**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

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

**Form 10-K**
| **(Mark One)** |       |                                                                                                                                                                                                                                              |
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| ** **     | ** ** | ** **                                                                                                                                                                                                                                        |
| **x**          | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                               |
|           |       |                                                                                                                                                                                                                                              |
|           | ** ** | **For the fiscal year ended December 31, 2006**                                                                                                                                                                                              |
| ** **     | ** ** | ** **                                                                                                                                                                                                                                        |
| ** **     |       | **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**

**SouthHertfordshire United Kingdom Fund, Ltd.**

(Exact name of registrant as specified in its charter)

| **Colorado**                     |   | **84-1145140**       |
|----------------------------------|--------|----------------------|
| (State or Other  Jurisdiction of |   | (I.R.S. Employer     |
| Incorporation or  Organization)  |   | Identification  No.) |

 

**Media House, Bartley WoodBusiness Park, Hook,Hampshire, RG27 9UP, England+44 1256 752000**

(Address and Telephone Number of PrincipalExecutive Offices)

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Securities registeredpursuant to Section 12(b) of the Act:

**None**

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Securities RegisteredPursuant to Section 12(g) of the 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 orSection 15(d) of the Act. Yes  o    No  x

Indicate by check mark whether the registrant:(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe 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, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):
|         Large accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|-----------------------------------------------------------------|--------|----------------------|--------|--------------------------|

 

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

The aggregate market value of the registrant’s limitedpartnership interests held by non-affiliates as of June 30, 2006, based ona price per limited partnership interest of $95.00, which was the weightedaverage price at which limited partnership interests were transferred duringthe second fiscal quarter, was $5,408,825.

As of March 21, 2007, there were 56,935 limitedpartnership interests of the Registrant outstanding. There is no establishedpublic market for the Registrant’s limited partnership interests.

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**DOCUMENTSINCORPORATED BY REFERENCE**

**None**

 

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

 

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**Historical Structure**

We are a Coloradolimited partnership that was formed in December 1991 pursuant to thepublic offering of our limited partnership interests for the purpose ofacquiring one or more cable television/telephone systems in the U.K. Upon acquisitionof our system, our primary investment objective was to obtain capitalappreciation in the value of our investment in the system over the term suchinvestment is held by us.

We hold 66.7% ofthe shares 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 Inc. (formerly knownas NTL Incorporated), or Virgin Media, indirectly holds the remaining 33.3% ofthe shares 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 GeneralPartner may, pursuant to our Partnership Agreement, provide consulting servicesto us or delegate the performance of such consulting services to Virgin Mediaor other affiliates. The General Partner purchased one of our partnershipinterests by contributing $1,000 to our capital.

On January 10, 2003, NTLIncorporated, or NTL, emerged from reorganization under Chapter 11 of the U.S.Bankruptcy Code. Pursuant to the plan of reorganization, which we refer to asthe Plan, NTL’s former parent, NTL Europe, and its subsidiaries and affiliateswere split into two separate groups, with NTL and NTL Europe each emerging asindependent public companies. NTL was renamed NTL Incorporated and became theholding company for the former NTL group’s principal U.K. and Ireland assets.NTL Europe became the holding company for the former NTL group’s continentalEuropean and various other assets. All of the outstanding securities of NTL’sformer parent and some of its subsidiaries, including NTL, were cancelled. NTLissued shares of its common stock and Series A warrants, and NTL Europeissued shares of its common stock and preferred stock, to various formercreditors and stockholders. As a result, NTL is no longer affiliated with NTLEurope. NTL Europe has since changed its name to PTV Inc., or PTV.

On March 3, 2006, NTL merged with a subsidiary ofTelewest Global, Inc., or Telewest, whichchanged its name to NTL Incorporated. NTL changed its name to NTLHoldings Inc.

Virgin Media entered into a license agreement withVirgin Enterprises Limited under which it is licensed to use certain Virgintrademarks within the United Kingdom and the Republic of Ireland.  As a result, in February 2007, Virgin Mediarebranded its consumer and a large part of its content businesses to “VirginMedia”. It also changed the name of its corporate parent from NTL Incorporatedto Virgin Media Inc. and NTL Group Limited to Virgin Media Limited.

In this annual report, unless the context otherwiserequires, the term “we”, “us”, “our” and similar terms refers to SouthHertfordshire United Kingdom Fund, Ltd. and its subsidiaries.

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

Various statements contained in this documentconstitute “forward-looking statements” as that term is defined under thePrivate Securities Litigation Reform Act of 1995. Words like “believe”, “anticipate”,“should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”,“strategy” and similar expressions identify these forward-lookingstatements, which involve known and unknown risks, uncertainties and otherfactors that may cause our actual results, performance or achievements orindustry results to be materially different from those contemplated, projected,forecasted, estimated or budgeted, whether expressed or implied, by theseforward-looking statements. These factors include those set forth underthe caption “Risk Factors” in this Form 10-K such as risks relating to:

·   ourreliance on the continued support of Virgin Media;

·   thelack of an established trading market for our partnership interests;

·   conflictsof interest between us and Virgin Media and its affiliates;

·   ourreliance on a limited franchise area;

·   therisks to Virgin Media’s business set forth below, which are risks that we shareas a result of our reliance on, and integration with, Virgin Media;

·   VirginMedia’s ability to compete with a range of other communications and contentproviders;

·   VirginMedia’s ability to control customer churn;

·   theeffect of technological changes on Virgin Media’s businesses;

·   VirginMedia’s continued ability to use the Virgin name and logo;

·   VirginMedia’s ability to maintain and upgrade its networks in a cost-effective andtimely manner;

·   possiblelosses in revenues due to systems failures;

·   VirginMedia’s ability to provide attractive programming at a reasonable cost;

·   VirginMedia’s reliance on single-source suppliers for some equipment, softwareand services and third party  distributorsof its mobile services;

·   the  functionality or market acceptance of newproducts that Virgin Media may introduce;

·   VirginMedia’s failure to obtain and retain expected synergies from the merger of legacyNTL and Telewest businesses and the acquisition of Virgin Mobile;

·   VirginMedia’s ability to achieve business plans for the combined company;

·   VirginMedia’s ability to fund debt service obligations through operating cash flow;

·   VirginMedia’s ability to obtain additional financing in the future and react tocompetitive and technological changes;

·   VirginMedia’s ability to comply with restrictive covenants in its indebtednessagreements; and

·   theextent to which Virgin Media’s future earnings will be sufficient to cover itsfixed charges.

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

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**Summary Corporate Structure**

The followingchart shows on a condensed basis the corporate structure of Virgin Media andits relationship to us as of December 31, 2006. The chart does not showVirgin Media’s operating or other intermediate companies.

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

**                                  NTL(South Hertfordshire) Limited is a subsidiary owned 66.7% by us and 33.3% byVirgin Media.

**ExchangeRates**

The following table sets forth, for the periodsindicated, the high, low, period average and period end noon buying rate in theCity of New York for cable transfers as certified for customs purposes by theFederal Reserve Bank of New York expressed as U.S. dollars per £1.00. The noonbuying rate of the pound sterling on March 21, 2007 was $1.9596 per £1.00.
| **Year Ended December 31,** | ** ** | **Period End** | ** ** | **Average(1)** | ** ** | **High**   | ** ** | **Low**    | ** ** |
|--------------------------------------------|------------|---------------------|------------|----------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | ** **          | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2003                                       |       | 1.78                |       | 1.64           |       | 1.78       |       | 1.55       |       |
| 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 (through March 21,  2007)             |       | 1.96                |       | 1.96           |       | 1.98       |       | 1.92       |       |

 

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(1)                  The average rateis the average of the noon buying rates on the last day of each month duringthe relevant period.

The above rates may differ from the actual rates usedin the preparation of the consolidated financial statements and other financialinformation appearing in this annual report on Form 10-K. Our inclusion ofthese exchange rates is not meant to suggest that the pound sterling amountsactually represent these U.S. dollar amounts or that these amounts could havebeen converted into U.S. dollars at any particular rate, if at all.

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Unless we otherwise indicate, all U.S. dollar amountsas of December 31, 2006 are translated to U.S. dollars at an exchange rateof $1.9586 to £1.00, and all amounts disclosed for the year endedDecember 31, 2006 are based on an average exchange rate of $1.8429 to£1.00. All amounts disclosed as of December 31, 2005 are based on anexchange rate of $1.7188 to £1.00, and all amounts disclosed for the year endedDecember 31, 2005 are based on an average exchange rate of $1.82 to £1.00.All amounts disclosed as of December 31, 2004 are based on an exchangerate of $1.9160 to £1.00, and all amounts disclosed for the year endedDecember 31, 2004 are based on an average exchange rate of $1.8326 to£1.00. U.S. dollar amounts for any individual quarter are determined bymultiplying the pound sterling financial result for the period fromJanuary 1 to the end of the current quarter by the average exchange ratefor the same period and subtracting from this total the U.S. dollar convertedfinancial result for the period from January 1 to the end of the previousquarter of that fiscal year as computed above. The variation among the exchangerates for 2006, 2005 and 2004 has impacted the dollar comparisonssignificantly.

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**PART I**

**Item 1. Business**

**About South Hertfordshire U.K. Fund, Ltd**

We are a Coloradolimited partnership that was formed in December 1991 pursuant to thepublic offering of our limited partnership interests for the purpose ofacquiring one or more cable television/telephone systems in the United Kingdom,or U.K. Upon acquisition of our system, our primary investment objective was toobtain capital appreciation in the value of our investment in the system overthe term such investment is held by us.

We hold 66.7% ofthe shares 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 asVirgin Media, file annual, quarterly, and current reports with the SEC. You mayread and copy any materials we or Virgin Media file with the SEC at the SEC’sPublic Reference Room at 100 F Street, N.E., Washington D.C. 20549. Youmay obtain 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**

***FranchiseArea***

The SouthHertfordshire franchise area comprises the three administrative areas of ThreeRivers, Watford and Hertsmere. The franchise area covers commuter suburbs ofLondon, and many people who reside in the franchise area use the available fastrail and motorway services to travel to work in central London. SouthHertfordshire has benefited from the completion in 1986 of the M25 LondonMotorway, which makes commuting from the franchise area to other areas in ornear London more convenient. An M1 motorway link exists to give London-boundcommuters direct access from Watford to the London highway system. The M1 linkis half a mile from our headend. There are approximately 97,000 homes in thefranchise area, all of which are passed by our cable television/telephonenetwork. Construction in the franchise area is complete.

***Operations***

Construction of acable television-only network in the South Hertfordshire franchise areacommenced in early 1991 and, integrated cable television/telephone networkarchitecture was developed for this franchise in late 1991. Cable televisionservices commenced in April 1992 and telephone services commenced inFebruary 1993, following completion of the installation of a telephoneswitch. In January 2000, we commenced the rollout of digital cabletelevision services within the South Herts franchise and in 2001 we commencedbroadband internet access services. As of December 31, 2006, NTL SouthHerts serviced 22,971 digital cable customers, 30,715 residential telephonecustomers and 22,642 broadband customers, representing a total of 36,863customers with a penetration level of 38.0%.

Management controlis exercised 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 Mediareaps the benefits of synergy and maximizes returns. VML performs a variety ofmanagement functions and procures services on our behalf. Pursuant to anagreement with VML, we have the legal right to offset amounts receivable fromVML against amounts payable to VML. Consequently, the net balance payable toVirgin Media is disclosed under accounts payable to affiliates and related partiesin the accompanying financial statements.

Our operations arefully integrated into the operations of Virgin Media. Accordingly, thefollowing business description describes Virgin Media’s operations of which wecomprise a part.

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**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, United Kingdom. Its website is *www.virginmedia.com*andthe investor relations section of its website can be accessed under the heading“About Virgin Media–Investors Information” where it makes available free ofcharge annual reports on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, and anyamendments thereto, as soon as reasonably practicable after they are filedwith, or furnished to, the SEC. The information on its website is notincorporated by reference into this annual report.

Virgin Media is a leadingU.K. entertainment and communications business providing the first “quad-play”offering of television, broadband, fixed line telephone and mobile telephoneservices in the United Kingdom. It is one of the U.K.’s most popularresidential broadband and pay-as-you-go mobile provider and the second largestprovider in the U.K. of pay television and fixed line telephone services.

Virgin Media Television,or Virgin Media TV, and ntl:Telewest Business also operate under the VirginMedia umbrella. Virgin Media TV provides a broad range of programming throughits eleven wholly-owned channels, such as LivingTV and Bravo; through UKTV, itsjoint ventures with BBC Worldwide; and through the portfolio of retailtelevision channels operated by sit-up tv. ntl:Telewest Business provides acomplete portfolio of voice, data and internet solutions to leading businesses,public sector organizations and service providers in the U.K.

Virgin Mediapresently manages its business through three reportable segments:

·                  **Cable (83.5% of Virgin Media’s 2006 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 (8.1% of Virgin Media’s 2006 revenue)**: its mobilesegment includes the provision of mobile telephone services under the nameVirgin Mobile to consumers over cellular networks owned by T-Mobile; and

·                  **Content (8.4% of Virgin Media’s 2006 revenue)**: its contentsegment includes the operations of its U.K. television channels, such asLivingTV and Bravo, and sit-up’s portfolio of retail television channels.Although not included in its content segment revenue, its content team alsooversees the UKTV group, through its joint ventures with BBC Worldwide.

NTL South Hertsoperates entirely within Virgin Media’s Cable segment.  As such, further discussion within thisdocument is limited to its Cable segment only.

On February 6, 2007,the company changed its name from NTL Incorporated to Virgin Media Inc. as partof its exciting rebrand to Virgin Media. Virgin is one of the most recognizedconsumer brands in the world and**gives thecompany a prominent profile in a crowded communications marketplace. The strongheritage and reputation of the Virgin brand and its distinctive approach toadvertising, packaging and marketing will differentiate Virgin Media from its competitors.

VirginMedia operates in an increasingly diverse and challenging entertainmentand communications marketplace. To meet this challenge, Virgin Media tookseveral transformative steps in 2006, including:

·  CombiningNTL’s cable business with the cable business of Telewest by acquiring Telewestin a reverse acquisition in March of 2006:

–       themerger combined the two largest U.K. cable operators, with the resultingcompany becoming the U.K.’s largest provider of residential broadband andtriple-play services of television, broadband and fixed line telephone;

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–       thetotal acquisition price was £3.5 billion, including £2.3 billion in cash,common stock valued at £1.1 billion and stock options and transaction costs;and

–       thetransaction was structured as a reverse acquisition whereby TelewestGlobal, Inc. acquired NTL Incorporated, and then subsequently changed itsname to NTL Incorporated (and in 2007, NTL Incorporated changed its name toVirgin Media Inc.);

·  Addinga mobile phone offering to its services by acquiring Virgin Mobile Holdings(UK) plc, or Virgin Mobile, in July of 2006:

–       VirginMobile is the U.K.’s leading mobile virtual network operator with approximately4.5 million mobile phone customers;

–       thetransaction permitted “quad-play” bundling, adding mobile phone to VirginMedia’s triple-play bundling of television, broadband and fixed line telephoneservices;

–       VirginMobile has award winning customer service; and

–       thetotal purchase price was £952.2 million, including common stock valued at£518.8 million, cash of £418.2 million and transaction costs.

·  Licensingthe name “Virgin Media” from Virgin Enterprises Limited pursuant to a trademarklicense agreement, subject to a royalty, which:

–       allowedthe 2007 rebranding of the corporate parent to Virgin Media Inc. and arebranding of its consumer and a large part of its content businesses;

–       permitsnational branding with an exciting new logo, and facilitates nationaladvertising campaigns; and

–       reinvigoratesVirgin Media’s  company culture.

***Cable Segment***

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

*Consumer*

Virgin Media providestelevision, internet (broadband and dial-up) and fixed line telephone servicesunder the Virgin Media brand to residential customers in the U.K. Its servicesare distributed principally via its wholly-owned, cabled local accesscommunications network and are available to an addressable market ofapproximately 12.5 million homes. Virgin Media’s network covers parts of manymajor metropolitan areas in England, Wales, Scotland and Northern Ireland. Inaddition, Virgin Media provides broadband and telephone services to residentialcustomers outside of its network via access to other telecommunicationsnetworks, which it refers to as “off-net”.

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*Multi-Service Bundles*

Virgin Media was thefirst 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. As ofDecember 31, 2006, more than 75% of its residential on-net customersreceived multiple services and approximately 41% of its on-net customers were “triple-play’’.

With Virgin Media’sacquisition of Virgin Mobile in July 2006, Virgin Media is now able tooffer the U.K.’s first “quad-play” of television, broadband, fixed linetelephone and mobile telephone services to residential customers. Virgin Mediahas already introduced its first “quad-play” bundles into the market, andexpects to drive both mobile and cable penetration through the two customerbases by applying its past experience of cross selling products.

As part of its rebrand,Virgin Media renamed its product offerings and bundles so they are easy tounderstand. For each of its products, Virgin Media has a range of packages andtariffs for customers to choose from and have labeled them as Medium (M), Large(L) and Extra Large (XL). For example, Virgin Media currently offers a 2Mbbroadband service as Medium, a 4Mb service as Large and a 10Mb service as ExtraLarge.

*Cable Television*

Virgin Media offers awide range of digital, or DTV, and analog, or ATV, television services. As ofDecember 31, 2006, it provided cable television services to approximately3.3 million residential customers, of which approximately 3.0 million receivedits DTV service and approximately 0.3 million received its ATV service.

Virgin Media’s DTVservice includes access to over 130 channels, advanced interactive features,and a range of premium and pay-per-view services. Its ATV service packagesoffer up to 60 channels, including premium services. In addition to offeringthe basic and premium pay TV channels, Virgin Media’s also offers one of themost comprehensive Video on Demand, or VoD, services in the U.K. to its DTVcustomers called Virgin Media “On Demand”. Virgin Media’s VoD service includesa large range of premium movies, music videos and TV programs and series ondemand. Sport and special pay-per-view events are also provided via its liveevent service. See “Video on Demand” below.

Virgin Media’s networktechnology enables it to deliver a significant range of digital interactiveservices over an ‘always on’ broadband connection from a customer’s home to thenetwork. Examples of interactive services provided include games, televisionemail and access to news, entertainment and information services from anon-screen menu. Interactive services also include enhanced televisionfunctionality utilizing the “red button” applications from the BBC and othercommercial broadcasters. “Red button” functionality in the U.K. permitstelevision viewers to press a red button on their remote control handset toreceive additional interactive services including multiple broadcasts. Forexample, in a Wimbledon or U.S. Open tennis broadcast, a customer can press thered button and choose which match to watch.

