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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

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

##  

**Form 10-K**

 

| **(Mark One)** | ** ** | ** **                                                                                                                                                                                                                                        |
|----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **x**          | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                              |
| ** **     | ** ** | ** **                                                                                                                                                                                                                                        |
| ** **     | ** ** | **For the fiscal year ended December 31,  2008**                                                                                                                                                                                             |
| ** **     | ** ** | **or**                                                                                                                                                                                                                                            |
| ** **     | ** ** | ** **                                                                                                                                                                                                                                        |
| **o**          | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                          |
| ** **     | ** ** | ** **                                                                                                                                                                                                                                        |
| ** **     | ** ** | **For the transition period  from                 to                 ** |

 

**Commissionfile number: 000-19889**

 

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

(Exact name of registrant asspecified in its charter)

 

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

 

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

(Address and of principal executive offices including Zip Code)

 

**+44 1256 752000**

(Registrant’s telephonenumber, including area code)

 

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

**None**

 

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

**LimitedPartnership Interests**

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The aggregate market value of the registrant’slimited partnership interests held by non-affiliates as of June 30, 2008,based on a price per limited partnership interest of $89.59 which was theweighted average price at which limited partnership interests were transferredduring the second fiscal quarter of 2008, was $5,100,807.

 

As of March 10, 2009, there were 56,935 limitedpartnership interests of the registrant outstanding.  There is no established public market for theregistrant’s limited partnership interests.

 

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**DOCUMENTS INCORPORATED BY REFERENCE**

 

None

 

 

 

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

**(A Limited Partnership)**

**FORTHE YEAR ENDED DECEMBER 31, 2008**

 

**TABLE OFCONTENTS**

 
| ** **                                                                    | ** ** | ** **                                                                                                         | ** ** | **Page  Number** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|------------------|
| **PART I**                                                                    |       |                                                                                                               |       | **5**            |
| Item 1.                                                                       |       | Business                                                                                                           |       | 5                |
| Item 1A.                                                                      |       | Risk Factors                                                                                                       |       | 17               |
| Item 1B.                                                                      |       | Unresolved Staff Comments                                                                                          |       | 26               |
| Item 2.                                                                       |       | Properties                                                                                                         |       | 26               |
| Item 3.                                                                       |       | Legal Proceedings                                                                                                  |       | 26               |
| Item 4.                                                                       |       | Submission of Matters to a Vote of Security  Holders                                                               |       | 26               |
|                                                                          |       |                                                                                                               |       |             |
| **PART II**                                                              | ** ** | ** **                                                                                                         | ** ** | **26**           |
| Item 5.                                                                       |       | Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities |       | 26               |
| Item 6.                                                                       |       | Selected Financial Data                                                                                            |       | 27               |
| Item 7.                                                                       |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        |       | 28               |
| Item 7A.                                                                      |       | Quantitative and Qualitative Disclosures  about Market Risk                                                        |       | 36               |
| Item 8.                                                                       |       | Financial Statements and Supplementary Data                                                                        |       | 37               |
| Item 9.                                                                       |       | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure                              |       | 37               |
| Item 9A.                                                                      |       | Controls and Procedures                                                                                            |       | 37               |
| Item 9B.                                                                      |       | Other Information                                                                                                  |       | 38               |
|                                                                          |       |                                                                                                               |       |             |
| **PART III**                                                             | ** ** | ** **                                                                                                         | ** ** | **39**           |
| Item 10.                                                                      |       | Directors, Executive Officers and Corporate  Governance                                                            |       | 39               |
| Item 11.                                                                      |       | Executive Compensation                                                                                             |       | 39               |
| Item 12.                                                                      |       | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                    |       | 39               |
| Item 13.                                                                      |       | Certain Relationships and Related  Transactions, and Director Independence                                         |       | 39               |
| Item 14.                                                                      |       | Principal Accountant Fees and Services                                                                             |       | 40               |
|                                                                          |       |                                                                                                               |       |             |
| **PART IV**                                                              | ** ** | ** **                                                                                                         | ** ** | **42**           |
| Item 15.                                                                      |       | Exhibits and Financial Statement Schedules                                                                         |       | 42               |
|                                                                          |       |                                                                                                               |       |             |
| Index  to Consolidated Financial Statements and Financial Statement Schedules |       | F-1                                                                                                                |
|                                                                          |       |                                                                                                               |       |             |
| SIGNATURES                                                                    |       |                                                                                                               |
|                                                                          |       |                                                                                                               |       |             |
| EXHIBIT INDEX                                                                 |       |                                                                                                               |

 

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**HistoricalStructure**

 

We are a Colorado limited partnership that was formed in December 1991pursuant to the public offering of our limited partnership interests for thepurpose of acquiring one or more cable television/telephone systems in theU.K.  Upon acquisition of our system, ourprimary investment objective was to obtain capital appreciation in the value ofour investment in the system over the term such investment is held by us.

 

We hold 66.7% of the shares of NTL (South Hertfordshire) Limited, orNTL South Herts, which is principally engaged in the development, construction,management and operation of broadband communications networks for telephone,cable television and internet 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., or Virgin Media, indirectly holds the remaining 33.3%of the shares of NTL South Herts.  We arereliant on the support of Virgin Media, the indirect parent company of NTLFawnspring Limited, our General Partner, to continue our operations as a goingconcern.

 

The General Partner may, pursuant to our Partnership Agreement, provideconsulting services to us or delegate the performance of such consultingservices to Virgin Media or other affiliates. The General Partner purchased one of our partnership interests bycontributing $1,000 to our capital.

 

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

 

On July 4, 2006, NTL Incorporated acquiredVirgin Mobile Holdings (UK) plc through a U.K. Scheme of Arrangement and alsoentered into a license agreement with Virgin Enterprises Limited under which itis licensed to use certain Virgin trademarks within the U.K. and the Republicof Ireland.  In February 2007, NTL Incorporatedrebranded its consumer and a large part of its content businesses to “VirginMedia”.  It also changed the name of itscorporate parent from NTL Incorporated to Virgin Media Inc., or Virgin Media,and changed the name of certain of its subsidiaries, including NTL Group Limitedto Virgin Media Limited and NTL Holdings Inc. to Virgin Media Holdings Inc.

 

In this annual report, unless the contextotherwise requires, the term “we”, “us”, “our” and similar terms refers toSouth Hertfordshire United Kingdom Fund, Ltd. and its subsidiaries.

 

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

** **

Various statements contained in this document constitute “forward-lookingstatements” as that term is defined under the Private Securities LitigationReform Act of 1995.  Words like “believe”,“anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”,“positioned”, “strategy” 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.  Thesefactors, among others, include:

 

·   ourreliance on the continued support of Virgin Media;

 

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

 

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

 

·   our reliance on a limitedfranchise area;

 

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

 

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

 

·   Virgin Media’s ability tomanage customer churn;

 

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

 

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·   VirginMedia’s ability to implement its restructuring plan successfully and realizethe anticipated benefits;

 

·   thegeneral deterioration in economic conditions;

 

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

 

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

 

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

 

·   Virgin Media’s ability to controlunauthorized access to its network;

 

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

 

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

 

·   currency and interest ratefluctuations;

 

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

 

·   Virgin Media’s ability toobtain additional financing in the future;

 

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

 

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

 

These and other factorsare discussed in more detail under “Risk Factors” and elsewhere in this annualreport on Form 10-K.  We assume noobligation to update our forward-looking statements to reflect actual results,changes in assumptions or changes in factors affecting these statements.

 

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**SummaryCorporate Structure**

 

The following chart shows on a condensed basis the corporate structureof Virgin Media and its relationship to us as of December 31, 2008.  The chart does not show Virgin Media’soperating 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 isa subsidiary owned 66.7% by us and 33.3% by Virgin Media.

 

**Exchange Rates**

 

The following table sets forth, for theperiods indicated, the high, low, period average and period end noon buyingrate in the City of New York for cable transfers as certified for customspurposes by the Federal Reserve Bank of New York expressed as U.S. dollars per£1.00.  The noon buying rate of the poundsterling on March 10, 2009 was $1.3840 per £1.00.

 
| **Year Ended December 31,** | ** ** | **Period End** | ** ** | **Average(1)** | ** ** | **High**   | ** ** | **Low**    | ** ** |
|--------------------------------------------|------------|---------------------|------------|----------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | ** **          | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2005                                       |       | $                   | 1.7188     |           | $          | 1.8147     |       | $          | 1.9292     |   | $ | 1.7138 |   |
| 2006                                       |       | 1.9586              |       | 1.8582         |       | 1.9794     |       | 1.7256     |       |
| 2007                                       |       | 1.9843              |       | 2.0073         |       | 2.1104     |       | 1.9235     |       |
| 2008                                       |       | 1.4619              |       | 1.8424         |       | 2.0311     |       | 1.4395     |       |
| 2009 (through March 10, 2009)         |       | 1.3840              |       | 1.4176         |       | 1.5254     |       | 1.3658     |       |
|                                            |            |                     |            |                |            |            |            |            |            |  |  |  |  |

 

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

 

The above rates may differ from the actualrates used in the preparation of the consolidated financial statements and otherfinancial information appearing in this annual report.  Our inclusion of these exchange rates is notmeant to suggest that the pound sterling amounts actually represent these U.S.dollar amounts or that these amounts could have been converted into U.S.dollars at any particular rate, if at all.

 

Unless we otherwise indicate, all U.S. dollaramounts as of December 31, 2008 are translated to U.S. dollars at anexchange rate of $1.4619 to £1.00, and all amounts disclosed for the year endedDecember 31, 2008 are based on an average exchange rate of $1.8523 to£1.00.  All amounts disclosed as of December 31,2007 are based on an exchange rate of $1.9843 to £1.00, and all amountsdisclosed for the year ended December 31, 2007 are based on an averageexchange rate of $2.0017 to £1.00.  Allamounts disclosed for the year ended December 31, 2006 are based on anaverage exchange rate of $1.8429 to £1.00. U.S. dollar amounts for any 

 

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individual period aredetermined by multiplying the pound sterling financial results for the periodfrom January 1 to the end of the current period by the average exchangerate for the same period and subtracting from this total the U.S. dollarconverted financial results for the period from January 1 to the end ofthe previous period of that fiscal year as computed above.  The variation among the exchange rates for2008, 2007 and 2006 has affected the U.S. dollar comparisons significantly.

 

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**PART I**

 

**Item 1.    Business**

 

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

 

We are a Colorado limited partnership that was formed in December 1991pursuant to the public offering of our limited partnership interests for thepurpose of acquiring one or more cable television/telephone systems in the U.K.Upon acquisition 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% of the shares of NTL (South Hertfordshire) Limited, orNTL South Herts, which is principally engaged in the development, construction,management and operation of broadband communications networks for telephone,cable television and broadband internet services in the U.K. As a result of ourownership of 66.7% of the shares of NTL South Herts, for accounting purposes wehave consolidated the results of NTL South Herts with our results.  Virgin Media indirectly holds the remaining33.3% of the shares of NTL South Herts. 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, as well as Virgin Media, file annual, quarterly, and currentreports with the Securities and Exchange Commission, or SEC.  You may read and copy any materials we orVirgin Media file with the SEC at the SEC’s Public Reference Room at 100 FStreet, 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 www.sec.gov.  VirginMedia is incorporated in the State of Delaware, United States.  Its principal executive offices are locatedat 909 Third Avenue, Suite 2863, New York, New York 10022, United States,and its telephone number is (212) 906-8440.

 

**About NTLSouth Herts**

 

***Franchise Area***

 

The area covered by our cable system, which we refer to as thefranchise area, comprises the administrative areas in South Hertfordshire:Three Rivers, Watford and Hertsmere.  Thefranchise area covers commuter suburbs of London, and many people who reside inthe franchise area use the available fast rail and motorway services to travelto 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.  The M1motorway link exists to give London-bound commuters direct access from Watfordto the London highway system.  The M1link is half a mile from our headend. There are approximately 96,000 homes in the franchise area, all of whichare passed by our cable television/telephone network.  Construction in the franchise area iscomplete.

 

***Operations***

 

Construction of a cable television-only network in the franchise areacommenced in early 1991 and integrated cable television/telephone networkarchitecture was developed for this franchise in late 1991.  Cable television services commenced in April 1992and telephone services commenced in February 1993, following completion ofthe installation of a telephone switch. In January 2000, we commenced the rollout of digital cabletelevision services within the franchise area and in 2001 we commencedbroadband internet access services.  Asof December 31, 2008, NTL South Herts serviced 25,809 digital televisionsubscribers, 29,232 residential telephony subscribers and 26,355 broadbandinternet subscribers, representing a total of 33,495 residential customers witha penetration level of 34.8% of the homes in the franchise area.

 

Management control is exercised by NTL Fawnspring Limited, a U.K.corporation, which is a wholly owned indirect subsidiary of Virgin Media and isour General Partner, although management control is delegated to otheraffiliated companies of Virgin Media. Our business is managed by Virgin Media Limited, or VML, a subsidiary ofVirgin Media, from its headquarters in Hook, Hampshire.  Virgin Media and we believe that managementof our business as an integral part of the larger Virgin Media group reaps thebenefits of synergy and maximizes returns. VML performs a variety of management functions and procures services onour behalf.  Pursuant to an agreementwith VML, we have the legal right to offset amounts receivable from VML againstamounts payable to VML.  Consequently,the net balance payable to Virgin Media is disclosed under accounts payable toaffiliates and related parties in the accompanying financial statements.

 

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

 

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**VirginMedia’s Business**

 

Virgin Media is incorporated in the State ofDelaware, United States.  Its principalexecutive office is located at 909 Third Avenue, Suite 2863, New York, NewYork 10022, United States, and its telephone number is(212) 906-8440.  Its U.K.headquarters are located outside of London, England in Hook, Hampshire.  Virgin Media’s annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, and anyamendments thereto are available free of charge on its website atwww.virginmedia.com**as soon asreasonably practicable after they are filed with, or furnished to, theSEC.  The investor relations section ofits website can be accessed under the heading “About Virgin Media—InvestorsInformation”.  The information on itswebsite is not incorporated by reference into this annual report.

 

Virgin Media is a leading U.K. entertainmentand communications business providing a “quad-play” offering of broadband,television, mobile telephone and fixed line telephone services.  As of December 31, 2008, Virgin Mediawas the U.K.’s largest residential broadband provider and mobile virtualnetwork operator, and second largest provider of pay television and fixed linetelephone services by number of customers. Through ntl:Telewest Business, which also operates under the VirginMedia group, it provides a complete portfolio of voice, data and internetsolutions to leading businesses, public sector organizations and serviceproviders in the U.K.  ThroughVirgin Media Television, or Virgin Media TV, it also provides a broadrange of programming through its wholly owned channels, such as Virgin1, Livingand Bravo; through UKTV, its joint ventures with BBC Worldwide; and through theportfolio of retail television channels operated by sit-up tv.

 

Virgin Media presently manages its businessthrough three reportable segments:

 

·              **Cable: **itsCable segment includes the distribution of television programming over itscable network and the provision of broadband and fixed line telephone servicesto consumers, businesses and public sector organizations, both on its cablenetwork and, to a lesser extent, off its network;

 

·              **Mobile: **itsMobile segment includes the provision of mobile telephone and data servicesunder the brand name Virgin Mobile to consumers over cellular networks owned bythird parties; and

 

·              **Content: **itsContent segment includes the operations of its U.K. television channels, suchas Virgin1, Living, Bravo, and sit-up’s portfolio of retail televisionchannels.  Although not included in itsContent segment revenue, its Content segment management team also oversees itsinterest in the UKTV television channels through its joint ventures with BBC Worldwide.

 

NTL South Herts operates entirely within Virgin Media’s Cablesegment.  As such, further discussion onVirgin Media’s business within this document is limited to its Cable segmentonly.

 

 In November 2008,Virgin Media announced a restructuring plan aimed at creating afully-integrated, customer-focused organization. Pursuant to its restructuringplan, Virgin Media is implementing a new operating model for its organization,aimed at delivering significant improvements in customer focus, productdelivery and management, and providing clearly defined divisions to streamlineits decision-making processes.  VirginMedia’s strategic objectives for 2009 include continuing to exploit thecapabilities of its cable network to lead in next generation broadband andon-demand television.

 

***Cable Segment***

*** ***

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

 

*Consumer*

* *

Virgin Media provides broadband internet,television and fixed line telephone services under the Virgin Media brand toresidential customers in the U.K. Its services are distributed principally viaits wholly owned, cabled, local access communications network and are availableto an addressable market of approximately 12.6 million homes.  The network covers parts of many majormetropolitan areas in England, Wales, Scotland and Northern Ireland.  In addition, Virgin Media provides broadbandand telephone services to residential customers outside of its cable networkvia access to other telecommunications networks.  This “off-net” offering was rebranded in November 2008as “Virgin Media National”.

 

Within each of its consumer cable productranges, Virgin Media offers its customers a choice of several packages andtariffs which are labeled as Medium (M), Large (L), Extra Large (XL) and ExtraExtra Large (XXL).  Virgin Media’spackaging and pricing are designed to encourage its customers to purchasemultiple services across its product range and Virgin Media offers discounts tocustomers taking two or more products from its portfolio.  The types and number of services that eachcustomer uses and the prices

 

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Virgin Mediacharges for these services drive its revenue. For example, broadband internetis more profitable than its television services and, on average, its “triple-play”customers are more profitable than “double-play” or “single-play” customers. Asof December 31, 2008, 84% of Virgin Media’s customers on its network,referred to as “on-net”, received multiple Virgin Media services andapproximately 56% of its on-net customers were “triple play”, receivingbroadband internet, television and fixed line telephone services from VirginMedia.   Virgin Media believes that itscustomer retention rate improved in 2008 as a result of more of its customerssubscribing to multiple services from Virgin Media.  Virgin Media also believes that the increaseduse of certain of its services, such as video-on-demand, and improvements inits customer service, fault management and other operational enhancements alsocontributed to an improvement in its customer retention rate.  Virgin Media’s average monthly on-net cablecustomer churn, the measure of the number of customers who stop subscribing toits cable services, improved to 1.2% for the three months ended December 31,2008, from an average monthly churn of 1.4% for the same period in 2007.

