115.6 |   |   |
| Minority  interests                                                                               |       | —                  |       | 748,119     |       | —                |       |       | —     |   | 405,947 |   | — |   |   |
| Cumulative  effect of changes in accounting principle                                             |       | —                  |       | (415,878    | )          | —                |       |       | —     |   | (225,665 | ) | — |   |   |
| Net profit  (loss)                                                                                |       | $                       | 619,521    |        | $          | (3,316,921            | )          | 118.7      |       |   | £ | 309,497 |   | £ | (1,799,838 | ) | 117.2 |   |   |

 

 

*Revenue*

 

Forthe year ended December 31, 2007, revenue increased by 1.4% to $39.3million from $38.8 million in 2006 and revenue expressed in pounds sterlingdecreased by 6.6% to £19.7 million in 2007 from £21.1 million in 2006. Thedecrease is primarily due to lower telephony usage together with increasedcompetition that has resulted in reduced customer numbers and caused us tolower our pricing through increased discounts partly offset by higher broadbandrevenue due to an increase in the number of broadband subscribers.

 

 

34

----

 

*Expenses*

 

*Costs ofgoods sold*

 

Forthe year ended December 31, 2007, costs of goods sold decreased by 2.2% to$9.8 million from $10.0 million in 2006 and cost of goods sold expressed inpounds sterling decreased by 10.0% to £4.9 million in 2007 from £5.4 million in2006. The reduction in cost of goods sold in pounds sterling is primarily areflection of reduced revenue. Costs of goods sold as a percentage of revenuedecreased to 24.9% for the year ended December 31, 2007 from 25.8% for2006 primarily due to the effect of lower pricing and increased discountspartially offset by a change in the mix of services provided with fewertelephony customers and increased, higher margin, broadband customers.

 

*Selling,general and administrative expenses*

 

Forthe year ended December 31, 2007, selling, general and administrative expensesincreased by 10.7% to $105,018 from $94,878 in 2006 and selling, general andadministrative expenses expressed in pounds sterling increased by 1.9% to£52,464 in 2007 from £51,483 in 2006. This increase is primarily attributableto the higher cost of investor relations’ services.

 

*Managementfees and allocated overhead*

 

Forthe year ended December 31, 2007, management fees and allocated overheaddecreased by 8.7% to $16.1 million from $17.7 million in 2006. Management feesand allocated overhead expressed in pounds sterling decreased by 16.0% to £8.1million in 2007 from £9.6 million in 2006. The business of NTL South Herts ismanaged as an integral part of Virgin Media. The combined costs of managing thelarger group are allocated to each entity within the Virgin Media group,including NTL South Herts, on a consistent and proportional basis according tothe level of trading in that entity. Management fees and allocated overheads inthe year ended December 31, 2007 benefited from the reduction in Virgin Media’soverall cost base as a result of the integration of the legacy NTL and Telewestoperations.

 

*Other charges*

 

For the year ended December 31,2007, other charges decreased by 79.6% to $274,963 compared to $1,349,828 forthe year ended December 31, 2006 and other charges expressed in poundssterling decreased by 81.2% to £137,365 in 2007 from £732,448 in 2006.  Other charges in the year ended December 31,2007 and 2006 included restructuring costs allocated to us by a subsidiary ofVirgin Media in respect of lease exit costs in connection with properties thathave been vacated and involuntary employee termination costs following themerger of the legacy NTL and Telewest businesses by Virgin Media. Other chargesin the year ended December 31, 2007 decreased primarily due to a revisionin the Virgin Media lease exit provision due to the successful sublease of oneof its larger vacant properties. Other charges are allocated to us by asubsidiary of Virgin Media on the basis of an allocation formula appropriate toeach category of charge based on a reasonable methodology given the facts andcircumstances.

 

*Depreciation expense*

 

Depreciationexpense remained broadly flat at $7.0 million for the years ended December 31,2007 and 2006 and depreciation expense expressed in pounds sterling decreasedto £3.5 million in the year ended December 31, 2007 from £3.8 million inthe year ended December 31, 2006. The decrease is primarily due tothe cessation of depreciation on assets that became fully depreciated during theperiod.

 

*Interestexpense*

 

For the year endedDecember 31, 2007, interest expense decreased to $5.4 million from $6.1million in 2006 and interest expense in pounds sterling  decreased to £2.7 million in 2007 from £3.3million in 2006.  This decrease was dueto the lower bank fees and deferred financing costs allocated to us for theyear ended December 31, 2007 by a subsidiary of Virgin Media followingVirgin Media’s refinancing in the year ended December 31, 2006 inconnection with its reverse acquisition of Telewest, offset partly by increasedinterest rates.

 

We paid no cashinterest for the years ended December 31, 2007 and 2006.

 

 

35

----

 

*Exchange losses/gains*

 

Forthe year ended December 31, 2007, foreign currency exchange losses were$29,673 compared with losses of $277,062 for 2006.  The decrease in exchange losses was primarilyattributable to the fluctuations in the valuation of the U.S. dollar on certainof our liabilities and transactions. The U.S dollar weakened approximately ninepercent against the pound from December 31, 2006 to December 31,2007.  Our results of operations willcontinue to be affected by foreign exchange rate fluctuations.

 

*Minorityinterest*

 

During the yearended December 31, 2007, NTL South Herts generated a net profit. Since itsliabilities exceeded its assets as at December 31, 2007, no minorityinterest has been recognized. For the year ended December 31, 2006, werecognized a minority interest credit of $748,119 which represented the releaseof the minority interest built up in earlier profitable periods.

 

*Cumulativeeffect of changes in accounting principle*

 

Therewere no changes in accounting principle in 2007. In 2006, we adopted FSP FAS143-1, *Accounting for Electronic Equipment WasteObligations,* or FSP 143-1. The Financial Accounting Standards Board,or FASB, issued FSP 143-1 to address the accounting for certain obligationsassociated with the Waste Electrical and Electronic Equipment Directive adoptedby the European Union. FSP 143-1 requires that the commercial user should applyits provisions to certain obligations associated with historical waste (asdefined by the Directive), since this type of obligation is an asset retirementobligation.  The Directive was adopted bythe U.K. on December 12, 2006, and was effective January 2,2007.  Virgin Media reviewed theirobligation under the law and concluded that an obligation existed for certainof our customer premises equipment.  As aresult, we  recognized an addition to fixedassets of $319,380 and an obligation to our parent of $761,359 on our balancesheet at December 31, 2006 and a cumulative effect of changes inaccounting principle of $415,878 in our statement of operations for the yearended December 31, 2006.  The adoptionof this new accounting standard resulted in a change in the allocated overheadsfrom the General Partner.

 

*Net income ( loss)*

 

For the year ended December 31, 2007, net income was $0.6 millionas compared with a net loss of $3.3 million in 2006 due primarily to thereasons described above.

 

 

36

----

 

***YearsEnded December 31, 2006 and 2005***

 

Wepresent below summarized consolidated financial information for the years endedDecember 31, 2006 and 2005:

 
| ** **                                                                                        | ** ** | **Year ended**        | ** ** | ** **  | ** ** | **Year ended**        | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|-----------------------|------------|------------|------------|
| ** **                                                                                        | ** ** | **December 31,** | ** ** | **%**       | ** ** | **December 31,** | ** ** | **%**      | ** ** |
| ** **                                                                                        | ** ** | **2006**              | ** ** | **2005**    | ** ** | **Change**            | ** ** | **2006**   | ** ** | **2005** | ** ** | **Change** | ** ** |
| Revenue.                                                                                          |       | $                     | 38,796,127 |        | $          | 38,740,331            |       | 0.1        |       |   | £ | 21,051,672 |   | £ | 21,285,896 |   | (1.1 | ) |   |
| Cost of goods  sold                                                                               |       | (10,014,523           | )          | (10,430,813 | )          | (4.0                  | )          |       | (5,434,111 | ) | (5,731,216 | ) | (5.2 | ) |   |
|                                                                                              |       |                  |       |        |       |                  |       |       |       |   |   |   |   |   |   |
| Selling, general  and administrative expenses                                                     |       | (94,878               | )          | (92,063     | )          | 3.1                   |       |       | (51,483    | ) | (50,584 | ) | 1.8 |   |   |
|                                                                                              |       |                  |       |        |       |                  |       |       |       |   |   |   |   |   |   |
| Management fees  and allocated overhead                                                           |       | (17,670,758           | )          | (17,063,743 | )          | 3.6                   |       |       | (9,588,560 | ) | (9,375,683 | ) | 2.3 |   |   |
| Other charges                                                                                     |       | (1,349,828            | )          | (653,559    | )          | 106.5                 |       |       | (732,448   | ) | (359,098 | ) | 104.0 |   |   |
| Depreciation                                                                                      |       | (6,975,343            | )          | (5,882,179  | )          | 18.6                  |       |       | (3,784,982 | ) | (3,231,966 | ) | 17.1 |   |   |
| Operating income                                                                                  |       | 2,690,797             |       | 4,617,974   |       | (41.7                 | )          |       | 1,460,088  |   | 2,537,349 |   | (42.5 | ) |   |
| Interest expense                                                                                  |       | (6,062,897            | )          | (2,957,398  | )          | 105.0                 |       |       | (3,289,868 | ) | (1,624,944 | ) | 102.5 |   |   |
| Exchange  (losses) gains                                                                          |       | (277,062              | )          | 219,959     |       | (226.0                | )          |       | (150,340   | ) | 120,856 |   | (224.4 | ) |   |
| Profit (loss)  before minority interest and cumulative effect of changes in accounting  principle |       | (3,649,162            | )          | 1,880,535   |       | (294.0                | )          |       | (1,980,120 | ) | 1,033,261 |   | (291.6 | ) |   |
| Minority  interests                                                                               |       | 748,119               |       | (654,656    | )          | 214.3                 |       |       | 405,947    |   | (359,701 | ) | 212.9 |   |   |
| Cumulative  effect of changes in accounting principle                                             |       | (415,878              | )          | —      |       | —                |       |       | (225,665   | ) | — |   | — |   |   |
| Net (loss) income                                                                                 |       | $                     | (3,316,921 | )           | $          | 1,225,879             |       | (370.6     | )          |   | £ | (1,799,838 | ) | £ | 673,560 |   | (367.2 | ) |   |

 

 

*Revenue*

 

Forthe year ended December 31, 2006, revenue increased by 0.1% to $38.8million from $38.7 million in 2005 and revenue expressed in pounds sterlingdecreased by 1.1% to £21.1 million in 2006 from £21.3 million in 2005.Increased revenue from additional broadband and digital TV subscribers has beenoffset by the fall in revenue resulting from the decline in analog TV andtelephony subscribers.