*Video on Demand*

In 2006, Virgin Mediacompleted the roll out of its unique cable-only Video on Demand, or VoD,service to its DTV serviced areas. As of December 31, 2006, over 3.0million existing Virgin Media customers were able to receive the VoD service.

Virgin Media “On Demand”is a significant enhancement to the existing DTV service, offering viewers’choice over and above scheduled programming without any requirement for newequipment, installation or additional subscription. It appears within theexisting electronic programming guide, and can be accessed and viewed at anytime via the remote control. The service offers DVD-style features includingfreeze frame, fast-forward and rewind. These features provide a customer withfull control over the content and timing of their television viewing.

There are three primarytypes of content available within Virgin Media On Demand, a portion of which isrefreshed on a daily basis. A selection of content is available to watch forfree to all DTV customers irrespective of package size. This is primarilyfocused within a ‘catch-up’ TV service which offers a selection of more than 70hours of top broadcast TV shows from the previous seven days for no additionalcharge. Additionally, all DTV customers have access to pay-per-transactioncontent including over 1,000 pay per track music videos and 600 current andlibrary movies provided by ‘FilmFlex’. New movies within this library areavailable on VoD up to nine months before they appear on scheduled TV moviechannels. Pay-per-transaction programs are available for 24 hours afterpurchase and can be watched as many times as a customer wishes during thatperiod for only one single charge. Finally, DTV customers that subscribe to VirginMedia’s Size XL Virgin TV package have additional access to a subscription VoD,or SVoD, package which includes premium TV shows and music videos, all includedwithin the price of their monthly subscription.

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VirginMedia has recently launched an innovative new kind of television channelcalled “Virgin Central”, which combines the simplicity of a traditional channelwith the choice and control of next generation TV-on-demand technology. Bypressing one button and using a simple on-screen guide, viewers have instantaccess to different episodes of the show they select. They can then stop,rewind and pause - just like using a DVD player. Virgin Central includes freeaccess to hit shows like The OC, Nip/Tuck, Little Britain, Criminal Minds, Grey’sAnatomy, Spooks and West Wing. The content is updated regularly and, unlike atraditional TV channel, subscribers do not need to wait for scheduled starttimes.

*Digital Video Recorders and High Definition Television*

Virgin Media also offersone of the most advanced fully-supported digital video recorders, or DVRs, fora premium monthly rental option. The Virgin Media DVR box, which is called the “V+Box”,  is available to Virgin Media’sentire DTV customer base. The V+ Box has 160 Gigabytes of storage space (up to80 hours of broadcast TV), is high definition, or HD, enabled and has threetuners, allowing viewers to record two programs while watching a third. V+ Boxcustomers that also have an HD compatible television can access our HD ondemand content. Digital video recorders are also known as personal videorecorders, or PVRs, in the United Kingdom.

*Broadband Internet*

Virgin Media delivershigh-speed broadband and dial-up internet access to customers within reach ofits access network by direct connection to the network under the brand name “VirginBroadband”. Virgin Media offers broadband services at a selection of downloadspeeds: 2Mb for Size M customers, 4Mb for Size L customers and 10Mb for Size XLcustomers, which it expects to increase to 20Mb in June 2007. All servicesoffer unlimited usage and PC security software. Premium broadband services(which are free for Size L and XL customers) include advanced security featuressuch as anti-spyware and premium broadband content. Leveraging the technicalcapability of its network, Virgin Media is also in the process of trialing a50Mb broadband service, which will more than double the fastest speed availablefrom its DSL competitors. As of December 31, 2006, Virgin Media providedbroadband service to approximately 3.1 million customers on its cable networkincluding 22,642 customers in the South Hertfordshire franchise area.

In February 2007,Virgin Media won the Best Consumer ISP award at the Internet Service ProviderAssociation Awards (ISPAs) for providing the most outstanding services forconsumers.

*Fixed Line Telephone*

Virgin Media provideslocal, national and international telephone services to its residentialcustomers who are within reach of its access network by direct connection toits network under the brand name “Virgin Phone”. Virgin Media enhances itsbasic telephone service by offering additional services, such as call waiting,call barring (which prevents unauthorized outgoing calls), call diversion (callforwarding), three-way calling, advanced voicemail, caller line identificationand fully itemized monthly billing. Virgin Media also provides national andinternational directory enquiry services.

In addition to a coreline rental fee, Virgin Media offers Size M, L and XL variants of Virgin Phoneas alternatives to straight usage-based billing. These packages include “TalkPlans” that enable customers to make unlimited local and national calls for afixed monthly fee in addition to the standard line rental. As ofDecember 31, 2006, Virgin Media provided telephone services toapproximately 4.1 million residential customers, including 30,715 customers inthe South Hertfordshire franchise area.

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*Sales and Marketing*

Virgin Media uses avariety of sales channels to sell its services to residential customers,including telesales, online and retail channels. Telesales has been and willcontinue to be the single largest channel for Consumer product sales. VirginMedia expects, however, growth in the proportion of sales coming from onlineand retail channels.

Prior to the acquisitionof Virgin Mobile, Virgin Media’s Consumer business retail reach was limited toconcessions and third party retail channels. In 2007, Virgin Media intends to leverageVirgin Mobile’s retail experience to launch a series of Virgin Media-brandedstores. Virgin Mobile concessions within over 100 Virgin Megastores in the U.K.will also be rebranded Virgin Media and will offer a retail point of sale forVirgin TV, Virgin Broadband and Virgin Phone services alongside Virgin Mobile.

These sales channels aresupported by direct marketing initiatives and national and regional televisionand press advertising. Virgin Media uses its residential customer database toidentify the profiles of its customers so that it can design offers to matchthe needs of its customers. As Virgin Media, it will increase the proportion ofits marketing budget spent on marketing as it has the scale and reach as acombined company to justify larger television and radio campaigns. Virgin Mediaoffers will encourage customers to purchase new services and upgrade theirexisting services.

*Customer Service*

Virgin Media handlesapproximately 38 million customer service calls per year, and it services thosecalls through a combination of in-house call centers and outsource partners.Its in-house call centers are located in the U.K. in Bellshill (Scotland),Manchester, Sheffield and Dudley (England), where it employs approximately2,300 call center staff.  The callcenters have been “virtualized” to allow incoming calls to be routed to any ofthe four locations, allowing it to optimize call management.

Virgin Media outsourcecall center partners are paid on a pence per minute basis, and are tieddirectly to agreed service level targets being achieved. Through its outsourcepartners, it has four more call centers which are also virtualized to optimizecall management. Two centers are located in the U.K. in Liverpool and Swansea,and two are located in India, in Delhi and Pune.

*Business*

ntl:Telewest Businessfocuses on delivering the communications requirements of U.K. public andprivate sector organizations, as well as those of other service providers. Withthe extended network reach enabled by the merger of NTL and Telewest, a wideportfolio of voice and data products can now be delivered across the U.K.

Whilethe Consumer division has rebranded as Virgin Media, ntl:Telewest Business willcontinue to use the ntl:Telewest Business brand. Over the past 15 years, it hasbuilt significant brand equity through its strong relationships andsector-specific expertise.

*Sales Channels*

ntl:Telewest Businesssales channels are organized to address three distinct markets - businessmarkets, the public sector and service providers (formerly referred to aswholesale).

·  *Business Markets:  *This sales channelfocuses on the requirements of the U.K. private sector, from small businessesto large, national corporations.While growth has been predominantly delivered by managed services and wide areanetworks, significant revenues are still derived from traditional voicesolutions. The business markets sales channel is segmented by size, with smalland medium businesses supported by centrally located teams and largerorganizations having regionally located account and service managers.ntl:Telewest Business proximity to businesses is a key differentiator in theU.K. market and the benefits of this strategy are reflected in the long-termrelationships held with many of its customers.

·  *Public Sector:  *This sales channel isdivided into vertical segments, including local and central government,education, health and emergency services. This meets the requirement for sector-specificexpertise where an understanding of the drivers and procurement processes ofpublicly funded organizations is needed to enable the efficient deployment of communications solutions.ntl:Telewest Business deep network coverage benefits regionally-oriented publicsector organizations, such as health authorities, who require the deployment ofmanaged voice and data solutions within a local or metropolitan area.

·  *Service Provider:  * This saleschannel is also divided into vertical segments, including fixed and mobilenetwork operators and ISPs, to reflect the differentnetwork requirements of service providers. This channel provides predominantlydata connectivity to other network operators. Strong market demand by localloop unbundlers and the

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deployment of 3Gmobile networks has enabled the service provider sales channel to leverage its extensivenetwork asset to deliver strong underlying growth. In addition to these networkservices, a small number of significant contracts drive financial performance,with revenue peaks occurring during construction phases and lower ongoingrentals, reflecting the maintenance of this infrastructure.

*Productsand Services*

ntl:TelewestBusiness offers a wide portfolio of voice and data services, from analogtelephony to managed data networks and applications.Its product strategy is focused on delivering managed solutions, such asinbound call management and internet protocol virtual private networks, or IPVPN, which experienced strong growth in 2006.

·  *Outbound and Inbound Voice:  *ntl:Telewest Business offers a complete suite of voice products ranging fromanalog and digital services to converged IP telephony solutions. Strongregional presence and expertise has driven market share in products such asCentrex, where local government and private sector organizations benefit from amanaged platform that delivers a uniform suite of features across multiplesites. Developments like IP Multimedia, which offers functionality such asdesktop-to-desktop video conferencing, represent the next generation of voiceservices in a converging IP world.

·  *Converged Solutions:*   By using asingle network to transport voice, data and video, organizations can benefitfrom cost synergies, flexibility and control. ntl:Telewest Business convergedsolutions portfolio enables this with products such as IP VPN. Virgin Media’s networkownership allows the integration of various access technologies, including DSL,synchronous digital hierarchy, or SDH, and Ethernet, while multi protocol labelswitching, or MPLS, ensures the priority of services during transmission.

·  *Ethernet:*    ntl:Telewest Business isrecognized as a U.K. market leader in Ethernet solutions and was the firstEuropean service provider to be accredited by the Metro Ethernet Forum (MEF),for ‘carrier’ service standards. This required the demonstration of rapidservice creation, scalability and, based on inherent resilience in theplatform, robust service level agreements. A range of products from local areanetwork extensions to managed wide area Ethernet networks are available,providing high-bandwidth and flexible solutions.

·  *Applications and*Services*:*   Asan overlay to network products, ntl:Telewest Business also offers applicationsand services, which drive additional value from customer’s communicationsinfrastructure. Examples such as IP CCTV roll-out in the public sector alsodeliver socioeconomic benefits within communities.

*Customer Service*

The goal ofntl:Telewest Business is to become the natural choice provider within its coremarkets by delivering the best customer experience.This is reflected in the organizational structure, where 75% of employees arededicated to the provision of in-life support of customers and theircommunications services. In 2006, the Communications Managers Association(CMA), recognized ntl:Telewest Business in this area, reporting that, amongstits members, the division led the market in providing a high-quality customerexperience.

**Virgin Media’sNetwork**

Virgin Media’sbusiness is underpinned by significant investment in its cable networkinfrastructure. This consists of a national core backbone network and a highcapacity two-way local broadband network in the U.K. The entire cable networkwas designed for large scale, high-speed telecommunications traffic from itsinception. Virgin Media’s core network infrastructure transports its voice,internet, data and digital television platforms, whilst its access networksdeliver these services directly to its customers.

Virgin Media’sbroadband communications network in the U.K. currently passes approximately12.5 million homes in its regional franchise areas. Its cables also pass asignificant number of businesses in these areas. Its service areas includeparts of many of the major metropolitan 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 and Teesside. Our service area is theSouth Hertfordshire Franchise area.

Virgin Media’s corenetwork has a fiber backbone that is approximately 23,000 kilometers long. Thisincludes over 15,500 kilometers which are owned and operated by Virgin Media andapproximately 7,500 kilometers which are leased fiber from other networkowners. Over 157 switches direct telephone traffic around the core and localnetworks. In addition, Virgin Media has more than 600 hub sites, points ofpresence, repeater nodes or other types of network sites, and facilities atover 150 radio sites.

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Virgin Media’s localaccess networks deliver internet, fixed line telephone and digital and analogtelevision services to its customers’ homes and businesses. Virgin Media’s accessnetwork is comprised of two networks together. First, to provide televisionservices and high-speed broadband internet access, its local fiber network isconnected to a customer’s premises via high capacity, two-way, coaxial cables.Virgin Media is currently conducting a residential trial of a 50Mb broadbandservice on this network. Second, Virgin Media uses Time Division Multiplex(TDM) technology over the fiber network to provide fixed line telephoneservices. This is then connected to a customer’s premises via a relativelyshort length twisted copper-pair. Additionally, the copper-pair cables arecapable of hosting DSL services. Shorter lengths of copper (usually less than500 meters) provide a structural advantage over traditional all copper localdistribution networks (which are typically up to 5,000 meters) in deliveringvery high-speed data services (for example 20Mbps ADSL2+ services).

Because of the extensiveuse of fiber in its access networks, Virgin Media is also able to provide highspeed ethernet services directly to business customers and provide nationwidearea networking to these customers via its core networks.

Virgin Media has avariety 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. It:

·  obtainpermits to construct telecommunications networks and build-out its network toreach its customers. Although this is often the most costly means of reaching acustomer, the expense can be justified in the case of larger customers, orwhere a significant level of traffic is obtained from a customer; and

·  leasecircuits and DSL connections on the local networks of other service providersto connect to its customers’ premises. Although this may reduce the operatingmargin on a particular account, it requires significantly less capitalexpenditure than a direct connection and can often be put into place relativelyquickly, and can be replaced with a direct connection at a later date iftraffic volumes justify doing so.

Nationally, approximately94% of the homes passed by Virgin Media cable network can receive all of itsbroadband, digital television and fixed line telephone services. Virgin Mediacannot however currently provide all three of the main services on some olderparts of the network. In 2006, Virgin Media continued a cable network upgradeprogram targeting more than half a million homes in the London area, wherethere was an older, less robust cable network. Approximately 239,000 of theLondon homes were upgraded during 2006, compared to 230,000 in 2005. Thesehomes can now be offered broadband, interactive digital television and fixedline telephone services. Approximately 80,000 further homes will also be ableto receive these services when the upgrade program completes in the middle of2007.

***Information Technology***

Virgin Media outsourceand internally manage the operation and support of its information technologysystems. These systems include billing, enterprise resource planning, businessintelligence, corporate network, payroll, data center and desktopinfrastructure. Although Virgin Media outsources a portion of its informationtechnology systems to various suppliers, it retains control of the informationtechnology activities that are fundamental to its competitive advantage and keyto the development of its intellectual property.

Virgin Media is in theprocess of integrating its key information technology systems and are focusedon improving the operational efficiency of its systems. The first legacybilling system migration of 1.6 million customers, which included the principalsystem used in respect of the South Hertfordshire franchise area, was completedsuccessfully in December 2006. Work will progress to bring mergerintegration activities to completion through the course of 2007, with keymilestones being the second and third legacy billing system conversionspresently scheduled for the second half of 2007, the completion of theenterprise resource planning integration across all finance and human resourcefunctions in April 2007 and the final stage of the corporate networkintegration in March 2007.

**Competition**

*Consumer*

Virgin Media offers awide range of integrated communications services, including high-speedbroadband internet, fixed line and mobile telephone and television services.Virgin Media offers most of its products on a stand alone basis or as part ofbundled packages designed to encourage customers to subscribe to multipleservices. Virgin Media offers internet and telephone services nationally andcurrently offers television services in its service areas only. Competition ineach of these services individually is significant and some of the otherservice providers have substantially greater resources than Virgin Media.

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In2006, competition in all of Virgin Media Consumer product areas increased substantially,primarily as Virgin Media competitors looked to expand their own productofferings into bundled propositions. Key developments amongst Virgin Media’s primarycompetitors included:

·  *BT Group plc.  *BT Retail launched its BT Fusion and BTVision products in 2006, adding mobile and television bundles. BT Fusion offersa dual-mode mobile/WiFi handset that allows a user to make Voice over InternetProtocol, or VoIP-based calls via WiFi in the home on a handset which can alsomake traditional mobile calls outside the home. BT Vision offers a Freeviewplus an IP-based pay television service, although the service has limitedcontent.

·  *British Sky Broadcasting Group plc*.   BSkyB, a long-timecompetitor in the pay television market, launched a broadband and fixed linetelephone service in 2006, with television and broadband bundles. In late 2005,BSkyB acquired Easynet, an internet service provider.

·  *Carphone Warehouse Group plc*.   Carphone Warehouseresells mobile phone services (including Virgin Mobile) via its own retaildistribution channels and offers fixed line telephone and broadband servicesunder its TalkTalk brand. In 2006, Carphone Warehouse acquired the AOL UK ISPbusiness, which is being merged with its existing TalkTalk business.

·  *Tiscali S.p.A.  *Tiscali offers fixed line telephone andbroadband services and, in 2006, Tiscali acquired Video Networks Limited(HomeChoice), which provides IP-based television, fixed line telephone andbroadband in the London area.

·  *Orange.  *Orange offers a triple play of mobile phone,fixed line phone and broadband services. The fixed line telephone and broadbandservices were previously marketed under the brand name Wanadoo, which wasrebranded to Orange in 2006.

·  *Pipex Communications*plc.   Pipex acquired severalsmaller retail broadband and telephone ISPs in 2006, including Bulldog fromCable & Wireless, Toucan and Homecall.

·  *Vodafone and O2*.   Both announced plans to launch theirown fixed line broadband and phone services in 2007. In 2006, O2 purchased Be,a broadband provider in the U.K.

*Cable Television*

Virgin Mediacompetes primarily with BSkyB in providing pay DTV to residential customers inthe U.K. BSkyB is the only U.K. pay-satellite television platform in the U.K.and has high market share of the U.K. pay television market. BSkyB owns theU.K. rights to various sports and movie programming content which it has usedto create some of the most popular premium pay TV channels in the U.K. BSkyB istherefore both a principal competitor to Virgin Media in the pay televisionmarket, and an important supplier of television content to Virgin Media**.**The Office of Fair Trading, a U.K. regulatory agency whichwe refer to 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 law 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 sports channels. These terms can be changed on 30days’ notice. Additionally, BSkyB has refused to supply Virgin Media certainenhancements to these services, such as High Definition TV content and “redbutton” functionality. Virgin Media’s agreement with BSkyB to purchase BSkyB’sbasic channels expired on February 28, 2007. As of the date of this annualreport, no new agreement has been reached between the parties.