 

*Virgin Media’s Network Advantage*

 

Virgin Media believes that its deep fiberlocal access communications network provides it with several competitiveadvantages in its addressable markets, including:

 

·                    VirginMedia, uniquely in the U.K., has optical fiber already deployed to streetcabinets.  From there, its twin cable,consisting of both high capacity coaxial cable and twisted copper-pairelements, provides it with the flexibility to deliver broadband services overeither or both coaxial or copper cables. Currently, it provides its broadband internet services over coaxialcable.  Virgin Media generally hasoptical fiber closer to a customer’s home than BT Group plc, or BT, or itsother competitors who use BT’s access network, which Virgin Media believesallows it to provide a superior broadband experience to its customers.  BT’s access infrastructure is copper pairtechnology over which broadband speeds can significantly diminish in relationto the distance from the local exchange.

 

·                    Itprovides real two-way interactivity with residential customers who areconnected to the network, which enables Virgin Media to offer video-on-demandservices through the set-top box.

 

·                    Itenables Virgin Media to provide true “triple-play” bundled services ofbroadband, television and fixed line telephone services to residentialcustomers in its franchise areas without relying on another service provider ornetwork.

 

In contrast:

 

·                    Directto home satellite service providers do not have the capacity to offer two-wayinteractivity except by adding a phone line from another service provider orother cable facility.

 

·                    Currently, other communication service providers have only alimited capacity to provide video using DSL technology over BT’s existingcopper access network. Future capacity improvements would be dependent on BT’sability to successfully implement significant upgrades to its access network,requiring substantial capital investment.

 

*Broadband Internet*

* *

Virgin Media delivers high-speed broadband internet services tocustomers within reach of its access network by direct connection to its cablenetwork.  In 2008, Virgin Media upgradedits 4Mb customers to 10Mb, strengthened the capacity of its 20Mb service andlaunched a 50Mb service, which it expects to be available to its entirebroadband capable network in the summer of 2009.

 

Virgin Media’s broadband internet offering currently focuses on threetiers of high-speed broadband service at speeds of up to 10Mb for Size Lcustomers, up to 20Mb for Size XL customers and up to 50Mb for Size XXLcustomers.  Virgin Media customers withineach of these tiers also benefit from unlimited usage (subject to its fairusage policy) and advanced personal computer security software.  Virgin Media also offers a broadband serviceof up to 2Mb for Size M customers, which it plans to upgrade to 10Mb beginningin May 2009.  Virgin Media intendsto continue to focus its efforts on increasing its market share by marketingthe benefits of its high-speed broadband service to both existing and potentialcustomers.  As of December 31, 2008,Virgin Media provided on-net broadband services to approximately3.7 million subscribers, including 26,355 customers in the SouthHertfordshire franchise area.

 

Virgin Media also provides broadband internet services, via BT’s localaccess network and unbundled BT exchanges from Cable &Wireless plc, or C&W, to “off-net” customers not directly connected toits cable broadband network. Various price and feature packages are availableincluding broadband service of up to 16Mb. As of December 31, 2008, Virgin Media had approximately 252,000broadband subscribers using this service.

 

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Virgin Media operates a web portal, virginmedia.com, which is regularlyin the top ten of most visited sites in the U.K. and in the top 15 by page ranking.  Virgin Media’s website offers a broad rangeof content, such as music, movies and television programming, includingnear-live clips of English football highlights. Virgin Media’s customers can also access their email accounts andcustomer care information through its website. The website generates revenue from advertising and search engines.  Virgin Media also uses the website tocross-promote its entire product range. In 2009, Virgin Media will continue to develop additional entertainmentand customer care features for its website, with particular emphasis on onlineaccount management and help services.

 

*Cable Television*

* *

Virgin Media offers a wide range of digital,or DTV, and analog, or ATV, television services.  As of December 31, 2008, it providedcable television services to approximately 3.6 million residentialcustomers, of which approximately 3.5 million received its DTV service,including 25,809 customers in the South Hertfordshire franchise area,and approximately 152,000 received its ATV service.

 

Virgin Media’s DTV service includes access toover 150 television channels, advanced interactive features, and a range ofpremium and pay-per-view services. Virgin Media’s ATV service packages offer up to 60 televisionchannels, including premium services.  Inaddition to offering the basic and premium pay TV channels, Virgin Media alsooffers its DTV customers one of the most comprehensive video-on-demand, or VOD,services in the U.K. called “Virgin TV On Demand”.  See “Virgin TV On Demand” below.

 

Virgin Media’s network technology enables itto deliver a significant range of digital interactive services over an ‘alwayson’ broadband connection from the network to a customer’s home.  Examples of interactive services providedinclude games, television email and access to news, entertainment andinformation services from an on-screen menu. Interactive services also include enhanced television functionalityutilizing the “red button” applications from the BBC and other commercialbroadcasters.  “Red button” functionalityin the U.K. permits television viewers to press a red button on their remotecontrol handset to receive additional interactive services including multiplebroadcasts.  For example, in a Wimbledontennis broadcast, a customer can press the red button and choose which match towatch.

 

Virgin Media also offers “Free TV,” afree-to-air digital television service to certain of its customers on its cableplatform.   Its Free TV service providesaccess to over 40 linear channels and radio services such as Virgin1, Five US,Five, E4 and Yesterday (formerly UKTV History) as well as Setanta SportsNews.  In addition, Free TV customersalso have access to red button functionality and Virgin TV On Demand.

 

*Virgin TV On Demand*

 

Virgin TV On Demand is a significantenhancement to Virgin Media’s standard DTV service, offering viewer’s choiceover and above scheduled programming without any requirement for new equipment,installation or additional subscription fees. The VOD service provides access to thousands of hours of premium movies,music videos, and TV programs and series on-demand.  It appears within the electronic programmingguide, and can be accessed and viewed at any time via the remote control.  The service offers DVD-style featuresincluding freeze frame, fast-forward and rewind.  These features provide a customer withcontrol over the content and timing of their television viewing.  This service is available to almost all ofVirgin Media’s digital customers.  In2008, VOD usage by Virgin Media customers increased to 52.9 millionaverage monthly views in the fourth quarter from 36.4 million averagemonthly views in the first quarter. Based on management estimates, Virgin Media’s customers who use VOD areless likely to churn.

 

There are three primary types of contentavailable within Virgin TV On Demand, a portion of which is refreshed on adaily basis.  A selection of content isavailable free of charge to all of Virgin Media’s DTV customers irrespective ofpackage size.  This is primarily focusedwithin Virgin Media’s ‘catch-up’ TV service which offers a selection of morethan 450 hours of top broadcast TV shows for no additional charge.  Additionally, all of Virgin Media’s DTVcustomers have access to pay-per-transaction content including over 3,000 musicvideos and 500 current and library movies provided by ‘FilmFlex’.Pay-per-transaction movies and music are available for 24 hours afterpurchase and may be viewed multiple times during that period for a single fixedcharge.  Finally, DTV customers whosubscribe to Virgin Media’s XL Virgin TV package have additionalaccess to a subscription VOD, or SVOD, package which includes premium TV showsand music videos, all included within the price of their monthlysubscription.  Customers on Virgin Media’sother TV packages can also receive the SVOD package on payment of a monthlysubscription charge.  In total, VirginMedia has over 4,600 hours of on-demand content.

 

In June 2008, Virgin Media became thefirst TV platform in the U.K. to offer BBC iPlayer as part of its on-demandservice.  BBC iPlayer enables viewers tocatch-up on over 350 hours of BBC programs at no additional cost tocustomers.  During the fourth quarter of2008, there were on average 15.7 million views per month of BBC programs viaBBC iPlayer over Virgin Media’s TV platform, representing approximatelyone-third of all BBC iPlayer views.  In February 2009,Virgin Media added up to 40 hours of

 

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catch-up TVper week and up to 500 hours of new content to its VOD offering fromITV plc, or ITV, one of the largest commercial broadcasters in theU.K.  Virgin Media also expects tointroduce enhancements both to its library and its customer interface duringthe course of 2009.

 

*Digital Video Recorders and High Definition Television*

* *

Virgin Media also offers one of the mostadvanced fully-supported digital video recorders, or DVRs, for a premiummonthly rental option or an up-front payment as part of its top bundle.  The Virgin Media DVR box, which iscalled the “V+ Box”, is available to Virgin Media’s entire DTV customerbase.  The V+ Box has160 Gigabytes of storage space (up to 80 hours of broadcast television),is high definition, or HD, enabled and has three tuners, allowing viewers torecord two programs while watching a third. V+ Box customers with an HD compatible television can also accessVirgin Media’s HD on demand content. Digital video recorders are also known as personal video recorders, orPVRs, in the U.K.  As of December 31,2008, Virgin Media had 521,500 V+ Box customers, representing 15% of itsdigital subscribers.  Based on managementestimates, Virgin Media’s customers who use the V+ Box are less likely tochurn.

 

As part of its content strategy, Virgin Mediaconstantly evaluates the merits of new channels and programs which couldenhance its diverse range of programming. With increasing consumer interest in HD content, Virgin Media is activelypursuing rights to HD programs for its leading VOD service.

 

*Fixed Line Telephone*

* *

Virgin Media provides local, national andinternational telephone services to its residential customers who are withinreach of its access network by direct connection to its network.  Virgin Media enhances its basic telephoneservice by offering additional services, such as call waiting, call barring(which allows customers to block certain incoming or outgoing calls), calldiversion (call forwarding), three-way calling, advanced voicemail, caller lineidentification and fully itemized monthly billing.  Virgin Media also provides national andinternational directory enquiry services.

 

In addition to a core line rental fee, VirginMedia offers Size M, L and XL variants of its fixed line telephone serviceas alternatives to straight usage-based billing.  These packages include “Talk Plans” thatenable customers to make unlimited local and national calls for a fixed monthlyfee in addition to the standard line rental. As of December 31, 2008, Virgin Media provided on-net telephoneservices to approximately 4.1 million residential customers, including29,232 customers in the South Hertfordshire franchise area.

 

*Business*

* *

 ntl:Telewest Business retains its focus onmeeting the communications requirements of U.K. public and private sectororganizations, and serving other telecommunications service providers.  Through the merger of NTL and Telewest in2006 and the subsequent integration of their networks, ntl:Telewest Business isnow able to leverage one of the most advanced national access networks in theU.K., delivering a wide portfolio of voice and data products to businesscustomers.

 

While the wider organization was rebranded toVirgin Media in 2007, ntl:Telewest Business has retained its legacy brand.  Being a business predicated upon customerrelationships, a strong service proposition and sector specific expertise,Virgin Media believes that significant brand equity has been created in themarket over the past 16 years by each of the legacy businesses.

 

ntl:Telewest Business offers a wide portfolioof voice and data services, from analog telephony to managed data networks andapplications.  Its product strategy isfocused on delivering managed services, national Ethernet and internet protocolvirtual private networks, or IP VPN, products.

 

*Sales and Marketing*

 

Virgin Media uses a variety of sales channelsto sell its broadband, television, and fixed line telephone services toconsumers, including telesales, customer care centers, online and retailchannels. In September 2008, Virgin Media also began offering its productsthrough an outsourced telesales partner located in the Philippines.  As of December 31, 2008, Virgin Media’sretail channels included 23 of its own Virgin Media branded stores, which offera complete range of its consumer products. Virgin Media intends to significantly expand its portfolio of ownedstores in 2009, with the opening of additional Virgin Media branded stores andthe introduction of Virgin Media branded shopping center kiosks.

 

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These sales channels are supported by directmarketing initiatives and national and regional television and pressadvertising.  Virgin Media uses itsresidential customer database to identify the profiles of its customers inorder to design offers to match their needs. Virgin Media’s offers encourage customers to purchase new services,upgrade their existing services and cross-sell products across itsportfolio.  Virgin Media’s marketingbalances acquisition marketing, or prospects, and customer marketing to ensureit optimizes growth from new and existing customers.

 

*Customer Service*

 

Service calls for Virgin Media’s consumercable customers are handled through a combination of in-house call centers andoutsource partners.  As of December 31,2008, Virgin Media’s in-house consumer cable call centers located in the U.K.employed approximately 2,600 call center staff. Virgin Media also hadadditional outsourced consumer cable call centers both in the U.K. and inIndia.

 

**VirginMedia’s Network**

** **

Virgin Media’s deep fiber access network hasenabled it to take a leading position in the roll-out of next generationbroadband access technologies in the U.K. During 2008, Virgin Media further invested in its cable network with thedeployment of the next generation of wideband cable broadband technology, whichsignificantly increased both upstream and downstream transmissions speeds,enabling its network to accommodate speeds of up to 200Mb per second.  This technology enables Virgin Media to offerhigh-speed broadband services of 50Mb and higher and provides a platform forincremental upgrades in line with consumer demand.  Virgin Media’s investment in the nextgeneration broadband access technologies is the latest in a series ofsignificant infrastructure investments to support its position at the forefrontof communication and entertainment services in the U.K.  In 2009, Virgin Media expects to complete theroll-out of wideband cable broadband technology, allowing 50Mb service to bemade available to over 96% of its network.

 

Virgin Media’s cable network in the U.K.currently passes approximately 12.6 million homes in its regional serviceareas as well as passing a significant number of businesses in theseareas.  The network utilizes acombination of optical fiber and coaxial cable, and has an overall length ofapproximately 202,000 kilometers.  Thisincludes over 192,000 kilometers which are owned and operated by Virgin Mediaand approximately 10,000 kilometers of optical fiber and coaxial cable routeswhich are leased from other network owners. Over 156 switches direct telephone traffic around the core and localnetworks.  In addition, Virgin Media hasmore than 600 hub sites, points of presence, repeater nodes or other types ofnetwork sites, and facilities at over 140 radio sites.

 

Virgin Media’s deep fiber access networkdelivers broadband, fixed line telephony and both digital and analog televisionservices to its customers’ homes.  Theconnection into each home from the fiber access networks comprised of twocomponents combined into a single “siamese” drop cable.  First, to provide television services andhigh-speed broadband internet access, Virgin Media makes use of a highcapacity, two-way, coaxial cable which has considerable bandwidth and is ableto support a full portfolio of linear and on demand TV services as well ashigh-speed broadband services.  Second,Virgin Media uses short length twisted copper-pair to economically connectfixed line telephony services to its fiber access network via primarymultiplexers.  Virgin Media’s relativelyshort twisted copper pairs (typically 500 meters in length) are also capable ofsupporting the latest VDSL2 copper broadband technologies enabling speeds of upto 50Mb per second downstream and up to 10Mb per second upstream.  This capability provides it with a structuraladvantage over traditional all copper local distribution networks, which aretypically 3,250 meters in length, and are only capable of supporting theprevious generation of ADSL and ADSL2+ broadband technologies which are bothslower and much less capable in the upstream.

 

As a result of the extensive use of fiber inits access networks, Virgin Media is also able to provide high-speed ethernetservices directly to business customers and provide nationwide area networkingto these customers via its core networks.

 

Virgin Media has a variety of alternativemethods to connect its national telecommunications network over the “last mile”to the premises of those customers that are located outside of its cabledareas, including:

 

·              it obtains permitsto construct telecommunications networks and build out its network to reach itscustomers.  Although this is often themost costly means of reaching a customer, the expense can be justified in the caseof larger customers, or where a significant level of traffic is obtained from acustomer; and

 

·              itleases circuits and DSL connections on the local networks of other serviceproviders to connect to its customers’ premises.  Although this may reduce the operating marginon a particular account, it requires significantly less capital expenditurethan a

 

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direct connection, can often be put into placerelatively quickly, and can be replaced with a direct connection at a laterdate if traffic volumes justify doing so.

 

Nationally, approximately 95% of the homespassed by Virgin Media’s cable network can receive all of its broadband,digital television and fixed line telephone services.  Virgin Media cannot however currently provideall three of the main services on some older parts of the network.

 

***InformationTechnology***

*** ***

The operation and support of Virgin Media’sinformation technology systems are performed by a mix of outsourced andinternally managed services.  Thesesystems include billing, enterprise resource planning, business intelligence,corporate network, payroll, data center and desktop infrastructure.  In 2008, Virgin Media completed its programof integrating its customer care and billing systems in order to improveoperational efficiency.  A further 0.5million customer records were migrated during the year onto Virgin Media’sprincipal customer care and billing system. As a result of this program and other IT consolidation activities,Virgin Media continues to decommission a number of diverse softwareapplications and hardware platforms in order to reduce its dependency on highcost external support and management services.

 

**Competition**

** **

***Consumer***

* *

Virgin Media believes that it has acompetitive advantage in the U.K. residential market because it offers a widerange of communications services, including high-speed broadband internet,television and fixed line telephone services using its advanced network, whilemany of its competitors must rely on BT’s network to provide theirservices.  Virgin Media offers most ofits products on a stand alone basis or as part of bundled packages designed toencourage customers to subscribe to multiple services.  Virgin Media offers broadband internet andtelephone services nationally and currently offers television services in itsservice areas only.  Competition in eachof these services individually is significant and some of the other serviceproviders have substantially greater resources than Virgin Media.