 

*Expenses*

 

*Costs ofgoods sold*

 

Forthe year ended December 31, 2006, costs of goods sold decreased by 4.0% to$10.0 million from $10.4 million in 2005 and cost of goods sold expressed inpounds sterling decreased by 5.2% to £5.4 million in 2006 from £5.7 million in2005. Costs of goods sold as a percentage of revenue declined to 25.8% for theyear ended December 31, 2006 from 26.9% for 2005 primarily because revenuegrowth was focused on higher-margin services and customers, particularlyconsumer broadband internet services, whilst revenue declines arose primarilyon lower-margin services.

 

*Selling,general and administrative expenses*

 

Forthe year ended December 31, 2006, selling, general and administrativeexpenses increased by 3.1% to $94,878 from $92,063 in 2005.  This increase is primarily attributable tothe higher cost of investor relations’ services.

 

*Managementfees and allocated overhead.*

 

Forthe year ended December 31, 2006, management fees and allocated overheadincreased by 3.6% to $17.7 million from $17.1 million in 2005. Management feesand allocated overhead expressed in pounds sterling increased by 2.3% to £9.6million in 2006 from £9.4 million in 2005. The business of NTL South Herts ismanaged as an integral part of Virgin Media. The combined costs of managing thelarger group are allocated to each entity within the Virgin Media group,including NTL 

 

 

37

----

 

South Herts, on aconsistent and proportional basis according to the level of trading in thatentity.

 

*Other charges*

 

For the year ended December 31,2006, other charges increased to $1,349,828 from $653,559 in 2005 representingrestructuring costs allocated to us by a subsidiary of Virgin Media.  Charges allocated to us are made on the basisof an allocation formula appropriate to each category of charge that is basedon a methodology that, in management’s judgment, is reasonable given the factsand circumstances.  Other charges in the year ended December 31,2006 related primarily to employee termination costs and lease exitcosts in connection with restructuring programs initiated in respect of thereverse acquisition of Telewest.

 

*     Depreciationexpense*

 

Forthe year ended December 31, 2006, depreciation expense increased to $7.0million from $5.9 million in 2005 due to network assets transferred from anaffiliate as at December 31, 2005 together with increased capital spendand changes in foreign exchange rates.

 

*Interestexpense*

 

Forthe year ended December 31, 2006, interest expense increased to $6.1million from $3.0 million in 2005.  Thisincrease was due to two changes to the interest expense charging policies whichwere implemented, as permitted by the Partnership Agreement, in the fourthquarter of 2005. Since October 1, 2005, interest is charged on the full amountof non-permanent loans provided to us by our affiliates, rather than just theproportion thereof relating to unpaid management fees paid on our behalf by anaffiliate of the General Partner.  Alsofrom October 1, 2005, we are charged our allocation of the bank fees anddeferred financing costs relating to Virgin Media’s senior credit facilities.

 

*Exchange losses/gains*

 

Forthe year ended December 31, 2006, foreign currency exchange losses were$277,062 compared with gains of $219,959 for 2005.  The change in exchange losses/ gains isprimarily attributable to the impact of fluctuations in the valuation of theU.S. dollar on certain of our assets and transactions, which are denominated inpounds sterling.

 

*Minorityinterest*

 

In2006, we released the minority interest provision of $748,119 as the losses ofNTL South Herts have exceeded the equity capital. In 2005, we recorded aminority interest expense of $654,656. We recorded a charge for the minorityinterest in NTL South Herts when the assets of NTL South Herts exceeded itsliabilities. Until the quarter ended December 31, 2004, the losses of NTLSouth Herts applicable to the minority interest exceeded the minority interestin the equity capital of NTL South Herts. In accordance with Accounting Research Bulletin 51, or ARB 51, paragraph15, such excess and further losses applicable to the minority interest havebeen charged against the majority interest, as there is no obligation on thepart of the minority interest to make good such losses.

 

*Cumulativeeffect of changes in accounting principle*

 

In June 2005,the Financial Accounting Standards Board, or FASB, issued FSP FAS 143-1, *Accounting for Electronic Equipment Waste Obligations,* orFSP 143-1. The FASB issued FSP 143-1 to address the accounting for certainobligations associated with the Waste Electrical and Electronic EquipmentDirective adopted by the European Union. FSP 143-1 requires that the commercialuser should apply its provisions to certain obligations associated withhistorical waste (as defined by the Directive), since this type of obligationis an asset retirement obligation.  TheDirective was adopted by the U.K. on December 12, 2006, and was effective January 2,2007.  Virgin Media reviewed theirobligation under the law and concluded that an obligation existed for certainof our customer premises equipment.  As aresult, we recognized an addition to fixed assets of $319,380 and an obligationto our parent of $761,359 on our balance sheet at December 31, 2006 and acumulative effect of changes in accounting principle of $415,878 in ourstatement of operations for the year ended December 31, 2006.  The adoption of this new accounting standardresulted in a change in the allocated overheads from the General Partner.

 

 

38

----

 

*Net (loss) income*

 

For the year ended December 31, 2006, net loss was $3.3 million ascompared with a net income of $1.2 million in 2005 due primarily to theincrease in interest expense and the cumulative effect of change in accountingprinciple as described above.

 

**Statementof Cash Flows**

 

***YearsEnded December 31, 2007 and 2006***

 

For the year endedDecember 31, 2007, we generated $1.5 million from our operating activitiescompared with $1.4 million in the year ended December 31, 2006, and usedit to purchase fixed assets including equipment for customer installations.

 

***YearsEnded December 31, 2006 and 2005***

 

For the year endedDecember 31, 2006, cash provided by operating activities decreased to $1.4million from $13.4 million in 2005.

 

Forthe year ended December 31, 2006, purchase of fixed assets decreased to$1.4 million from $13.4 million in 2005. Expressed in pounds sterling, the purchase of fixed assets decreased to£0.6 million from £7.3 million in 2005. The purchase of fixed assets in 2005included the transfer of Network assets from an affiliate amounting to $11.6million together with customer installations totaling $1.8 million.

 

**Liquidityand Capital Resources**

 

##### **Outstanding Indebtedness**

#####  

Wehave no financing independent of Virgin Media. We are reliant upon the support of Virgin Media to continue ouroperations. As of December 31, 2007, we had consolidated currentliabilities of $66.0 million due to Virgin Media group companies compared with$71.2 million as of December 31, 2006.

 

Historically, our sourceof cash had been the net proceeds of our offerings of limited partnershipinterests and our principal uses of cash have been capital contributions to NTLSouth Herts in order to fund our proportionate share of the construction costsof the South Herts System.

 

Accordingly, until suchtime as NTL South Herts begins to pay dividends on its ordinary shares (whichis not expected in the foreseeable future) we will be required to fund ouradministrative expenses from borrowings or, theoretically, additional issuancesof limited partnership interests. It is unlikely that we will be able to selldebt or equity securities in the public markets at least in the short term orto obtain financing from commercial banks. Accordingly, we are dependent onVirgin Media for funds to cover operating expenses, and will continue to bedependent upon Virgin Media to meet our liquidity requirements for theforeseeable future.  We expect that cashfrom our operations in 2008 will be utilized fully for the purchase of fixedassets including connecting new customers to our networks.

 

Virgin Media had£5,958.5 million of debt outstanding as of December 31, 2007,compared to £6,099.8 million as of September 30, 2007 and£6,159.1 million as of December 31, 2006, and £321.4 million ofcash and cash equivalents, compared to £364.0 million as of September 30,2007 and £418.5 million as of December 31, 2006. All amounts shownare in U.K. pounds sterling. The decrease in Virgin Media’s debt since theprevious year is primarily attributable to a mandatory prepayment of its seniorcredit facility of £73.6 million in May 2007 as a result of cash flowgenerated in 2006, a voluntary prepayment of £200 million in December 2007from existing cash balances, and exchange rate movements on its debtdenominated in currencies other than the pound sterling.