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 feefor basic Freeview service but must acquire a Freeview enabled set-top box or atelevision with a digital tuner. Presently, Freeview does not offer several ofthe most popular pay television channels, such as UKTV Gold, LivingTV and MTV.BSkyB has also announced its intention to remove its channels (Sky News, SkySports News and Sky Three) from Freeview and substitute pay channels.

Top Up TV offers apay television service offering approximately nineteen pay television channelsfor a fixed fee to subscribers who otherwise receive Freeview and havepurchased Top Up TV software.

Currently alimited number of residential customers can receive DTV over BT’s ADSL lines.Video Networks Limited (bought by Tiscali in 2006), under the brand nameHomeChoice, supplies this service, including video on demand, to customers inparts of the London metropolitan area, and Kingston Interactive Televisionsupplies this service to customers in one region in England.

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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 and third generation, or 3G, mobiletelephony. Most notably, BT has recently launched BT Vision, a combined DTTtelevision service and a video on demand service over a DSL broadbandconnection. BSkyB has also launched a video on demand service over a DSLbroadband connection, and bundles that service with its other offerings. Someother new competitors are using DSL technology to offer comparable bundling.

Pay television andpay-per-view services offered by Virgin Media compete to varying degrees withother communications and entertainment media, including home video, video gamesand DVDs.

Telecommunicationsis a constantly evolving industry and we expect that there will continue to bemany advances in communications technology and in content. These advances,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, which can be a substitute for traditionaltelevision viewing. Content owners, online aggregators, television channelowners, etc. are increasingly using broadband as a new digital distributionchannel direct to consumers (primarily via downloading). Current businessmodels tend to be on a pay-per-transaction basis. This does represent apotential disintermediation threat to pay television platforms, though theactual demand and willingness to pay for broadband distributed content isunlikely to represent sufficient revenues and benefit to content owners todisplace pay television as a preferred distribution channel for the nearfuture.

*Broadband Internet*

Virgin Mediaprovides broadband and dial-up internet services to customers within reach ofits access network, by direct connection to Virgin Media’s network. VirginMedia also provides broadband and dial-up internet services to customers notwithin reach of its access network by providing a connection to its network viaBT’s local access network. Virgin Media’s internet services compete with BT,which provides broadband and dial-up internet access services over its ownnetwork both 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. CarphoneWarehouse (TalkTalk), Orange, Tiscali and BSkyB are all deploying LLU to somedegree.

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 and broadbandpower line (which utilizes existing electricity networks to deliver high-speedbroadband internet services) may subject Virgin Media to increased competitionover time in the provision of broadband services.

*Fixed Line Telephone*

Virgin Mediaprovides fixed line telephone services to customers who are within reach of itsnetwork by direct connection to its network and, like its internet services, tocustomers off its network via BT’s local access network. Virgin Media competesprimarily with BT in providing telephone services to residential customers inthe U.K. BT occupies an established market position. Virgin Media also competeswith other telecommunications companies that provide indirect access telephoneservices, including Carphone Warehouse under the brand name TalkTalk, Pipex,Tesco and BSkyB.

Virgin Media alsocompetes with mobile telephone networks that may threaten the competitiveposition of its fixed line networks by providing a substitute to fixed linetelephone services. Mobile telephone services also contribute to the downwardprice pressure in fixed line telephone services. Through Virgin Media’sacquisition of Virgin Mobile in July 2006, Virgin Media now providesmobile telephony services to approximately 4.5 million customers but we do notprovide mobile telephony services.

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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 calls “onnet,” i.e. between users of the same service, but charge for calls made tonormal phone numbers either on a flat monthly rate for unlimited calls(typically restricted to geographic calls) or on a pence per minute rate.

*Business*

The U.K. businesstelecommunications market is very competitive and comprised of traditionalnetwork operators such as BT, virtual network operators such as Vanco plc, orVanco, and systems integrators such as Affiniti, a trading name of KingstonCommunications (Hull) Plc. While BT represents the main competitive threatnationally due to its network reach and product portfolio, other providerscompete within product and geographic segments. Thus plc, Affiniti and COLTTelecom Group plc, for example, have network advantages within certain regions,while Vanco benefits from the flexibility of being a virtual network operatorin particular product markets.

Within retail markets,traditional competitors are in a phase of consolidation and, as a result of theadditional scale this affords, organizations such as Cable & Wirelessplc, or C&W, and Thus plc have begun to target larger multi-nationalcorporations. Virgin Media continues to focus on small, medium and largenationally-oriented businesses where leveraging the network asset can providean economic advantage. In the future, further competition from mobile operatorsis expected, as they explore strategies to enter the fixed line market withconvergence propositions.

In the service providermarket, BT and C&W continue to offer strong competition with network reachin the former and aggressive pricing on key city-to-city routes in the latter.

Competition in the U.K.market continues to be based on value for money, the key components of whichare quality, reliability and price. Customers, particularly largerorganizations and integrators who utilize the network to enable applicationsand solutions, accept higher price points in exchange for consistent deliveryand performance against service level agreements.

**GovernmentRegulation**

***Regulation in the European Union (EU)***

The European Parliamentand Commission regulate Virgin Media’s principal business activities throughDirectives and various other regulatory instruments.

In particular, inFebruary 2002, the European Commission adopted a package of new Directiveswhich, together, set out a new framework for the regulation of electroniccommunications networks and services throughout the EU. This new frameworkconsisted of four Directives, namely:

·  Directive2002/21 on a common regulatory framework for electronic communications networksand services (the Framework Directive);

·  Directive2002/20 on the authorization of electronic communications networks and services(the Authorization Directive);

·  Directive2002/19 on access to and interconnection of electronic communications networksand associated facilities (the Access and Interconnection Directive); and

·  Directive2002/22 on universal service and users rights relating to electroniccommunications networks and services (the Universal Service Directive).

This package ofDirectives was supplemented, subsequently, by the Communications and PrivacyDirective which dealt, among other things, with data protection issues inrelation to the provision of electronic communications services.

The U.K. Governmentincorporated these Directives into its national laws under the CommunicationsAct 2003, which came into effect on July 25, 2003, and the CommunicationsPrivacy Regulations, which came into effect on December 11, 2003.

During 2006, the EuropeanCommission commenced a review of these Directives (the Regulatory FrameworkReview) to assess their continuing suitability and efficacy and whether anyamendments are necessary. This review will continue in 2007, with any new oramended legislative proposals being tabled in draft form during the first halfof 2007.

In addition, the EuropeanParliament and Commission are currently carrying out a review of the TelevisionWithout Frontiers Directive, now renamed the Audio Visual Media Services (AVMS)Directive. This Directive, which was originally adopted in 1989, has been acornerstone of EU audiovisual media policy. It requires the Member States ofthe EU, among other

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things, to set certainminimum standards for broadcasting and controls on the amount and content ofadvertising. The Directive also requires Member States to take active measuresto ensure that broadcasters under their jurisdiction support the European filmand TV production industry. This requirement is achieved, in large part,through the imposition of a European content quota under which broadcastersmust reserve a majority of their transmission time for European works.

In December 2005,the European Commission published proposed amendments to the Directive whichare designed to update the Directive in the light of technological and marketdevelopments. The main proposal is that on-demand services, which the EuropeanCommission refer to as “non-linear services”, should be brought within thescope of the Directive and should be made subject to some of its requirements.In particular, there is a proposal that on-demand service providers such asourselves should be required, where practicable and by appropriate means, topromote production of and access to European works. The Commission citescontent quotas and investment levies as examples of how this might be achieved.

The proposed amendmentsto the Directive had their First Reading in the European Parliament during 2006and debate on the proposals is still continuing. The Second Reading of theproposals in the European Parliament is currently expected in mid-2007.The likely outcome is that, in some respects, Virgin Media’s on-demand serviceswill become more heavily regulated and that Virgin Media may have todemonstrate that, within its on-demand services, it is taking active steps topromote and support European film and TV production.

***Regulation in the U.K.***

Virgin Media is subjectto regulation under the Communications Act 2003, the Broadcasting Acts 1990 and1996 and other U.K. statutes and subordinate legislation.

The Communications Act2003 established a new regulatory authority, the Office of Communications(Ofcom), as the single regulatory authority for the entire communicationssector. Ofcom replaced a number of regulatory authorities such as the Office ofTelecommunications (Oftel) and the Independent Television Commission (ITC).

Under the CommunicationsAct 2003, communications providers, such as ourselves, are no longer requiredto hold individual licenses in order to provide electronic communicationsnetworks and services, although certain licenses are required (see below underCable TV regulation and Mobile Telecoms Regulation) in order to own or operatemobile networks, TV channels or to provide certain facilities such aselectronic program guides on the cable TV platform. Even so, all communicationsproviders are subject to a set of basic conditions imposed by Ofcom, which areknown as the General Conditions of Entitlement. Any breach of these conditionscould lead to the imposition of fines by Ofcom and, ultimately, to thesuspension or revocation of a company’s right to provide electroniccommunications networks and services.

*The GeneralConditions of Entitlement and SMP conditions*

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

·  arequirement to negotiate interconnection arrangements with other networkproviders

·  arequirement to ensure that any end-user can access the emergency services

·  arequirement to offer outbound number portability to customers wishing to switchto another network provider and to support inbound number portability where weacquire a customer from another network provider

·  arequirement to ensure that any end-user can access a directory enquiry service

·  arequirement to publish up-to-date price and tariff information

·  arequirement to provide itemized billing on request from each customer

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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 new 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. Thishas resulted in British Telecommunications plc (BT) being found to have SMP ina substantial number of markets. As a result, BT has been made subject tofurther regulatory requirements in both wholesale and retail markets.

During 2007, Ofcom willbe carrying out further reviews in a number of these markets to re-assess thecompetitive conditions applying in these markets and whether their earlierassessments of companies having SMP remain valid.

Under one of the earlierreviews, all fixed operators, including Virgin Media, have been found topossess SMP in relation to the termination of calls on their own networks. Thishas 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.

*The StrategicReview of Telecommunications*

Following the passing ofthe Communications Act 2003, Ofcom announced that one of its first tasks wouldbe to carry out a strategic review of telecommunications in the U.K. (TSR).

The TSR commenced inApril 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’s preliminary assessment was thatalthough the true infrastructure competition offered by the cable industry washighly desirable and had resulted in substantial consumer benefits, it did notrepresent a sufficient competitive constraint on BT. Similarly, the intensityof competition to BT based on access by third party service providers to the BTnetwork via wholesale products, was insufficient. Ofcom felt, therefore, thatit should seek to increase competitive intensity by improving third partyaccess to the BT network.

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

At the conclusion of theTSR, BT offered and Ofcom accepted a number of undertakings to put the conceptof equivalence into practice in its dealings with competitors. This has beenachieved primarily through the creation of a new division within BT called “Openreach”which manages and sells network services to competitors and the rest of BT onthe same terms and conditions (including prices) and in accordance with thesame processes.

The outcome of the TSR isexpected to create further commercial opportunities for new entrants in marketsacross the communications sector and therefore to meet Ofcom’s objective ofincreasing competitive intensity.

The efficacy of theundertakings will be formally reviewed by Ofcom during 2007.

*Universal Service*

The concept of universalservice is designed to ensure that basic fixed-line telecommunications servicesare available at an affordable price to all citizens across the EU. The scopeof universal service obligations is defined by the Universal Service Directive(see above under Regulation in the European Union) and is transposed into U.K.regulation by the Universal Service

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Order. This Order hasbeen implemented by Ofcom which has imposed a number of specific universalservice requirements on BT and Kingston Communications, both of which have beendesignated by Ofcom as universal service providers.

The European Commissionhas been considering the future scope of universal service obligations as partof the Regulatory Framework Review (see above under Regulation in the EuropeanUnion) and is expected to publish a Green Paper on this subject early in 2007.This paper is likely to consider, among other things, whether universal serviceshould extend to the provision of broadband internet connectivity and whetherthere is scope in the future for making use of mobile technologies in theprovision of some aspects of universal service. Virgin Media would be impactedby 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 are of particularbenefit to those who construct and maintain networks because they give enhancedlegal rights of access to private land, exemption from some requirements ofgeneral planning law and the right to install equipment in the public highway.

The Communications Act2003 retained the broad structure of Code Powers. Any operator which possessedCode Powers under the previous licensing regime automatically retained thosepowers under the Communications Act regime. Any operator wishing to obtain newCode Powers must now apply to Ofcom. Virgin Media’s subsidiaries that provideelectronic communications networks and services have Code Powers.

Although Code Powers giveoperators the right to install equipment in public highways, 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.

*Cable TVRegulation*

Although Virgin Media isno 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 Media thereforeholds a number of Television Licensable Content Service Licenses (TLCSlicenses) under the Broadcasting Act 1990 for the provision of promotionalchannels and for the provision of its electronic program guide.

TLCS licenses are grantedand administered by Ofcom. The licenses require that each licensed servicecomplies with a number of Ofcom codes, including the Broadcasting Code, andwith 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 TLCS licensesare required to pay an annual fee to Ofcom. The fees are related to the revenueearning capacity of each television service and are based on a percentage, setby Ofcom, of revenues from advertising, sponsorship, subscriptions andinteractive services, with special rules applying to shopping 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 channel and content providers. This reviewwill continue throughout 2007. It is not possible at this stage to predict theoutcome of this review and whether access to digital TV platforms in general orto specific platforms in particular, including Virgin Media’s cable TVplatform, will become more heavily regulated as a result.

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*U.K. Competition Law*

The Competition Act 1998,which came into force in March 2000, introduced a prohibition on the abuseof a dominant market position and a prohibition on anti-competitive agreements,modeled on Articles 81 and 82 of the Treaty of Rome. The Act also introducedthird party rights, stronger investigative and enforcement powers and theability for the competition authorities to issue interim measures. The newenforcement powers include the ability to impose fines of up to 10% ofworldwide turnover. The Competition Act is enforced by the Office of FairTrading (OFT) and gives concurrent investigative and enforcement powers inmatters concerning communications to Ofcom.

The U.K.’s competitionlaw framework was further strengthened by the competition provisions of theEnterprise Act 2002, which came into force in June 2003. Under theseprovisions, among other things, decisions on mergers are now made by theindependent competition authorities, using competition based tests, rather thanby the U.K. Government.

Under other provisions ofthe Enterprise Act, individuals who cause, encourage, participate in or, insome cases, even those who have knowledge of, the making of agreements betweencompetitors which are designed to fix prices, share markets, limit supply orproduction or rig bids in the U.K., can be prosecuted and punished withunlimited fines and imprisonment for up to five years. The courts may alsoorder the disqualification for up to fifteen years of directors whose companieshave committed a breach of U.K. or EU competition law.

*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 is effective January 2, 2007 andimposes the responsibility for the disposal of waste electrical and electronicequipment on the manufacturers of such equipment. The main provisions relate toseparate collection, disposal and recycling; standards for its treatment atauthorized facilities; and collection, recycling and recovery targets.  It requires distributors to allow consumersto return their waste equipment free of charge, which would include the set-topboxes and cable modems that we provide to our customers.

**Seasonality**

Some revenue streams aresubject to seasonal factors. For example, telephone usage revenue by customersand businesses tends to be slightly lower during summer holiday months. VirginMedia customer churn rates include persons who disconnect their service becauseof moves, resulting in a seasonal increase in its churn rates during the summermonths when higher levels of U.K. house moves occur and students leave theiraccommodations between school years.

**Research andDevelopment**

Virgin Media research anddevelopment activities involve the analysis of technological developmentsaffecting its cable television, telephone and telecommunications business, theevaluation of existing services and sales and marketing techniques and thedevelopment of new services and techniques.

**Patents,Trademarks, Copyrights and Licenses**

Virgin Media does nothave any material patents or copyrights nor does it believe that patents play amaterial role in its business. Virgin Media owns and has the right to useregistered trademarks, which in some cases are, and in others may be, ofmaterial importance to our 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 Mediawithin the U.K. and Ireland. The license entitles it to use the “Virgin’’ namefor the TV, broadband internet, telephone and mobile phone services it providesto its residential customers, as well as the acquisition and branding ofsports, 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, Virgin Media has agreed in principle with VirginEnterprises Limited to extend the license to entitle it to use the “VirginMedia Television’’ name for the creation, distribution and management of itswholly-owned television channels, and to provide certain complimentary servicesto its residential customers. The agreement (and the proposed extension)provides for an annual royalty of 0.25% of certain consumer and contentrevenues, subject to a minimum annual royalty of £8.7 million. As part of theagreement, Virgin Media has the right to adopt, and has adopted, Virgin MediaInc. as its company name,which together with the name “Virgin Media”, itretains worldwide exclusivity.

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**Employees**

As the management of our businessis performed by Virgin Media, we do not have any employees on our payroll.   At December 31, 2006, VirginMedia had 17,034 employees, of whom 15,669 were permanent, and 1,365 weretemporary or contract. Approximately 1,900 Service Operations, NetworkOperations, Design & Civils and Business Field Operations employeesare covered by two collective bargaining agreements with the CommunicationWorkers Union, or CWU, and the Broadcasting, Entertainment, Cinematograph andTheatre Union, or BECTU. Both of these agreements are terminable by either theUnion or Virgin Media with three months’ written notice. Except for these twoarrangements, no other employees are covered by collective bargainingagreements. Virgin Media believes that its relationship with its employees isgenerally good.

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**Item 1A.  Risk Factors**

*Our business,financial condition or results of operations could be materially adverselyaffected 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 have nodirectors, officers or employees. The various personnel required to operate ournetwork are employed by Virgin Media Limited and its affiliates, and our businessis managed 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 VirginMedia were unable, or ceased, to provide us with these essential services, wewould be unable to provide services to our customers. Our reputation would bematerially adversely affected and we would lose customers and revenue. We mightnot be able to continue 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, thereare limitations on the transferability of interests in the partnership,including a condition that our General Partner consent to any transfer. Alimited partner may therefore be unable to liquidate an investment whenever thelimited partner decides and may be required to bear the risk of the investmentfor an indefinite period of time.

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

                Our General Partner has concluded, on our behalf,various arrangements and agreements with itself and its affiliates to provideservices to us, including the provision of consulting and management,financing, infrastructure, marketing, billing, basic television channels andother services. Our General Partner and its affiliates could enter intoadditional arrangements with us in the future, including merger, acquisitionand disposition transactions. Some of these arrangements are included in ourPartnership Agreement, while others are subject to standards included in ourPartnership Agreement. Additionally, some of these arrangements involvereimbursement for direct and indirect expenses and charges allocated to us.