 

Key recent developments amongst its primarycompetitors have included:

 

·                  BT Group plc.  During 2008, BT announced plans to roll outfiber-based broadband over the next three years to as many as 10 millionhomes, subject to the existence of favorable regulatory conditions.  Following Ofcom’s recent announcementregarding the regulatory framework to apply to next generation access, it islikely that this £1.5 billion program will be rolled out, allowing BT todeliver broadband services using a mixture of fiber-to-the-premise orfiber-to-the-cabinet technology with speeds of up to 40 Mb and 100 Mb,respectively.  BT also continued toexpand its library of on-demand programming through a number of agreements withcontent partners for its internet protocol, or IP, pay television service, BTVision.

 

·                  *British Sky BroadcastingGroup plc. *BSkyB, a long-time competitor in the paytelevision market, markets aggressively discounted triple-play bundles(broadband, television and fixed line telephone).  BSkyB also has a limited video-on-demandservice branded Sky Anytime for their customers with compatible PVRs.  During 2008, BSkyB launched Sky Player TV, anonline only subscription TV service offering live streamed TV andvideo-on-demand.

 

·                  *Carphone WarehouseGroup plc. *Carphone Warehouse resells mobile phoneservices (including Virgin Mobile) via its own retail distribution channels andoffers fixed line telephone and broadband services under its TalkTalkbrand.  During 2008, Carphone Warehousecontinued to pursue an aggressive pricing policy for its TalkTalk fixedtelephone line and broadband bundle by standardizing the package and offering “Boost”packages (including higher download speed and additional voice calls), whichare each available at a fixed incremental cost per month.  Using its separate AOL brand, CarphoneWarehouse continued to offer a broadband package including a free laptop andlaunched a fixed line telephone service.

 

·                  *Tiscali S.p.A. *Tiscali offers fixed line telephone, broadband and IP-based televisionservices.  During 2008, Tiscali continuedits aggressive bundled pricing strategy.

 

·                  *Orange. *Orange offers a triple play of mobile phone, fixed line phone andbroadband services.  During 2008, Orangelaunched a mobile broadband package, as both a stand alone service and bundledwith its fixed line broadband service.

 

·                  *O2. *O2 launched a fixed line broadband service in late 2007, followed by amobile broadband service in 2008.

 

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*Broadband Internet*

 

Virgin Media’s largest competitor in internet services is BT, whichprovides broadband internet access services over its own DSL network both as aretail brand and as a wholesale service. As of April 1, 2009, the prices charged by BT to other internetservice providers, or ISPs, may be increased by an amount yet to be determinedby the U.K. Office of Communications, or Ofcom.

 

An increasing number of companies are deploying their own networkaccess equipment in BT exchanges via a process known as local loop unbundling,or LLU. LLU allows an ISP to reduce the recurring operating costs incurredthrough BT Wholesale by reducing the proportion of traffic that must traveldirectly over BT’s network.  LLU deploymentrequires a substantial capital investment to implement, and requires a largecustomer base to deliver a return on investment.  By the end of 2008, both Carphone Warehouseand BSkyB had rolled out significant LLU networks (with approximately 80% and70% coverage, respectively, in the U.K.). Other operators such as Orange and Tiscali were also deploying LLU tosome degree.

 

In addition to the increasing competition and pricing pressure in thebroadband market arising as LLU players look to gain the customer scale to makea return on their investment, there is the longer term threat of new accesstechnology. 3G mobile technology, other wireless technologies such as Wi-Fi andWi-Max, and mobile broadband may subject Virgin Media to increased competitionover time in the provision of broadband services.

 

*Cable Television*

* *

Virgin Media competes primarily with BSkyB inproviding pay DTV to residential customers in the U.K. BSkyB is the only paysatellite television platform in the U.K. and has a high market share of theU.K. pay television market.  BSkyB ownsthe U.K. rights to both standard definition and HD versions of various sportsand movie programming content, which it has used to create some of the mostpopular premium pay television channels in the U.K. BSkyB is therefore bothVirgin Media’s principal competitor in the pay television market, and animportant supplier of premium television content to Virgin Media.

 

Residential customers may also receivedigital terrestrial television, or DTT. Digital signals are delivered to customer homes through a conventionaltelevision aerial and a separately purchased set-top box or an integrateddigital television set.  The free-to-airDTT service in the U.K. is branded Freeview. This service is provided by a consortium of operators, including theBBC, and offers customers a limited range of television channels, which includethe traditional analog channels. Customers do not pay a monthly subscription fee for basic Freeviewservice but must acquire a Freeview enabled set-top box or a television with adigital tuner.  During 2007, according toOfcom, Freeview became the U.K.’s most popular digital television service.  Other developments included the launch of anew range of Freeview enabled digital television recorders under the brand “Freeview+”. In 2008, the BBC launched aninitiative aimed at increasing distribution of their iPlayer content overdifferent digital platforms, including Freeview.  This initiative, known as Project Canvas,involves the development of uniform standards for the delivery of content overbroadband via a new type of set-top box. Project Canvas is intended to provide an open platform, allowing anybroadcaster to make its content available via Project Canvas enabled televisionset-top boxes.  If implemented, theavailability of a standardized broadband enabled television platform may resultin increased competition for pay television broadcasters.

 

Residential customers may also supplementFreeview DTT offerings by subscribing to additional content through Top UpTV.  Top Up TV is a pay televisionservice offering selected programs from over twenty pay television channels fora fixed fee to subscribers who otherwise receive Freeview and have purchased aTop Up TV digital video recorder.

 

In May 2008, BBC and ITV launched itsjoint venture Freesat, a free-to-air digital satellite alternative to FreeviewDTT service.  Freesat offersapproximately 80 subscription-free channels, including select high definitionchannels such as BBC HD and ITV HD. Freesat channels are delivered to the home through a separatelypurchased satellite receiver. Freesat also offers a range of digital televisionrecorders under the brand “Freesat+”.

 

Residential customers may also access digitaltelevision content by means of internet protocol television, or IPTV.  BT Vision, a combined DTT television serviceand a video-on-demand service offered over a DSL broadband connection, isavailable nationally and Tiscali has continued to expand its service coveragebeyond parts of the London metropolitan area. BSkyB also offers a video-on-demand service over a broadband connection,Sky Player TV, which provides live streamed TV and video-on-demand on asubscription basis.

 

There is also a growing demand forfull-length video content via broadband connections to the personalcomputer.  Content owners, onlineaggregators and television channel owners are increasingly using broadband as anew digital distribution channel direct to consumers.  Current business models tend to be on apay-per-transaction basis.  While thisrepresents a potential disintermediation threat to pay television platforms,Virgin Media believes that the actual demand and willingness to pay forbroadband distributed

 

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content isunlikely to represent sufficient revenues and benefit to content owners todisplace pay television as a preferred distribution channel in the medium term.

 

Telecommunications is a constantly evolvingindustry and there are a number of new and emerging technologies which can beused to provide video services that are likely to compete with Virgin Media’sDTV and video-on-demand services.  Theseinclude DSL services mentioned above and third generation, or 3G, mobiletelephony.  Virgin Media expects thatthere will continue to be many advances in communications technology and incontent.  These advances, together withchanges in consumer behavior, and in the regulatory and competitiveenvironments, mean that it will be difficult to predict how Virgin Media’soperations and businesses will be affected in the future.

 

The U.K. government has stated that it willterminate ATV transmission by 2012. Consumers wishing to receive television services will have to convert toDTV, currently available via cable, digital satellite, DTT or DSL.  However, when ATV transmission is terminated,the DTT signal and network may be strengthened. This will enable DTT to be made available to additional customers’ homesthat cannot currently receive a signal. It may also provide additional capacity to allow the Freeview channelline-up to be expanded to include new channels.

 

*FixedLine Telephone*

* *

Virgin Media competes primarily with BT inproviding telephone services to residential customers in the U.K. BT occupiesan established market position as the former state-owned incumbent.  Virgin Media also competes with othertelecommunications companies that provide telephone services, either directlythrough LLU or indirectly, including Carphone Warehouse under the brand nameTalkTalk, BSkyB, Tiscali, Orange and Tesco.

 

Virgin Media also competes with mobiletelephone networks that may threaten the competitive position of its networksby providing a substitute to fixed line telephone services.  Mobile telephone services also contribute tothe competitive price pressure in fixed line telephone services.

 

There is also competition from companiesoffering voice over internet protocol, or VoIP, services using the customer’sexisting broadband connection.  Theseinclude services offered by independent providers, such as Vonage and Skype, aswell as those affiliated with established competitors such as BT and Orange.  These services generally offer free callsbetween users of the same service, but charge for calls made to normal phonenumbers either on a flat monthly rate for unlimited calls (typically restrictedto geographic areas) or on a pence per minute rate.

 

*Business*

* *

The U.K. business telecommunications marketis characterized by strong competition and ongoing consolidation.  The market is comprised of traditionalnetwork operators such as BT and C&W, virtual network operators such as Vancoplc, or Vanco, and systems integrators like Affiniti, a trading name ofKingston Communications (Hull) Plc. While BT represents the main competitive threat nationally due to itsnetwork reach and product portfolio, the acquisition of THUS Group plc by C&Win 2008 has further strengthened C&W’s position in the market.  Other providers compete within specificproduct and geographic segments with Affiniti and COLT Telecom Group plc, orCOLT Telecom, for example, having network advantages within certain regions.

 

Within retail markets, traditional competitorsare becoming increasingly focused, with organizations such as C&W targetingthe largest national and multi-national corporations.  Virgin Media continues to focus on small,medium and large nationally-oriented businesses and public sector organizationswhere leveraging its network asset can provide an economic advantage.

 

System integrators, or SIs, are also becomingan increasing competitive threat, as IT integration, management and outsourcingbegins to form an element of many larger organizations’ requirements.  ntl:Telewest Business seeks to address thisas an opportunity to drive sales of access network, the underlyinginfrastructure for integrated IT systems, and has established a SI channelwithin the Service Provider sales team.

 

Competition in the U.K. businesstelecommunications market continues to be based on value for money, the keycomponents of which are quality, reliability and price.  In the future, further competitionfrom mobile operators is expected, as they explore strategies to enter thefixed line market with convergence propositions to Virgin Media’s targetcustomers.

 

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**GovernmentRegulation**

** **

***Regulation in theEuropean Union***

*** ***

The European Parliament and Commissionregulate Virgin Media’s principal business activities through directives andvarious other regulatory instruments which are transposed into the U.K.through national legislation.

 

In particular, in February 2002, theEuropean Commission adopted a package of new directives which, together, setout a new framework for the regulation of electronic communications networksand services throughout the European Union, or EU.  This new framework consisted of fourdirectives, 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 electronic communicationsnetworks and services (the Universal Service Directive).

 

This package of directives was supplemented,subsequently, by the Communications and Privacy Directive which dealt, amongother things, with data protection issues in relation to the provision ofelectronic communications services.

 

The U.K. Government incorporated thesedirectives into its national laws under the Communications Act 2003, which cameinto effect on July 25, 2003, and the Communications Privacy Regulations,which came into effect on December 11, 2003.

 

During 2006, the European Commissioncommenced a review of these directives (the Regulatory Framework Review). Thisreview led to the publication of a number of draft amending directives in November 2007.The amendments to the directives are currently being discussed between theEuropean Parliament, the European Commission and the European Council asthe parties seek to reach a compromise position.  The final form of the directives and thetiming for their adoption is therefore currently unclear.

 

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

*** ***

Virgin Media is subject to regulation underthe Communications Act 2003, the Broadcasting Acts 1990 and 1996 and other U.K.statutes and subordinate legislation. The Communications Act 2003 established a regulatory authority, theOffice of Communications (Ofcom), as the single regulatory authority for theentire communications sector.

 

Under the Communications Act 2003,communications providers, such as Virgin Media, are no longer required to holdindividual licenses in order to provide electronic communications networks andservices, although certain licenses are required (see below under “Cable TVRegulation”) in order to own or operate TV channels or to provide certainfacilities such as electronic program guides on the cable TV platform or tohold radio frequency spectrum.  Even so,all communications providers are subject to a set of basic conditions imposedby Ofcom, which are known as the General Conditions of Entitlement.  Any breach of these conditions could lead tothe imposition of fines by Ofcom and, ultimately, to the suspension orrevocation of a company’s right to provide electronic communications networksand services.

 

***The*General****Conditions of Entitlement and SignificantMarket Power Conditions**

* *

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

 

·                    arequirement to negotiate interconnection arrangements with other networkproviders;

 

·                    arequirement to ensure that any end-user can access the emergency services andthat accurate customer location data is made available to the emergencyservices;

 

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·                    arequirement to offer outbound number portability to customers wishing to switchto another network provider and to support inbound number portability whereVirgin Media acquires a customer from another network provider;

 

·                    arequirement to comply with a number of high-level obligations designed toaddress consumer harm associated with broadband migrations;

 

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

 

·               a requirement topublish up-to-date price and tariff information; and

 

·               a requirement toprovide itemized billing on request from any customer.

 

In addition to the General Conditions of Entitlement, Ofcom imposesfurther conditions on providers of electronic communications networks orservices that have significant market power, or SMP, in identifiedmarkets.  In regulatory terms, SMP equatesto the competition law concept of dominance. The EU regulatory framework adopted in 2002 required Ofcom to carry outa number of initial market reviews to establish which providers held SMP inthese markets, and should therefore be subject to further conditions, and tokeep these markets and any other relevant markets identified by Ofcom underregular review.  This resulted in BTbeing found to have SMP in a substantial number of markets and, as a result,being made subject to further regulatory requirements in both wholesale andretail markets.  Virgin Media, like allfixed line operators, has SMP in the market for termination on its own fixednetwork.  Ofcom is about to undertake areview of the fixed narrowband wholesale and retail markets in 2009 but at thisstage it is too early to predict the outcome.

 

***Next Generation Access***

 

InMarch 2009, Ofcom released its statement on the regulatory framework toapply to next generation access, or NGA, networks.  As expected, Ofcom indicated that nextgeneration access will be dealt with through the framework of significantmarket power in relevant markets.  Ofcomexpressed a strong preference for active remedies at this stage, although itacknowledged that passive remedies may have more of a role in future.  In terms of the pricing of either active orpassive access, Ofcom indicated that pricing needs to reflect the risk anduncertainty associated with investments in NGA.

 

***Cable TV Regulation***

 

Although Virgin Media is no longer required to hold individual licensesto provide electronic communications networks and services, it is stillrequired to hold individual licenses under the Broadcasting Acts 1990 and 1996for any television channels which it owns or operates and for the provision ofcertain other services (e.g., electronic program guides) on its cable TVplatform.

 

Virgin Media therefore holds a number of Television Licensable ContentService Licenses, or TLCS licenses, under the Broadcasting Act 1990 for theoperation of television channels and for the provision of its electronicprogram guide.

 

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

 

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

 

In October 2006, Ofcom commenced a review of the various ways andthe terms on which operators of digital TV platforms in the U.K. (includingVirgin Media) allow access to their platforms for third party TV channels andcontent providers.  This review has notyet progressed beyond its initial stages. It is not possible, therefore, to predict the outcome of this review andwhether access to digital TV platforms in general or to specific platforms inparticular, will become more heavily regulated as a result.

 

***Pay TV Market Investigation***

 

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

 

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Following this submission, Ofcom announced in March 2007 that itwould be carrying out a study of the U.K. pay TV market to determine whetherthe market was functioning effectively. Virgin Media made a further, more detailed, joint submission to Ofcomwith BT, Setanta and Top Up in July 2007. Ofcom published its first consultation document in December 2007outlining its initial assessment of the pay TV market.  This was followed by a second consultation inSeptember 2008 whereby Ofcom proposes to address concerns aboutcompetition in the pay TV market by imposing a regulated wholesale must-offerobligation on BSkyB in relation to specific premium sport and movie channels,including the HD versions of those channels. Virgin Media submitted detailed responses to both of Ofcom’sconsultations.  Ofcom’s next formal stagewill be to publish a further document based on the responses it received to thesecond consultation.  This is unlikely tobe a final decision but should be determinative on the majority of the issues.The exact timing of this is unclear at this stage, but Virgin Media expects itto be by August 2009.

 

Ofcom is also consulting on a proposal by BSkyB to replace its threefree-to-air channels on Freeview with a bundled offering of five pay TVservices, referred to as Picnic, including the Sky Sports 1 and SkyMovies.  Ofcom is running theconsultation process in conjunction with the Pay TV Market Investigation andtherefore the exact timing of any further consultations is unclear at thisstage.

 

***Digital Britain Report***

 

In January 2009, the U.K. government published a preliminaryreport (the Interim Digital Britain Report) which is aimed at providing “anambitious and clear strategic vision from Government and a new and strongersense of co-operation between Government, regulators and industry” to securethe U.K.’s place at the forefront of the digital economy.  The preliminary report outlines thegovernment’s plans to identify any market failures that may impede a fullroll-out of digital infrastructure in the U.K., its commitment to act, wherenecessary, to ensure the timely delivery of high-speed networks across the U.K.and to consider whether any further measures are necessary to ensure universalaccess to broadband services.  Followingthe publication of the Interim Digital Britain Report, the government will workclosely with industry participants and regulators through a number of workinggroups and meetings to consider specific proposals, with a view to publishing afinal report in summer of 2009.  At thisstage, Virgin Media is unable to assess the impact that the final report mayhave on its business.

 

**Corporate Responsibility**

 

Virgin Media is committed to demonstrating corporate responsibility, orCR, across all of its business activities. Virgin Media has implemented a CR governance structure to deliver moreeffective scrutiny and management of the issues most likely to impact itsreputation as a responsible business. During 2008, Virgin Media deployed a risk management process to identifyand better understand CR issues related to its business.  Virgin Media’s CR Committee, chaired by itschief executive officer and comprised of members of its senior management,convenes quarterly and advises on the most effective means of managing the CRrisk and opportunity that emerge from this process.  Virgin Media also appointed CR Championsacross each of its divisions to provide the CR Committee with operational insightinto area-specific challenges.