 

Virgin Media’sbusiness is capital intensive and it is highly leveraged. Virgin Media hassignificant cash requirements for operating costs, capital expenditure, interestexpense and debt amortization requirements. The level of Virgin Media’s capitalexpenditures and operating expenditures are affected by the significant amountsof capital required to connect customers to its network, expand and upgrade itsnetwork, offer new services and integrate its billing systems and customer 

 

 

39

----

 

databases. Virgin Mediaexpects that its cash on hand, together with cash from operations and undrawncredit facility, will be sufficient for its cash requirements through December 31,2008. However, Virgin Media’s cash requirements after December 31, 2008may exceed these sources of cash. For instance, debt amortization repaymentsunder its senior credit facility increase significantly in 2010. Virgin Mediabelieves that it will need to address these scheduled principal payments inpart through means other than reliance on cash flow from operations, such asraising additional debt or equity, refinancing its existing facility, possiblesales of assets, or other means. Virgin Media may not be able to obtainfinancing, or sell assets at all, or on favorable terms, or it may becontractually prevented by the terms of its senior notes or its senior creditfacility from incurring additional indebtedness or selling assets.

 

Virgin Media’sdebt agreements contain restrictions on its ability to transfer cash betweengroups of its subsidiaries or to us. As a result of these restrictions,although its overall liquidity may be sufficient to satisfy its obligations, itmay be limited by covenants in some of its debt agreements from transferringcash to other subsidiaries that might require funds. In addition, cross defaultprovisions in its other indebtedness may be triggered if it defaults on any ofthese debt agreements.

 

For furtherinformation concerning Virgin Media’s liquidity and capital resources and theterms of its various debt facilities, see its Form 10-K for the year endedDecember 31, 2007.

 

**Off-Balance Sheet Arrangements**

 

Other than the outstandingindebtedness above, we have no off-balance sheet arrangements as of December 31,2007.

 

###### **Contractual Obligations and Commercial Commitments**

######  

We have no significantcontractual obligations and commercial commitments as of December 31,2007.

 

**Item 7A.  Quantitative and Qualitative Disclosures aboutMarket Risk**

 

The functional currencyof NTL South Herts is pounds sterling and all revenue and substantially allcosts are incurred in pounds sterling. We report in U.S. dollars. Therefore, weare exposed to fluctuations in the pound sterling to U.S. dollar exchange rate.

 

The aggregate potentialgain from a hypothetical one-percent fall in the pound sterling / U.S. dollarexchange rate is approximately $14,000 for the year ended December 31,2007. The aggregate potential loss from a hypothetical one-percent fall in thepound sterling / U.S. dollar exchange rate was approximately $35,000 for theyear ended December 31, 2006.

 

We have no debt otherthan amounts due to affiliates. As of December 31, 2007 and 2006, we had$66.0 million and $71.2 million, respectively, in amounts due to Virgin Mediagroup companies. Interest on amounts due to affiliates is at a variable ratebased on the average rate incurred by Virgin Media. Therefore we are exposed tochanges in Virgin Media’s borrowing rate. The aggregate potential loss from ahypothetical one-percentage point increase in the interest rate isapproximately $666,000 for the year ended December 31, 2007. The aggregatepotential loss from a hypothetical one-percentage point increase in theinterest rate was approximately $649,000 for the year ended December 31,2006.

 

**Item 8.     Financial Statements and Supplementary Data**

 

Our consolidatedfinancial statements, the notes thereto and the report of the independentauditors begin on page F-1 of this annual report. The following is asummary of the quarterly results of operations for the years ended December 31,2007 and 2006.

 

##  

40

----

##  

 
| ** **                                     | ** ** | **2007**               | ** ** |
|------------------------------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **Three Months Ended** | ** ** |
| ** **                                     | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                     | ** ** | **(unaudited)**        | ** ** |
| Revenue                                        |       | $                      | 10,103,923 |   | $ | 9,836,198 |   | $ | 9,505,134 |   | $ | 9,902,047 |   |
| Operating income                               |       | 1,021,885              |       | 1,089,250 |   | 1,797,750 |   | 2,157,623 |   |
| Net (loss) profit                              |       | (274,453               | )          | (296,915 | ) | 341,533 |   | 849,356 |   |
| Net (loss) profit per limited partnership unit |       | $                      | (4.77      | ) | $ | (5.16 | ) | $ | 5.94 |   | $ | 14.76 |   |

 

 

 
| ** **                                                                                   | ** ** | **2006**               | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** |
| ** **                                                                                   | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**        | ** ** |
| Revenue                                                                                      |       | $                      | 9,170,963  |   | $ | 9,664,617 |   | $ | 9,922,154 |   | $ | 10,038,393 |   |
| Operating income                                                                             |       | 792,084                |       | 628,959 |   | 570,516 |   | 699,238 |   |
| Net loss before  minority interests and cumulative effect of changes in accounting principle |       | (734,358               | )          | (942,921 | ) | (993,871 | ) | (978,012 | ) |
| Minority interests                                                                           |       | 213,266                |       | 247,616 |   | 287,237 |   | — |   |
| Cumulative  effect of changes in accounting principle                                        |       | —                 |       | — |   | — |   | (415,878 | ) |
| Net loss                                                                                     |       | (521,092               | )          | (695,305 | ) | (706,634 | ) | (1,393,890 | ) |
| Net loss per  limited partnership unit                                                       |       | $                      | (9.06      | ) | $ | (12.09 | ) | $ | (12.29 | ) | $ | (24.24 | ) |

 

41

----

 

**Item 9.     Changes in and Disagreements withAccountants on Accounting and****Financial Disclosure**

 

Not applicable.

 

**Item 9A.  Controls and Procedures**

 

*(a) Disclosure Controls and Procedures*

 

Our management, with theparticipation of the Chief Executive Officer and Chief Financial Officer ofVirgin Media*, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended, which we refer to as theExchange Act) as of the end of the period covered by this report. Based on suchevaluation, Virgin Media’s Chief Executive Officer and Chief Financial Officerhave concluded that, as of the end of such period, these controls and proceduresare effective to ensure that information required to be disclosed by theregistrant in the reports the registrant files or submits under the ExchangeAct is recorded, processed, summarized, and reported within the time periodsspecified in the Securities and Exchange Commission’s rules and forms.These disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed bythe registrant in the reports that it files or submits is accumulated andcommunicated to the registrant’s management, including Virgin Media’s ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

 

*(b) Management’sAnnual Report on Internal Control Over Financial Reporting*

 

Our management is responsible forestablishing and maintaining adequate internal control over our financialreporting, as such term is defined in Exchange Act Rule 13a-15(f). Ourinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting andthe preparation of the SouthHertfordshire United Kingdom Fund, Ltd.’s financial statements forexternal reporting purposes in accordance with U.S. generally acceptedaccounting principles. Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements.

 

Under the supervision and with theparticipation of our management, including Virgin Media’s Chief ExecutiveOfficer and Chief Financial Officer, we conducted an evaluation of theeffectiveness of our internal control over financial reporting as of December 31,2007 based on the framework described in ‘‘Internal Control—Integrated Framework’’issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). Based on our evaluation under the COSO framework, our management hasconcluded, and hereby reports, that SouthHertfordshire United Kingdom Fund, Ltd. internal control over financialreporting was effective as of December 31, 2007.

 

This annual report does not include anattestation report of Ernst & Young LLP, our registered publicaccounting firm, on the effectiveness of the internal control over financialreporting of South Hertfordshire UnitedKingdom Fund, Ltd. Management’s report in respect to South Hertfordshire United Kingdom Fund, Ltd.was not subject to attestation by Ernst &Young LLP pursuant totemporary rules of the Securities and Exchange Commission that permit South Hertfordshire United Kingdom Fund, Ltdto provide only a management’s report in this annual report.

 

*(c) Changes in Internal Control Over FinancialReporting*

 

On March 3, 2006, Virgin Mediacompleted the reverse acquisition of Telewest and on July 4, 2006, VirginMedia completed the acquisition of Virgin Mobile. As a consequence of VirginMedia’s integration of these acquisitions, Virgin Media has made and expects tomake further material changes to our internal control over financial reporting.Other than as stated above, there were no changes in our internal control overfinancial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the fourth fiscal quarter thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

----

 

*                                         ThePartnership has no Chief Executive Officer or Chief Financial Officer. RobertMackenzie and Robert Gale are Directors of Virgin Media Directors Limited,which is a Corporate Director of NTL Fawnspring Limited, the General Partner ofthe Partnership.

 

**Item 9B.  Other Information**

 

None.

 

42

----

** **

**PART III**

** **

**Item10.  Directors,  ExecutiveOfficers and Corporate Governance**

 

We have no officers or directors. Certain information concerningdirectors and executive officers of our General Partner is set forth below.

 
| **Name**         | ** ** | **Age** | ** ** | **Title**              |
|------------------|------------|---------|------------|------------------------|
| Robert Mackenzie |       | 46      |       | Director and Secretary |
| Robert Gale      |       | 47      |       | Director               |

 

*RobertMackenzie*

 

Mr. Mackenzie, age46, has been the Secretary and Director of our General Partner since May 30,2000 and is Virgin Media’s U.K. Legal Director. He joined InternationalCableTel Incorporated in 1993, to establish the legal department in the U.K.and acted as Company Secretary for the newly formed CableTel, subsequentlyrenamed Virgin Media. From 1988 to 1993, Mr. Mackenzie worked for TheodoreGoddard as a Solicitor in the Corporate Finance department advising public andprivate companies on corporate finance, takeovers, domestic and internationalmergers and acquisitions. He was additionally seconded to corporate brokersPhoenix Securities Ltd. as Mergers & Acquisition Manager. Previouslyhe worked for Mischon de Reya, handling High Court commercial litigation. Hewas admitted as a Solicitor in 1987, and graduated in law from King’s College,University of London. His Law Society finals were taken at College of Law,London.