                Our General Partner has a duty to act in good faithand in our best interests in dealing with us, and not to take advantage of (orpermit its respective affiliates to take advantage of) the conflicts arisingout of these relationships. However, none of the arrangements were negotiatedat arm’s-length and there can be no assurance that the terms are as favorableas those available from unaffiliated parties.

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

In 2006, weincurred a net loss of $3,316,921 and we have incurred aggregate net lossessince our inception. We expect to continue to incur net losses and may never beprofitable. Additionally, failure to achieve profitability could adverselyaffect our ability to make required payments or obtain additional requiredfunds which would make it impossible for us to continue to operate ourbusiness.

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

Our franchise areacomprises the three administrative areas of Three Rivers, Watford andHertsmere, in which there are approximately 97,000 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.

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

The after-tax economic benefit of aninvestment in the limited partnership units depends largely on our beingtreated as a partnership for federal income tax purposes. We have notrequested, and do not plan to request, a ruling from the IRS on this or anyother tax matter affecting us.

If we were treatedas a corporation for federal income tax purposes, we would pay federal incometax on our income at the corporate tax rate, which is currently a maximum of35%. 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 maychange so as to cause us to be treated as a corporation for federal income taxpurposes or otherwise subject us to entity-level taxation.

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

Our limitedpartners will be required to pay any federal income taxes on their share of ourtaxable income even if they receive no cash distributions from us. Our limitedpartners may not receive cash distributions from us equal to their share of ourtaxable income or even the tax liability that results from that income.

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

*Weoperate entirely within Virgin Media’s cable segment and our services areprovided and sold to our customers by Virgin Media on an integrated basis withVirgin Media services. As a result, the following Virgin Media risk factors arealso relevant to our operations, and references to the risks to Virgin Mediashould, as appropriate, be read as risks to us.*

***Virgin Media is subject to significant competition andexpects that competition will intensify.***

The level ofcompetition is intense in each of the markets in which Virgin Media competes,and Virgin Media expects competition to increase. In particular, its fixed,broadband and cable television businesses compete with British TelecommunicationsPlc, or BT, in telephone and broadband services; and British Sky BroadcastingGroup Plc, or BSkyB, in multi channel television, telephone and broadbandservices, each of whom has significant operational scale, resources andnational 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 approximately 43 digitalterrestrial TV channels on a free-to-air basis to consumers who have purchaseda Freeview digital set-top box, digital or digital TV recorder television. InMarch 2004, Top Up TV launched a pay-television service offering approximately120 programs from 19 channels for a fixed fee to subscribers who otherwisereceive Freeview and have purchased a Top Up TV set-top box. This year, BT Visionlaunched a PC download service of video on demand home entertainment contentover a broadband connection. BSkyB and others offer a similar service.

Virgin Media’sbroadband service faces increased competition from BT, Pipex, Orange, Tiscaliand others, as well as new providers such as BSkyB and Carphone Warehouse(TalkTalk). Competitors may use new alternative access technology such asadvanced, faster asymmetric digital subscriber lines, or ADSL+2, to deliverhigher speeds. Local loop unbundling may decrease costs for new entrants andexisting BT wholesale customers, leading to increased pricing competition.

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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 faces a wide range of competitors, including BT, Cable& Wireless Communications plc, COLT Telecom Group plc and Thus plc, and anumber of regional service providers. The nature of this competition variesdepending 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 may have 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 would have a negative impact on itsmargins and profitability. In addition, if Virgin Media is unable to competesuccessfully, even following price reductions or value enhancements, it may notbe able to attract new customers, or retain existing customers.

***Failure to control customer churn may adversely affectVirgin Media’s financial performance.***

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:

·                  billing errors and/or general reductionin the quality of Virgin Media’s customer service as a result of theintegration of billing systems and customer databases;

·                  customers moving to areas where VirginMedia cannot offer its digital television, or DTV, services;

·                  interruptions to the delivery of servicesto customers over Virgin Media’s network and poor fault management;

·                  stricter customer credit policies as aresult of the alignment of the historical policies of NTL and Telewest;

·                  the availability of competing services,such as the digital satellite services offered by BSkyB, the free-to-air digitaltelevision services offered by Freeview and the telephone, broadband anddial-up internet services offered by BT, BSkyB, Carphone Warehouse (TalkTalk) ,Orange, Tiscali, Pipex and other third parties, some of which may, from time totime, be less expensive or technologically superior to those offered by VirginMedia or offer content that it does not offer; and

·                  the potential loss of customers due totheir required migration from Virgin Media’s analog television, or ATV,services to its more expensive DTV services when it stops transmitting our ATVsignal.

An increase incustomer churn can lead to slower customer growth, increased costs and areduction in revenue.

***The sectors in which Virgin Media competes are subject torapid and significant changes in technology, and the effect of technologicalchanges on Virgin Media’s businesses cannot be predicted.***

The internet,television and fixed line telephone services sectors are characterized by rapidand significant changes in technology. The effect of future technologicalchanges on Virgin Media’s business cannot be predicted. It is possible thatproducts or other technological breakthroughs, such as VoIP (over fixed andmobile technologies), mobile instant messaging, wireless fidelity, or WiFi,WiMax (i.e., the extension of local WiFi networks across greater distances) orinternet protocol television, may result in Virgin Media’s core offeringsbecoming less competitive and render its existing products and servicesobsolete. Virgin Media may not be able to develop new products and services atthe same rate as competitors or keep up with trends in the technology market aswell 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.

***Virgin Media is licensed to use the Virgin name and logo butdoes not own it.***

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In February 2007,Virgin Media rebranded certain areas of its business (including our business)as Virgin Media and renamed its corporate parent Virgin Media Inc. under a30-year license agreement with Virgin Enterprises Limited to use the Virginname and logo. The use of the Virgin Media name and brand carries variousrisks, including the following:

·                  Virgin Media will be substantiallyreliant on the general goodwill of consumers towards the Virgin brand.Consequently, adverse publicity in relation to the Virgin Group or itsprincipals, particularly Sir Richard Branson, who is closely associated with thebrand, or in relation to another Virgin name licensee, could have a materialadverse effect on Virgin Media’s business;

·                  the license agreement has a 30-year term,and Virgin Media is obligated to pay a termination payment if the license isterminated early under certain circumstances; and

·                  Virgin Media is required to meet certainperformance obligations under the license agreement, and a failure to meetthose obligations 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 does not maintain and upgrade its networksin a cost-effective and timely manner, it could 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 Virgin Media’s ability tomaintain and upgrade its networks in a cost-effective and timely manner. Themaintenance and upgrade of its networks will depend upon, among other things,its ability to:

·                  modify network infrastructure for newproducts and services;

·                  installand maintain cable and equipment; and

·                  financemaintenance and upgrades.

Financialcovenants in Virgin Media’s senior credit facility effectively limit its levelof capital expenditures by stipulating minimum levels of net cash generation.If this affects its ability to replace network assets at the end of theiruseful lives or if there is any reduction in its ability to perform necessarymaintenance on network assets, Virgin Media’s networks may have an increasedfailure rate, which is likely to lead to increased customer churn.

***A failure in Virgin Media’s critical systems couldsignificantly disrupt its operations, which could reduce its customer base andresult 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, war or other catastrophes or any other threat to businesscontinuity. Moreover, 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. 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 net revenue. Improvements to Virgin Media’s revenue collection processesmay not be successful or may not yield enhanced revenue collection. Inefficientcollection could result in an increase in bad debt.

***Virgin Media’s inability to obtain popular programming, orto 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.

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Virgin Media hashistorically obtained a significant amount of its premium programming and someof its basic programming and pay-per-view sporting events from BSkyB, one ofVirgin Media’s main competitors in the television services business. BSkyB is aleading supplier of programming to pay television platforms in the U.K. and isthe exclusive supplier of some programming, including its Sky Sports channelsand Sky Movie channels, which are the most popular premium subscription filmchannels available in the U.K. Virgin Media buys BSkyB wholesale premiumcontent on the basis of BSkyB’s rate card terms and pricing, which can bechanged on 30 days’ notice, and not under a contract. Virgin Media’s agreementwith BSkyB to purchase its basic channels expired on February 28, 2007 and theBSkyB basic channels were withdrawn from the Virgin Media platform. As of thedate of this annual report, no new agreement has been reached between theparties. Virgin Media may not be able to reach an agreement for BSkyB’s basicchannels on reasonable terms, or at all.

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 is challenging for Virgin Media to compete withand still maintain a profit margin on the sale of that premium programming.BSkyB also offers content (such as high definition and, interactive content)exclusively to its digital satellite customers and not to Virgin Media.

In addition toBSkyB, Virgin Media’s significant programming suppliers include the BBC, ITVplc, Channel 4, Viacom Inc., HBO, Discovery Communications Inc. and Turner, adivision of Time Warner Inc. These suppliers may supply channels, or they maysupply programming for Virgin Media’s own channels. Virgin Media’s dependenceon these suppliers for television programming could have a material adverseeffect on its ability to provide attractive programming at a reasonable cost.In addition, the loss of programs could negatively affect the quality andvariety of the programming delivered to Virgin Media’s customers, which couldhave a material adverse effect on its business and results of operations andincrease customer churn.

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

Virgin Media hasimportant relationships with several suppliers of hardware, software andservices that it uses to operate its network and systems and outsource variouscustomer services. In many cases, Virgin Media has made substantial investmentsin the equipment or software of a particular supplier, making it difficult forVirgin Media in the short-term to change supply and maintenance relationshipsin the event that its initial supplier refuses to offer it favorable prices orceases to produce equipment or provide the support that its network and systemsrequire. If equipment or service suppliers were to discontinue their productsor seek to charge Virgin Media prices that are not competitive, its businessand profitability 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 havean adverse effect on its customer service, customer acquisitions, customerchurn rate and operating costs.***

As a result of itsgrowth through acquisitions, Virgin Media inherited numerous billing andcustomer service systems. Virgin Media is in the process of migrating all ofits consumer cable and business customers to one central billing system. If itis not successful with this process, Virgin Media might not be able to achievethe expected cost savings associated with the new system. It is possible thatbilling errors and other customer service disruptions could occur duringfurther integration processes, potentially resulting in increased customerchurn or adverse effects on customer service, customer acquisitions,collections, and the costs of maintaining its billing systems going forward.

***Regulation of the markets in which Virgin Media provides itsservices has been changing rapidly; unpredictable changes in U.K. and EUregulations affecting the conduct of its business, including price regulations,may have an adverse impact on its ability to set prices, enter new markets orcontrol 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

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loop unbundling, dataprotection, 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.

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

Virgin Media’slong-range plan includes IPTV and it cannot guarantee that this new product, orany other new products that it may develop in the future, will perform asexpected when first introduced in the market. Should these new products andservices fail to perform as expected or should they fail to gain marketacceptance, Virgin Media’s results of operations may be negatively impacted.

***Virgin Media depends on the ability to attract and retainkey personnel without whom it may not be able to manage its business lineseffectively.***

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 couldhave an influence over its business and affairs.***

Certain persons orentities are Virgin Media’s significant stockholders. Based on SEC filings, asof March 1, 2007, the Virgin Group beneficially owned 10.5% of Virgin Media’sissued and outstanding common stock; in addition, Franklin Mutual Advisers, LLCbeneficially owned 9.2%, Ameriprise Financial Inc. beneficially owned 8.9%, andMr. William R. Huff beneficially owned 5.7%, of Virgin Media’s issued and outstandingcommon stock. Each of these significant stockholders could have an influenceover the business and affairs of the company.

On April 3, 2006,Virgin Media entered into a license agreement with Virgin Enterprises Limitedwhich provides for it to use the Virgin name and logo in its consumer andcontent businesses. In connection with this agreement, Virgin EnterprisesLimited had the right to propose a candidate to its Nominating Subcommittee tofill a single new seat on its board. Virgin Enterprises Limited nominated Mr.Gordon McCallum, Group Strategy Director of Virgin Enterprises Limited, and hewas appointed to Virgin Media’s board on September 11, 2006. As a result of Mr.McCallum’s relationship with Virgin Enterprises Limited, if conflicts betweenthe interests of Virgin Enterprises Limited and the interests of Virgin Media’sother stockholders should arise, this director may not be disinterested.

Mr. Huff is adirector of Virgin Media and is the president of the managing member of W.R.Huff Asset Management Co., L.L.C. As a result of his relationship with W.R.Huff Asset Management Co., L.L.C., if conflicts between the interests of W.R.Huff Asset Management Co., L.L.C. and the interests of Virgin Media’s otherstockholders should arise, this director may not be disinterested.

***Unauthorized access to Virgin Media’s networks could resultin a loss of revenue.***

Virgin Mediarelies on the integrity of its networks to ensure that its services areprovided only to identifiable paying customers. The development of newtechnology facilitating unauthorized access to its network could result in aloss of revenue, and any failure to respond to security breaches could raiseconcerns under its agreements with content providers. Virgin Media continues towork on minimizing unauthorized access to its networks.

***Virgin Media does not insure the underground portion of itscable network and various pavement-based electronics associated with its cablenetwork.***

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

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result, any catastrophethat affects the underground cable network or pavement-based electronics couldprevent it from providing services to customers and result in substantialuninsured losses.

***Virgin Media may be unable to successfully integrateoperations and realize the full anticipated synergies of its recentacquisitions, which may harm the value of its securities.***

The merger betweenNTL and Telewest to form Virgin Media and the acquisition of Virgin Mobileinvolve the integration of companies that have previously operatedindependently. The difficulties of combining operations include:

·                  the necessity of coordinatinggeographically separated organizations and facilities, including call centers;

·                  combiningproduct offerings and coordinating the branding and pricing of these offerings;

·                  rationalizing each company’s internalsystems and processes, including billing systems, which are different from eachother; and

·                  integrating personnel from different companycultures.

The process ofintegrating operations could cause an interruption of, or loss of, momentum inthe activities of one or more of Virgin Media’s businesses and the loss of keypersonnel. The diversion of management’s attention and any delays ordifficulties encountered in connection with the merger and acquisition and theintegration of the companies’ operations could result in the disruption ofVirgin Media’s ongoing businesses or inconsistencies in the standards,controls, product offerings, level of customer service, procedures and policiesof the companies that could negatively affect its ability to maintainrelationships with customers, suppliers, employees and others with whom it hasbusiness dealings.

While Virgin Mediahas already achieved many synergies from its recent acquisitions, it expects tocontinue to realize synergies by creating efficiencies in operations, capitalexpenditures and other areas. If Virgin Media is not able to successfullysustain these savings, the anticipated benefits of the merger and acquisitionmay not be realized fully, or may take longer to realize than expected. Thiswould result in our bearing higher expenses allocated to us than wouldotherwise be the case. Although Virgin Media has quantified an amount ofsynergies that it expects to realize, this amount is an estimate and has notbeen prepared in accordance with GAAP. This estimate is a forward-lookingstatement and is based on assumptions that may not ultimately prove to beaccurate.

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

*Givenour operational and financing reliance on Virgin Media, we are subject to risksrelating to its financial indebtedness and structure. We may not be able tooperate successfully or at all if Virgin Media should experience problemsrelating to such matters.*

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

It is possiblethat Virgin Media may not achieve or sustain sufficient cash flow in the futurefor the payment of interest or principal on its indebtedness when due. If itsoperating cash flow is not sufficient to meet its debt payment obligations,Virgin Media may be forced to raise cash or reduce expenses by doing one ormore of the following:

·                  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

·                  foregoing business opportunities,including the introduction of new products and services, acquisitions and jointventures.

Virgin Mediacannot be sure that any of, or a combination of, the above actions would besufficient to fund its debt service obligations.

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***Virgin Media’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 £6,159.1 million as of December 31, 2006.This high degree of leverage could have important consequences, including thefollowing:

·                  a substantial portion of the cash flowfrom operations will have to be dedicated to the payment of interest andprincipal on existing indebtedness, thereby reducing the funds available forother purposes;

·                  the ability to obtain additionalfinancing in the future for working capital, capital expenditures, productdevelopment, acquisitions or general corporate purposes may be impaired;

·                  Virgin Media’s flexibility in reacting tocompetitive technological and other changes may be limited;

·                  the substantial degree of leverage couldmake Virgin Media more vulnerable in the event of a downturn in generaleconomic conditions or adverse developments in its business; and

·                  Virgin Media may be exposed to risksinherent in interest rate and foreign exchange rate fluctuations.

***Virgin Media has incurred losses in the past and may not beprofitable in the future.***

Virgin Media hadlosses from continuing operations for 2006 of £570.9 million and for 2005 of£420.5 million (both on a pro forma basis). Virgin Media cannot be certain thatit will achieve or sustain profitability in the future. Failure to achieveprofitability could diminish its ability to sustain operations, meet financialcovenants, obtain additional required funds and make required payments onpresent or future indebtedness.

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

The agreementsthat govern Virgin Media’s indebtedness contain restrictive covenants thatlimit the discretion of its management over various business matters. Forexample, these covenants restrict Virgin Media’s ability to:

·                  incur or guarantee additionalindebtedness;

·                  paydividends or make other distributions, or redeem or repurchase equity interestsor subordinated obligations;

·                  makeinvestments;

·                  sellassets, including the capital stock of subsidiaries;

·                  enterinto sale and leaseback transactions and certain vendor financing arrangements;

·                  createliens;

·                  enterinto agreements that restrict some of its subsidiaries’ ability to paydividends, transfer assets or make intercompany loans;

·                  mergeor consolidate or 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.

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***Virgin Media is a holding company dependent upon cash flowfrom subsidiaries to meet its obligations.***

Virgin Media and anumber of its subsidiaries are holding companies with no independent operationsor significant assets other than investments in its subsidiaries. Each of theseholding companies depends upon the receipt of sufficient funds from itssubsidiaries to meet its obligations.

The terms ofVirgin Media’s senior credit facility and other debt securities limit the paymentof dividends, loan repayments and other distributions to or from thesecompanies under many circumstances. Various agreements governing the debt thatmay be issued by Virgin Media’s subsidiaries from time to time may restrictand, in some cases, may also prohibit the ability of these subsidiaries to movecash within their restricted group. Applicable tax laws may also subject suchpayments to further taxation.

Applicable law mayalso limit the amounts that some of Virgin Media’s subsidiaries will be permittedto pay as dividends or distributions on their equity interests, or even preventsuch 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.