 

Virgin Media’s approach to managing CR was communicated to a wide rangeof stakeholders with the publication of its first CR Report in June 2008.  The CR Report addressed its view of itsresponsibilities to its customers and employees, its commitment to supportcharities and communities, its commitment to improve its environmentalperformance and outlined a clear set of objectives for further improvement ofits CR performance.

 

**Seasonality**

** **

Some revenue streams are subject to seasonalfactors.  For example, fixed linetelephone usage revenue by customers and businesses tends to be slightly lowerduring summer holiday months.  VirginMedia’s customer churn rates include persons who disconnect their servicebecause of moves, resulting in a seasonal increase in its churn rates duringthe summer months when higher levels of U.K. house moves have traditionallyoccurred and students leave their accommodation between school years.

 

**Researchand Development**

** **

Virgin Media’s research and developmentactivities involve the analysis of technological developments affecting itscable television, telephone and telecommunications business, the evaluation ofexisting services and sales and marketing techniques and the development of newservices and techniques.

 

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**Patents,Trademarks, Copyrights and Licenses**

 

Virgin Media does not have any materialpatents or copyrights nor does it believe that patents play a material role inits business.  Virgin Media owns and hasthe right to use registered trademarks, which in some cases are, and in othersmay be, of material importance to its business, including the exclusive rightto use the “Virgin” name and logo in connection with its corporate activitiesand in connection with the activities of its consumer and a large part of itscontent businesses under license from Virgin Enterprises Limited.  This license is for a 30-year term andexclusive to Virgin Media within the U.K. and Ireland.  The license entitles Virgin Media to use the “Virgin”name for the television, broadband internet, telephone and mobile phoneservices it provides to its residential customers, as well as the acquisitionand branding of sports, movies and other premium television content and thesale of certain communications equipment, such as set top boxes and cablemodems.  For Virgin Media’s contentoperations, it is entitled to use the “Virgin Media Television” name for thecreation, distribution and management of its wholly owned television channels,and to use the “Virgin” name for its television channel, Virgin1.  Virgin Media’s license agreement provides foran annual royalty of 0.25% of certain consumer and content revenues, subject toa minimum annual royalty of £8.7 million, except for Virgin1, where itpays an annual royalty of 0.5% of revenues received with respect to Virgin1,subject to a minimum of £100,000.  Aspart of the agreement, Virgin Media has the right to adopt, and has adopted, acompany name for its parent, Virgin Media Inc., over which, together withthe name “Virgin Media”, it retains worldwide exclusivity.

 

**Employees**

 

As the management of our business is performed by Virgin Media, we donot have any employees on our payroll. As of December 31, 2008, Virgin Media had 14,609 employees, of whom13,380 were permanent and 1,229 were temporary or contract.  Approximately 1,200 Service Operations,Network Operations, Design & Civils and Business Field Operationsemployees are covered by recognition agreements with the Communication WorkersUnion, or CWU, and the Broadcasting, Entertainment, Cinematograph and TheatreUnion, or BECTU.  These agreements areterminable by either the Union or Virgin Media with three months writtennotice.  Except for these arrangements,no other employees are covered by collective bargaining agreements.  Virgin Media believes that its relationshipwith the CWU, BECTU and its employees is generally good.

 

Virgin Media’s strategy is to become an employer of choice within itsU.K. marketplace and to ensure it deploys and retains a highly productiveworkforce.  Virgin Media has implementeda number of initiatives to promote a well trained, motivated and engagedworkforce.  It provides quality inductionand job training, together with ongoing skills development, to all of itsemployees. Virgin Media also continues to invest in the development of its mid-to senior- level management team.  Inaddition, in 2008 it implemented a consistent performance management processacross the organization, which sets clear annual objectives (related to bothbusiness and personal development), established incentive-based awards andcontinued the ongoing refurbishment and improvement of the workingenvironment.  Virgin Media also has anumber of other ongoing engagement initiatives, including employee satisfactionsurveys and action plans, a recognition scheme, brand/culture training, andlocal charity and community activities.

 

**Item 1A.  Risk Factors**

 

*Our business, financial condition or resultsof operations could be materially adversely affected by any of the risks anduncertainties described below. Additional risks not presently known to us, or that we currently deemimmaterial, may also impair our business.*

 

**Risks Relating to Our Business and Industry**

 

***We rely on thecontinued support of Virgin Media.***

 

We do not directly employ personnel of our own.  The various personnel required to operate ournetwork are employed by Virgin Media Limited and its affiliates, and ourbusiness is managed by our General Partner, NTL Fawnspring Limited, a whollyowned subsidiary of Virgin Media Limited, from its headquarters in Hook,Hampshire.  We also generally rely onVirgin Media’s management, organization, financing, structure andinfrastructure to carry on our business operations.  If Virgin Media were unable, or ceased, toprovide us with these essential services, we would be unable to provideservices to our customers.  Our reputationwould be materially adversely affected and we would lose customers and revenue.  We might not be able to continue theoperation of our business.

 

***There is noestablished public trading market for our limited partnership interests anddisposition thereof is restricted.***

 

While our limited partnership interests are publicly held, there is noestablished public trading market for our limited partnership interests, nor isit expected or intended that such a market will develop in the future.

 

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In addition, there are limitations on the transferability of interestsin the partnership, including a condition that our General Partner consents toany transfer.  A limited partner maytherefore be unable to liquidate an investment whenever the limited partnerdecides and may be required to bear the risk of the investment for anindefinite period of time.

 

***There are conflictsof interests arising out of transactions entered into with our General Partnerand its affiliates.***

 

Our General Partner has concluded, on our behalf, various arrangementsand agreements with itself and its affiliates to provide services to us,including the provision of consulting and management, financing,infrastructure, marketing, billing, basic television channels and otherservices.  Our General Partner and itsaffiliates could enter into additional arrangements with us in the future,including merger, acquisition and disposition transactions.  Some of these arrangements are included inour Partnership Agreement, while others are subject to standards included inour Partnership Agreement.  Additionally,some of these arrangements involve reimbursement for direct and indirectexpenses and charges allocated to us.

 

Our General Partner has a duty to act in goodfaith and in our best interests in dealing with us, and not to take advantageof (or permit its respective affiliates to take advantage of) the conflictsarising out of these relationships. However, none of the arrangements were negotiated at arm’s-length andthere can be no assurance that the terms are as favorable as those availablefrom unaffiliated parties.

 

***We have incurredlosses in the past and may not be profitable in the future***

 

In 2008, we made a net profit of $1,855,296, however we have incurredsubstantial aggregate net losses since our inception.  We may not continue to make a net profit inthe future and may never be profitable on an aggregate basis.  Additionally, failure to achieveprofitability could adversely affect our ability to make required payments orobtain additional required funds which would make it impossible for us tocontinue to operate our business.

 

***We operate in alimited geographical area.***

 

Our franchise area comprises the three administrative areas of ThreeRivers, Watford and Hertsmere, in which there are approximately 96,000homes.  Given the relatively limited sizeof our franchise area, material problems affecting our ability to provideservices to our customers would likely affect the totality of our franchisearea.  Consequently, any resulting lossof customers and revenues would not be compensated by revenues from anotherpart of our business that would not have been affected.  Similarly, other local events maydisproportionately affect customers, business, and revenues.

 

***The IRS could treatus as a corporation for tax purposes, which would negatively affect our limitedpartners***.

 

Theafter-tax economic benefit of an investment in the limited partnershipinterests depends largely on our being treated as a partnership for federalincome 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 treated as a corporation for federal income tax purposes, wewould pay federal income tax on our income at the corporate tax rate, which iscurrently a maximum of 35%. Distributions to our limited partners may be taxed again as corporatedividends, and no income, gains, losses or deductions would flow through tothem.  Because a tax would be imposedupon us as a corporation, any cash available for distribution to our limitedpartners could be reduced.

 

Current law may change so as to cause us to be treated as a corporationfor federal income tax purposes or otherwise subject us to entity-leveltaxation.

 

***Our limited partnersmay be required to pay taxes on income from us even if they do not receive anycash distributions from us.***

 

Our limited partners will be required to pay any federal income taxeson their share of our taxable income even if they receive no cash distributionsfrom us.  Our limited partners may notreceive cash distributions from us equal to their share of our taxable incomeor even the tax liability that results from that income.

 

**Risks Relating to Virgin Media’s Business andIndustry**

 

*We operate entirely withinVirgin Media’s cable segment and our services are provided and sold to ourcustomers by Virgin Media on an integrated basis with Virgin Mediaservices.  As a result, the followingVirgin Media risk factors are also relevant to our operations, and referencesto the risks to Virgin Media should, as appropriate, be read as risks to us.*

 

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***Virgin Media issubject to significant competition.***

 

The level of competition is intense in eachof the markets in which Virgin Media competes, and Virgin Media expectscompetition to increase.  In particular,Virgin Media competes with BT, BSkyB, Carphone Warehouse (Talk Talk), Freeview,Freesat, O2, Orange, T-Mobile, Tiscali, Vodafone and 3 UK, each of whom hassignificant operational scale, resources and national distribution capacity.  Virgin Media also competes with numerousinternet service providers and indirect telephone access operators that offerfixed line telephone and broadband internet services over BT’s network.  Virgin Media will face increasing competitionfrom mobile telephone network providers and new market entrants, includingthose providing mobile broadband, VoIP and IPTV services.  The increase in competition will becompounded by technological changes and business consolidation, which maypermit more competitors to offer the “triple-play” of digital television, fixedline telephone and broadband services, or “quad-play” bundles including mobiletelephone services.

 

Virgin Media’s broadband service facesincreased competition from BT, BSkyB, Carphone Warehouse (TalkTalk), O2,Orange, Tiscali and others.  Competitorsmay use new alternative access technology such as advanced, faster asymmetricdigital subscriber lines, or ADSL+2, to deliver higher speeds.

 

In the digital television market, VirginMedia competes primarily with BSkyB in providing digital pay televisionservices.  Competition increased as aresult of the launch of Freeview, which provides over 40 digital terrestrialtelevision channels on a free-to-air basis to consumers who have purchased aFreeview digital set-top box or digital television recorder.  Top Up TV subsequently launched a paytelevision service offering approximately 120 programs from 19 channels for afixed fee to subscribers who otherwise receive Freeview and have purchased aTop Up TV set-top box.  In May 2008,Freesat launched HD channels, on a free-to-air basis to consumers who havepurchased a Freesat digital receiver or digital television recorder.  BT has also launched a personal computerdownload service of video-on-demand home entertainment content over a broadbandconnection called BT Vision.  BSkyB,Tiscali and others offer a similar service.

 

Virgin Media’s fixed line telephony businesscompetes with fixed line operators such as BT, telephone local loop unbundlerssuch as Carphone Warehouse (TalkTalk) and BSkyB, and several mobile telephoneoperators such as O2, Orange, T-Mobile, Vodafone and 3 UK.

 

Virgin Media’s business services also face a wide range of competitors,including BT, C&W and COLT Telecom, and a number of regional serviceproviders.  The nature of thiscompetition varies depending on geography, service offerings and the size ofthe marketable area.

 

In order to compete, Virgin Media has had toreduce the prices it charges for its services or increase the value of itsservices without being able to recoup associated costs.  Reduced prices or increased costs have had anegative impact on Virgin Media’s margins and profitability and could continueto do so in the future.  In addition,some of Virgin Media’s competitors offer services that it is unable to offer.  If Virgin Media is unable to competesuccessfully, even following price reductions or value enhancements, VirginMedia may not be able to attract new customers, or retain existing customers.

 

***Failure to controlcustomer churn may adversely affect******Virgin Media’s**financial performance.***

 

The successful implementation of Virgin Media’sbusiness plan depends upon controlling customer churn.  Customer churn is a measure of customers whostop using its services.  Customer churncould increase as a result of:

 

·                  general reduction in the quality of Virgin Media’scustomer service, including billing errors;

 

·                  customers moving to areas where Virgin Media cannotoffer its digital television, or DTV, services;

 

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

 

·                  the availability of competing services, some ofwhich may, from time to time, be less expensive or technologically superior tothose offered by Virgin Media or offer content that Virgin Media does notoffer;

 

·                  the potential loss of customers due to theirrequired migration from Virgin Media’s analog television, or ATV, services toits more expensive DTV services when it stops transmitting its ATV signal; and

 

·                  the general deterioration in economic conditions that couldlead to customers being unable or unwilling to pay for Virgin Media’s services.

 

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An increase in customer churn can lead toslower customer growth, and a reduction in revenue.

 

***If Virgin Media does not maintainand upgrade its networks in a cost-effective and timely manner, it could losecustomers.***

 

Maintaining an uninterrupted and high-quality service over its networkinfrastructure is critical to Virgin Media’s ability to attract and retaincustomers. Providing a competitive service level will depend in part on itsability to maintain and upgrade its networks in a cost-effective and timely manner.  The maintenance and upgrade of its networkswill depend upon, among other things, its ability to:

 

·                  modify network infrastructure for newproducts and services, including faster broadband speeds;

 

·                  install and maintain cable and equipment; and

 

·                  finance maintenance and upgrades.

 

Virgin Media’s covenants in its senior credit facility effectively restrictits use of cash.  If these covenantsaffect its ability to replace network assets at the end of their useful livesor if there is any reduction in Virgin Media’s ability to perform necessarymaintenance on network assets, its networks may have an increased failure rate,which is likely to lead to increased customer churn.

 

***Virgin Media may be unable to implement itsoperational restructuring plan successfully and realize the anticipatedbenefits, and this could negatively affect its financial performance.***

 

During the fourth quarter of 2008, VirginMedia commenced the implementation of a restructuring plan aimed at drivingfurther improvements in its operational performance and eliminatinginefficiencies in order to create a fully-integrated, customer-focusedorganization. The restructuring process could cause an interruption of, or lossof, momentum in the activities of one or more of Virgin Media’s businesses andthe loss of key personnel. The diversion of management’s attention and anydelays or difficulties incurred in connection with the restructuring activitycould result in the disruption of our ongoing businesses or inconsistencies inVirgin Media’s standards, controls, product offerings, level of customerservice, procedures and policies that could negatively affect Virgin Media’sability to maintain relationships with customers, suppliers, employees andothers with whom it has business dealings. The implementation of the plan willinvolve the incurrence of substantial operating and capital expenditures toachieve long term savings, including employee termination costs, lease andcontract exit costs, purchases of fixed assets and other related expenses.Additional unanticipated costs may also be incurred.  Although Virgin Media expects that the eliminationof costs, as well as the realization of efficiencies and other benefits relatedto the implementation of the plan, will offset the restructuring-related costsover time, this net benefit expected may not be achieved in the near term, orat all.

 

***Virgin Media may be adversely affected by ageneral deterioration in economic conditions, including the recent downturn inthe financial markets.***

 

Virgin Media’s ability to grow or maintainits business may be adversely affected by weakening global or domestic economicconditions, wavering consumer confidence, unemployment, tight credit andinsurance markets, declines in global and domestic stock markets andother factors adversely affecting the global and domestic economy.    In addition, unfavorable events in theeconomy, including a further deterioration in the credit and equity markets,could significantly affect consumer and business demand for Virgin Media’sproducts, as consumers may delay purchasing decisions or reduce or reallocatetheir discretionary funds.  Virgin Mediais also exposed to risks associated with the potential financial instability ofits customers, suppliers, distributors and other third parties, many of whommay be adversely affected by the general economic downturn.  Suppliers may also be more cautious insupplying goods to Virgin Media and may request additional credit enhancementsor more restrictive payment terms. While the impact of an economic slowdown onVirgin Media’s business is difficult to predict, it could result in a declinein revenue and a decrease in its cash flows.

 

***Virgin Media is licensed to usethe Virgin name and logo but does not own it.***

 

In February 2007, Virgin Media rebrandedcertain areas of its business (including our business) as Virgin Media andrenamed its corporate parent to Virgin Media Inc. under a 30-year licenseagreement with Virgin Enterprises Limited to use the Virgin name and logo.  The use of the Virgin Media name and brandcarries various risks, including the following:

 

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

 

·                  the license agreement has a 30-year term, and VirginMedia is obligated to pay a termination payment if the license is terminatedearly under certain circumstances; and

 

·                  Virgin Media is required to meet certain customerservice level requirements.

 

These service level requirements, which are grouped into three keycategories, include: (i) Base Service Levels which, in addition toensuring that employees are fully-trained, competent, courteous and respectful,set basic standards against which to measure complaint handling, complaintlevels and call center performance; (ii) Technical Service Levels whichmeasure certain technical requirements that affect Virgin Media’s customers’experience, such as service availability and service response times; and (iii) AspirationalService Levels, which are levels of service that Virgin Media and Virgin Groupwish to achieve over time, to create new service measures and increase thedemands on certain existing measures, covering a range of matters includingcustomer satisfaction, customer advocacy, complaint levels, call centerperformance and staff satisfaction.

 

A failure by Virgin Media to meet its obligations under the licenseagreement could lead to a termination of the license. If Virgin Media loses theright to use the Virgin brand, it would need to rebrand those areas of itsbusiness that have been rebranded, which could result in increased expendituresand increased customer churn.

 

***A failure in******Virgin Media’s critical systems could significantly disruptits operations, which could reduce its customer base and result in lostrevenues.***

 

Virgin Media’s business is dependent on manycomplex critical systems that support all of the various aspects of its cablenetwork operations.  Virgin Media’ssystems are vulnerable to damage from a variety of sources, includingtelecommunications failures, malicious human acts, theft, natural disasters,fire, power loss, gas build-up, war or other catastrophes or any other threatto business continuity.  Moreover, VirginMedia’s servers are potentially vulnerable to physical or electronic break-ins,computer viruses and similar disruptive problems.  Unanticipated problems affecting its systemscould cause failures in its information technology systems, including systemsthat are critical for timely and accurate customer billing, or its customerservice centers or interrupt the transmission of signals over its cablenetwork.  Virgin Media does not currentlyhave a formal company-wide disaster recovery plan, however, it is in theprocess of creating plans for key areas of risk in its business.  Sustained or repeated system failures thatinterrupt Virgin Media’s ability to provide service to its customers, preventit from billing and collecting revenue due to it, or otherwise meet itsbusiness obligations in a timely manner, would adversely affect its reputationand result in a loss of customers and revenue.