 

*RobertGale*

 

Mr. Gale, age 47, isthe Vice President—Controller of Virgin Media. He has held this position since June 17,2003. Mr. Gale joined Virgin Media in May 2000 from Cable &Wireless Communications plc, where he was Head of Finance for the ConsumerCobusiness acquired by Virgin Media. In October 2000, he was appointed asGroup Director of Financial Control for Virgin Media’s U.K. operations. He hadjoined Cable & Wireless in January 1998. From 1995 to 1997, Mr. Galewas Chief Financial Officer of ComTel, a cable operator subsequently acquiredby Virgin Media. Between 1989 and 1995, Mr. Gale was Group FinancialController at TVS Entertainment PLC, a U.K. television broadcaster and programproducer. Mr. Gale is a chartered accountant and worked for KPMG at itsLondon office between 1981 and 1989.

 

As we have no officers,directors, or employees, we have not adopted a code of ethics.  However, Virgin Media has adopted a code ofethics for its principal executive officer, principal financial officer,principal accounting officer or controller, or persons performing similarfunctions, which establishes policies to promote honest and ethical conduct andto deter wrongdoing, including policies governing actual or apparent conflictsof interest, compliance with laws and prompt internal reporting for violations.

 

**Item 11.   Executive Compensation**

 

We have no employees;however, various personnel are required to operate our network. Personnel areemployed by Virgin Media and its affiliates and, pursuant to the terms of ourPartnership Agreement, Virgin Media and its affiliates charge the cost of suchemployment to us as a direct reimbursement item. See Item 13, “CertainRelationships, Related Transactions and Director Independence” for adescription of the relationship between us and Virgin Media.

 

**Item 12.   Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters**

 

Our General Partnerpurchased one of our partnership interests by contributing $1,000 to ourcapital.

 

No person or entity knownto us owns more than 5% of our limited partnership interests. No directors or executiveofficers of our General Partner beneficially own any of our limited partnershipinterests.

 

**Item 13.   Certain Relationships,  Related Transactions, and DirectorIndependence**

 

Our General Partner andits affiliates engage in certain transactions with us as contemplated by ourPartnership Agreement and as disclosed in the prospectuses for our publicofferings. Our General Partner believes that the terms of such transactions,which are subject to our Partnership Agreement, are generally as favorable asthose that we could have obtained 

 

43

----

 

from unaffiliated parties. This determination has beenmade by our General Partner in good faith, but none of the terms were or willbe negotiated at arm’s-length and there can be no assurance that the terms ofsuch transactions have been or will be as favorable as those that we could haveobtained from unaffiliated parties.

 

An affiliate of ourGeneral Partner is entitled to be paid a consulting fee by NTL South Herts.During the construction phases of the cable television/telephone system, thisconsulting fee was 2% of construction costs. Since completion of constructionof each portion of the system, the consulting fee for the completed portion hasbeen 5% of gross revenue, excluding revenue from the sale of cabletelevision/telephone systems. Consulting fees paid or payable by us for theyear ended December 31, 2007 totaled $2.0 million.

 

Our General Partner andits affiliates are entitled to reimbursement from NTL South Herts for directand indirect expenses allocable to the operation of its network and from us fordirect and indirect expenses allocable to our operation, which include but arenot limited to rent, supplies, telephone, travel and salaries of any full orpart time employees. Allocable direct or indirect expenses paid or payable byus for the year ended December 31, 2007 totaled $14.1 million.

 

Our General Partner andits affiliates may make advances to, and defer collection of fees and allocatedexpenses owed by us, although they are not required to do so. For the yearended December 31, 2007, aggregated interest, bank fees and financecharges of $5.2 million relating to non-permanent loans was charged byaffiliates of the General Partner, and interest on advances of $0.2 million wascharged by an affiliate of the General Partner at a rate equal to the GeneralPartner’s or certain affiliates effective average cost of debt financing fromunaffiliated entities, which does not differ from their weighted average costof debt financing.

 

As we do not have a boardof directors or audit committee, we rely on Virgin Media’s Audit Committee forapproval of those related transactions entered into with related parties inwhich we would be a participant, other than the transactions contemplated byour Partnership Agreement.

 

For the description oftransactions between Virgin Media and related parties, please see Item 13 inVirgin Media’s annual report on Form 10-K filed with the SEC on February 29,2008.

 

**Item 14.   Principal Accountant Fees and Services**

 

Ernst & YoungLLP are our principal accountants. We are not billed directly by Ernst &Young LLP for services, but are allocated a proportion of the fees charged toVirgin Media by Ernst & Young LLP. We provide in the table below ananalysis of the fees charged to Virgin Media by Ernst & Young LLP andallocated to us in the each of the two years ended December 31, 2007 and2006.

 
| ** **         | ** ** | **December 31,** | ** ** |
|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Audit fees         |       | $                     | 36,813     |   | $ | 61,335 |   |
| Audit-Related fees |       | 270                   |       | 667 |   |
| Tax fees           |       | 1,111                 |       | 23,751 |   |
| All other fees     |       | —                |       | — |   |
|               |       | $                     | 38,194     |   | $ | 85,753 |   |

 

 

*Auditfees*. Audit feesrepresent the aggregate services provided to us by Ernst & Young forprofessional services rendered for the audit of our annual financial statementsincluded in our Form 10-K and review of interim financial statements filedquarterly on Form 10-Q, including accounting consultations on mattersaddressed during the audit and interim reviews. These fees also includeservices that are provided in connection with our statutory and regulatoryfilings.

 

*Audit-Relatedfees*.Audit-Related fees represent the aggregate fees charged for assurance andrelated services by Ernst & Young that are related to the audit orreview of our financial statements, including other accounting consultations.Audit-Related services include advice relating to the Sarbanes-Oxley Act of2002 including advice to Virgin Media on reporting on internal controls under Section 404.

 

44

----

 

*Tax fees*. Tax fees represent the aggregate feescharged for professional services rendered by Ernst & Young for taxcompliance, tax advice and tax planning.

 

*All otherfees*.  All other fees represent the aggregate feescharged for other products and services provided by Ernst & Young.

 

**Audit Committee’s Pre-approvalPolicies and Procedures**

 

Wehave no Audit Committee. The Audit Committee of the board of directors ofVirgin Media reviews, acts on and reports to the board of directors of VirginMedia with respect to various auditing and accounting matters. In thiscapacity, the audit committee acts on our behalf as necessary.  The current members of the Audit Committee ofVirgin Media are George R. Zoffinger who is its chairman and who the board ofdirectors has determined to be an audit committee financial expert, Edwin M.Banks and Jeffrey D. Benjamin. The members of the Audit Committee areindependent within the meaning of the Nasdaq National Markets listing standardscurrently applicable to Virgin Media.

 

Virgin Media’s Audit Committee’s policy on pre-approvalrequirements for audit and non-audit services provided to us by our independentregistered public accounting firm is summarized as follows:

 

Annually, the Audit Committee willagree the scope and terms, including the fees, of the engagement for theservices to be provided by the Auditors as part of the recurring annual auditof Virgin Media (“the Annual Audit Services”). The services included as part ofthe Annual Audit Services include: the audit of Virgin Media’s consolidatedfinancial statements and its internal control over financial reporting; theaudit of the separate financial statements of South Hertfordshire UnitedKingdom Fund, Ltd (“South Herts”), Virgin Media Investment Holdings Limited andSubsidiaries (“VMIH”), Virgin Media Finance PLC and any other subsidiaries oraffiliates which may require audits in relation to securities issued or to beissued, including, if required, the audits of their internal control overfinancial reporting; the review of interim unaudited financial statements ofVirgin Media and the separate interim unaudited financial statements of SouthHerts and VMIH and any other subsidiaries or affiliates which may requirereviews in relation to securities issued or to be issued; the statutory auditsof the financial statements of Virgin Media’s affiliates and subsidiaries.

 

Annually, the Audit Committeewill pre-approve, on a category basis, additional audit services, such ascorrespondence with regulatory agencies, consents to registration statements,comfort letters, and other financial reports required by regulatory bodies (“AdditionalAudit Services”).

 

Quarterly, the Audit Committee will pre-approve, on anengagement specific basis, the Audit Related services, Tax services and Otherservices for permissible services as set forth in the pre-approval policy, plusany additional categories of Additional Audit Services not included in theannual pre-approval (collectively, inclusive of the Additional Audit Services, “PermittedServices”) to be provided by the Auditors to Virgin Media in respect ofPermitted Services which are expected to commence during the following threemonths. Each request for pre-approval of Permitted Services will be accompaniedby an estimate of the related fee although such fee estimate will not representthe maximum fee that may be incurred unless the Audit Committee expresslyrequests that a limit be imposed in respect of a specific service.

 

Between meetings, the Chairman of the Audit Committee hasdelegated authority to pre- approve Services within the scope of PermittedServices listed above on an ad-hoc basis to meet specific needs with estimatedfees of up to £100,000 per engagement. The Chairman will report any suchservices approved in this manner to the next meeting. In 2007 and 2006, theaudit committee pre-approved all of the services performed by our auditors.

 

The Audit Committee will be informed routinely as to theaudit and non-audit services actually provided by the Auditors pursuant to thispolicy, including details of fees billed for such services.