***Virgin Media is subject to currency and interest rate risks.***

Virgin Media issubject to currency exchange rate risks because substantially all of itsrevenues and operating expenses are paid in U.K. pounds sterling, but it paysinterest and principal obligations with respect to a portion of itsindebtedness in U.S. dollars and euros. To the extent that the pound declinesin value against the U.S. dollar and the euro, the effective cost of servicingits U.S. dollar and euro-denominated debt will be higher. Changes in theexchange rate result in foreign currency gains or losses.

Virgin Media isalso subject to interest rate risks. Before taking into account the impact ofcurrent hedging arrangements, as of December 31, 2006, Virgin Media would havehad interest determined on a variable basis on £5,025 million, or 82%, of itslong term debt. An increase in interest rates of 1% would increase unhedgedgross interest expense by £50.3 million per year.

To manage theseforeign exchange and interest rate risks, Virgin Media has entered into anumber of derivative instruments, including interest rate swaps, cross-currencyswaps and foreign currency forward rate contracts. Virgin Media is required byits lenders under its senior credit facility to fix the interest rate (whetherthrough coupon or through derivatives) on not less than two thirds of the totaldebt represented by its senior credit facility and high yield notes, for aperiod of not less than three years from March 3, 2006. Accordingly, aftergiving effect to these hedges, an increase in interest rates of 1% wouldincrease Virgin Media’s gross interest expense by £18.2 million per year.

***Virgin Media may not have sufficient financial resources torepay its debt upon a change of control.***

Virgin Media may,under some circumstances involving a change of control, be obligated to repayits outstanding indebtedness. The company or any possible acquiror may not haveavailable financial resources necessary to repay that indebtedness in thosecircumstances.

If Virgin Media orany possible acquiror cannot repay its outstanding indebtedness in the event ofa change of control of the company (if such repayment is required), the failureto do so would constitute an event of default under the agreements under whichthat indebtedness was incurred and could result in a cross default under otherindebtedness that does not have similar provisions.

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**Item 1B,  UnresolvedStaff Comments**

None.

**Item 2.     Properties**

We do not own orlease any properties. NTL South Herts owns a freehold property at 9 GreycaineRoad, Watford for use as offices and to house network equipment.

**Item 3.     LegalProceedings**

We are from timeto time subject to legal proceedings and claims that arise in the ordinarycourse of our business. In the opinion of the management, the amount of ultimateliability with respect to these actions will not materially affect ourfinancial position, results of operations or liquidity.

**Item 4.     Submissionof Matters to a Vote of Security Holders**

There were nomatters that were submitted to a vote of the holders of our limited partnershipinterests during the quarter ended December 31, 2006.

**PART II**

**Item 5.     Marketfor 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 21, 2007, the approximatenumber of holders of our limited partnership interests was 5,051.

**Item 6.     SelectedFinancial Data**

The followingtable sets forth certain financial data for the years ended December 31,2006, 2005, 2004, 2003, and 2002. This information should be read inconjunction with the consolidated financial statements and notes and theinformation contained in our Management’s Discussion and Analysis of FinancialCondition and Results of Operations appearing elsewhere in this annual report.Historical results are not necessarily indicative of future results.
| ** **                                                                                        | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                        | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                        | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income  Statement Data:**                                                                       | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                        | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                                           |       | $                                          | 38,796,127 |   | $ | 38,740,331 |   | $ | 38,042,360 |   | $ | 32,772,962 |   | $ | 29,552,065 |   |
| Cost of goods  sold                                                                               |       | (10,014,523                                | )          | (10,430,813 | ) | (11,550,360 | ) | (10,662,169 | ) | (10,772,887 | ) |
| Selling, general  and administrative expenses                                                     |       | (94,878                                    | )          | (92,063 | ) | (103,018 | ) | (130,840 | ) | (167,225 | ) |
| Management fees  and allocated overhead from General Partner                                      |       | (17,670,758                                | )          | (17,063,743 | ) | (14,321,728 | ) | (13,544,514 | ) | (12,035,660 | ) |
| Other charges                                                                                     |       | (1,349,828                                 | )          | (653,559 | ) | (602,691 | ) | (220,329 | ) | (1,488,502 | ) |
| Depreciation                                                                                      |       | (6,975,343                                 | )          | (5,882,179 | ) | (6,621,976 | ) | (7,460,577 | ) | (7,595,523 | ) |
| Operating income  (loss)                                                                          |       | 2,690,797                                  |       | 4,617,974 |   | 4,842,587 |   | 754,533 |   | (2,507,732 | ) |
| Interest expense                                                                                  |       | (6,062, 897                                | )          | (2,957,398 | ) | (2,203,792 | ) | (1,922,710 | ) | (1,587,925 | ) |
| Exchange  (losses) gains                                                                          |       | (277,062                                   | )          | 219,959 |   | (143,217 | ) | (179,033 | ) | (162,100 | ) |
| (Loss) income  before minority interest and cumulative effect of changes in accounting  principle |       | (3,649,162                                 | )          | 1,880,535 |   | 2,495,578 |   | (1,347,210 | ) | (4,257,757 | ) |
| Minority  interest                                                                                |       | 748,119                                    |       | (654,656 | ) | (94,898 | ) | — |   | 768,837 |   |
| Cumulative  effect of changes in accounting principle                                             |       | (415,878                                   | )          | — |   | — |   | — |   | — |   |
| Net (loss)  income                                                                                |       | $                                          | (3,316,921 | ) | $ | 1,225,879 |   | $ | 2,400,680 |   | $ | (1,347,210 | ) | $ | (3,488,920 | ) |
|                                                                                              |       |                                       |       |   |   |   |   |   |   |   |   |
| Net (loss)  income per limited partnership unit                                                   |       | $                                     | (57.68     | ) | $  | 21.32 |   | $  | 41.74 |   | $  | (23.43 | ) | $  | (60.67 | ) |
| Average number of  limited partnership units outstanding                                          |       | 56,935                                     |       | 56,935 |   | 56,935 |   | 56,935 |   | 56,935 |   |

 
| ** **                                          | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                          | ** ** | **2006**                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                          | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance  Sheet Data:**                            | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total assets                                        |       | $                                     | 66,079,566 |   | $ | 63,195,826 |   | $ | 62,528,387 |   | $ | 61,450,329 |   | $ | 58,973,664 |   |
| Accounts payable  to affiliates and related parties |       | 71,196,561                            |       | 64,324,939 |   | 65,398,192 |   | 66,757,685 |   | 62,691,338 |   |
| Minority  interest                                  |       | —                                |       | 707,259 |   | 99,216 |   | — |   | — |   |
| General  Partner’s deficit                     |       | (534,751                              | )          | (501,583 | ) | (513,842 | ) | (537,849 | ) | (524,377 | ) |
| Limited Partners’  deficit                     |       | (3,940,355                            | )          | (656,602 | ) | (1,870,222 | ) | (4,246,895 | ) | (2,913,157 | ) |
|                                                     |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item7.  Management’s Discussion and Analysis of Financial Condition andResults****of Operations**

**Overview**

We are a Coloradolimited partnership that was formed in December 1991 pursuant to thepublic offering of our limited partnership interests for the purpose ofacquiring one or more cable television/telephone systems in the U.K. Uponacquisition of our system, our primary investment objective was to obtaincapital appreciation in the value of our investment in the system over the termsuch investment is held by us.

We hold 66.7% ofthe shares 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 ourrevenue principally from monthly fees and usage charges. Our packaging ofservices and pricing are designed to encourage our residential customers to usemultiple services like dual telephone and broadband, dual telephone andtelevision or triple telephone, television and internet access.

The principalcomponents of Virgin Media’s expenses include payroll and other employeerelated costs; interconnection costs paid to other carriers related totelephone services; television programming costs; marketing and selling costs;repairs and maintenance; facility related costs, such as rent, utilities and rates;and allowances for doubtful accounts. Our expenses include certain costs that are charged by a subsidiary ofVirgin Media for the provision of network services and support, the use ofVirgin Media’s national backbone telephone network for carriage of ourtelephone 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.

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**FactorsAffecting Our Business**

Our residential customers account for the majority ofour total revenue. The number of residential customers, the number and types ofservices that each customer uses and the prices we charge for these servicesdrive our revenue. Our net income is driven by the relative margins on thetypes of services we provide to these customers and by the number of servicesthat we provide to them. For example, broadband internet is more profitablethan our television services and, on average, our “triple-play” customers aremore profitable than “double-play” or “single-play” customers. Our packaging ofservices and our pricing are designed to encourage our customers to usemultiple services such as television, telephone and broadband at a lower pricethan each stand-alone product on a combined basis. Factors particularlyaffecting our profitability include customer churn, average revenue per user(ARPU), competition, the success of our integration efforts, capitalexpenditures, currency movements and seasonality.

*SelectedOperating Data*

We set forth in the following table certain dataconcerning our franchise at December 31, 2006 and 2005:
|                                     | ** ** | **December 31  2006** | ** ** | **December 31  2005** | ** ** |
|-------------------------------------|------------|----------------------------|------------|----------------------------|------------|
|                                |       |                       |       |                       |       |
| Homes passed (1)                    |       | 96,886                     |       | 94,350                     |       |
| Homes marketable  (2)               |       | 96,886                     |       | 94,350                     |       |
| Total customers                     |       | 36,863                     |       | 36,975                     |       |
| Digital  subscribers                |       | 22,971                     |       | 21,709                     |       |
| Analog  subscribers                 |       | 1,007                      |       | 2,332                      |       |
| Broadband  Internet subscribers     |       | 22,642                     |       | 20,078                     |       |
| Telephony  subscribers              |       | 30,715                     |       | 31,927                     |       |
| Penetration  (homes marketable) (3) |       | 38.0                       | %          | 39.0                       | %          |
| Churn (4)                           |       | 1.8                        | %          | 1.0                        | %          |

 

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(1)                  Homes passed isthe number of homes that have had ducting buried outside.

(2)                  Homes marketablerefers to the number of homes within our service area that can potentially beserved by our network with minimal connection costs.

(3)                  Penetrationmeasures the number of subscribers for our services divided by the number ofhomes marketable.

(4)                  Customer churnis calculated by taking the total number of customers disconnecting from ourservices during the month and dividing them by the average number of customersduring the month.  Average monthly churnduring the quarter is the average of the three monthly churn calculationswithin the quarter.

***Customer Churn.******  ***Customer churnis a measure of the number of customers who stop using our services. Anincrease in our customer churn can lead to increased costs and reduced revenue.We continue to focus on improving our customer service and enhancing andexpanding our service offerings to existing customers in an effort to manageour customer churn rate. Our ability to reduce our customer churn rate beyond abase level is limited by factors like customers moving outside our networkservice area, in particular during the summer season. Managing our customerchurn rate is a significant component of our business plan. Our customer churnrate may increase if our customer service is seen as unsatisfactory, if we areunable to deliver our services over our network without interruption, or if wefail to match offerings by our competitors.

***ARPU.******  ***AverageRevenue Per User, or ARPU, is a measure we use to evaluate how effectively weare realizing potential revenue from customers. We believe that our “triple-play”cable offering of television, broadband and fixed line telephone

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services is attractive toour existing customer base and allows us to increase our ARPU by facilitatingthe sale of multiple services to each customer.

***Competition.******  ***Our ability toacquire and retain customers and increase revenue depends on Virgin Media’s andour competitive strength. There is significant competition in the market forour consumer services, including broadband and telephone services offered byBritish Telecom (“BT”) and resellers or local loop unbundlers, alternativeinternet access services like DSL, satellite television services offered byBritish Sky Broadcasting Group plc (“BSkyB”), digital terrestrial televisionoffered through Freeview, internet protocol television offered by TiscaliS.p.A. (“Tiscali”) and BT, and mobile telephone services offered by othermobile telephone operators. Certain competitors, such as BT and BSkyB, aredominant in markets in which Virgin Media and we compete and may use theirdominance in those markets to offer bundled services that include two or moreof our product offerings. If competitive forces prevent us from charging theprices for these services that we plan to charge, or if our competition is ableto attract our customers or potential customers we are targeting, our resultsof operations will be adversely affected.

***Integration.******  ***VirginMedia is presently integrating its legacy NTL and Telewest cable businesses.This involves the incurrence of substantial operating and capital expendituresand, in some cases, involves the outsourcing of key functions in an effort toachieve synergies through the integration of the two businesses. For example, thebilling platform used by us has recently been migrated to a new system as partof Virgin Media’s program to consolidate all of its billing platforms. Whilethese integration efforts are presently on track, any issues that may arise inconnection with the integration could have a material negative effect on ourfinancial performance.

***CapitalExpenditures.******  ***Our business requires substantialcapital expenditures on a continuing basis for various purposes, includingexpanding, maintaining and upgrading our network, investing in new customeracquisitions, and offering new services. If Virgin Media and we do not continueto invest in the network and in new technologies, our ability to retain andacquire customers may be hindered. Therefore, Virgin Media’s and our liquidityand the availability of cash to fund capital projects are important drivers ofour revenue. When Virgin Media’s and our liquidity is restricted, so is ourability to meet our capital expenditure requirements.

***CurrencyMovements.******  ***Because substantially all of ourrevenue and operating costs are earned and paid primarily in U.K. poundssterling, but we report our financial results in U.S. dollars, our financialresults are impacted by currency fluctuations which are unrelated to ourunderlying results of operations.

***Seasonality.****  *Some revenue streams are subject toseasonal factors. For example, telephone usage revenue by 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 theiraccommodations between academic years.

# **Critical AccountingPolicies**

Our consolidated financial statements and relatedfinancial information are based on the application of accounting principlesgenerally accepted in the U.S., or GAAP. GAAP requires the use of estimates,assumptions, judgments and subjective interpretations of accounting principlesthat have an impact on the assets, liabilities, revenue and expense amountsreported, as well as disclosures about contingencies, risk and financialcondition. The following critical accounting policies have the potential tohave a more significant impact on our financial statements. An impact couldoccur because of the significance of the financial statement item to whichthese policies relate, or because these policies require more judgment andestimation than other matters owing to the uncertainty related to measuring, ata specific point in time, transactions that are continuous in nature.

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

***ForeignCurrency Translation:***

Our functionalcurrency is the pound sterling, while our reporting currency is the U.S.dollar. The assets and liabilities of our U.K. subsidiary have been translatedusing the exchange rate in effect at the balance sheet date and revenue andexpenses have been translated at the weighted average rates for the respectiveyears. Exchange gains and losses on translation of our net equity investmentsin our subsidiary 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.

***FixedAssets:***

Labor and overhead costs directly related to theconstruction and installation of fixed assets, including payroll and relatedcosts of some employees and related rent and other occupancy costs, arecapitalized. The payroll and related costs of some employees that are directlyrelated to construction and installation activities are capitalized based onspecific time

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devoted to theseactivities where identifiable. In cases where the time devoted to theseactivities is not specifically identifiable, we capitalize costs based uponestimated allocations. 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 fixedassets useful lives that impact the annual depreciation expense. The assignmentof useful lives involves significant judgments and the use of estimates. VirginMedia’s management use their experience and expertise in applying judgmentsabout appropriate estimates. Changes in technology or changes in intended useof these assets may cause the estimated useful life to change, resulting inhigher or lower depreciation charges or asset impairment charges.

**Recent Accounting Pronouncements**

In July 2006,the FASB issued FASB Interpretation (“FIN”) No. 48, *Accountingfor Uncertainty in Income Taxes—an interpretation of FASB Statement 109*.FIN 48 prescribes a comprehensive model for recognizing, measuring, presentingand disclosing in the financial statements tax positions taken or expected tobe taken on a tax return, including a decision whether to file or not to filein a particular jurisdiction. FIN 48 is effective for fiscal years beginningafter December 15, 2006. If there are changes in net assets as a result ofthe application of FIN 48 these will be accounted for as an adjustment toretained earnings.****We****adopted FIN 48 effective January 1, 2007. We arecontinuing to evaluate the impact of adopting FIN 48, but do not anticipate anysignificant impact on our financial statements.

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements.*SFAS 157 provides guidance for using fair value to measure assets andliabilities. It also responds to investors’ requests for expanded informationabout the extent to which company’s measure assets and liabilities at fairvalue, the information used to measure fair value, and the effect of fair valuemeasurements on earnings. SFAS 157 applies whenever other standardsrequire (or permit) assets or liabilities to be measured at fair value, anddoes not expand the use of fair value in any new circumstances. SFAS 157is effective for financial statements issued for fiscal years beginning afterNovember 15, 2007 and is required to be adopted by us in the first quarterof 2008. We are currently evaluating the effect that the adoption ofSFAS 157 will have on our consolidated results of operations and financialcondition and are not yet in a position to determine such effects.

**Results of Operations**

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

We present below summarizedconsolidated financial information for the years ended December 31, 2006and 2005:
|                                                                                                       | ** ** | **Year ended December 31,** | ** ** | **Increase (decrease)** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                            | ** ** | **2006**                                   | ** ** | **2005**                     | ** ** | **$** | ** ** | **%** | ** ** |
|                                                                                                  |       |                                       |       |                         |       |   |   |   |   |
| Revenue                                                                                               |       | $                                          | 38,796,127 |                         | $          | 38,740,331 |   | $ | 55,796 |   | 0.1 | % |
| Cost of goods  sold                                                                                   |       | (10,014,523                                | )          | (10,430,813                  | )          | (416,290 | ) | (4.0 | ) |
| Selling, general  and administrative expenses                                                         |       | (94,878                                    | )          | (92,063                      | )          | 2,815 |   | 3.1 |   |
| Management fees  and allocated overhead                                                               |       | (17,670,758                                | )          | (17,063,743                  | )          | 607,015 |   | 3.6 |   |
| Other charges                                                                                         |       | (1,349,828                                 | )          | (653,559                     | )          | 696,269 |   | 106.5 |   |
| Depreciation                                                                                          |       | (6,975,343                                 | )          | (5,882,179                   | )          | 1,093,164 |   | 18.6 |   |
| Operating income                                                                                      |       | 2,690,797                                  |       | 4,617,974                    |       | (1,927,177 | ) | (41.7 | ) |
| Interest expense                                                                                      |       | (6,062, 897                                | )          | (2,957,398                   | )          | 3,105,499 |   | 105.0 |   |
| Foreign exchange  (losses)/gains                                                                      |       | (277,062                                   | )          | 219,959                      |       | (497,021 | ) | (226.0 | ) |
| Net (loss)  income before minority interest and cumulative effect of changes in  accounting principle |       | (3,649,162                                 | )          | 1,880,535                    |       | (5,529,697 | ) | (294.0 | ) |
| Minority  interest                                                                                    |       | 748,119                                    |       | (654,656                     | )          | (1,402,775 | ) | (214.3 | ) |
| Cumulative  effect of changes in accounting principle                                                 |       | (415,878                                   | )          | —                       |       | — |   |   |   |
| Net (loss) income                                                                                     |       | $                                          | (3,316,921 | )                            | $          | 1,225,879 |   | $ | (4,542,800 | ) | (370.6 | ) |

 

*Revenue*

For the year ended December 31, 2006, revenueincreased by 0.1% to $38.8 million from $38.7 million in 2005 and revenueexpressed in pounds sterling decreased by 0.9% to £21.1 million in 2006 from £21.3million in 2005. Increased

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revenuefrom additional broadband and digital TV subscribers has been offset by thefall in revenue resulting from the decline in analog TV and telephonysubscribers.