 

Virgin Media also maintains sensitive customer data on its systems andis subject to increasingly stringent regulation relating to privacy andinformation security.  Any data breach orloss could result in significant costs, fines and reputational harm.

 

***Virgin Media’s inability toobtain popular programming, or to obtain it at a reasonable cost, couldpotentially have a material adverse affect the number of customers or reducemargins.***

 

For the provision of television programs andchannels distributed via its cable network, Virgin Media enters into agreementswith program providers, such as public and commercial broadcasters, orproviders of pay or on-demand television. Virgin Media has historically obtained a significant amount of itspremium programming and some of its basic programming and pay-per-view sportingevents from BSkyB, one of Virgin Media’s main competitors in the televisionservices business.  BSkyB is a leadingsupplier of programming to pay television platforms in the U.K. and is the exclusivesupplier of some programming, including its Sky Sports channels and Sky Moviechannels, which are the most popular premium subscription sports and filmchannels, respectively, available in the U.K. Virgin Media buys BSkyB wholesalepremium content on the basis of BSkyB’s rate card terms and pricing, which canbe changed on 45 days’ notice by BSkyB, and not under a long term supplycontract.

 

In addition to providing programming toVirgin Media, BSkyB competes with Virgin Media by offering its programmingdirectly to its digital satellite customers. As a result of BSkyB’s ownership of this content, it is able to chargeVirgin Media a price for its content that makes it challenging for Virgin Mediato compete with BSkyB’s own retail pricing and still maintain a profit marginon the sale of that premium programming. BSkyB also offers content, such as HD, some sports programming andinteractive content, exclusively to its digital satellite customers and not toVirgin Media.

 

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In addition to BSkyB, Virgin Media’ssignificant programming suppliers include the BBC, ITV plc, Channel 4,Channel Five, Viacom Inc., HBO, Discovery Communications Inc. andTurner, a division of Time Warner Inc. Virgin Media’s dependence on these suppliers for television programmingcould have a material adverse effect on its ability to provide attractiveprogramming at a reasonable cost.  Inaddition, the loss of programs could negatively affect the quality and varietyof the programming delivered to Virgin Media customers, which could have amaterial adverse effect on its business and results of operations and increasecustomer churn.

 

***Unauthorized accessto******Virgin Media’s network couldresult in a loss of revenue.***

 

Virgin Media relies on the integrity of itstechnology to ensure that its services are provided only to identifiable payingcustomers.  The number of devicesavailable in the U.K. which facilitate theft of its television and broadbandservice has increased.  Unauthorizedaccess to Virgin Media’s network results in a loss of revenue, and failure torespond to security breaches could raise concerns under its agreements withcontent providers.  Virgin Mediacontinues to work on controlling unauthorized access to its networks.

 

***The sectors in which******Virgin Media competes aresubject to rapid and significant changes in technology, and the effect oftechnological changes on its businesses cannot be predicted.***

 

The broadband internet, television, fixed line telephone and mobiletelephone services sectors are characterized by rapid and significant changesin technology.  Advances in currenttechnologies, such as VoIP (over fixed and mobile technologies), mobile instantmessaging, wireless fidelity, or WiFi, WiMax (i.e., the extension of localWiFi networks across greater distances) or internet protocol television, orfuture technological breakthroughs, may result in Virgin Media’s core offeringsbecoming less competitive or render its existing products and servicesobsolete.  Virgin Media may not be ableto develop new products and services at the same rate as its competitors orkeep up with trends in the technology market as well as its competitors.  The cost of implementing emerging and futuretechnologies could be significant, and Virgin Media’s ability to fund thatimplementation may depend on its ability to obtain additional financing.

 

***Virgin Media depends onequipment and service suppliers that may discontinue their products or seek tocharge prices that are not competitive, either of which may adversely affect VirginMedia’sbusiness and profitability.***

 

Virgin Media has important relationships withseveral suppliers of customer equipment, hardware, software and services thatit uses to operate its network and systems and transmit its services.  Virgin Media also outsources various customerservices.  In many cases, Virgin Mediahas made substantial investments in the equipment or software of a particularsupplier, making it difficult for Virgin Media in the short term to changesupply and maintenance relationships in the event that its initial supplierrefuses to offer it favorable prices or ceases to produce equipment or providethe support that its network and systems require.  Virgin Media is also exposed to risksassociated with the potential financial instability of its suppliers, some ofwhich are being adversely affected by the global economic downturn.  If equipment or service suppliers were todiscontinue their product, seek to charge Virgin Media prices that arenot competitive, or interrupttheir provision of equipment or services to Virgin Media as a result ofbankruptcy or otherwise, its business and profitability could be materiallyadversely affected.

 

Furthermore, Virgin Media relies upon anumber of outside contractors to install its equipment in customers’homes.  Delays caused by thesecontractors, or quality issues concerning these contractors, could cause VirginMedia’s customers to become dissatisfied and could produce additional churn ordiscourage potential new customers.

 

***Virgin Media is subject to currency andinterest rate risks.***

 

Virgin Media is subject to currency exchangerate risks because substantially all of its revenues and operating expenses arepaid in U.K. pounds sterling, but Virgin Media pays interest and principalobligations with respect to a portion of its indebtedness in U.S. dollars andeuros.  To the extent that the poundsterling declines in value against the U.S. dollar and the euro, the effectivecost of servicing its U.S. dollar and euro-denominated debt will behigher.  Changes in the exchange ratesresult in foreign currency gains or losses.

 

Virgin Media is also subject to interest raterisks.  Before taking into account theimpact of current hedging arrangements, as of December 31, 2008, VirginMedia would have had interest determined on a variable basis on £4,004.4million, or 67.3%, of its long term debt. An increase in interest rates of 0.25% would increase unhedged grossinterest expense by approximately £10.1 million per year.

 

To manage these foreign exchange and interestrate risks, Virgin Media has entered into a number of derivative instruments,including interest rate swaps, cross-currency swaps and foreign currencyforward rate contracts.  Virgin Media isrequired by its 

 

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lenders underits senior credit facility to fix the interest rate (whether through coupon orthrough derivatives) on not less than two-thirds of the total debt representedby its senior credit facility and high yield notes, for a period of not lessthan three years from March 3, 2006. Accordingly, after giving effect to these hedges, an increase ininterest rates of 0.25% would increase Virgin Media’s gross interest expense byapproximately £2.1 million per year.

 

Virgin Media also incurs costs in U.S. dollars and euros in theordinary course of its business, such as TV programming, customer premiseequipment and network maintenance services and goods purchased for resale.  Any deterioration in the value of the poundrelative to the U.S. dollar or the euro increases the effective cost ofpurchases made in these currencies as some of these exposures are not hedged.

 

***Regulatory change isan ongoing process in the markets in which******Virgin Media provides its services;  changes in U.K. and EU regulations affectingthe conduct of its business may have an adverse impact on its ability to setprices, enter new markets or control its costs.***

 

Virgin Media’s principal business activities are regulated andsupervised by Ofcom and the U.K. Office of Fair Trading, among otherregulators.  Regulatory change is anongoing process in the communications sector at both the U.K. and the EU level.Regulatory changes relating to Virgin Media’s activities and those of itscompetitors, such as changes relating to third party access to cable networks,the costs of interconnection with other networks or the prices of competingproducts and services, could adversely affect its ability to set prices, enternew markets or control its costs.  Inaddition, Virgin Media’s business and the industry in which it operates aresubject to investigation by regulators, which could lead to enforcementactions, fines and penalties or the assertion of private litigation claims anddamages.  Any such action could harm itsreputation and result in increased costs to the business.

 

***There is noassurance that new products******VirginMediamay introduce will achieve full functionality or market acceptance.***

 

Virgin Media’s strategy requires that itrolls-out new products and services, including, for example, the presentroll-out of 50Mb broadband.  Virgin Mediacannot guarantee that this new service, or any other new products or servicesthat Virgin Media may develop in the future, will perform as expected.  Should these new products and services failto perform as expected or should they fail to gain market acceptance, VirginMedia’s results of operations may be negatively effected.

 

***Acquisitions andother strategic transactions present many risks, and******Virgin Media may not realize the financial and strategicgoals that were contemplated at the time of any transaction.***

 

From time to time Virgin Media has madeacquisitions, dispositions and has entered into other strategictransactions.  In connection with suchtransactions, Virgin Media may incur unanticipated expenses, fail to realize anticipatedbenefits, have difficulty integrating the acquired businesses, disruptrelationships with current and new employees, customers and suppliers, incursignificant indebtedness, or have to delay or not proceed with announcedtransactions.  These factors could harmVirgin Media’s business and its reputation.

 

***Virgin Media depends on theability to attract and retain key personnel without whom it may not be able tomanage its business lines effectively.***

 

Virgin Media operates in a number of rapidlychanging technologically advanced markets that will continue to challenge itsbusiness.  There is significantcompetition in attracting and retaining qualified personnel in thetelecommunications industry, especially individuals with experience in thecable sector.  Virgin Media believes thatthe unique combination of skills and experience possessed by its seniormanagement would be difficult to replace, and that the loss of its keypersonnel could have a material adverse effect on it, including the impairmentof its ability to execute its business plan. Virgin Media’s future success is likely to depend in large part on itscontinued ability to attract and retain highly skilled and qualified personnel.

 

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

 

Certain persons or entities are Virgin Media’ssignificant stockholders.  Based on SECfilings as of February 24, 2009, Fidelity Management & ResearchCompany beneficially owns 14.9% of Virgin Media’s issued and outstanding commonstock, the Virgin Group beneficially owns 10.4%, Franklin Mutual Advisers, LLCbeneficially owns 9.2%, Wellington Management Company beneficially owns 8.6%,Ameriprise Financial, Inc. beneficially owns 6.9%, Capital World Investorsbeneficially owns 5.9%, and Goldman Sachs Asset Management, LP beneficiallyowns 5.2% of Virgin Media’s issued and outstanding common stock.  Each of these significant stockholders couldhave an influence over the business and affairs of Virgin Media.

 

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

 

***Virgin Media does not insurethe underground portion of its cable network and various pavement-based electronicsassociated with its cable network.***

 

Virgin Media obtains insurance of the typeand in the amounts that it believes are customary for similar companies.  Consistent with this practice, it does notinsure the underground portion of its (or our) cable network or variouspavement-based electronics associated with its (or our) cable network.  Almost all this cable network is constructedunderground.  As a result, any catastrophethat affects the underground cable network or pavement-based electronics couldprevent it (and us) from providing services to customers and result insubstantial uninsured losses.

 

***Virgin Media has limitedcapacity on its cable platform.***

 

Virgin Media’s analog television, digitaltelevision, broadband internet and video-on-demand services are transmittedthrough its core and access networks, which have limited capacity.  Virgin Media has plans in place to addadditional capacity to its core and access networks.  Until these plans are implemented, VirginMedia is therefore limited in the number of channels that can be transmitted aspart of its digital television service and in its carriage of HD channels.  While the planned conversion of theU.K. DTT platform from analog to digital technology will increase spectrumefficiency, thereby releasing capacity for new services, Virgin Media’s currentcapacity limitations may affect its ability to carry new channels as they aredeveloped.   As such, Virgin Media’sdigital television offering may not be as competitive which could resultin an increase in customer churn and a decrease in revenue.

 

**Risks Relating to****Virgin Media’s FinancialIndebtedness and Structure**

 

***Virgin Media continues to face amortizationpressures under its senior credit facility notwithstanding the recentamendments to its facility agreement, and Virgin Media may not be able torefinance its debt obligations or may be able to refinance only on terms thatwill increase its cost of borrowing.***

 

Significant principal payments under VirginMedia’s senior credit facility are due in 2010 and 2011.  Under the recent amendment to Virgin Media’ssenior credit facility, a substantial portion of its scheduled repayments duein 2010 and 2011 will be deferred to 2012 if Virgin Media makes certainprepayments totaling £187 million no later than August 10, 2009 (assumingVirgin Media exercises an extension option at a cost of £1.5 million).  Virgin Media anticipates using cash flow fromoperations and, if required, amounts undrawn on its revolving credit facility tosatisfy the prepayment condition.  IfVirgin Media were unable to meet the prepayment condition, then Virgin Mediawould need to secure additional funding such as raising additional debt orequity, refinancing its existing facility, selling assets or using other meansto service its amortization obligations. If Virgin Media satisfies the prepayment condition, amortizationpayments of £204.3 million and £288.4 million will remain in 2010 and 2011,respectively.  Virgin Media expects to beable to address these payments through cash flow from operations and, ifrequired, amounts then undrawn on its revolving credit facility.  However, if Virgin Media were unable to doso, then Virgin Media would need to secure additional funding.  Virgin Media may not be able to obtainfinancing or sell assets, at all or on favorable terms, or Virgin Media may becontractually prevented by the terms of its senior notes or its senior creditfacility from incurring additional indebtedness or selling assets.

 

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Assuming the prepayment condition issatisfied, amortization payments of £3,209.7 million will be due in 2012.  Since Virgin Media does not expect to generatesufficient cash flow from operations to make the 2012 payments, Virgin Mediaexpects to address them in advance thereof through a comprehensive refinancingof its senior debt.  Virgin Media’sability to implement such a refinancing successfully is significantly dependenton material improvements in the debt markets. Even if the debt markets improve, the size of the amounts outstandingunder Virgin Media’s senior credit facility may be too large to be refinancedwith senior debt and Virgin Media may need to raise additional capital by doingone or more of the following:

 

·          raising additional debtother than senior debt, such as high yield debt, on terms that may increaseVirgin Media’s cost of borrowing or result in more onerous terms;

 

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

 

·   issuingequity or equity-related instruments that will dilute the equity ownershipinterest of existing stockholders.

 

Virgin Media cannot be sure that any of, orany combination of, the above actions would be available or sufficient to fundits debt obligations or that it will be able to refinance its debt obligationson favorable terms.

 

***Virgin Media’s current leverageis substantial, which may have an adverse effect on its available cash flow,its ability to obtain additional financing if necessary in the future, itsflexibility in reacting to competitive and technological changes and itsoperations.***

 

Virgin Media had consolidated total long termdebt of £6.3 billion as of December 31, 2008.  This high degree of leverage could haveimportant consequences, including the following:

 

·                  a substantial portion of Virgin Media’s 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 of Virgin Media 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 could make VirginMedia more vulnerable in the event of a downturn in general economic conditionsor adverse developments in its business; and

 

·                  Virgin Media may be exposed to risks inherent ininterest rate and foreign exchange rate fluctuations.

 

***Virgin Media continues toincur losses and may not be profitable in the future.***

 

Virgin Media had losses from continuingoperations of £913.8 million in 2008, £463.5 million in 2007 and£509.2 million in 2006.  Virgin Mediacannot be certain that it will achieve or sustain operating profits.  Failure to achieve profitability coulddiminish Virgin Media’s ability to sustain operations, meet financialcovenants, obtain additional required funds and make required payments onpresent or future indebtedness.

 

***The covenants under******Virgin Media’s debt agreements place certain limitation onhow it manages its business.***

 

The agreements that govern Virgin Media’sindebtedness contain financial maintenance tests and restrictive covenants thatlimit the discretion of its management over various business matters.  For example, the financial maintenance testsinclude liquidity, coverage and leverage ratios, and the restrictive covenantsimpact Virgin Media’s ability to:

 

·                  incur or guarantee additional indebtedness;

 

·                  pay dividends or make other distributions, or redeemor repurchase equity interests or subordinated obligations;

 

·                  make investments;

 

·                  sell assets, including the capital stock ofsubsidiaries;

 

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·                  enter into sale and leaseback transactions andcertain vendor financing arrangements;

 

·                  create liens;

 

·                  enter into agreements that restrict some of VirginMedia’s subsidiaries’ ability to pay dividends, transfer assets or makeintercompany loans;

 

·                  merge or consolidate or transfer all orsubstantially all of its assets; and

 

·                  enter into transactions with affiliates.

 

These restrictions could materially adverselyaffect Virgin Media’s ability to finance future operations or capital needs orto engage in other business activities that may be in its best interests.  Virgin Media may also incur otherindebtedness in the future that may contain financial or other covenants morerestrictive than those applicable under its current indebtedness.

 

***Virgin Media is a holdingcompany dependent upon cash flow from subsidiaries to meet its obligations.***

 

Virgin Media and a number of itssubsidiaries are holding companies with no independent operations orsignificant assets other than investments in its subsidiaries.  Each of these holding companies depends uponthe receipt of sufficient funds from its subsidiaries to meet its obligations.

 

The terms of Virgin Media’s senior creditfacility and other indebtedness limit the payment of dividends, loan repaymentsand other distributions to or from these companies under manycircumstances.  Various agreementsgoverning the debt may restrict and, in some cases, may also prohibit theability of these subsidiaries to move cash within their restricted group.  Applicable tax laws may also subject suchpayments to further taxation.

 

Applicable law may also limit the amountsthat some of Virgin Media’s subsidiaries will be permitted to pay as dividendsor distributions on their equity interests, or even prevent such payments.

 

The inability to transfer cash among entitieswithin their respective consolidated groups may mean that even though theentities, in aggregate, 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.

 

**Item 1B.  UnresolvedStaff Comments**

 

None.