 

45

----

 

**PART IV**

 

**Item 15.  Exhibits and FinancialStatement Schedules**

 

(a)                   (1) *FinancialStatements—*See Index to Financial Statements on page F-1.

 

(2) *Financial StatementSchedules—*NONE.

 

(3) *Exhibits—*See Exhibit Index.

 

46

----

 

 

**FORM 10K - ITEM 15(a) (1)**

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

 

**CONSOLIDATED FINANCIAL STATEMENTS**

**As of December 31, 2007, and 2006**

**and for the Years Ended December 31, 2007, 2006, and 2005**

 

The following consolidatedfinancial statements of South Hertfordshire United Kingdom Fund, Ltd. areincluded in Item 8:

 

**INDEX**

 

| Report of Independent Registered Public Accounting  Firm      |   | F-2 |
|---------------------------------------------------------------|--------|-----|
| Consolidated Balance Sheets                                   |   | F-3 |
| Consolidated Statements of Operations                         |   | F-4 |
| Consolidated Statements of Comprehensive Income  (Loss)       |   | F-5 |
| Consolidated Statements of Partners’ Capital  /(Deficit) |   | F-6 |
| Consolidated Statements of Cash Flows                         |   | F-7 |
| Notes to Consolidated Financial Statements                    |   | F-8 |

 

 

F-1

----

 

 

**Report of Independent RegisteredPublic Accounting Firm**

 

The Partners

South HertfordshireUnited Kingdom Fund, Ltd.

 

We have audited theaccompanying consolidated balance sheets of South Hertfordshire United KingdomFund, Ltd. (a Colorado limited partnership) ( the “Partnership) as of December 31,2007 and 2006, and the related consolidated statements of operations,comprehensive income (loss), partners’ capital (deficit) and cash flows foreach of the three years in the period ended December 31, 2007.  Thesefinancial statements are the responsibility of the General Partner’smanagement.  Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. We were not engaged to perform an audit of thePartnership’s internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of thePartnership’s internal control over financial reporting. Accordingly, weexpress no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of South Hertfordshire UnitedKingdom Fund, Ltd. as of December 31, 2007 and 2006, and the consolidatedresults of its operations and its cash flows for each of the three years in theperiod ended December 31, 2007, in conformity with U.S. generally acceptedaccounting principles.

 

As discussed in Note 2 tothe consolidated financial statements, South Hertfordshire United Kingdom Fund,Ltd. adopted Financial Accounting Standards Board Staff Position FAS 143-1 “*Accounting for Electronic Waste Obligations*”as of December 12, 2006.

 

Ernst & YoungLLP

 

London, EnglandMarch 26, 2008

 

 

 

F-2

----

 

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                             | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                             | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| **Assets**                                                                                                             |       |                  |       |                  |       |
| Fixed assets, net                                                                                                      |       | $                     | 61,517,485 |                  | $          | 66,079,566 |   |
| **Total assets**                                                                                                       |       | 61,517,485            |       | 66,079,566            |       |
|                                                                                                                   |       |                  |       |                  |       |
| **Liabilities and Partners’  Deficit**                                                                            |       |                  |       |                  |       |
| Current liabilities                                                                                                    |       |                  |       |                  |       |
| Accounts payable to affiliates and related parties                                                                     |       | $                     | 66,040,564 |                  | $          | 71,196,561 |   |
| Total liabilities                                                                                                      |       | 66,040,564            |       | 71,196,561            |       |
|                                                                                                                   |       |                  |       |                  |       |
| **Partners’ Capital (Deficit)**                                                                                   |       |                  |       |                  |       |
| General Partner                                                                                                        |       |                  |       |                  |       |
| Contributed capital                                                                                                    |       | 1,000                 |       | 1,000                 |       |
| Accumulated deficit                                                                                                    |       | (529,556              | )          | (535,751              | )          |
|                                                                                                                   |       | (528,556              | )          | (534,751              | )          |
| Limited Partners                                                                                                       |       |                  |       |                  |       |
| Contributed capital, net (56,935 units outstanding at  December 31, 2007 and  December 31,  2006)  |       | 48,817,997       |       | 48,817,997       |       |
| Accumulated deficit                                                                                                    |       | (52,145,026           | )          | (52,758,352           | )          |
|                                                                                                                   |       | (3,327,029            | )          | (3,940,355            | )          |
|                                                                                                                   |       |                  |       |                  |       |
| Partners’ Capital  (Deficit)                                                                                      |       | (3,855,585            | )          | (4,475,106            | )          |
|                                                                                                                   |       |                  |       |                  |       |
| Accumulated comprehensive  loss                                                                                        |       | (667,494              | )          | (641,889              | )          |
|                                                                                                                   |       |                  |       |                  |       |
| Total Partners’ deficit                                                                                           |       | (4,523,079            | )          | (5,116,995            | )          |
|                                                                                                                   |       |                  |       |                  |       |
| **Total Liabilities and Partners’  Deficit**                                                                      |       | $                     | 61,517,485 |                  | $          | 66,079,566 |   |

 

 

The accompanying notes

are an integral part of these consolidated financial statements.

 

 

F-3

----

 

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                                                                                  | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                  | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Revenues**                                                                                                |       | $                                | 39,347,302 |   | $ | 38,796,127 |   | $ | 38,740,331 |   |
|                                                                                                        |       |                             |       |   |   |   |   |
| **Costs and expenses**                                                                                      |       |                             |       |   |   |   |   |
| Cost of goods sold  (exclusive of depreciation shown  separately  below)                               |       | (9,792,220                       | )          | (10,014,523 | ) | (10,430,813 | ) |
| Selling, general and administrative  expenses                                                               |       | (105,018                         | )          | (94,878 | ) | (92,063 | ) |
| Management fees and  allocated overhead from the General  Partner                                      |       | (16,129,974                      | )          | (17,670,758 | ) | (17,063,743 | ) |
| Other charges                                                                                               |       | (274,963                         | )          | (1,349,828 | ) | (653,559 | ) |
| Depreciation                                                                                                |       | (6,978,619                       | )          | (6,975,343 | ) | (5,882,179 | ) |
| **Operating income**                                                                                        |       | 6,066,508                        |       | 2,690,797 |   | 4,617,974 |   |
| **Other expenses**                                                                                          |       |                             |       |   |   |   |   |
| Interest payable to  General Partner and affiliates                                                         |       | (5,417,314                       | )          | (6,062,897 | ) | (2,957,398 | ) |
| Exchange (losses) gains                                                                                     |       | (29,673                          | )          | (277,062 | ) | 219,959 |   |
| **Profit (loss) before minority interest and  cumulative effect  of changes in  accounting principle** |       | 619,521                          |       | (3,649,162 | ) | 1,880,535 |   |
| Minority interest income (expense)                                                                          |       | —                           |       | 748,119 |   | (654,656 | ) |
| Cumulative effect of  changes in accounting principle                                                       |       | —                           |       | (415,878 | ) | — |   |
| **Net profit (loss)**                                                                                       |       | $                                | 619,521    |   | $ | (3,316,921 | ) | $ | 1,225,879 |   |
| **Allocation of net profit (loss)**                                                                         |       |                             |       |   |   |   |   |
| General Partner                                                                                             |       | $                                | 6,195      |   | $ | (33,168 | ) | $ | 12,259 |   |
| Limited Partner                                                                                             |       | 613,326                          |       | (3,283,753 | ) | 1,213,620 |   |
| Net profit (loss)                                                                                           |       | $                                | 619,521    |   | $ | (3,316,921 | ) | $ | 1,225,879 |   |
| Net profit (loss) per  limited partnership unit                                                             |       | $                                | 10.77      |   | $ | (57.68 | ) | $ | 21.32 |   |
| Average number of limited partnership  units outstanding                                                    |       | 56,935                           |       | 56,935 |   | 56,935 |   |

 

 

The accompanying notes

are an integral part of these consolidated financial statements.

 

 

F-4

----

 

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**

 
| ** **                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|
| ** **                                | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                | ** ** | ** **                       | ** ** | **(Restated)** | ** ** | ** ** | ** ** |
| Net profit (loss)                         |       | $                                | 619,521    |   | $ | (3,316,921 | ) | $ | 1,225,879 |   |
| Foreign currency  translation adjustments |       | (25,605                          | )          | 36,298 |   | (93,230 | ) |
| Comprehensive profit  (loss)              |       | $                                | 593,916    |   | $ | (3,280,623 | ) | $ | 1,132,649 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

 

F-5

----

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**CONSOLIDATEDSTATEMENTS OF PARTNERS’ CAPITAL (DEFICIT)**

 

 
| ** **                     | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| General Partner:               |       |                             |       |   |   |   |   |
| Balance, beginning of year     |       | $                                | (534,751   | ) | $ | (501,583 | ) | $ | (513,842 | ) |
| Net income (loss) for the year |       | 6,195                            |       | (33,168 | ) | 12,259 |   |
| Balance, end of year           |       | $                                | (528,556   | ) | $ | (534,751 | ) | $ | (501,583 | ) |
|                           |       |                             |       |   |   |   |   |
| Limited Partner:               |       |                             |       |   |   |   |   |
| Balance, beginning of year     |       | $                                | (3,940,355 | ) | $ | (656,602 | ) | $ | (1,870,222 | ) |
| Net income (loss) for the year |       | 613,326                          |       | (3,283,753 | ) | 1,213,620 |   |
| Balance, end of year           |       | $                                | (3,327,029 | ) | $ | (3,940,355 | ) | $ | (656,602 | ) |
|                           |       |                             |       |   |   |   |   |
| Accumulated comprehensive loss |       | (667,494                         | )          | (641,889 | ) | (678,187 | ) |
| Total partner’s deficit   |       | $                                | (4,523,079 | ) | $ | (5,116,995 | ) | $ | (1,836,372 | ) |

 

The accompanyingnotes

are an integralpart of these consolidated financial statements.