*Expenses*

*Costs of goods sold*

For the year ended December 31, 2006, costs ofgoods sold decreased by 4.0% to $10.0 million from $10.4 million in 2005 andcost of goods sold expressed in pounds sterling decreased by 5.3% to £5.4million in 2006 from £5.7 million in 2005. Costs of goods sold as a percentageof revenue declined to 25.8% for the year ended December 31, 2006, from26.9% for 2005 primarily because revenue growth was focused on higher-marginservices and customers, particularly consumer broadband internet services,whilst revenue declines arose primarily on lower-margin services.

*Selling, general and administrative expenses*

For the year ended December 31, 2006, selling,general and administrative expenses increased by 3.1% to $94,878 from $92,063in 2005.  This increase is primarilyattributable to the higher cost of investor relations’ services.

*Management fees and allocated overhead.*

For the year ended December 31, 2006, managementfees and allocated overhead increased by 3.6% to $17.7 million from $17.1million in 2005. Management fees and allocated overhead expressed in poundssterling increased by 2.1% to £9.6 million in 2006 from £9.4 million in 2005.The business of NTL South Herts is managed as an integral part of Virgin Media.The combined costs of managing the larger group are allocated to each entitywithin the Virgin Media group, including NTL South Herts, on a consistent andproportional basis according to the level of trading in that entity.

*Other charges*

For the year ended December 31, 2006, othercharges increased to $1,349,828 from $653,559 in 2005 representing restructuringcosts 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 relate primarily to employee termination costs and lease exit costsin connection with restructuring programs initiated in respect of the reverseacquisition of Telewest.

*Depreciation expense*

For the year ended December 31, 2006,depreciation expense increased to $7.0 million from $5.9 million in 2005 due tonetwork assets transferred from an affiliate as at December 31, 2005 togetherwith increased  capital spend and changesin foreign exchange rates.

*Interest expense*

For the year ended December 31, 2006, interest expenseincreased to $6.1 million from $3.0 million in 2005.  This increase is due to two changes to theinterest expense charging policies which were implemented, as permitted by thePartnership Agreement, in the fourth quarter of 2005. Since October 1, 2005,interest is charged on the full amount of non-permanent loans provided to us byour affiliates, rather than just the proportion thereof relating to unpaidmanagement fees paid on our behalf by an affiliate of the General Partner.  Also from October 1, 2005, we are charged ourallocation of the bank fees and deferred financing costs relating to VirginMedia’s senior credit facilities.

*Exchange losses/gains*

For the year ended December 31, 2006, foreigncurrency exchange losses were $277,062 compared with gains of $219,959 for2005.  The change in exchange losses/gains is primarily attributable to the impact of fluctuations in the valuationof the U.S. dollar on certain of our assets and transactions, which aredenominated in pounds sterling.  Ourresults of operations will continue to be affected by foreign exchange ratefluctuations.

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*Minorityinterest*

In 2006 we released the minority interest provision of$748,119 as the losses of NTL South Herts have exceeded the equity capital. In2005, we recorded a minority interest expense of $654,656. We recorded a chargefor the minority interest in NTL South Herts when the assets of NTL South Hertsexceeded its liabilities. Until the quarter ended December 31, 2004, thelosses of NTL South Herts applicable to the minority interest exceeded the minorityinterest in the equity capital of NTL South Herts.  In accordance with Accounting ResearchBulletin 51, or ARB 51, paragraph 15, such excess and further losses applicableto the minority interest have been charged against the majority interest, asthere is no obligation on the part of the minority interest to make good suchlosses.

*Cumulativeeffect of changes in accounting principle*

In June 2005, the Financial Accounting StandardsBoard, or FASB issued FSP FAS 143-1, *Accounting for ElectronicEquipment Waste Obligations,* (FSP 143-1). The FASB issued the FSP toaddress the accounting for certain obligations associated with the WasteElectrical and Electronic Equipment Directive adopted by the European Union(EU). FSP 143-1 requires that the commercial user should apply its provisionsto certain obligations associated with historical waste (as defined by theDirective), since this type of obligation is an asset retirementobligation.  The Directive was adopted bythe U.K. on December 12, 2006, and is effective January 2, 2007.  Virgin Media has reviewed their obligationunder the law and concluded that an obligation exists for certain of ourcustomer premises equipment.  As aresult, we have recognized an addition to fixed assets of $319,380 and anobligation to our parent of $761,359 on our balance sheet at December 31, 2006 anda cumulative 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 standardwill result in a change in the allocated overheads from the General Partner infuture periods.

*Net income*

For the year ended December 31, 2006, net losswas $3.3 million as compared with a net income of $1.2 million in 2005 dueprimarily to the increase in interest expense and the cumulative effect ofchange in accounting principle as described above.

***Years Ended December 31, 2005 and 2004***

We present below summarized consolidated financialinformation for the years ended December 31, 2005 and 2004:
|                                               | ** ** | **Year ended December 31,** | ** ** | **Increase (decrease)** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|------------------------------|------------|
| ** **                                    | ** ** | **2005**                                   | ** ** | **2004**                     | ** ** | **$** | ** ** | **%** | ** ** |
|                                          |       |                                       |       |                         |       |   |   |   |   |
| Revenue                                       |       | $                                          | 38,740,331 |                         | $          | 38,042,360 |   | $ | 697,971 |   | 1.8 | % |
| Cost of goods  sold                           |       | (10,430,813                                | )          | (11,550,360                  | )          | (1,119,547 | ) | (9.7 | ) |
| Selling, general  and administrative expenses |       | (92,063                                    | )          | (103,018                     | )          | (10,955 | ) | (10.6 | ) |
| Management fees  and allocated overhead       |       | (17,063,743                                | )          | (14,321,728                  | )          | 2,742,015 |   | 19.1 |   |
| Other charges                                 |       | (653,559                                   | )          | (602,691                     | )          | 50,868 |   | 8.4 |   |
| Depreciation                                  |       | (5,882,179                                 | )          | (6,621,976                   | )          | (739,797 | ) | (11.2 | ) |
| Operating income                              |       | 4,617,974                                  |       | 4,842,587                    |       | (224,613 | ) | (4.6 | ) |
| Interest expense                              |       | (2,957,398                                 | )          | (2,203,792                   | )          | 753,606 |   | 34.2 |   |
| Foreign exchange  gains / losses              |       | 219,959                                    |       | (143,217                     | )          | (363,176 | ) | — |   |
| Net income  before minority interest          |       | 1,880,535                                  |       | 2,495,578                    |       | (615,043 | ) | (24.6 | ) |
| Minority  interest                            |       | (654,656                                   | )          | (94,898                      | )          | 559,758 |   | — |   |
| Net income                                    |       | $                                          | 1,225,879  |                         | $          | 2,400,680 |   | (1,174,801 | ) | (48.9 | ) |
|                                               |            |                                            |            |                              |            |  |  |  |  |  |  |  |

 

*Revenue*

For the year ended December 31, 2005 revenueincreased by 1.8% to $38.7 million from $38.0 million in 2004 and revenueexpressed in pounds sterling increased by 2.5% to £21.3 million in 2005 from£20.8 million in 2004, due primarily to the impact of price rises and gainingmore broadband customers. At December 31, 2005, we served 20,078 broadbandcustomers compared with 15,275 at December 31, 2004.

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*Expenses*

*Costs of goods sold*

For the year ended December 31, 2005, costs ofgoods sold decreased by 9.7% to $10.4 million from $11.6 million in 2004 and costof goods sold expressed in pounds sterling decreased by 9.1% to £5.7 million in2005 from £6.3 million in 2004.  Costs ofgoods sold as a percentage of revenue declined to 26.9% for the year endedDecember 31, 2005, from 30.4% for 2004, primarily because revenue growthwas focused on higher-margin services and customers, particularly consumerbroadband internet services.

*Selling, general and administrative expenses*

For the year ended December 31, 2005, selling,general and administrative expenses decreased by 10.6% to $92,063 from $103,018in 2004 primarily due to savings in selling, general and administrative coststhrough negotiated reductions in investor relations’ costs.

*Management fees and allocated overhead*

For the year ended December 31, 2005, managementfees and allocated overhead increased by 19.1% to $17.1 million from $14.3million in 2004. Management fees and allocated overhead expressed in poundssterling increased by 20.0% to £9.4 million in 2005 from £7.8 million in 2004.The business of NTL South Herts is managed as an integral part of Virgin Media.The combined costs of managing the larger group are allocated to each entitywithin the Virgin Media group, including NTL South Herts, on a consistent andproportional basis according to the level of trading in that entity.  The increase in the amounts charged to usresulted primarily from the increase in the allocable cost base but morespecifically from increases in network repair and maintenance, marketing andcommunications costs and allowances for doubtful debts offset by reduced levelsof set-top box repair and recycling costs and lower employee costs throughinvoluntary employee terminations at the end of 2004.

*Other charges*

For the year ended December 31, 2005, othercharges increased to $653,559 from $602,691 in 2004. Other charges principallycomprised restructuring costs allocated to us by a subsidiary of Virgin Mediain respect of lease exit costs in connection with properties that have beenvacated and for employee severance and related costs in connection with itscall center consolidation program. Charges allocated to us by a subsidiary ofVirgin Media are made on the basis of an allocation formula appropriate to eachcategory of charge that is based on a methodology that is considered to bereasonable in management’s judgment given the facts and circumstances. Othercharges in the year ended December 31, 2004 related to Virgin Media’s callcenter consolidation program.

*Depreciationexpense*

For the year ended December 31, 2005,depreciation expense decreased to $5.9 million from $6.6 million in 2004,principally because certain assets became fully depreciated in 2005.

*Interest expense*

Two changes to the interest expense charging policieswere implemented, as permitted by the Partnership Agreement, in the fourthquarter of 2005.  Effective October 1,2005, interest is charged on the full amount of non-permanent loans provided tous by our affiliates, rather than just the proportion thereof relating tounpaid management fees paid on our behalf by an affiliate of the GeneralPartner.  Also effective October 1, 2005,we are charged our allocation of the bank fees and deferred financing costsrelating to Virgin Media’s senior credit facilities.

For the year ended December 31, 2005, interest expenseincreased to $3.0 million from $2.2 million in 2004.  The increase in interest expense is primarilyowing to the increase in the amount of non-permanent loans on which interest ischarged and of allocated bank fees and deferred financing costs. The increasein interest on non-permanent loans was $359,805 and the impact of theallocation of bank fees and deferred financing costs was $268,295, for acombined impact of $628,100.  Thisincrease is offset by favorable exchange rate movements and a lower effectiveaverage interest rate for Virgin Media’s cost of financing.

*Exchangegains/( losses)*

For the year ended December 31, 2005, foreigncurrency exchange gains were $219,959 compared with a loss of $143,217 for2004.  The change in exchangegains/losses is primarily attributable to fluctuations in the valuation of theU.S.

39

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dollaron certain of our assets and transactions, which are denominated in poundssterling. Our results of operations will continue to be affected by foreignexchange rate fluctuations.

*MinorityInterest*

In 2005, we recorded a minority interest of $654,656.We record a charge for the minority interest in NTL South Herts when the assetsof NTL South Herts exceeds its liabilities. Until the quarter ended December 31,2004, the losses of NTL South Herts applicable to the minority interestexceeded the minority interest in the equity capital of NTL South Herts.  In accordance with Accounting ResearchBulletin 51, or ARB 51, paragraph 15, such excess and further losses applicableto the minority interest have been charged against the minority interest, asthere is no obligation on the part of the minority interest to make good suchlosses.  The minority interests charge forthe year ended December 31, 2004 was $94,898, which represented 33.33% of thenet assets as at that date.

*NetIncome*

For the year ended December 31, 2005, net incomewas $1.2 million as compared with $2.4 million in 2004 due primarily to theincrease in the minority interest expense together with the increase ininterest expense as described above.

**Statement of Cash Flows**

***Years Ended December 31,2006 and 2005***

For the year ended December 31, 2006, cashprovided by operating activities decreased to $1.4 million from $13.4 millionin 2005.

For the year ended December 31, 2006, purchase offixed assets decreased to $1.4 million from $13.4 million in 2005. Expressed inpounds sterling, the purchase of fixed assets decreased to £0.6 million from£7.3 million in 2005.

***Years Ended December 31,2005 and 2004***

For the year ended December 31, 2005, cashprovided by operating activities increased to $13.4 million from $3.3 millionin 2004.

For the year ended December 31, 2005, purchase offixed assets increased to $13.4 million from $3.3 million in 2004. Expressed inpounds sterling, the purchase of fixed assets increased to £7.3 million from£1.8 million in 2004. Purchase of fixed assets related primarily to thetransfer of network assets from an affiliate amounting to $11.6 milliontogether with $1.8 million fixed asset additions through customerinstallations, particularly broadband. The asset transfer from the affiliatewas effective December 31, 2005 consequently there was no impact on thedepreciation charge for the year.

**Liquidityand Capital Resources**

##### **Outstanding Indebtedness**

We have no financing independent of Virgin Media.  We are reliant upon the support of VirginMedia to continue our operations. As of December 31, 2006 we hadconsolidated current liabilities of $71.2 million due to Virgin Media Groupcompanies compared with $64.3 million as of December 31, 2005.

Historically, oursource of cash had been the net proceeds of our offerings of limitedpartnership interests and our principal uses of cash have been capitalcontributions to NTL South Herts in order to fund our proportionate share ofthe construction costs of the South Herts System.

Accordingly, untilsuch time as NTL South Herts begins to pay dividends on its ordinary shares(which is not expected in the foreseeable future) we will be required to fundour administrative 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

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cover operating expenses,and will continue to be dependent upon Virgin Media to meet our liquidityrequirements for the foreseeable future. We expect that cash from our operations in 2007 will be utilized fullyfor the purchase of fixed assets including connecting new customers to ournetworks.

**Off-Balance Sheet Arrangements**

We have no off-balancesheet arrangements as of December 31, 2006.

###### **Contractual Obligations and CommercialCommitments**

We have nosignificant contractual obligations and commercial commitments as ofDecember 31, 2006.

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

The functionalcurrency of NTL South Herts is pounds sterling and all revenue andsubstantially all costs are incurred in pounds sterling. We report in U.S.dollars. Therefore, we are exposed to fluctuations in the pound sterling toU.S. dollar exchange rate.

The aggregatepotential loss from a hypothetical one-percent fall in the pound sterling /U.S. dollar exchange rate is $34,811 for the year ended December 31, 2006.

We have no debtother than amounts due to affiliates. As of December 31, 2006, we had$71.2 million in amounts due to Virgin Media. Interest on amounts due toaffiliates is at a variable rate based on the average rate incurred by VirginMedia. Therefore we are exposed to changes in Virgin Media’s borrowing rate.The aggregate potential loss from a hypothetical one-percentage point increasein the interest rate is $649,001 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 are on pages F-1 to F-14 of this annual report. The following isa summary of the quarterly results of operations for the years endedDecember 31, 2006 and 2005.
|                                                                                         | ** ** | **2006**                         | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                              | ** ** | **Three Months Ended** | ** ** |
| ** **                                                                              | ** ** | **March 31**                |       | **June 30** |   | **September 30** |   | **December 31** | ** ** |
| ** **                                                                              | ** ** | ** **                       |       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                                 |       | $                                | 9,170,963  |   | $ | 9,664,617 |   | $ | 9,922,154 |   | $ | 10,038,393 |   |
| Operating income                                                                        |       | 792,084                          |       | 628,959 |   | 570,516 |   | 699,238 |   |
| Loss before minority  interest and cumulative effect of changes in accounting principle |       | (734,358                         | )          | (942,921 | ) | (993,871 | ) | (978,012 | ) |
| Minority interest                                                                       |       | 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 | ) |

 
|                                                | ** ** | **2005**                         | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|
| ** **                                     | ** ** | **Three Months Ended** | ** ** |
| ** **                                     | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                     | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                        |       | $                                | 10,247,295 |   | $ | 9,974,629 |   | $ | 9,543,147 |   | $ | 8,975,260 |   |
| Operating income                               |       | 1,469,018                        |       | 994,361 |   | 1,470,718 |   | 683,877 |   |
| Income (loss) before  minority interest        |       | 913,996                          |       | 517,914 |   | 927,601 |   | (478,976 | ) |
| Minority interest                              |       | (319,979                         | )          | (162,724 | ) | (325,757 | ) | 153,804 |   |
| Net income (loss)                              |       | 594,017                          |       | 355,190 |   | 601,844 |   | (325,172 | ) |
| Net income (loss) per limited partnership unit |       | $                                | 10.33      |   | $ | 6.18 |   | $ | 10.47 |   | $ | (5.65 | ) |

 

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**Item 9.     Changes in and Disagreements withAccountants on Accounting and****FinancialDisclosure**

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, or the Exchange Act) as of theend of the period covered by this report. Based on such evaluation, VirginMedia’s Chief Executive Officer and Chief Financial Officer have concludedthat, as of the end of such period, these controls and procedures are effectiveto ensure that information required to be disclosed by the registrant in thereports the registrant files or submits under the Exchange Act is recorded,processed, summarized, and reported within the time periods specified in theSEC’s rules and forms. These disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by the registrant in the reports that it files or submitsis accumulated and communicated to the registrant’s management, includingVirgin Media’s Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

We are not anaccelerated filer, as defined in Rule 12b-2 of the Exchange Act.  As a result, we are required to comply withthe requirements of Section 404 of the Sarbanes-Oxley Act, as adopted bythe SEC, for fiscal years ending on or after December 15, 2007 withrespect to the requirement to file an internal control report and for thefiscal years ending on or after December 15, 2008 with respect to therequirement to file an auditor’s attestation report.  We therefore expect to file our firstinternal control report certification when filing an annual report onForm 10-K for the year ending December 31, 2007 and our first auditor’sattestation report when filing an annual report on Form 10-K for the year endingDecember 31, 2008.