 

**Item 2.     Properties**

 

NTL South Herts owns a freehold property at 9 Greycaine Road, Watfordfor use as offices and to house network equipment.  Other than this, we do not own or lease anyproperties.

 

**Item 3.     LegalProceedings**

 

We are involved in various disputes andlitigation arising in the ordinary course of our business.  While we do not believe any of theselitigation matters alone or in the aggregate will have a material adverseeffect on our financial position or results of operation, any adverse outcomein one or more of these matters could be material to our consolidated financialstatements for any one period.

 

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

 

There were no matters that were submitted to a vote of the holders ofour limited partnership interests during the quarter ended December 31,2008.

 

**PART II**

 

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

 

While our limited partnership interests are publicly held, there is noestablished public trading market for the limited partnership interests, and itis not expected that such a market will develop in the future.  As of March 10, 2009, the approximatenumber of holders 

 

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of our limited partnership interests was5,203.  We have not made anydistributions to our limited partners in the past, and have no presentintention to do so.

 

**Item 6.     SelectedFinancial Data**

 

The following table sets forth certain consolidated financial data asat December 31, 2008, 2007, 2006, 2005, and 2004 and for the years thenended.  This information should be readin conjunction 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 annualreport.  Historical results are notnecessarily indicative of future results.

 
| ** **                                                                                       | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                       | ** ** | **2008**                              | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Statement of Operations Data:**                                                                |       |                                  |       |   |   |   |   |   |   |   |   |
| Revenues                                                                                         |       | $                                     | 33,914,381 |   | $ | 39,347,302 |   | $ | 38,796,127 |   | $ | 38,740,331 |   | $ | 38,042,360 |   |
| Operating costs                                                                                  |       | (14,233,577                           | )          | (16,770,839 | ) | (16,989,866 | ) | (16,312,992 | ) | (18,172,336 | ) |
| Allocated overhead                                                                               |       | (11,541,482                           | )          | (14,437,572 | ) | (17,080,779 | ) | (15,780,286 | ) | (13,022,301 | ) |
| Management fees                                                                                  |       | (1,695,719                            | )          | (1,967,365 | ) | (1,939,807 | ) | (1,937,016 | ) | (1,902,118 | ) |
| Selling, general and administrative  expenses                                                    |       | (173,744                              | )          | (105,018 | ) | (94,878 | ) | (92,063 | ) | (103,018 | ) |
| Operating income                                                                                 |       | 6,269,859                             |       | 6,066,508 |   | 2,690,797 |   | 4,617,974 |   | 4,842,587 |   |
| Interest expense                                                                                 |       | (4,391,017                            | )          | (5,417,314 | ) | (6,062,897 | ) | (2,957,398 | ) | (2,203,792 | ) |
| Exchange gains (losses)                                                                          |       | 642,274                               |       | (29,673 | ) | (277,062 | ) | 219,959 |   | (143,217 | ) |
|                                                                                             |       |                                  |       |   |   |   |   |   |   |   |   |
| Profit (loss) before minority interest and  cumulative effect of changes in accounting principle |       | 2,521,116                             |       | 619,521 |   | (3,649,162 | ) | 1,880,535 |   | 2,495,578 |   |
| Minority interest income (expense)                                                               |       | (665,820                              | )          | — |   | 748,119 |   | (654,656 | ) | (94,898 | ) |
| Cumulative effect of changes in accounting  principle                                            |       | —                                |       | — |   | (415,878 | ) | — |   | — |   |
| Net profit (loss)                                                                                |       | $                                     | 1,855,296  |   | $ | 619,521 |   | $ | (3,316,921 | ) | $ | 1,225,879 |   | $ | 2,400,680 |   |
| Net profit (loss) allocated to limited  partners per limited partnership unit                    |       | $                                     | 32.26      |   | $ | 10.77 |   | $ | (57.68 | ) | $ | 21.32 |   | $ | 41.74 |   |
| Average number of limited partnership units  outstanding                                         |       | 56,935                                |       | 56,935 |   | 56,935 |   | 56,935 |   | 56,935 |   |

 
| ** **                                          | ** ** | **As at December 31,** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                          | ** ** | **2008**                              | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                |       |                                  |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                             |       |                                  |       |   |   |   |   |   |   |   |   |
| Total assets                                        |       | $                                     | 41,405,661 |   | $ | 61,517,485 |   | $ | 66,079,566 |   | $ | 63,195,826 |   | $ | 62,528,387 |   |
| Accounts payable to affiliates and related  parties |       | 43,807,690                            |       | 66,040,564 |   | 71,196,561 |   | 64,324,939 |   | 65,398,192 |   |
| Minority interest                                   |       | 525,489                               |       | — |   | — |   | 707,259 |   | 99,216 |   |
| General Partner’s deficit                      |       | (510,003                              | )          | (528,556 | ) | (534,751 | ) | (501,583 | ) | (513,842 | ) |
| Limited Partner’s deficit                      |       | (1,490,286                            | )          | (3,327,029 | ) | (3,940,355 | ) | (656,602 | ) | (1,870,222 | ) |
|                                                     |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

**Overview**

** **

We are a Colorado limited partnership that was formed in December 1991pursuant to the public offering of our limited partnership interests for thepurpose of acquiring one or more cable television/telephone systems in theU.K.  Upon acquisition of our system, ourprimary investment objective was to obtain capital appreciation in the value ofour investment in the system over the term such investment is held by us.

 

We hold 66.7% of the shares of NTL South Herts, which is principallyengaged in the development, construction, management and operation of broadbandcommunications networks for telephone, cable television and internet servicesin the U.K.  As a result of our ownershipof 66.7% of the shares of NTL South Herts, for accounting purposes we haveconsolidated the results of NTL South Herts with our results.  Virgin Media indirectly holds the remaining33.3% of the shares of NTL South Herts. We are reliant on the support of Virgin Media, the ultimate parentcompany of the General Partner, to continue our operations as a going concern.

 

We derive our revenue principally from monthly fees and usagecharges.  Our packaging of services andpricing are designed to encourage our residential customers to use multipleservices like “double-play” telephone and broadband, “double-play” telephoneand television or “triple-play” telephone, television and broadband.

 

Our expenses include certain costs that are charged to us by asubsidiary of Virgin Media for the provision of network services and support,the use of Virgin Media’s national backbone telephone network for carriage ofour telephone traffic, as well as the provision of technical infrastructure andnetwork capacity by Virgin Media for our subscription internet access serviceand digital television services, the provision of corporate services, includingfinance, legal, human resources and facility services, and for the provision ofIT services, including our use of the related IT systems and equipment. Theprincipal components of Virgin Media’s expenses include payroll and otheremployee-related costs; television programming costs; interconnect costs paidto other carriers relating to call termination; facility-related costs, such asrent, utilities and rates; marketing and selling costs; repairs and maintenancecosts; and allowances for doubtful accounts.

 

**Factors Affecting Our Business**

 

Our residential customers account for the majority of our totalrevenue.  The number of residentialcustomers, the number and types of services that each customer uses and theprices we charge for these services drive our revenue.  Our profit is driven by the relative marginson the types of services we provide to these customers and by the number ofservices that we provide to them.  Forexample, broadband internet is more profitable than our television servicesand, on average, our “triple-play” customers are more profitable than “double-play”or “single-play” customers.  Ourpackaging of services and our pricing are designed to encourage our customersto use multiple services such as television, telephone and broadband at a lowerprice than each stand-alone product on a combined basis.  Factors particularly affecting our businessinclude general macroeconomic factors, currency movements, integration andrestructuring activities, customer churn, average revenue per user, competition,capital expenditures and seasonality.

 

***General Macroeconomic Factors****.*  Generalmacroeconomic factors in the U.K. have an impact on certain areas of ourbusiness.  For example, consumers may beless willing or able to purchase our products or upgrade their existingservices.  We may also experienceincreased churn and higher bad debt expense.

 

***Currency Movements***.  Because substantially all of our revenue andoperating costs are earned and paid in U.K. pounds sterling, but we report ourfinancial results in U.S. dollars, our financial results are impacted bycurrency fluctuations which are unrelated to our underlying results ofoperations.

 

***Integration and Restructuring Activities****.* In the fourth quarter of 2008, Virgin Mediacommenced the implementation of a new restructuring plan.  The restructuring plan is aimed at drivingfurther improvements in Virgin Media’s and our operational performance andeliminating inefficiencies in order to create a fully-integrated,customer-focused organization.  WhileVirgin Media anticipates significant cost savings from the plan and that theannual savings from and after 2010 will exceed the annual costs, it expectsthat 2009 costs will exceed 2009 savings. These costs will include employee termination costs, lease and contractexit costs, purchases of fixed assets and other related expenses.  In total, Virgin Media expects to incuroperating expenditures of between £140 million to £160 million andcapital expenditures of between £30 million to £40 million over athree-year period.  Virgin Media’s andour financial performance may be negatively affected if Virgin Media is unableto implement its restructuring plan successfully and realize the anticipatedbenefits.

 

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***Customer Churn***.  Customer churn is a measure of the number ofcustomers who stop subscribing to our services. An increase in our customer churn can lead to increased costs andreduced revenue.  We continue to focus onimproving our customer service and enhancing and expanding our serviceofferings to existing customers in order to manage our customer churn rate.  Our ability to reduce our customer churn ratebeyond a base level is limited by factors like competition, the economy andcustomers moving outside our network service area, in particular during thesummer season.  Managing our customerchurn rate is a significant component of our business plan.  Our customer churn rate may increase if ourcustomer service is seen as unsatisfactory, if we are unable to deliver ourservices over our network without interruption, if we fail to match offeringsby our competitors, if we increase ourprices, if there is an improvement in the U.K. housing market or if there is aprolonged economic downturn.

 

***ARPU***.  Average revenue per user, or ARPU, is ameasure Virgin Media uses to evaluate how effectively it is realizing potentialrevenue from its residential cable customers on its network.  Virgin Media believes that its “triple-play”cable offering of television, broadband and fixed line telephone services isattractive to its existing customer base and generally allows Virgin Media toincrease its ARPU by facilitating the sale of multiple services to eachcustomer.

 

***Competition****.*  Our ability toacquire and retain customers and increase revenue depends on our competitivestrength.  There is significant andincreasing competition in the market for our consumer services, including broadbandand telephone services offered by BT Group plc, or BT, and resellers or localloop unbundlers, such as British Sky Broadcasting Group plc, or BSkyB, andCarphone Warehouse (Talk Talk), alternative internet access services like DSL,satellite television services offered by BSkyB and by BBC and ITV throughFreesat, digital terrestrial television offered through Freeview, internetprotocol television offered by Tiscali S.p.A. and BT.  Our business services also face a range ofcompetitors, including BT and Cable & Wireless plc.  Certain competitors, such as BT and BSkyB,are dominant in markets in which we compete and may use their dominance inthose markets to offer bundled services that compete with our productofferings.  As a result of increasedcompetition, we have had to, and may be required to continue to, adjust ourpricing, improve our product offering and offer discounts to new and existingcustomers in order to attract and retain customers.

 

***Capital Expenditures***.  Our business requires substantial capitalexpenditures on a continuing basis for various purposes, including expanding,maintaining and upgrading our network, investing in new customer acquisitions,and offering new services.  If VirginMedia and we do not continue to invest in our network and in new technologies,our ability to retain and acquire 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 ourliquidity is restricted, so is our ability to meet our capital expenditurerequirements.

 

***Seasonality****.*  Some revenuestreams are subject to seasonal factors. For example, telephone usage revenue by residential customers andbusinesses tends to be slightly lower during summer holiday months.  Our customer churn rates include persons whodisconnect their service because of moves, resulting in a seasonal increase inour churn rates during the summer months when higher levels of U.K. house moveshave traditionally occurred and students leave their accommodation betweenacademic years.

 

# **CriticalAccounting Policies**

#  

Our consolidated financial statements andrelated financial information are based on the application of U.S. generallyaccepted accounting principles, or GAAP. GAAP requires the use of estimates, assumptions, judgments andsubjective interpretations of accounting principles that have an impact on theassets, liabilities, revenue and expense amounts reported, as well asdisclosures about contingencies, risk and financial condition.  The following critical accounting policieshave the potential to have a significant impact on our financialstatements.  An impact could occur becauseof the significance of the financial statement item to which these policiesrelate, or because these policies require more judgment and estimation thanother matters owing to the uncertainty related to measuring, at a specificpoint in time, transactions that are continuous in nature.

 

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

 

***Foreign Currency Translation***

 

Our functional currency is the pound sterling, while our reportingcurrency is the U.S. dollar.  The assetsand liabilities of our U.K. subsidiary have been translated using the exchangerate in effect at the balance sheet date and revenue and expenses have beentranslated at the weighted average rates for the respective years.  Exchange gains and losses on translation ofour net equity investments in our subsidiary are reported as a separatecomponent of accumulated other comprehensive income (loss) in partners’ capital(deficit).  Foreign currency transactiongains and losses are recorded in the statement of operations.

 

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***Fixed Assets***

 

Labor and overhead costsdirectly related to the construction and installation of fixed assets,including payroll and related costs of some employees and related rent andother occupancy costs, are capitalized. The payroll and related costs of some employees that are directlyrelated to construction and installation activities are capitalized based onspecific time devoted to these activities where identifiable.  In cases where the time devoted to theseactivities is not specifically identifiable, we capitalize costs based uponestimated allocations.  Costs associatedwith initial customer installations are capitalized.  The costs of reconnecting the same service toa previously installed premise are charged to expense in the periodincurred.  Costs for repairs andmaintenance are charged to expense as incurred.

 

We assign fixed assets useful lives that impact the annual depreciationexpense.  The assignment of useful livesinvolves significant judgments and the use of estimates.  Virgin Media’s management use theirexperience and expertise in applying judgments about appropriateestimates.  Changes in technology orchanges in intended use of these assets may cause the estimated useful life tochange, resulting in higher or lower depreciation charges or asset impairmentcharges.

 

***Costs Associated with Constructionand Installation Activities***

 

Installation revenues are recognized in accordance with the provisionsof FASB Statement No. 51, *FinancialReporting by Cable Television Companies*, in relation to connectionand activation fees for cable television, as well as fixed line telephone andbroadband internet services, on the basis that Virgin Media markets andmaintains a unified fiber network through which we provide all of theseservices.  Installation revenues arerecognized at the time the installation has been completed to the extent thatthose fees are less than direct selling costs. Installation fees in excess ofdirect selling costs are deferred and amortized over the expected life of thecustomer’s connection.

 

The nature and amount of labor and other costs to be capitalized withrespect to construction and installation activities involves significantjudgment.  In addition to direct externaland internal labor and materials, we also capitalize other costs directlyattributable to our construction and installation activities.  Virgin Media continuously monitors theappropriateness of its and our capitalization policy and updates the policywhen necessary to respond to changes in facts and circumstances, such as thedevelopment of new products and services, and changes in the manner thatinstallations or construction activities are performed.

 

**RecentAccounting Pronouncements**

 

In September 2006, the FASB issued Statement No. 157, *Fair Value Measurements*, or FAS 157.FAS 157 provides guidance for using fair value to measure assets andliabilities.  It also responds toinvestors’ requests for expanded information about the extent to whichcompanies measure assets and liabilities at fair value, the information used tomeasure fair value, and the effect of fair value measurements on earnings.  FAS 157 applies whenever other standardsrequire (or permit) assets or liabilities to be measured at fair value, anddoes not expand the use of fair value in any new circumstances. FAS 157 iseffective for certain financial instruments included in financial statementsissued for fiscal years beginning after November 15, 2007 and for allother non-financial instruments for fiscal years beginning after November 15,2008.  The provisions of FAS 157relating to certain financial instruments were adopted by us in the firstquarter of 2008 effective January 1, 2008, and did not have a materialimpact on our consolidated financial statements.

 

In February 2007, the FASB issued Statement No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities—Including an amendment of FASB Statement No. 115*,or FAS 159.  FAS 159 allowscompanies to elect to measure certain assets and liabilities at fair value andis effective for fiscal years beginning after November 15, 2007.  We did not elect to measure any of ourfinancial assets or liabilities at fair value as a result of the implementationof FAS 159.

 

In May 2008, the FASB issued Statement No. 162, *The Hierarchy of Generally Accepted AccountingPrinciples*, or FAS 162. FAS 162 sets forth the level ofauthority to a given accounting pronouncement or document by category.  Where there might be conflicting guidancebetween two categories, the more authoritative category will prevail.  FAS 162 will become effective60 days after the SEC approves the PCAOB’s amendments to AU Section 411of the AICPA Professional Standards.  Wedo not expect FAS 162 to have an effect on our consolidated financialstatements at this time.