 

F-6

----

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 

 
| ** **                                                                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Cash  flows from operating activities**                                                 |       |                             |       |   |   |   |   |
| Net profit  (loss)                                                                        |       | $                                | 619,521    |   | $ | (3,316,921 | ) | $ | 1,225,879 |   |
| Adjustments to  reconcile net profit (loss) to net cash provided by operating activities: |       |                             |       |   |   |   |   |
| Cumulative  effect of changes in accounting principle                                     |       | —                           |       | 415,878 |   | — |   |
| Minority  interest income (expense)                                                       |       | —                           |       | (748,119 | ) | 654,656 |   |
| Depreciation                                                                              |       | 6,978,619                        |       | 6,975,343 |   | 5,882,179 |   |
| Loss on disposal  of fixed assets                                                         |       | 26,477                           |       | — |   | — |   |
| Change in  operating assets and liabilities:                                              |       |                             |       |   |   |   |   |
| (Decrease)  increase in accounts payable to affiliates and related parties                |       | (6,092,656                       | )          | (1,883,235 | ) | 5,595,905 |   |
| **Net  cash provided by operating activities**                                            |       | 1,531,961                        |       | 1,442,946 |   | 13,358,619 |   |
|                                                                                      |       |                             |       |   |   |   |   |
| **Cash  flows from investing activities**                                                 |       |                             |       |   |   |   |   |
| Purchase of  fixed assets                                                                 |       | (1,531,961                       | )          | (1,442,946 | ) | (13,358,619 | ) |
| **Net  cash used in investing activities**                                                |       | (1,531,961                       | )          | (1,442,946 | ) | (13,358,619 | ) |
|                                                                                      |       |                             |       |   |   |   |   |
| **Cash  flows from financing activities**                                                 |       | —                           |       | — |   | — |   |
| **Net  cash used in financing activities**                                                |       | $                                | —     |   | $ | — |   | $ | — |   |
|                                                                                      |       |                             |       |   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                         |       | —                           |       | — |   | — |   |
| Cash and cash  equivalents at beginning of period                                         |       | —                           |       | — |   | — |   |
| Cash and cash  equivalents at end of period                                               |       | $                                | —     |   | $ | — |   | $ | — |   |

 

The accompanyingnotes

are an integralpart of these consolidated financial statements.

 

F-7

----

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****                      ****ORGANIZATION AND PARTNERS’INTERESTS**

 

###### ***Formation and Business***

######  

South HertfordshireUnited Kingdom Fund, Ltd. (the “Partnership”), a Colorado limited partnership,was formed on December 23, 1991, in connection with a public offering ofits limited partnership interests. The Partnership was formed to acquire,construct, develop, own and operate cable television/telephone systems in theU.K. NTL Fawnspring Limited, a U.K. corporation, a subsidiary of Virgin MediaInc. or Virgin Media, is the general partner (the “General Partner”) of thePartnership.

 

The General Partner hasthe authority to manage the business, properties and activities of thePartnership. This includes the ability to operate and maintain cable televisionand telephone properties, and to purchase or lease property at the expense ofthe Partnership, the ability to make on behalf of the Partnership all paymentsrequired of the Partnership for all direct and indirect costs incurred in theconduct of its business, the ability to borrow money in the name of thePartnership, and the obligation to maintain accurate financial records and toprepare and file the reports required under applicable regulations.

 

###### ***Contributed Capital***

######  

The capitalization of thePartnership is set forth in the accompanying statement of partners’ capital(deficit). No existing partner is obligated to make any additionalcontributions to partnership capital.

 

The General Partnerpurchased its interest in the Partnership by contributing $1,000 to partnershipcapital.

 

Profits, losses anddistributions of the Partnership are currently allocated 99% to the limitedpartners and 1% to the General Partner until the limited partners have receiveddistributions equal to 100% of their capital contributions plus an annualreturn thereon of 12%, cumulative and non-compounded. Thereafter, profits anddistributions will generally be allocated 75% to the limited partners and 25%to the General Partner. Interest income earned prior to the formation of thePartnership was allocated 100% to the limited partners.

 

The profits allocated tothe limited partners and General Partner is the net profit or loss rather thanthe comprehensive income. The net profit or loss does not take account of anyforeign currency translation adjustments, as these are unrealized. The netprofit or loss per limited partner unit is calculated after allocating 1% ofthe net profit or loss to the General Partner. For the year ended December 31,2007, the profit per limited partnership unit amounted to $10.77.

 

###### ***NTL (South Hertfordshire) Limited***

######  

NTL (South Hertfordshire)Limited (“NTL South Herts”) is a U.K. corporation originally owned by JonesGlobal Funds, Inc. (the previous general partner) and Jones Cable Group,Ltd., an affiliate of the previous general partner. The area covered by our cablesystem, which we refer to as the franchise area, comprises the administrativeareas in South Hertfordshire of Three Rivers, Watford and Hertsmere which arelocated adjacent to the northwest perimeter of Greater London, England (the “SouthHerts System”).

 

NTL South Herts is owned66.7% by the Partnership and 33.3% by Virgin Media. Virgin Media also owns theGeneral Partner. The General Partner provides consulting services to thePartnership and may delegate some or all of the consulting services to VirginMedia or to other affiliates.

 

F-8

----

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**2.****                      ****SIGNIFICANT ACCOUNTING POLICIES**

 

***Basis of Presentation***

 

Theaccompanying consolidated financial statements have been prepared in accordancewith U.S. Generally Accepted Accounting Principles, or GAAP.

 

***Use of Estimates***

 

Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the amounts reported in thefinancial statements and accompanying notes. Such estimates and assumptionsimpact, among others, the following: the amount charged to NTL South Herts by asubsidiary of Virgin Media for infrastructure and management support services,the amount to be paid to terminate certain agreements included in restructuringcosts, the amount to be paid for other liabilities including contingentliabilities, estimated costs for interconnection, and estimates related to theamount of costs to be capitalized in connection with the construction andinstallation of NTL South Herts’ network. Actual results could differ fromthose estimates.

 

***Principles of Consolidation***

 

Theconsolidated financial statements include the accounts of the Partnership, andits subsidiary. Significant intercompany accounts and transactions have beeneliminated in consolidation. Certain prior year amounts have been reclassifiedto conform to the current year presentation.

 

***Foreign Currency Translation***

 

The functional currencyof the Partnership’s principal operating subsidiary is the pound sterling,while the Partnership’s reporting currency is the U.S. dollar. The assets andliabilities of the Partnership’s U.K. subsidiary have been translated using theexchange rates in effect at the balance sheet dates, and revenue and expenseshave been translated at the average rates for the respective years. Exchangegains and losses on translation of the Partnership’s net equity investment inthe subsidiary is reported as a separate component of accumulated othercomprehensive income (loss) in the statement of partners’ capital (deficit).Foreign currency transaction gains and losses are recorded in the statement ofoperations.

 

***Current Assets and Liabilities***

** **

Since May 2000, thecurrent assets and liabilities of NTL South Herts have been managed by VirginMedia. Books and records related to accounts receivable, accounts payable anddeferred revenue are maintained by Virgin Media. Pursuant to the arrangementbetween Virgin Media and NTL South Herts contained in the letter of appointmentand agreement, NTL South Herts has the legal right to offset amounts receivablefrom Virgin Media against amounts payable to Virgin Media. Consequently, thenet balance payable by NTL South Herts to Virgin Media is disclosed underaccounts payable to affiliates and related parties in the accompanyingfinancial statements. Effective from June 2000, the bank accountsmaintained by NTL South Herts were closed and a bank account maintained byVirgin Media is used for cash transactions. Accordingly, the net result fromcash transactions is also included in accounts payable to affiliates andrelated parties.

 

F-9

----

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**2.****                      ****SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)**

 

***Fixed Assets***

** **

Fixedassets, net are stated at cost less accumulated depreciation.

 

Thecost of fixed assets includes amounts capitalized for labor and overheadexpended in connection with the design and installation of the NTL South Herts’operating network equipment and facilities. Costs associated with initialcustomer installations, additions of network equipment necessary to enable enhancedservices, acquisition of additional fixed assets and replacement of existingfixed assets are capitalized. The costs of reconnecting the same service to apreviously installed premise are charged to expense in the period incurred.Costs for repairs and maintenance are charged to expense as incurred.

 

Depreciation is providedon fixed assets at rates that are intended to write off the cost of the assetsover their estimated useful lives. Effect is given to commercial and technicalobsolescence. Depreciation is provided on a straight-line basis over 5-30 yearsfor the cable network and other electronic equipment, 30 years for buildingsand 3-12 years for office and other equipment. Repairs and maintenance costsare charged to expense when incurred.

 

The assets are reviewedfor impairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. If the sum of the expected futureundiscounted cash flows is less than the carrying amount of the asset, a lossis recognized for the difference between the fair value and the carrying amountof the asset. The fair value of the asset is determined by the higher of thediscounted cash flows and the net realizable value upon sale.