*(b)*                               Changesin Internal Control Over Financial Reporting

On March 3,2006, Virgin Media completed the reverse acquisition of Telewest and onJuly 4, 2006, Virgin Media completed the acquisition of Virgin Mobile. Asa consequence of Virgin Media’s integration of these acquisitions, Virgin Mediahas made and expects to make further material changes to our internal controlover financial reporting. Other than as stated above, there were no changes inour internal control over financial reporting (as such term is defined inRules 13a-15(f) and 15d-15(f) under the ExchangeAct) during the fourth fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

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*                 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.

**PART III**

**Item 10.  Directors,  Executive Officers and Corporate Governance**

We have noofficers or directors. Certain information concerning directors and executiveofficers of our General Partner is set forth below.
| Name             | ** ** | **Age** | ** ** | **Title**              |
|------------------|------------|---------|------------|------------------------|
| Robert Mackenzie |       | 44      |       | Director and Secretary |
| Robert Gale      |       | 47      |       | Director               |

 

*Robert Mackenzie*

Mr. Mackenzie,age 44, has been the Secretary and Director of our General Partner sinceMay 30, 2000 and is Virgin Media’s Group Legal Director. He joinedInternational CableTel Incorporated in 1993, to establish the legal departmentin the U.K. and acted as Company Secretary for the newly formed CableTel,subsequently renamed Virgin Media. From 1988 to

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1993,Mr. Mackenzie worked for Theodore Goddard as a Solicitor in the CorporateFinance department advising public and private companies on corporate finance,takeovers, domestic and international mergers and acquisitions. He wasadditionally seconded to corporate brokers Phoenix Securities Ltd. as Mergers &Acquisition Manager. Previously he worked for Mischon de Reya, handling HighCourt commercial litigation. He was admitted as a Solicitor in 1987, andgraduated in law from King’s College, University of London. His Law Societyfinals were taken at College of Law, London.

*RobertGale*

Mr. Gale, age47, is the vice president—controller of Virgin Media. He has held this positionsince June 17, 2003. Mr. Gale joined Virgin Media in May 2000from Cable & Wireless Communications plc, where he was head of financefor the ConsumerCo business acquired by Virgin Media. In October 2000, hewas appointed as group director of financial control for Virgin Media’s UKoperations. He had joined Cable & Wireless in January 1998. From1995 to 1997, Mr. Gale was chief financial officer of ComTel, a cableoperator subsequently acquired by Virgin Media. Between 1989 and 1995,Mr. Gale was group financial controller at TVS Entertainment PLC, a UKtelevision broadcaster and program producer. Mr. Gale is a chartered accountantand worked for KPMG at its London office between 1981 and 1989.

As we have noofficers, directors, or employees, we have not adopted a code of ethics.  However, Virgin Media has adopted a code ofethics for its senior executive and financial officers, which Virgin Media’scode of ethics 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 noemployees; however, various personnel are required to operate our network.Personnel are employed by Virgin Media and its affiliates and, pursuant to theterms of our Partnership Agreement, Virgin Media and its affiliates charge thecost of such employment to us as a direct reimbursement item. See Item 13, “CertainRelationships and 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 GeneralPartner purchased one of our partnership interests by contributing $1,000 toour capital.

No person orentity known to us owns more than 5% of our limited partnership interests. Nodirectors or executive officers of our General Partner beneficially own any ofour limited partnership interests.

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

Our GeneralPartner and its affiliates engage in certain transactions with us ascontemplated by our Partnership Agreement and as disclosed in the prospectusesfor our public offerings. Our General Partner believes that the terms of suchtransactions, which are subject to our Partnership Agreement, are generally asfavorable as those that we could have obtained from unaffiliated parties. Thisdetermination has been made by our General Partner in good faith, but none ofthe terms were or will be negotiated at arm’s-length and there can be noassurance that the terms of such transactions have been or will be as favorableas those that we could have obtained from unaffiliated parties.

An affiliate ofour General 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, 2006 totaled $1,939,806.

Our GeneralPartner and its affiliates are entitled to reimbursement from NTL South Hertsfor direct and indirect expenses allocable to the operation of its network andfrom us for direct and indirect expenses allocable to our operation, whichinclude but are not limited to rent, supplies, telephone, travel and salariesof any full or part time employees. Allocable direct or indirect expenses paidor payable by us for the year ended December 31, 2006 totaled $15,730,952.

Our GeneralPartner and its affiliates may make advances to, and defer collection of feesand allocated expenses owed by

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us, although they are notrequired to do so. For the year ended December 31, 2006, aggregated interest,bank fees and finance charges of $5,955,219 relating to non-permanent loans wascharged by affiliates of the General Partner, and interest on advances of$140,409 was charged by an affiliate of the General Partner at a rate equal tothe General Partner’s or certain affiliates effective average cost of debtfinancing from unaffiliated entities, which does not differ from their weightedaverage cost of debt financing.

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

For thedescription of transactions between Virgin Media and related parties, pleasesee Item 13 in Virgin Media’s annual report on Form 10-K filed with the SEC onMarch 1, 2007.

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

Ernst &Young LLP are our principal accountants. We are not billed directly byErnst & Young LLP for services, but are allocated a proportion of thefees charged to Virgin Media by Ernst & Young LLP. We provide in thetable below an analysis of the fees charged to Virgin Media by Ernst &Young LLP and allocated to us in the each of the two years endedDecember 31, 2006 and 2005.
|                    | ** ** | **Year ended December 31,** | ** ** |
|--------------------|------------|--------------------------------------------|------------|
| ** **         | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
|               |       |                                       |       |   |   |
| Audit fees         |       | $                                          | 61,335     |   | $ | 68,005 |   |
| Audit-Related fees |       | 667                                        |       | 833 |   |
| Tax fees           |       | 23,751                                     |       | 40,390 |   |
| All other fees     |       | —                                     |       | — |   |
|               |       | $                                          | 85,753     |   | $ | 109,228 |   |

 

*Audit fees*. Audit fees representthe aggregate services provided to us by Ernst & Young forprofessional services rendered for the audit of our annual financial statementsand review of financial statements included in our Form 10-K, includingaccounting consultations on matters addressed during the audit and interimreviews. These fees also include services that are provided in connection withour statutory and regulatory filings.

*Audit-Related fees*. Audit-Relatedfees represent the aggregate fees charged for assurance and related services byErnst & Young that are related to the audit or review of our financialstatements, including other accounting consultations. Audit-Related servicesinclude advice relating to the Sarbanes-Oxley Act of 2002 including advice toVirgin Media on reporting on internal controls under Section 404.

*Tax fees*. Tax fees represent theaggregate fees charged for professional services rendered by Ernst &Young for tax compliance, tax advice and tax planning.

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

**Audit Committee’s Pre-approval Policies andProcedures**

We have no Audit Committee. The Audit Committee of theboard of directors of Virgin Media reviews, acts on and reports to the board ofdirectors of Virgin Media with respect to various auditing and accountingmatters. In this capacity, the audit committee acts on our behalf asnecessary.  The current members of theAudit Committee are Charles K. Gallagher, who is its chairman and who the boardof directors has determined to be an audit committee financial expert, DavidElstein, George R. Zoffinger and Jeffrey D. Benjamin. The members of the AuditCommittee are independent within the meaning of the Nasdaq National Marketslisting standards currently applicable to Virgin Media.

Virgin Media’s Audit Committee’spolicy on pre-approval requirements for audit and non-audit services providedto us by our independent registered public accounting firm is as follows:

Annually,the Audit Committee will agree the scope and terms, including the fees, ofthe engagement for the services to be provided by the Auditors as part of therecurring annual audit of Virgin Media (“the Annual Audit Services”). Theservices included as part of the Annual Audit Services include: the audit ofVirgin Media’s consolidated financial statements and its internal control overfinancial reporting; the audit of the separate financial statements of SouthHertfordshire United Kingdom Fund, Ltd (“South Herts”), Virgin Media InvestmentHoldings Limited and Subsidiaries (“VMIH”), Virgin Media Finance PLC and anyother subsidiaries or affiliates which may require audits in relation tosecurities issued or to be issued, including, if required, the audits of theirinternal control over financial reporting; the review of interim unauditedfinancial statements of Virgin Media and the separate interim unauditedfinancial statements of South Herts and VMIH and any other subsidiaries oraffiliates which may require reviews in relation to securities issued or to beissued; the statutory audits of the financial statements of Virgin Media’saffiliates and subsidiaries.

Annually,the Audit Committee will pre-approve, on a category basis, Additional Auditservices, such as correspondence with regulatory agencies, consents to registration statements, comfortletters, and other financial reports required by regulatory bodies.

Quarterly, theAudit Committee will pre-approve, on an engagement specific basis, the AuditRelated services, Tax services and Other services for permissible services asset forth in the pre-approval policy, plus any additional categories ofAdditional Audit services not included in the annual 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 ofthe Audit Committee has delegated authority to pre- approve Services within thescope of Permitted Services listed below on an ad-hoc basis to meet specificneeds with estimated fees of up to £100,000 per engagement. The Chairman willreport any such services approved in this manner to the next meeting.

44

----

**PART IV**

**Item 15.  Exhibits andFinancial Statement Schedules**

(a)                          (1) *Financial Statements—*See list of Financial Statements onpage F-1.

(2) *Financial Statement Schedules—*See list of FinancialStatement Schedules on page F-1.

(3) *Exhibits—*See Exhibit Index.

45

----

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

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**CONSOLIDATEDFINANCIAL STATEMENTS**

**As ofDecember 31, 2006, and 2005**

**and forthe Years Ended December 31, 2006, 2005, and 2004**

The followingconsolidated financial statements of South Hertfordshire United Kingdom Fund,Ltd. are included 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 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 ofIndependent Registered Public 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) as of December 31, 2006 and 2005,and the related consolidated statements of operations, comprehensive income(loss), partners’ capital (deficit) and cash flows for each of the three yearsin the period ended December 31, 2006. These financial statements and schedules are the responsibility of theGeneral Partner’s management.  Ourresponsibility is to express an opinion on these financial statements andschedules 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 theCompany’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 the Company’sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of South Hertfordshire United Kingdom Fund, Ltd. as ofDecember 31, 2006 and 2005, and the consolidated results of its operationsand its cash flows for each of the three years in the period ended December 31,2006, in conformity with U.S. generally accepted accounting 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 December12, 2006.

Ernst & Young LLPLondon, EnglandMarch 23, 2007

F-2

----

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATEDBALANCE SHEETS**
| ** **                                                                                                 | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                 | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                 | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Fixed assets, net                                                                                          |       | $                           | 66,079,566 |                        | $          | 63,195,826 |   |
|                                                                                                       |       |                        |       |                        |       |
| **Total assets**                                                                                           |       | $                           | 66,079,566 |                        | $          | 63,195,826 |   |
|                                                                                                       |       |                        |       |                        |       |
| **Liabilities and Partners’  Deficit**                                                                | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Current liabilities                                                                                        |       |                        |       |                        |       |
| Accounts payable  to affiliates and related parties                                                        |       | $                           | 71,196,561 |                        | $          | 64,324,939 |   |
| Total liabilities                                                                                          |       | 71,196,561                  |       | 64,324,939                  |       |
|                                                                                                       |       |                        |       |                        |       |
| **Minority interest**                                                                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Minority interest                                                                                          |       | —                      |       | 707,259                     |       |
|                                                                                                       |       |                        |       |                        |       |
| **Partners’ Capital (Deficit)**                                                                       | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| General Partner                                                                                            |       |                        |       |                        |       |
| Contributed  capital                                                                                       |       | 1,000                       |       | 1,000                       |       |
| Accumulated  deficit                                                                                       |       | (535,751                    | )          | (502,583                    | )          |
|                                                                                                       |       | (534,751                    | )          | (501,583                    | )          |
| Limited Partners                                                                                           |       |                        |       |                        |       |
| Contributed  capital, net (56,935 units outstanding at December 31, 2006 and  December 31, 2005) |       | 48,817,997                  |       | 48,817,997                  |       |
| Accumulated  deficit                                                                                       |       | (52,758,352                 | )          | (49,474,599                 | )          |
|                                                                                                       |       | (3,940,355                  | )          | (656,602                    | )          |
| Accumulated  comprehensive loss                                                                            |       | (641,889                    | )          | (678,187                    | )          |
| Total Partners’  deficit                                                                              |       | (5,116,995                  | )          | (1,836,372                  | )          |
|                                                                                                       |       |                        |       |                        |       |
| **Total liabilities and Partners’ deficit**                                                           |       | $                           | 66,079,566 |                        | $          | 63,195,826 |   |

 

The accompanyingnotes

are anintegral part of these consolidated financial statements.

F-3

----

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**
| ** **                                                                                           | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **Revenue**                                                                                          |       | $                                          | 38,796,127 |   | $ | 38,740,331 |   | $ | 38,042,360 |   |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **Costs and expenses**                                                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of goods sold  (exclusive of depreciation shown separately below)                               |       | (10,014,523                                | )          | (10,430,813 | ) | (11,550,360 | ) |
| Selling, general and  administrative expenses                                                        |       | (94,878                                    | )          | (92,063 | ) | (103,018 | ) |
| Management fees and  allocated overhead from the General Partner                                     |       | (17,670,758                                | )          | (17,063,743 | ) | (14,321,728 | ) |
| Other charges                                                                                        |       | (1,349,828                                 | )          | (653,559 | ) | (602,691 | ) |
| Depreciation                                                                                         |       | (6,975,343                                 | )          | (5,882,179 | ) | (6,621,976 | ) |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **Operating income**                                                                                 |       | 2,690,797                                  |       | 4,617,974 |   | 4,842,587 |   |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **Other expenses**                                                                                   | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest payable to  general partner and affiliates                                                  |       | (6,062,897                                 | )          | (2,957,398 | ) | (2,203,792 | ) |
| Other interest charges                                                                               |       | —                                     |       | — |   | — |   |
| Exchange (losses) gains                                                                              |       | (277,062                                   | )          | 219,959 |   | (143,217 | ) |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **(Loss) income before minority  interest and cumulative effect of changes in accounting principle** |       | (3,649,162                                 | )          | 1,880,535 |   | 2,495,578 |   |
| Cumulative effect of  changes in accounting principle                                                |       | (415,878                                   | )          | — |   | — |   |
| Minority interest                                                                                    |       | 748,119                                    |       | (654,656 | ) | (94,898 | ) |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **Net (loss) income**                                                                                |       | $                                          | (3,316,921 | ) | $ | 1,225,879 |   | $ | 2,400,680 |   |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **Allocation of net (loss) income**                                                                  | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| General Partner                                                                                      |       | $                                          | (33,168    | ) | $ | 12,259 |   | $ | 24,007 |   |
| Limited Partners                                                                                     |       | (3,283,753                                 | )          | 1,213,620 |   | 2,376,673 |   |
| **Net (loss) income**                                                                                |       | $                                          | (3,316,921 | ) | $ | 1,225,879 |   | $ | 2,400,680 |   |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **Net (loss) income per limited  partnership unit**                                                  |       | $                                          | (57.68     | ) | $ | 21.32 |   | $ | 41.74 |   |
|                                                                                                 |       |                                       |       |   |   |   |   |
| **Average number of limited partnership units  outstanding**                                         |       | 56,935                                     |       | 56,935 |   | 56,935 |   |

 

The accompanying notes

are anintegral part of these consolidated financial statements.

F-4

----

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOME (LOSS)**
| ** **                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                      |       |                                       |       |   |   |   |   |
| Net (loss) income                         |       | $                                          | (3,316,921 | ) | $ | 1,225,879 |   | $ | 2,400,680 |   |
| Foreign currency  translation adjustments |       | (34,243                                    | )          | (93,230 | ) | (62,345 | ) |
|                                      |       |                                       |       |   |   |   |   |
| Comprehensive (loss) income               |       | $                                          | (3,351,164 | ) | $ | 1,132,649 |   | $ | 2,338,335 |   |

 

The accompanyingnotes

are anintegral part of these consolidated financial statements.

F-5

----

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATEDSTATEMENTS OF PARTNERS’ CAPITAL (DEFICIT)**
| ** **                      | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                            |       |                                       |       |   |   |   |   |
| General Partner:                |       |                                       |       |   |   |   |   |
| Balance, beginning of  year     |       | $                                          | (501,583   | ) | $ | (513,842 | ) | $ | (537,849 | ) |
| Net (loss) income for  the year |       | (33,168                                    | )          | 12,259 |   | 24,007 |   |
| Balance, end of the  year       |       | $                                          | (534,751   | ) | $ | (501,583 | ) | $ | (513,842 | ) |
|                            |       |                                       |       |   |   |   |   |
| Limited Partners:               |       |                                       |       |   |   |   |   |
| Balance, beginning of  year     |       | $                                          | (656,602   | ) | $ | (1,870,222 | ) | $ | (4,246,895 | ) |
| Net (loss) income for  the year |       | (3,283,753                                 | )          | 1,213,620 |   | 2,376,673 |   |
| Balance, end of the  year       |       | $                                          | (3,940,355 | ) | $ | (656,602 | ) | $ | (1,870,222 | ) |
|                            |       |                                       |       |   |   |   |   |
| Accumulated  comprehensive loss |       | (641,889                                   | )          | (678,187 | ) | (584,957 | ) |
| Total Partners’ deficit    |       | $                                          | (5,116,995 | ) | $ | (1,836,372 | ) | $ | (2,969,021 | ) |

 

The accompanyingnotes

are anintegral part of these consolidated financial statements.