 

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**Results ofOperations**

 

***Years Ended December 31, 2008 and 2007***

 

We present below summarized consolidated financial information for theyears ended December 31, 2008 and 2007:

 
| ** **                                    | ** ** | **Year ended  December 31,** | ** ** | **%**       | ** ** | **Year ended  December 31,** | ** ** | **%**      | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|-------------|------------|-----------------------------------|------------|------------|------------|
| ** **                                    | ** ** | **2008**                          | ** ** | **2007**    | ** ** | **Change**                        | ** ** | **2008**   | ** ** | **2007** | ** ** | **Change** | ** ** |
| Revenues                                      |       | $                                 | 33,914,381 |        | $          | 39,347,302                        |       | (13.8      | )          | £ | 18,309,335 |   | £ | 19,656,943 |   | (6.9 | ) |
| Operating costs                               |       | (14,233,577                       | )          | (16,770,839 | )          | (15.1                             | )          | (7,684,272 | )          | (8,378,298 | ) | (8.3 | ) |
| Allocated  overhead                           |       | (11,541,482                       | )          | (14,437,572 | )          | (20.1                             | )          | (6,230,892 | )          | (7,212,656 | ) | (13.6 | ) |
| Management fees                               |       | (1,695,719                        | )          | (1,967,365  | )          | (13.8                             | )          | (915,467   | )          | (982,847 | ) | (6.9 | ) |
| Selling, general  and administrative expenses |       | (173,744                          | )          | (105,018    | )          | 65.4                              |       | (93,799    | )          | (52,464 | ) | 78.8 |   |
| Operating income                              |       | 6,269,859                         |       | 6,066,508   |       | 3.4                               |       | 3,384,905  |       | 3,030,678 |   | 11.7 |   |
| Interest expense                              |       | (4,391,017                        | )          | (5,417,314  | )          | (18.9                             | )          | (2,370,576 | )          | (2,706,357 | ) | (12.4 | ) |
| Exchange gains  (losses)                      |       | 642,274                           |       | (29,673     | )          | 2,264.5                           |       | 346,744    |       | (14,824 | ) | 2,439.1 |   |
| Profit before  minority interest              |       | 2,521,116                         |       | 619,521     |       | 306.9                             |       | 1,361,073  |       | 309,497 |   | 339.8 |   |
| Minority interest                             |       | (665,820                          | )          | —      |       | —                            |       | (359,456   | )          | — |   | — |   |
| Net profit                                    |       | $                                 | 1,855,296  |        | $          | 619,521                           |       | 199.5      |       | £ | 1,001,617 |   | £ | 309,497 |   | 223.6 |   |

 

*Revenue*

 

For the year ended December 31, 2008, revenue decreased by 13.8%to $33.9 million from $39.3 million in 2007 and revenue expressed in poundssterling decreased by 6.9% to £18.3 million in 2008 from £19.7 million in 2007.The decrease was primarily driven by lower customer numbers, decliningtelephony usage and higher price discounting due to increased competition.

 

*Expenses*

 

*Operating costs*

 

Operating costs include cost of goods sold and depreciation of fixedassets related to the network. For the year ended December 31, 2008,operating costs decreased by 15.1% to $14.2 million from $16.8 million in 2007and operating costs expressed in pounds sterling decreased by 8.3% to £7.7million in 2008 from £8.4 million in 2007. The reduction in operating costs wasprimarily a reflection of reduced revenue along with lower depreciation,primarily as a result of fixed assets becoming fully depreciated. Cost of goodssold as a percentage of revenue improved to 24.6% from 24.9% for the year endedDecember 31, 2008 and 2007, respectively, due to a change in the mix ofservices provided with an increase in higher margin broadband customers.

 

*Allocated overhead*

 

For the year ended December 31, 2008, allocated overhead decreasedby 20.1% to $11.5 million from $14.4 million in 2007. Allocated overheadexpressed in pounds sterling decreased by 13.6% to £6.2 million in 2008 from£7.2 million in 2007. The business of NTL South Herts is managed as an integralpart of Virgin Media. The combined costs of managing the larger group areallocated to each entity within the Virgin Media group, including NTL SouthHerts, on a consistent and proportional basis according to the level of tradingin that entity. Allocated overhead in the year ended December 31, 2008benefited from the reduction in Virgin Media’s overall cost base. This wasprimarily due to the non-recurrence of marketing expenses incurred during theyear ended December 31, 2007 in relation to the rebrand to Virgin Media,together with lower employee related costs following the integration of thelegacy NTL and Telewest businesses.

 

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*Management fees*

 

For the year ended December 31, 2008, management fees decreased by13.8% to $1.7 million from $2.0 million in 2007. Management fees expressed inpounds sterling decreased by 6.9% to £0.9 million in 2008 from £1.0 million in2007. Management fees are charged as a percentage of revenue and the decreaseis therefore a direct reflection of reduced revenue.

 

*Selling, general and administrative expenses*

 

For the year ended December 31, 2008, selling, general andadministrative expenses increased to $173,744 or £93,799 from $105,018 or£52,464 for the year ended December 2007. This increase was primarilyattributable to higher audit and tax fees, partially offset by lower investorrelations’ service costs.

 

*Interest expense*

 

For the year ended December 31, 2008, interest expense decreasedto $4.4 million from $5.4 million in 2007 and interest expense expressed inpounds sterling decreased to £2.4 million in 2008 from £2.7 million in 2007. Thisdecrease was primarily due to the lower overheads and bank fees and deferredfinancing costs allocated to us by a subsidiary of Virgin Media for the yearended December 31, 2008, as compared with the year ended December 31,2007, together with lower capital expenditure.

 

We paid no cashinterest for the years ended December 31, 2008 and 2007.

 

*Exchangegains (losses)*

 

For the year ended December 31, 2008, foreign currency exchange gainswere $642,274 or £346,744 compared with losses of $29,673 or £14,824 for theyear ended December 31, 2007. The change in foreign currency exchangegains (losses) was primarily attributable to fluctuations in the valuation ofthe U.S. dollar on certain of our liabilities and transactions. The value ofthe U.S. dollar strengthened by approximately 26% against the pound from December 31,2007 to December 31, 2008. Our results of operations will continue to beaffected by foreign exchange rate fluctuations.

 

*Minority interest*

 

During the yearended December 31, 2008, we recognized a minority interest charge of$665,820 or £359,456 which has been calculated on the net assets of ourprincipal operating entity, NTL South Herts. For the year ended December 31,2007, NTL South Herts’ liabilities exceeded its assets and therefore nominority interest was recognized.

 

*Net profit*

 

For the yearended December 31, 2008, net profit was $1.9 million or £1.0 million ascompared with net profit of $0.6 million or £0.3 million in 2007due primarily to the reasons described above.

 

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

 

We present below summarized consolidatedfinancial information for the years ended December 31, 2007 and 2006:

 
|                                                                                             |   | **Year ended** |       | ** **  |       | **Year ended** |       | ** ** |       |
|--------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------|------------|---------------------|------------|------------|------------|
|                                                                                             |   | **December  31,**   |       | **%**       |       | **December  31,**   |       | **%**      |       |
|                                                                                             |   | **2007**            | ** ** | **2006**    | ** ** | **Change**          | ** ** | **2007**   | ** ** | **2006** | ** ** | **Change** |   |
| Revenues                                                                                         |   | $                   | 39,347,302 |        | $          | 38,796,127          |       | 1.4        |       | £ | 19,656,943 |   | £ |  21,051,672 |   | (6.6 | ) |
| Operating costs                                                                                  |   | (16,770,839         | )          | (16,989,866 | )          | (1.3                | )          | (8,378,298 | )          | (9,219,093 | ) | (9.1 | ) |
| Allocated  overhead                                                                              |   | (14,437,572         | )          | (17,080,779 | )          | (15.5               | )          | (7,212,656 | )          | (9,268,424 | ) | (22.2 | ) |
| Management fees                                                                                  |   | (1,967,365          | )          | (1,939,807  | )          | 1.4                 |       | (982,847   | )          | (1,052,584 | ) | (6.6 | ) |
| Selling, general  and administrative expenses                                                    |   | (105,018            | )          | (94,878     | )          | 10.7                |       | (52,464    | )          | (51,483 | ) | 1.9 |   |
| Operating income                                                                                 |   | 6,066,508           |       | 2,690,797   |       | 125.5               |       | 3,030,678  |       | 1,460,088 |   | 107.6 |   |
| Interest expense                                                                                 |   | (5,417,314          | )          | (6,062,897  | )          | (10.6               | )          | (2,706,357 | )          | (3,289,868 | ) | (17.7 | ) |
| Exchange losses                                                                                  |   | (29,673             | )          | (277,062    | )          | (89.3               | )          | (14,824    | )          | (150,340 | ) | (90.1 | ) |
| Profit (loss)  before minority interest and cumulative effect of changes in accounting principle |   | 619,521             |       | (3,649,162  | )          | 117.0               |       | 309,497    |       | (1,980,120 | ) | 115.6 |   |
| Minority  interests                                                                              |   | —              |       | 748,119     |       | —              |       | —     |       | 405,947 |   | — |   |
| Cumulative effect  of changes in accounting principle                                            |   | —              |       | (415,878    | )          | —              |       | —     |       | (225,665 | ) | — |   |
| Net profit (loss)                                                                                |   | $                   | 619,521    |        | $          | (3,316,921          | )          | 118.7      |       | £ |  309,497 |   | £ |  (1,799,838 | ) | 117.2 |   |

 

*Revenue*

 

For the year ended December 31, 2007,revenue increased by 1.4% to $39.3 million from $38.8 million in 2006 andrevenue expressed in pounds sterling decreased by 6.6% to £19.7 million in 2007from £21.1 million in 2006. The decrease was primarily due to lower telephonyusage together with increased competition that has resulted in reduced customernumbers and caused us to lower our pricing through increased discounts, partlyoffset by higher broadband revenue due to an increase in the number ofbroadband subscribers.

 

*Expenses*

 

*Operating costs*

 

Operating costs include cost of goods soldand depreciation of fixed assets related to the network. For the year ended December 31,2007, operating costs decreased by 1.3% to $16.8 million from $17.0 million in2006 and operating costs expressed in pounds sterling decreased by 9.1% to £8.4million in 2007 from £9.2 million in 2006. The reduction in operating costs inpounds sterling is primarily a reflection of reduced revenue and improvement incost of goods sold as a percentage of revenue along with lower depreciation,primarily as a result of fixed assets becoming fully depreciated. Cost of goodssold as a percentage of revenue improved to 24.9% for the year ended December 31,2007 from 25.8% for 2006 primarily due to the effect of lower pricing andincreased discounts partially offset by a change in the mix of servicesprovided with fewer telephony customers and increased, higher margin, broadbandcustomers.

 

*Allocated overhead*

 

For the year ended December 31, 2007,allocated overhead decreased by 15.5% to $14.4 million from $17.1 million in2006. Allocated overhead expressed in pounds sterling decreased by 22.2% to £7.2million in 2007 from £9.3 million in 2006. The business of NTL South Herts ismanaged as an integral part of Virgin Media. The combined costs of managing thelarger group are allocated to each entity within the Virgin Media group,including NTL South Herts, on a consistent and proportional basis according tothe level of trading in that entity. Allocated overhead in the year ended December 31,2007 benefited from the reduction in Virgin Media’s overall cost base as aresult of the integration of the legacy NTL and Telewest operations and alsofrom a reduction in restructuring and other charges primarily due to a revisionin the Virgin Media lease exit provision due to the successful sublease of oneof its larger vacant properties.

 

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*Management fees*

 

For the year ended December 31, 2007, management fees increased by1.4% to $2.0 million from $1.9 million in 2006. Management fees expressed in pounds sterling decreased by 6.6% to £1.0million in 2007 from £1.1 million in 2006. Management fees are charged as a percentage of revenue, changes aretherefore a direct reflection of movements in revenue.

 

*Selling, general and administrative expenses*

 

For the year ended December 31, 2007,selling, general and administrative expenses increased by 10.7% to $105,018from $94,878 in 2006 and selling, general and administrative expenses expressedin pounds sterling increased by 1.9% to £52,464 in 2007 from £51,483 in 2006.This increase was primarily attributable to the higher cost of investorrelations’ services.

 

*Interest expense*

 

For the year endedDecember 31, 2007, interest expense decreased to $5.4 million from $6.1million in 2006 and interest expense in pounds sterling decreased to £2.7million in 2007 from £3.3 million in 2006. This decrease was due to the lower bank fees and deferred financingcosts allocated to us for the year ended December 31, 2007 by a subsidiaryof Virgin Media following Virgin Media’s refinancing in the year ended December 31,2006 in connection with its reverse acquisition of Telewest, offset partly byincreased interest rates.

 

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

 

*Exchangelosses*

 

For the year ended December 31, 2007,foreign currency exchange losses were $29,673 compared with losses of $277,062for 2006.  The decrease in exchangelosses was primarily attributable to the fluctuations in the valuation of theU.S. dollar on certain of our liabilities and transactions. The U.S dollarweakened approximately nine percent against the pound from December 31,2006 to December 31, 2007.  Ourresults of operations will continue to be affected by foreign exchange ratefluctuations.

 

*Minority interest*

 

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

 

*Cumulative effect of changes in accountingprinciple*

 

There were no changes in accounting principlein 2007. In 2006, we adopted FSP FAS 143-1, *Accounting for ElectronicEquipment Waste Obligations,* or FSP 143-1. The Financial AccountingStandards Board, or FASB, issued FSP 143-1 to address the accounting forcertain obligations associated with the Waste Electrical and ElectronicEquipment Directive adopted by the European Union. 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 waseffective January 2, 2007.  VirginMedia reviewed their obligation under the law and concluded that an obligationexisted for certain of our customer premises equipment.  As a result, we recognized an addition tofixed 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.  Theadoption of this new accounting standard resulted in a change in the allocatedoverheads from the General Partner.

 

*Net profit(loss)*

 

For the year ended December 31,2007, net profit was $0.6 million as compared with a net loss of $3.3 millionin 2006 due primarily to the reasons described above.

 

***Selected Operating Data***

 

Thefollowing table sets forth certain data concerning our residential cablecustomers at December 31, 2008 and 2007:

 

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| ** **                         | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2008**              | ** ** | **2007**              | ** ** |
| Homes marketable (1)               |       | 96,178                |       | 95,514                |       |
| Total customers                    |       | 33,495                |       | 34,858                |       |
| Digital television subscribers     |       | 25,809                |       | 24,152                |       |
| Analog television subscribers      |       | 6                     |       | 545                   |       |
| Broadband internet subscribers     |       | 26,355                |       | 25,285                |       |
| Telephony subscribers              |       | 29,232                |       | 29,012                |       |
| Penetration (homes marketable) (2) |       | 34.8                  | %          | 36.5                  | %          |
| Average monthly churn (3)          |       | 1.3                   | %          | 1.5                   | %          |

 

----

| (1)    | Homes marketable  represents management’s estimate of the number of homes within our service  area that can potentially be served by our network with minimal connection  costs.                                                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                   |
| (2)    | Penetration  measures the total number of customers for our services divided by the number  of homes marketable.                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                   |
| (3)    | Customer churn is  calculated by taking the total number of customers disconnecting from our  services during the month and dividing them by the average number of  customers during the month. Average monthly churn presented is for the fourth  quarter of the year and is the average of the three monthly churn  calculations within the quarter. |

 

**Statement of Cash Flows**

 

***Years Ended December 31, 2008 and 2007***

 

Forthe year ended December 31, 2008, we generated $0.8 million from ouroperating activities compared with $1.5 million in the year ended December 31,2007, and used it to purchase fixed assets including equipment for customerinstallations.  Our cash provided byoperating activities decreased primarily due to a reduction in accounts payableto affiliates and related parties, partially offset by an improved operatingresult.

 

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

 

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

 

**Liquidity and Capital Resources**

 

##### ***OutstandingIndebtedness***

#####  

Wehave no financing independent of Virgin Media. We are reliant upon the supportof Virgin Media to continue our operations. As of December 31, 2008, we had consolidated current liabilities of$43.8 million due to Virgin Media group companies compared with$66.0 million as of December 31, 2007.

 

Historically,our source of cash has been the net proceeds of our offerings of limitedpartnership interests along with funding from Virgin Media and our principaluses of cash have been capital contributions to NTL South Herts in order tofund our proportionate share of the construction costs of the South HertsSystem and ongoing operations.

 

Accordingly,until such time as NTL South Herts begins to pay dividends on its ordinaryshares (which is not expected in the foreseeable future) we will be required tofund our administrative expenses from borrowings or, theoretically, additionalissuances of limited partnership interests. It is unlikely that we will be able to sell debt or equity securities inthe public markets, at least in the short term, or to obtain financing fromcommercial banks.  Accordingly, we aredependent on Virgin Media for funds to cover operating expenses, and willcontinue to be dependent upon Virgin Media to meet our liquidity requirementsfor the foreseeable future.  We expectthat cash from our operations in 2009 will be utilized fully for the purchaseof fixed assets including connecting new customers to our networks.

 

VirginMedia had £6,308.2 million of debt outstanding as of December 31,2008, compared to £5,958.5 million as of December 31, 2007, and£181.6 million of cash and cash equivalents, compared to£321.4 million as of December 31, 2007.  All amounts shown are in U.K. poundssterling.  The increase in debt since theprevious year is primarily attributable to a £590.0 million unfavorableexchange rate movement on Virgin Media’s debt denominated in currencies otherthan the pound sterling together with a 

 

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greateruse of finance leases.  This waspartially offset by a £300.0 million voluntary prepayment of its seniorcredit facility in December 2008 from existing cash balances.

 

VirginMedia’s business is capital intensive and it is highly leveraged. Virgin Mediahas significant cash requirements for operating costs, capital expenditure andinterest expense.  The levels of VirginMedia’s capital expenditures and operating expenditures are affected by thesignificant amounts of capital required to connect customers to its network,expand and upgrade its network and offer new services.  Virgin Media expects that its cash on hand,together with cash from operations and undrawn on its revolving credit facility,will be sufficient for its cash requirements through December 31,2009.  However, Virgin Media’s cashrequirements after December 31, 2009 may exceed these sources of cash.

 

Significantprincipal payments under Virgin Media’s senior credit facility are due in 2010and 2011.  However, in November 2008,Virgin Media amended the terms of its senior credit facility to defer asignificant portion of these payments to 2012, conditioned on its payment of afurther £187.0 million under its senior credit facility prior to August 2009.  Virgin Media believes that it should be ableto meet this prepayment condition using cash flow from operations and, ifrequired, from amounts undrawn on its revolving credit facility.  Assuming the prepayment condition is satisfied,Virgin Media expects to be able to address the remaining scheduled principalpayments in 2010 and 2011 through cash flow from operations.