 

***Restructuring Costs***

 

As of January 1,2003, we adopted FASB Statement No. 146, *Accountingfor Costs Associated with Exit or Disposal Activities,* orFAS 146, which requires us to recognize a liability for costs associated with restructuring activitieswhen the liability is incurred. The adoption of FAS 146 did not have asignificant effect on our results of operations, financial condition or cashflows.

 

Priorto 2003, we recognized a liability for costs associated with restructuringactivities at the time a commitment to restructure was given, in accordancewith EITF 94-3, *Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a restructuring),*or EITF 94-3*.*Liabilities for costs associated with restructuring activities initiated priorto January 1, 2003 continue to be accounted for under EITF 94-3.

 

***Revenue Recognition***

** **

Werecognize revenue only when it is realized or realizable and earned. Werecognize revenue when all of the following are present:

 

·                            persuasive evidence of an arrangementexists between us and our customers;

·                            delivery has occurred or the serviceshave been rendered;

·                            the price for the service is fixed ordeterminable; and

·                            collectibility is reasonably assured.

 

*Fixedline telephone, cable television and internet revenues* are recognized as the services areprovided to customers. At the end of each period, adjustments are recorded todefer revenue relating to services billed in advance and to accrue for earnedbut unbilled services.

 

F-10

----

 

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**2.        SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)**

 

*Installationrevenues* arerecognized in accordance with the provisions of FASB Statement No. 51, *Financial Reporting by Cable Television Companies*,in relation to connection and activation fees for cable television, as well asfixed line telephone and internet services, on the basis that we market andmaintain a unified fiber network through which we provide all of theseservices. Installation revenues are recognized at the time the installation hasbeen completed to the extent that those fees are less than direct sellingcosts. Installation fees in excess of direct selling costs are deferred and amortizedover the expected life of the customer’s connection.

 

*Rentalrevenue* inrespect of line rentals and rental of equipment provided to customers isrecognized on a straight-line basis over the term of the rental agreement.

 

*Bundledservices revenue* isrecognized in accordance with the provisions of EITF No. 00-21, *Accounting for Revenue Arrangements with MultipleDeliverables*, to assess whether the components of the bundledservices should be recognized separately.

 

For bundledpackages that have separately identifiable components, the total considerationis allocated to the different components based on their relative fair values.Where the fair value of a delivered component cannot be determined reliably butthe fair value of the undelivered component can be, the fair value of theundelivered component is deducted from the total consideration and the netamount is allocated to the delivered components based on the “residual value”method.

 

***Advertising Costs***

** **

Advertising costs areexpensed as incurred. Advertising costs allocated to NTL South Herts were$1,048,929, $1,090,705 and $1,020,654 in 2007, 2006 and 2005, respectively.

 

***Asset RetirementObligations***

*** ***

In June 2005, theFinancial Accounting Standards Board, or FASB issued FSP FAS 143-1, *Accounting for Electronic Equipment Waste Obligations,* orFSP 143-1. The FASB issued FSP 143-1 to address the accounting for certainobligations associated with the Waste Electrical and Electronic EquipmentDirective adopted by the European Union. FSP 143-1 requires that the commercialuser should apply its provisions to certain obligations associated withhistorical waste (as defined by the Directive), since this type of obligationis an asset retirement obligation.  TheDirective was adopted by the U.K. on December 12, 2006, and was effective January 2,2007.  Virgin Media has reviewed its obligationunder the law and concluded that an obligation existed for certain of ourcustomer premises equipment.  As aresult, we recognized an addition to fixed assets of $319,380 and an obligationto our parent of $761,359 on our balance sheet at December 31, 2006 and acumulative effect of changes in accounting principle of $415,878 in ourstatement of operations for the year ended December 31, 2006.  The adoption of this new accounting standardresulted in a change in the allocated overheads from the General Partner.

 

**3.       RECENT ACCOUNTING PRONOUNCEMENTS**

 

In September 2006,the FASB issued Statement No. 157, *FairValue Measurements,* or FAS 157. FAS 157 provides guidancefor using fair value to measure assets and liabilities. It also responds toinvestors’ requests for expanded information about the extent to whichcompanies measure assets and liabilities at fair value, the information used tomeasure fair value, and the effect of fair value measurements on earnings.FAS 157 applies whenever other standards require (or permit) assets orliabilities to be measured at fair value, and does not expand the use of fairvalue in any new circumstances. FAS 157 is effective for certain financialinstruments included in financial statements issued for fiscal years beginningafter November 15, 2007 and for all other non-financial instruments forfiscal years beginning after November 15, 2008. The provisions ofFAS 157 relating to certain financial instruments are required to beadopted by us in the first quarter of 2008

 

 

 

F-11

----

 

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

** **

**3.     RECENT ACCOUNTING PRONOUNCEMENTS(CONTINUED)**

 

effective January 1,2008. While we are still addressing the impact of the adoption of this Standardit is not expected to have a material impact on our consolidated financialstatements.

 

In February 2007,the FASB issued Statement No. 159, *TheFair Value Option for Financial Assets and Financial Liabilities—Including anamendment of FASB Statement No. 115*, or FAS 159.FAS 159 allows companies to elect to measure certain assets andliabilities at fair value and is effective for fiscal years beginning after November 15,2007. We are currently evaluating the effect that the adoption of FAS 159will have on our consolidated financial statements and are not yet in aposition to determine its effects.

 

**4.       TRANSACTIONS WITH THE GENERAL PARTNER ANDAFFILIATED ENTITIES**

 

###### ***Consulting and Management Fees***

######  

An affiliate of theGeneral Partner is entitled to be paid a consulting fee by NTL South Herts.During the construction phases of the South Herts System, this consulting feewas 2% of construction costs. Since completion of construction of each portionof the system, the consulting fee for the completed portion has been 5% of thegross revenue, excluding revenue from the sale of cable television/telephonesystems. The consulting fee is calculated and payable monthly. Consulting feespaid or payable by NTL South Herts for the years ended December 31, 2007,2006 and 2005 were $1,967,365, $1,939,806 and $1,937,016, respectively. Theseamounts were expensed in the statement of operations each year.

 

###### ***Distribution Ratios and Reimbursement***

 

Any Partnershipdistributions made from cash flow (defined as cash receipts derived fromroutine operations, less debt principal and interest payments and cashexpenses) are allocated 99% to the limited partners and 1% to the GeneralPartner. Any distributions other than interest income on limited partnersubscriptions earned prior to the acquisition of the Partnership’s first cabletelevision system or from cash flow, such as from the sale or refinancing of asystem or upon dissolution of the Partnership, will be made as follows: 99% tothe limited partners and 1% to the General Partner until any negative balancesin the limited partners’ capital accounts are reduced to zero; 100% to theGeneral Partner until any negative balance in its capital account is reduced tozero; 99% to the limited partners and 1% to the General Partner until thebalance in the limited partners’ capital accounts is equal to their adjustedcapital contribution plus a 12% return; 100% to the General Partner until thebalance in its capital account is equal to its adjusted capital contribution,and any remaining income or gain shall be allocated 75% to the limited partnersand 25% to the General Partner.

 

The General Partner andits affiliates are entitled to reimbursement from NTL South Herts for directand indirect expenses allocable to the operation of the South Herts System, andfrom the Partnership for direct and indirect expenses allocable to theoperation of the Partnership which include but are not limited to, rent,supplies, telephone, travel and salaries of any full or part-time employees.The General Partner believes that the methodology used in allocating theseexpenses is fair and reasonable. During the years ended December 31, 2007,2006 and 2005, reimbursement made by NTL South Herts and the partnership to theGeneral Partner or its affiliates for any allocable direct and indirectexpenses totaled $14,162,609, $15,730,952 and $15,126,727, respectively.

 

The General Partner and its affiliates may makeadvances to, and defer collection of fees and allocated expenses owed by, thePartnership, although they are not required to do so.  The Partnership is charged interest on suchadvances and deferred amounts at a rate equal to the General Partner’s orcertain affiliates’ effective average cost of debt financing from unaffiliatedentities, which does not differ from their weighted average cost of debtfinancing.  For the years ended December 31,2007, 2006 and 2005, aggregated interest, bank fees and finance charges of$5,239,018, $5,922,488 and $2,812,193, respectively, relating to non-permanentloans was charged by affiliates of the General Partner, and interest onadvances of $178,297, $140,409 and $145,205, respectively, was charged by anaffiliate of the General Partner.

 

 

 

F-12

----

 

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**4.       TRANSACTIONS WITH THE GENERAL PARTNER ANDAFFILIATED ENTITIES  (CONTINUED)**

 

The GeneralPartner and its affiliates are entitled to recover interest on the full amountof non-permanent loans they provide to the Partnership or NTL South Herts andthe portion of bank fees and deferred financing costs relating to Virgin Media’ssenior credit facilities allocable to the Partnership or NTL South Herts.  They have elected to recover these amountscommencing in the fourth quarter of 2005.

 

**5.       OTHER CHARGES**

 

Othercharges of $0.3 million in the year ended December 31, 2007 related mainly to employee terminationand lease exit costs as a result of Virgin Media’s acquisition-relatedrestructuring programs. Other charges of $1.3million in the year ended December 31, 2006 related mainly to employeetermination and lease exit costs in connection with Virgin Media’srestructuring programs initiated in respect of the reverse acquisition ofTelewest, along with costs in relation to lease exit costs for properties thatwere vacated prior to the acquisition. Other charges in the year ended December 31,2005 of $0.7 million mainly related to changes in cash flow estimates withrespect to lease exit costs in connection with properties that have beenvacated.  On April 7, 2004, VirginMedia announced the consolidation over an 18 month period of its 13 U.K.customer service call centers into three equipped to handle anticipatedexpansion of its customer base. Following an internal review, three specialist call centers wereretained and are supported by four sales and customer support sites, locatedthroughout the U.K.. As part of the consolidation, Virgin Media made additionalinvestments in technology and training in order to streamline processes andgenerate efficiencies.  This program wascompleted as of December 31, 2005 at a total cost to Virgin Media of £23.7million.