F-6

----

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**
| ** **                                                                                          | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                |       |                                       |       |   |   |   |   |
| **Cash flows from operating  activities**                                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net (loss) income                                                                                   |       | $                                          | (3,316,921 | ) | $ | 1,225,879 |   | $ | 2,400,680 |   |
| Adjustments to  reconcile net(loss) income to net cash provided by (used in) operating  activities: |       |                                       |       |   |   |   |   |
| Cumulative effect of  changes in accounting principle                                               |       | 415,878                                    |       | — |   | — |   |
| Minority interest                                                                                   |       | (748,119                                   | )          | 654,656 |   | 94,898 |   |
| Depreciation                                                                                        |       | 6,975,343                                  |       | 5,882,179 |   | 6,621,976 |   |
| Change in operating  assets and liabilities:                                                        |       |                                       |       |   |   |   |   |
| Decrease in other  assets                                                                           |       | —                                     |       | — |   | — |   |
| (Decrease) increase in  accounts payable to affiliates and related parties                          |       | (1,883,235                                 | )          | 5,595,905 |   | (5,774,435 | ) |
| **Net cash provided by (used in)  operating activities**                                            |       | 1,442,946                                  |       | 13,358,619 |   | 3,343,119 |   |
|                                                                                                |       |                                       |       |   |   |   |   |
| **Cash flows from investing  activities**                                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchase of fixed  assets                                                                           |       | (1,442,946                                 | )          | (13,358,619 | ) | (3,343,119 | ) |
| **Net cash used in investing  activities**                                                          |       | (1,442,946                                 | )          | (13,358,619 | ) | (3,343,119 | ) |
|                                                                                                |       |                                       |       |   |   |   |   |
| **Cash flows from financing  activities**                                                           |       | —                                     |       | — |   | — |   |
| **Net cash used in financing  activities**                                                          |       | —                                     |       | — |   | — |   |
|                                                                                                |       |                                       |       |   |   |   |   |
| Increase (decrease) in  cash and cash equivalents                                                   |       | —                                     |       | — |   | — |   |
| Cash and cash  equivalents, beginning of year                                                       |       | —                                     |       | — |   | — |   |
| Cash and cash equivalents, end of year                                                              |       | —                                     |       | — |   | — |   |
|                                                                                                     |            |                                            |            |  |  |  |  |  |  |  |

 

The accompanyingnotes

are anintegral part of these consolidated financial statements.

F-7

----

**SOUTHHERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**1.****           ORGANIZATION ANDPARTNERS’ INTERESTS**

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

SouthHertfordshire United Kingdom Fund, Ltd. (the “Partnership”), a Colorado limitedpartnership, was formed on December 23, 1991, in connection with a publicoffering of its limited partnership interests. The Partnership was formed toacquire, construct, develop, own and operate cable television/telephone systemsin the U.K. NTL Fawnspring Limited, a U.K. corporation, a subsidiary of VirginMedia Inc. or Virgin Media, is the general partner (the “General Partner”) ofthe Partnership.

The GeneralPartner has the authority to manage the business, properties and activities ofthe Partnership. This includes the ability to operate and maintain cabletelevision and telephone properties, and to purchase or lease property at theexpense of the Partnership, the ability to make on behalf of the Partnershipall payments required of the Partnership for all direct and indirect costsincurred in the conduct of its business, the ability to borrow money in thename of the Partnership, and the obligation to maintain accurate financialrecords and to prepare and file the reports required under applicableregulations.

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

The capitalizationof the Partnership is set forth in the accompanying Consolidated Statements ofPartners’ Capital (Deficit). No existing partner is obligated to make anyadditional contributions to partnership capital.

The GeneralPartner purchased its interest in the Partnership by contributing $1,000 topartnership capital.

Profits, lossesand distributions 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 profitsallocated to the limited partners and General Partner is the net profit or lossrather than the comprehensive income. The net profit or loss does not takeaccount of any foreign currency translation adjustments, as these areunrealized. The net profit or loss per limited partner unit is calculated afterallocating 1% of the net profit or loss to the General Partner. For the yearended December 31, 2006 the loss per limited partner unit amounted to$57.68.

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

NTL (SouthHertfordshire) Limited (“NTL South Herts”) is a U.K. corporation originallyowned by Jones Global Funds, Inc. (the previous general partner) and JonesCable Group, Ltd., an affiliate of the previous general partner. NTL SouthHerts is the holder of a franchise to own and operate a cabletelevision/telephone system in the South Hertfordshire franchise area, locatedadjacent to the northwest perimeter of Greater London, England (the “SouthHerts System”).

NTL South Herts isowned 66.7% by the Partnership and 33.3% by Virgin Media. Virgin Media alsoowns the General Partner. The General Partner provides consulting services tothe Partnership and may delegate some or all of the consulting services toVirgin Media or to other affiliates.

F-8

----

**2.****           SIGNIFICANT ACCOUNTINGPOLICIES**

***Basisof Presentation***

The accompanying consolidated financial statementshave been prepared in accordance with U.S. generally accepted accountingprinciples.

***Useof Estimates***

The preparation of financial statements in conformitywith U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Such estimates and assumptions impact, amongothers, the following: the amount charged to NTL South Herts by a subsidiary ofVirgin Media for infrastructure and management support services, the amount tobe paid to terminate certain agreements included in restructuring costs, theamount to be paid for other liabilities including contingent liabilities,estimated costs for interconnection, estimates related to the amount of coststo be capitalized in connection with the construction and installation of NTLSouth Herts’ network. Actual results could differ from those estimates.

***Principlesof Consolidation***

The consolidated financial statements include theaccounts of the Partnership, and its subsidiary. Significant intercompanyaccounts and transactions have been eliminated in consolidation. Certain prioryear amounts have been reclassified to conform to the current yearpresentation.

***ForeignCurrency Translation***

The functionalcurrency of the Partnership’s principal operating subsidiary is the poundsterling, while the Partnership’s reporting currency is the U.S. dollar. Theassets and liabilities of the Partnership’s U.K. subsidiary have beentranslated using the exchange rates in effect at the balance sheet dates, andrevenue and expenses are translated at the average rates for the respectiveyears. Exchange gains and losses on translation of the Partnership’s net equityinvestment in the subsidiary is reported as a separate component of accumulatedother comprehensive income (loss) in the statement of partners’ capital(deficit). Foreign currency transaction gains and losses are recorded in thestatements of operations.

***CurrentAssets and Liabilities***

SinceMay 2000, the current assets and liabilities of NTL South Herts have beenmanaged by Virgin Media. Books and records related to accounts receivable,accounts payable and deferred revenue are maintained by Virgin Media. Pursuantto the arrangement between Virgin Media and NTL South Herts contained in theletter of appointment and agreement, NTL South Herts has the legal right tooffset amounts receivable from Virgin Media against amounts payable to VirginMedia. Consequently, the net balance payable by NTL South Herts to Virgin Mediais disclosed under accounts payable to affiliates and related parties in theaccompanying financial statements. Effective from June 2000, the bankaccounts maintained by NTL South Herts were closed and a bank accountmaintained by Virgin Media is used for cash transactions. Accordingly the netresult from cash transactions is also included in accounts payable toaffiliates and related parties.

F-9

----

***FixedAssets***

Fixed assets, net are stated at cost less accumulateddepreciation.

The cost of fixed assets includes amounts capitalizedfor labor and overhead expended in connection with the design and installationof the NTL South Herts’ operating network equipment and facilities. Costsassociated with initial customer installations, additions of network equipmentnecessary to enable enhanced services, acquisition of additional fixed assetsand replacement of existing fixed assets are capitalized. The costs ofreconnecting the same service to a previously installed premise are charged toexpense in the period incurred. Costs for repairs and maintenance are chargedto expense as incurred.

Depreciation isprovided on fixed assets at rates that are intended to write off the cost ofthe assets over their estimated useful lives. Effect is given to commercial andtechnical obsolescence. Depreciation is provided on a straight-line basis over5-30 years for the cable network and other electronic equipment, 30 years forbuildings and 3-12 years for office and other equipment. Depreciation of thecapitalized construction costs begins from the time of receiving the firstrevenue from subscribers. Repairs and maintenance costs are charged to expensewhen incurred.

The assets arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. If the sum of the expectedfuture undiscounted cash flows is less than the carrying amount of the asset, aloss is recognized for the difference between the fair value and the carryingamount of the asset. The fair value of the asset is determined by the higher ofthe discounted cash flows and the net realizable value upon sale.

***RestructuringCosts***

As of January 1, 2003, we adopted FASB StatementNo. 146, *Accounting for CostsAssociated with Exit or Disposal Activities,* or FAS 146, whichrequires us to  recognize a liability forcosts associated with restructuring activities when the liability is incurred.The adoption of FAS 146 did not have a significant effect on our resultsof operations, financial condition or cash flows.

Prior to 2003, we recognized a liability for costsassociated with restructuring activities at the time a commitment torestructure was given, in accordance with EITF 94-3, *Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in arestructuring).* Liabilities for costs associated with restructuringactivities initiated prior to January 1, 2003 continue to be accounted forunder EITF 94-3.

***RevenueRecognition***

We recognize revenue only when it is realized or realizableand earned. The Partnership recognizes revenue when all of the following arepresent:

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

·     delivery has occurred or the services havebeen rendered;

·     the price for the service is fixed ordeterminable; and

·     collectibilityis reasonably assured.

Revenues are invoiced and recorded as part of aperiodic billing cycle, and are recognized as the services are provided. At theend of each period, adjustments are recorded to defer revenue relating toservices billed in advance and to accrue for earned but unbilled services.

·             *Telephone, cabletelevision and internet revenues* are recognized as the services areprovided to customers.

·             *Bundled services revenue*is recognized in accordance with the provisions of EITF No. 00-21, *Accounting for Revenue Arrangements with Multiple Deliverables*to assess whether the components of the bundled services should be recognizedseparately.

F-10

----

·             *Installation revenue*is recognized by applying the provisions of FASB Statement No. 51, *Financial Reporting by Cable Television Companies* inrelation to connection and activation fees for cable television, as well astelephone and internet services, on the basis that we market and maintain aunified fiber network through which we provide all of these services.  Installation revenue is recognized at thetime the installation has been completed to the extent that those fees are lessthan direct selling costs. Installation fees in excess of direct selling costsare deferred and amortized over the expected life of the customer’s connection.

·             *Rental revenue*in respect of line rentals and rental of equipment provided to customers isrecognized on a straight-line basis over the term of the rental agreement.

***AdvertisingCosts***

Advertising costsare expensed as incurred. Advertising costs allocated to NTL South Herts were$772,993, $1,020,654 and $807,228 in 2006, 2005 and 2004, respectively.

***Asset Retirement Obligations***

In June 2005, theFinancial Accounting Standards Board, or FASB issued FSP FAS 143-1, *Accounting for Electronic Equipment Waste Obligations,* (FSP143-1). The FASB issued the FSP to address the accounting for certainobligations associated with the Waste Electrical and Electronic EquipmentDirective adopted by the European Union (EU). FSP 143-1 requires that thecommercial user should apply its provisions to certain obligations associatedwith historical waste (as defined by the Directive), since this type ofobligation is an asset retirement obligation. The Directive was adopted by the U.K. on December 12, 2006, and iseffective January 2, 2007.  Virgin Mediahas reviewed their obligation under the law and concluded that an obligationexists for certain of our customer premises equipment.  As a result, we have recognized an additionto fixed assets of $319,380 and an obligation to our parent of $761,359 on ourbalance sheet 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 adoption ofthis new accounting standard will result in a change in the allocated overheadsfrom the General Partner in future periods.

**3.****           RECENT ACCOUNTINGPRONOUNCEMENTS**

In July 2006, the FASB issued FASB Interpretation(“FIN”) No. 48, *Accounting for Uncertaintyin Income Taxes—an interpretation of FASB Statement 109*. FIN 48prescribes a comprehensive model for recognizing, measuring, presenting anddisclosing in the financial statements tax positions taken or expected to betaken on a tax return, including a decision whether to file or not to file in aparticular jurisdiction. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006. If there are changes in net assets as a result of theapplication of FIN 48 these will be accounted for as an adjustment to retainedearnings.****We****adopted FIN 48effective January 1, 2007. We are continuing to evaluate the impact ofadopting FIN 48, but do not anticipate any significant impact on our financialstatements.

In September 2006, the FASB issued SFASNo. 157, *Fair Value Measurements.*SFAS 157 provides guidance for using fair value to measure assets andliabilities. It also responds to investors’ requests for expanded informationabout the extent to which companies measure assets and liabilities at fairvalue, the information used to measure fair value, and the effect of fair valuemeasurements on earnings. SFAS 157 applies whenever other standardsrequire (or permit) assets or liabilities to be measured at fair value, anddoes not expand the use of fair value in any new circumstances. SFAS 157is effective for financial statements issued for fiscal years beginning afterNovember 15, 2007 and is required to be adopted by us in the first quarterof 2008. We are currently evaluating the effect that the adoption of SFAS 157will have on our consolidated results of operations and financial condition andare not yet in a position to determine such effects.

F-11

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**4.****           TRANSACTIONS WITH THEGENERAL PARTNER AND AFFILIATED ENTITIES**

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

An affiliate ofthe General 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, 2006,2005 and 2004 were $1,939,806, $1,937,016 and $1,902,118, respectively. Theseamounts were expensed in the consolidated statements of operations each year.

***DistributionRatios 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 GeneralPartner and its affiliates are entitled to reimbursement from NTL South Hertsfor direct and indirect expenses allocable to the operation of the South HertsSystem, and from the Partnership for direct and indirect expenses allocable tothe operation 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, 2006,2005 and 2004, reimbursement made by NTL South Herts and the partnership to theGeneral Partner or its affiliates for any allocable direct and indirectexpenses totaled $15,730,952, $15,126,727 and $12,419,610, respectively.

The GeneralPartner and its affiliates may make advances to, and defer collection of feesand allocated expenses owed by, the Partnership, although they are not requiredto do so.  The Partnership is chargedinterest on such advances and deferred amounts 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.  For the years endedDecember 31, 2006, 2005 and 2004, aggregated interest, bank fees and financecharges of $5,922,488, $2,812,193 and $2,039,277, respectively, relating tonon-permanent loans was charged by affiliates of the General Partner, andinterest on advances of $140,409, $145,205 and $164,515, respectively, wascharged by an affiliate of the General Partner.

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.

F-12

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**5.****           OTHER CHARGES**

Other charges of $1.3 million in the year ended December 31, 2006 relatemainly to employee termination and lease exit costs in connection with VirginMedia’s restructuring programs initiated in respect of the reverse acquisitionof Telewest, along with costs in relation to lease exit costs for propertiesthat were vacated prior to the acquisition. Other charges in the year ended December 31, 2005 of $0.7 millionmainly related to changes in cash flow estimates with respect to lease exitcosts in connection with properties that have been vacated.  Other charges of $0.6 million in 2004 relatedto Virgin Media’s announcement to consolidate its call centers.  On April 7, 2004, Virgin Media announcedthe consolidation over the next 18 months of its 13 UK customer service callcenters into three equipped to handle anticipated expansion of its customerbase.  Following an internal review,three specialist call centers were retained and are supported by four sales andcustomer support sites, located throughout the UK. As part of theconsolidation, Virgin Media made additional investments in technology andtraining in order to streamline processes and generate efficiencies.  This program was completed as ofDecember 31, 2005 at a total cost to Virgin Media of $43.1 million.

**6.****           FIXED ASSETS**

Fixed assetsconsist of:
|                                               | ** ** | **Estimated**         | ** ** | **December 31,** | ** **  |
|-----------------------------------------------|------------|-----------------------|------------|-----------------------|-------------|
| ** **                                    | ** ** | **useful lives** | ** ** | **2006**              | ** **  | **2005** | ** ** |
|                                          |       |                  |       |                  |        |   |   |
| Cable Network  and other electrical equipment |       | 5-30 years            |       | $                     | 200,906,290 |   | $ | 174,966,272 |   |
| Building and  other equipment                 |       | 3-30 years            |       | 8,315,630             |        | 7,397,187 |   |
|                                          |       |                  |       | 209,221,920           |        | 182,363,459 |   |
| Accumulated  depreciation                     |       |                  |       | (143,142,354          | )           | (119,167,633 | ) |
|                                          |       |                  |       | $                     | 66,079,566  |   | $ | 63,195,826 |   |

 

**7.****           FINANCING**

The Partnershipand NTL South Herts have no indebtedness other than accounts payable toaffiliates and related parties, all of which are part of the Virgin Mediagroup. Accordingly the Partnership and NTL South Herts are reliant upon thesupport of Virgin Media to continue their operations as a going concern.

**8.****           INCOME TAXES**

Income taxes havenot been recorded in the accompanying consolidated financial statements becausenet income and losses of the Partnership accrue directly to the partners, andits U.K. subsidiary, NTL South Herts, has net operating losses which offsettaxable income arising in the year. The Partnership’s tax returns, thequalification of the Partnership as such for tax purposes, and the amount ofdistributable Partnership income or loss are subject to examination by Federaland state taxing authorities. If such examinations result in changes withrespect to the Partnership’s qualification as such, or in changes with respectto the Partnership’s recorded income or loss, the tax liability of the generaland limited partners would likely be changed accordingly.

The tax basis inthe Partnership’s assets and liabilities is $8 million higher than its bookbasis in its assets and liabilities for financial reporting purposes.

U.K. profits(comprising income and gains) of NTL South Herts will be subject to U.K.corporation tax. However, for U.K. corporation tax purposes, corporations areable to carry forward losses from operations to be offset against subsequentprofits of the same operations.

F-13

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Deferred incometaxes reflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes. Significant components of deferred taxliabilities and assets related to NTL South Herts are as follows:
|                                 | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Deferred tax  liabilities:      |       |                  |       |   |   |
| Depreciation                    |       | $                     | —     |   | $ | — |   |
| Total deferred  tax liabilities |       | —                |       | — |   |
| Deferred tax  assets:           |       |                  |       |   |   |
| Depreciation                    |       | 8,911,620             |       | 5,225,464 |   |
| Net operating loss carryforward |       | 8,035,524             |       | 8,139,647 |   |
| Purchase accounting liabilities |       | 132,596               |       | — |   |
| Total deferred  tax assets      |       | 17,079,740            |       | 13,365,110 |   |
| Valuation allowance             |       | (17,079,740           | )          | (13,365,110 | ) |
| Net deferred tax  assets        |       | —                |       | — |   |
| Net deferred tax  liabilities   |       | $                     | —     |   | $ | — |   |

 

AtDecember 31, 2006, NTL South Herts had U.K. net operating losscarryforwards of $26.8 million. The U.K. net operating loss carryforwards areavailable for utilization in future years and do not expire. Management hasestablished a valuation allowance against the net operating loss carryforwardson the basis that it was not more likely than not that such assets would berealized in the future.

F-14

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**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 29, 2007

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 29, 2007 |
| 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 29, 2007 |
| Robert Gale          |

 

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*            The Partnership has noChief Executive Officer or Chief Financial Officer.  Robert Mackenzie and Robert Gale aredirectors of Virgin Media Directors Limited, which is a Corporate Director ofFawnspring Limited, the General Partner of the Partnership.

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**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                                                                                                                            |

 

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*              Filed herewith.

 

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