 

**6.       FIXED ASSETS**

 

Fixed assets consist of:

 

 

| ** **                                   | ** ** | **Estimated**    | ** ** | **Year ended December 31,** | ** **  |
|----------------------------------------------|------------|------------------|------------|----------------------------------|-------------|
| ** **                                   | ** ** | **useful lives** | ** ** | **2007**                         | ** **  | **2006** | ** ** |
| Cable network and other electrical equipment |       | 5-30 years       |       | $                                | 173,896,134 |   | $ | 200,906,290 |   |
| Building and other equipment                 |       | 5-30 years       |       | 8,414,232                        |        | 8,315,630 |   |
|                                         |       |             |       | 182,310,366                      |        | 209,221,920 |   |
| Accumulated depreciation                     |       |             |       | (120,792,881                     | )           | (143,142,354 | ) |
|                                         |       |             |       | $                                | 61,517,485  |   | $ | 66,079,566 |   |

 

 

During 2007, the changesin the asset retirement obligations related to customer premises equipment wereas follows (in millions): 

 

| Asset retirement obligation at the beginning of the  year |   | $        | 761,359 |   |
|-----------------------------------------------------------|--------|----------|---------|--------|
| Increase in  liability                                    |   | 145,036  |    |
| Liabilities  settled                                      |   | (103,305 | )       |
| Accretion  expense                                        |   | 50,071   |    |
| Revision in cash  flows                                   |   | (77,931  | )       |
| Foreign currency  translation                             |   | 9,571    |    |
| Asset retirement obligation at the end of the year        |   | $        | 784,801 |   |

 

 

 

F-13

----

 

 

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(ALimited Partnership)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**7.       FINANCING**

 

The Partnership and NTLSouth Herts have no indebtedness other than accounts payable to affiliates andrelated parties, all of which are part of the Virgin Media group. Accordinglythe Partnership and NTL South Herts are reliant upon the support of VirginMedia to continue their operations as a going concern.

 

**8.       INCOME TAXES**

 

Income taxes have notbeen recorded in the accompanying consolidated financial statements because netincome and losses of the Partnership accrue directly to the partners, and itsU.K. subsidiary, NTL South Herts, has net operating losses which offset taxableincome arising in the year. The Partnership’s tax returns, the qualification ofthe Partnership as such for tax purposes, and the amount of distributablePartnership income or loss are subject to examination by Federal and statetaxing authorities. If such examinations result in changes with respect to thePartnership’s qualification as such, or in changes with respect to thePartnership’s recorded income or loss, the tax liability of the general andlimited partners would likely be changed accordingly.

 

The tax basis in thePartnership’s assets and liabilities is $8 million higher than its book basisin its assets and liabilities at December 31, 2007 for financial reportingpurposes.

 

U.K. profits (comprisingincome and gains) of NTL South Herts will be subject to U.K. corporation tax.However, for U.K. corporation tax purposes, corporations are able to carryforward losses from operations to be offset against subsequent profits of thesame operations.

 

Deferred income taxesreflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and the amountsused for income tax purposes. Significant components of deferred taxliabilities and assets related to NTL South Herts are as follows:

 

| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Deferred tax liabilities:        |       |                  |       |   |   |
| Depreciation                     |       | $                     | —     |   | $ | — |   |
| Total deferred tax liabilities   |       | —                |       | — |   |
| Deferred tax assets:             |       |                  |       |   |   |
| Depreciation                     |       | 10,691,291            |       | 8,911,620 |   |
| Net operating  loss carryforward |       | 6,143,922             |       | 8,035,524 |   |
| Purchase  accounting liabilities |       | —                |       | 132,596 |   |
| Total deferred tax assets        |       | 16,835,213            |       | 17,079,740 |   |
| Valuation  allowance             |       | (16,835,213           | )          | (17,079,740 | ) |
| Net deferred tax assets          |       | —                |       | — |   |
| Net deferred tax liabilities     |       | $                     | —     |   | $ | — |   |

 

## At December 31, 2007, NTL South Herts had U.K. net operating losscarryforwards of approximately $21.9 million. The U.K. net operating losscarryforwards are available for utilization in future years and do not expire.Management has established a valuation allowance against the net operating losscarryforwards on the basis that it was not more likely than not that suchassets would be realized in the future.

 

Effective January 1, 2007, we adopted FASB InterpretationNo. 48, *Accounting for uncertainty in Income Taxes–anInterpretation of FASB Statement 109*, or FIN 48. FIN 48 prescribes acomprehensive model for recognizing, measuring, presenting and disclosing inthe financial statements tax positions taken or expected to be taken on a taxreturn, including a decision whether to file or not to file in a particularjurisdiction. The adoption did not result in a cumulative effect adjustment anddid not have a material effect on our consolidated financial statements. 

 

F-14

----

 

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

 
| SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD. |
|-----------------------------------------------|
|                                          | A Colorado limited partnership |   |
|                                          |   |   |
| By:                                           | NTL Fawnspring Limited, |   |
|                                          | its General Partner |   |
|                                          |   |   |
| By:                                           | /s/ ROBERT MACKENZIE |   |
|                                          | Robert Mackenzie |   |
|                                          | Director of Virgin Media Directors Limited |   |
|                                          | Corporate Director of NTL Fawnspring Limited, |   |
|                                          | the General Partner of South Hertfordshire |   |
|                                          | United Kingdom Fund, Ltd. |   |

 

Dated:  March 27,2008

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| **Name**             | ** ** | **Title**                                                                                                                                                         | ** ** | **Date**            |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|
| /s/ ROBERT MACKENZIE |       | Director of Virgin Media Directors Limited,  Corporate Director of NTL Fawnspring Limited, the General Partner of South  Hertfordshire United Kingdom Fund, Ltd.* |       | March 27, 2008 |
| Robert Mackenzie     |       |                                                                                                                                                              |       |
|                 |       |                                                                                                                                                              |       |
|                 |       |                                                                                                                                                              |       |                |
|                 |       |                                                                                                                                                              |       |                |
|                 |       |                                                                                                                                                              |       |                |
| /s/ ROBERT GALE      |       | Director of Virgin Media Directors Limited,  Corporate Director of NTL Fawnspring Limited, the General Partner of South  Hertfordshire United Kingdom Fund, Ltd.* |       | March 27, 2008 |
| Robert Gale          |       |                                                                                                                                                              |       |
|                 |       |                                                                                                                                                              |       |
|                 |       |                                                                                                                                                              |       |                |

----

*            The Partnership has no Chief Executive Officer orChief Financial Officer.  RobertMackenzie and Robert Gale are directors of Virgin Media Directors Limited,which is a Corporate Director of Fawnspring Limited, the General Partner of thePartnership.

 

----

 

**EXHIBIT INDEX**

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                                                 |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **No.**     | ** ** | ** **                                                                                                                                                                                                                                                                                                                 |
| 3.1         |       | Certificate of Limited Partnership dated  December 31, 1991 (Incorporated by reference to Exhibit 3.1 to the  Registrant’s Form 10-K for the year ended December 31, 1994, filed  with the Securities and Exchange Commission on March 31, 1995, File  No. 000-19889)                   |
|        |       |                                                                                                                                                                                                                                                                                                                       |
| 3.2         |       | Amendment to the Certificate of Limited Partnership  dated January 31, 1995 (Incorporated by reference to Exhibit 3.2 to  the Registrant’s Form 10-K for the year ended December 31, 1994,  filed with the Securities and Exchange Commission on March 31, 1995,  File No. 000-19889)   |
|        |       |                                                                                                                                                                                                                                                                                                                       |
| 4.1         |       | Limited Partnership Agreement dated December 31,  1991 (Incorporated by reference to the Registrant’s Post-Effective Amendment  No. 2 to Form S-1, filed with the Securities and Exchange  Commission on May 6, 1993, File No. 33-48400)                                                     |
|        |       |                                                                                                                                                                                                                                                                                                                       |
| 4.2         |       | Amendment No. 1 to Limited Partnership  Agreement dated October 20, 1992 (Incorporated by reference to  Exhibit 4.2 to the Registrant’s Form 10-K for the year ended  December 31, 1994, filed with the Securities and Exchange Commission on  March 31, 1995, File No. 000-19889) |
|        |       |                                                                                                                                                                                                                                                                                                                       |
| 21.1*       |       | List of Subsidiaries of South Hertfordshire United  Kingdom Fund, Ltd.                                                                                                                                                                                                                                                     |
|        |       |                                                                                                                                                                                                                                                                                                                       |
| 31.1*       |       | Certification of Chief Executive Officer, pursuant  to Rule 13(a)-14(a) and Rule 15d-14(a) of the Securities  Exchange Act of 1934, as amended, or Exchange Act                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                       |
| 31.2*       |       | Certification of Chief Financial Officer, pursuant  to Rule 13(a)-14(a) and Rule 15d-14(a) of the Exchange  Act                                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                       |
| 32.1*       |       | Certification of Chief Executive Officer and Chief  Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                            |

----

*                          Filed herewith.

 

----