 

However,if Virgin Media were unable to meet the prepayment condition or service theseobligations through cash flow from operations, then it would need to secureadditional funding such as raising additional debt or equity, refinancing itsexisting facility, selling assets or using other means.  Virgin Media may not be able to obtainfinancing or sell assets, at all or on favorable terms, or may be contractuallyprevented by the terms of its senior notes or its senior credit facility fromincurring additional indebtedness or selling assets.  Once the prepayment condition is satisfied,Virgin Media will have significant principal payments due in 2012 under itssenior credit facility that it can address only by a comprehensive refinancingof its senior debt and possibly other debt instruments.  Virgin Media’s ability to implement such arefinancing successfully is significantly dependent on material improvements inthe debt markets.

 

VirginMedia’s debt agreements contain restrictions on its ability to transfer cashbetween groups of its subsidiaries or to us. As a result of these restrictions, although its overall liquidity may besufficient to satisfy its obligations, it may be limited by covenants in someof its debt agreements from transferring cash to other subsidiaries that mightrequire funds.  In addition, crossdefault provisions in its other indebtedness may be triggered if it defaults onany of these debt agreements.

 

Forfurther information concerning Virgin Media’s liquidity and capital resourcesand the terms of its various debt facilities, see its annual report on Form 10-Kfor the year ended December 31, 2008 as filed with the SEC on February 26,2009.

 

**Off -Balance Sheet Arrangements**

 

Aspart of our ongoing business we have not participated in transactions thatgenerate relationships with unconsolidated entities or financial partnerships,such as entities frequently referred to as special purpose entities, or SPEs,which would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes. As of December 31,2008 we are not involved with any material unconsolidated SPEs.

 

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

######  

We have no significant contractual obligations and commercialcommitments as of December 31, 2008.

 

**Item 7A. Quantitative and QualitativeDisclosures about Market Risk**

 

The functional currency of NTL South Herts is pounds sterling and allrevenue and substantially all costs are incurred in pounds sterling.  We report in U.S. dollars.  Therefore, we are exposed to fluctuations inthe pound sterling to U.S. dollar exchange rate.

 

The aggregate potential gain from a hypothetical one-percent decreasein the pound sterling / U.S. dollar exchange rate is approximately $5,000 forthe year ended December 31, 2008. The aggregate potential loss from a hypothetical one-percent decrease inthe pound sterling / U.S. dollar exchange rate was approximately $14,000 forthe year ended December 31, 2007.

 

We have no debt other than amounts due to affiliates.  As of December 31, 2008 and 2007, we had$43.8 million and $66.0 million, respectively, in amounts due to Virgin Mediagroup companies.  Interest on amounts dueto affiliates is at a variable rate based on the average rate incurred byVirgin Media.  We are therefore exposedto changes in Virgin Media’s borrowing rate. The aggregate potential loss from a hypothetical one-percentage pointincrease in the interest rate is approximately $551,000 for the year 

 

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ended December 31,2008.  The aggregate potential loss froma hypothetical one-percentage point increase in the interest rate wasapproximately $666,000 for the year ended December 31, 2007.

 

**Item 8.****                FinancialStatements and Supplementary Data**

 

Our consolidated financial statements, the notes thereto and the reportof the independent auditors begin on page F-1 of this annual report.  The following is a summary of the quarterlyresults of operations for the years ended December 31, 2008 and 2007.

 
| ** **                                                             | ** ** | **2008**                         | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                             | ** ** | **Three Months Ended** | ** ** |
| ** **                                                             | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                                             | ** ** | **(unaudited)**                  | ** ** |
| Revenue                                                                |       | $                                | 9,366,598  |   | $ | 8,694,107 |   | $ | 8,504,333 |   | $ | 7,349,343 |   |
| Operating income                                                       |       | 1,784,466                        |       | 1,407,248 |   | 1,579,646 |   | 1,498,499 |   |
| Net profit                                                             |       | 443,969                          |       | 145,822 |   | 508,437 |   | 757,068 |   |
| Net profit allocated to limited partners per  limited partnership unit |       | $                                | 7.72       |   | $ | 2.54 |   | $ | 8.84 |   | $ | 13.16 |   |

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

 

**Item 9.****                Changes in andDisagreements with Accountants on Accounting and****FinancialDisclosure**

 

None.

 

**Item 9A.****       Controls and Procedures**

 

*(a) DisclosureControls and Procedures*

 

Our management, with theparticipation of the chief executive officer and chief financial officer ofVirgin Media*, has evaluated the effectiveness of our disclosure controls andprocedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended, which we refer to as the ExchangeAct) as of the end of the period covered by this report. Based on thisevaluation, Virgin Media’s chief executive officer and chief financial officerhave concluded that, as of the end of such period, these controls andprocedures are effective to ensure that information required to be disclosed byus in the report we file or submit under the Exchange Act is recorded,processed, summarized, and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms. These disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed by us in thereport that we file or submit is accumulated and communicated to ourmanagement, including Virgin Media’s chief executive officer and chieffinancial officer, as appropriate to allow timely decisions regarding requireddisclosure.

 

*(b) Management’s Annual Report on Internal Control Over FinancialReporting*

 

Our management is responsible for establishingand maintaining adequate internal control over our financial reporting, as suchterm is defined in Exchange Act Rule 13a-15(f). Our internal control overfinancial reporting is a process designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of the South Hertfordshire United Kingdom Fund, Ltd.’sconsolidated financial statements for external purposes in accordancewith U.S. generally accepted accounting principles. Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.

 

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Under the supervision and with theparticipation of our management, including Virgin Media’s chief executiveofficer and chief financial officer, we conducted an evaluation of theeffectiveness of our internal control over financial reporting as of December 31,2008 based on the framework described in ‘‘Internal Control—IntegratedFramework’’ issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Based on our evaluation under the COSO framework, ourmanagement has concluded, and hereby reports, that South Hertfordshire United Kingdom Fund, Ltd’s. internal controlover financial reporting was effective as of December 31, 2008.

 

This annual report does not include anattestation report of Ernst & Young LLP, our registered publicaccounting firm, regarding internal control over financial reporting of South Hertfordshire United Kingdom Fund, Ltd.Management’s report was not subject to attestation by Ernst &YoungLLP, our registered public accounting firm, pursuant to temporary rules ofthe Securities and Exchange Commission that permit South Hertfordshire United Kingdom Fund, Ltd. to provide only management’sreport in this annual report.

 

*(c) Changesin Internal Control Over Financial Reporting*

 

Therewere no changes in our internal control over financial reporting (as such termis defined in Rules 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.

 

----

*                         ThePartnership has no principal executive officer or principal 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.

 

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**PART III**

** **

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

 

We have no officers or directors. Certaininformation concerning directors and executive officers of our General Partneris set forth below.

 
| **Name**         | ** ** | **Age** | ** ** | **Title**              |
|------------------|------------|---------|------------|------------------------|
| Robert Mackenzie |       | 47      |       | Director and Secretary |
| Robert Gale      |       | 48      |       | Director               |

 

*Robert Mackenzie*

 

Mr. Mackenzie, age 47, has been the Secretary and Director of ourGeneral Partner since May 30, 2000 and is Virgin Media’s U.K. LegalDirector. He joined International CableTel Incorporated in 1993, to establishthe legal department in the U.K. and acted as Company Secretary for the newlyformed CableTel, subsequently renamed Virgin Media. From 1988 to 1993, Mr. Mackenzieworked for Theodore Goddard as a Solicitor in the Corporate Finance departmentadvising public and private companies on corporate finance, takeovers, domesticand international mergers and acquisitions. He was additionally seconded tocorporate brokers Phoenix Securities Ltd. as Mergers & AcquisitionManager. Previously he worked for Mischon de Reya, handling High Courtcommercial litigation. He was admitted as a Solicitor in 1987, and graduated inlaw from King’s College, University of London. His Law Society finals weretaken at College of Law, London.

 

*Robert Gale*

 

Mr. Gale, age 48, became the vice president—controller of VirginMedia on June 17, 2003 and prior to that was the group director offinancial control for Virgin Media’s U.K. operations since October 2000. Mr. Galejoined Virgin Media in May 2000 when VirginMedia acquired the cable operations of Cable & WirelessCommunications plc, where he had held a number of senior financial positionssince 1998. Prior to that, Mr. Gale was chief financial officer of ComTel,a cable operator subsequently acquired by Virgin Media, from 1995 to 1997.

 

As we have no officers, directors, or employees, we have not adopted acode of ethics. However, Virgin Media has adopted a code of ethics for itsprincipal executive officer, principal financial officer, principal accountingofficer or controller, or persons performing similar functions, whichestablishes policies to promote honest and ethical conduct and to deterwrongdoing, including policies governing actual or apparent conflicts ofinterest, compliance with laws and prompt internal reporting for violations.

 

**Item 11.****         Executive Compensation**

 

We have no employees; however, various personnel are required tooperate our network. Personnel are employed by Virgin Media and its affiliatesand, pursuant to the terms of our Partnership Agreement, Virgin Media and itsaffiliates charge the cost of such employment to us as a direct reimbursementitem. See Item 13, “Certain Relationships, and Related Transactions, andDirector Independence” for a description of the relationship between us andVirgin Media.

 

**Item 12.****         Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters**

 

Our General Partner purchased one of our partnership interests bycontributing $1,000 to our capital.

 

No person or entity known to us owns more than 5% of our limitedpartnership interests. No directors or executive officers of our GeneralPartner beneficially own any of our limited partnership interests.

 

**Item 13.****         Certain Relationships,and Related Transactions, and Director Independence**

 

Our General Partner and its affiliates engage in certain transactionswith us as contemplated by our Partnership Agreement and as disclosed in theprospectuses for our public offerings. Our General Partner believes that theterms of such transactions, which are subject to our Partnership Agreement, aregenerally as favorable as those that we could have obtained from unaffiliatedparties. This determination has been made by our General Partner in good faith,but none of the terms were or will be negotiated at arm’s-length and there canbe no assurance that the terms of such transactions have been or will be asfavorable as those that we could have obtained from unaffiliated parties.

 

An affiliate of our General Partner is entitled to be paid a consultingfee by NTL South Herts. During the construction phases of the cabletelevision/telephone system, this consulting fee was 2% of construction costs. Sincecompletion of construction of each 

 

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portion of thesystem, the consulting fee for the completed portion has been 5% of grossrevenue, excluding revenue from the sale of cable television/telephone systems.Consulting fees paid or payable by us for the year ended December 31, 2008totaled $1.7 million.

 

Our General Partner and its affiliates are entitled to reimbursementfrom NTL South Herts for direct and indirect expenses allocable to theoperation of its network and from us for direct and indirect expenses allocableto our operation, which include but are not limited to salaries of any full orpart time employees, rent, supplies, telephone, travel and restructuring andother charges. Allocable direct or indirect expenses paid or payable by us forthe year ended December 31, 2008 totaled $11.5 million.

 

Our General Partner and its affiliates may make advances to, and defercollection of fees and allocated expenses owed by us, although they are notrequired to do so. For the year ended December 31, 2008, aggregatedinterest, bank fees and finance charges of $4.2 million relating tonon-permanent loans was charged by affiliates of the General Partner, andinterest on advances of $0.2 million was charged by an affiliate of the GeneralPartner at a rate equal to the General Partner’s or certain affiliateseffective average cost of debt financing from unaffiliated entities, which doesnot differ from their weighted average cost of debt financing.

 

As we do not have a board of directors or audit committee, we rely onVirgin Media’s Audit Committee for approval of those related transactionsentered into with related parties in which we would be a participant, otherthan the transactions contemplated by our Partnership Agreement.

 

For the description of transactions between Virgin Media and relatedparties, please see Item 13 in Virgin Media’s annual report on Form 10-Kfor the year ended December 31, 2008, as filed with the SEC on February 26,2009.

 

**Item 14.****         Principal Accountant Feesand Services**

 

Ernst & Young LLP, or Ernst & Young, are ourprincipal accountants. We are billed directly by Ernst & Young forservices provided to us and are allocated a proportion of the fees charged toVirgin Media by Ernst & Young in respect of NTL (South Hertforshire)Limited. We provide in the table below an analysis of the fees charged by Ernst &Young in the each of the two years ended December 31, 2008 and 2007.

 
| ** **         | ** ** | **December 31,** | ** ** |
|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2008**              | ** ** | **2007** | ** ** |
| Audit fees         |       | $                     | 124,410    |   | $ | 64,813 |   |
| Audit-Related fees |       | 228                   |       | 270 |   |
| Tax fees           |       | 1,080                 |       | 1,111 |   |
| All other fees     |       | —                |       | — |   |
|               |       | $                     | 125,718    |   | $ | 66,194 |   |

 

*Audit fees*. Auditfees represent the aggregate fees billed for services provided to us by Ernst &Young for professional services rendered for the audit of our annual financialstatements included in our Form 10-K and review of interim financialstatements filed quarterly on Form 10-Q, including accountingconsultations on matters addressed during the audit and interim reviews. Thesefees also include services that are provided in connection with our statutoryand regulatory filings.

 

*Audit-Related fees*. Audit-Relatedfees represent the aggregate fees billed for assurance and related services byErnst & Young that are reasonably related to the audit or review ofour financial statements, including other accounting consultations. Audit-Relatedservices include advice relating to the Sarbanes-Oxley Act of 2002 includingadvice to Virgin Media on reporting on internal controls under Section 404.

 

*Tax fees*. Tax feesrepresent the aggregate fees billed for professional services rendered by Ernst &Young for tax compliance, tax advice and tax planning.

 

*All other fees*. Allother fees represent the aggregate fees billed for other products and servicesprovided by Ernst & Young.

 

**Audit Committee’s Pre-approval Policies and Procedures**

 

We have no audit committee. The AuditCommittee of the board of directors of Virgin Media reviews, acts on andreports to the board of directors of Virgin Media with respect to variousauditing and accounting matters. In this capacity, the Audit Committee acts onour behalf as necessary. The current members of the Audit Committee of VirginMedia are George R. Zoffinger who is its chairman and who the board ofdirectors has determined to be an audit committee financial expert, Edwin M.Banks, Jeffrey D. 

 

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Benjamin and James A. Chiddix. The members of the Audit Committee areindependent within the meaning of the Nasdaq Global Select Market’s listingstandards currently applicable to Virgin Media.

 

Virgin Media’s Audit Committee’s policy onpre-approval requirements for audit and non-audit services provided to us byour independent registered public accounting firm is summarized as follows:

 

Annually, the Audit Committee will agree the scope and terms, includingthe fees, of the engagement for the services to be provided by the Auditors aspart of the recurring annual audit of Virgin Media (“the Annual Audit Services”).The services included as part of the Annual Audit Services include: the auditof Virgin Media’s consolidated financial statements and its internal controlover financial reporting; the audit of the separate financial statements ofSouth Hertfordshire United Kingdom Fund, Ltd. (“South Herts”), Virgin MediaInvestment Holdings Limited and Subsidiaries (“VMIH”), Virgin Media Finance PLCand any other subsidiaries or affiliates which may require audits in relationto securities issued or to be issued, including, if required, the audits oftheir internal control over financial reporting; the review of interimunaudited financial statements of Virgin Media and the separate interimunaudited financial statements of South Herts and VMIH and any other subsidiariesor affiliates which may require reviews in relation to securities issued or tobe issued; the statutory audits of the financial statements of Virgin Media’saffiliates and subsidiaries.

 

Annually, the Audit Committee will pre-approve, on acategory basis, additional audit services, such as correspondence withregulatory agencies, consents to registration statements, comfort letters, and otherfinancial reports required by regulatory bodies (“Additional Audit Services”).

 

Quarterly, the Audit Committee willpre-approve, on an engagement specific basis, the Audit Related services, Taxservices and Other services for permissible services as set forth in thepre-approval policy, plus any additional categories of Additional AuditServices not included in the annual pre-approval (collectively, inclusive ofthe Additional Audit Services, “Permitted Services”) to be provided by theAuditors to Virgin Media in respect of Permitted Services which are expected tocommence during the following three months. Each request for pre-approval ofPermitted Services will be accompanied by an estimate of the related feealthough such fee estimate will not represent the maximum fee that may beincurred unless the Audit Committee expressly requests that a limit be imposedin respect of a specific service.

 

Between meetings, the Chairman of the AuditCommittee has been delegated authority to pre-approve Services within the scopeof Permitted Services listed above on an ad-hoc basis to meet specific needswith estimated fees of up to £100,000 per engagement. The Chairman will reportany such services approved in this manner to the next meeting. In 2008 and2007, the Virgin Media Audit Committee pre-approved all of the servicesperformed by its auditors.

 

The Audit Committee will be informedroutinely as to the audit and non-audit services actually provided by theAuditors pursuant to this policy, including details of fees billed for suchservices.

 

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**PART IV**

 

**Item 15. Exhibitsand Financial Statement Schedules**

 

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

 

(2) *Financial Statement Schedules—*NONE.

 

(3) *Exhibits—*See Exhibit Index.

 

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

 

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

 

**CONSOLIDATED FINANCIAL STATEMENTS**

**As of December 31, 2008, and 2007**

**and for the Years Ended December 31,2008, 2007 and 2006**

 

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 Income (Loss)       |   | F-5 |
|   | Consolidated  Statements of Partners’ Capital /(Deficit) |   | F-6 |
|   | Consolidated  Statements of Cash Flows                        |   | F-7 |
|   | Notes to  Consolidated Financial Statements                   |   | F-8 |

 

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**Report ofIndependent Registered Public Accounting Firm**

 

ThePartners

SouthHertfordshire United Kingdom Fund, Ltd.

 

Wehave audited the accompanying consolidated balance sheets of SouthHertfordshire United Kingdom Fund, Ltd. (a Colorado limited partnership) ( the “Partnership”)as of December 31, 2008 and 2007, and the related consolidated statementsof operations, comprehensive income (loss), partners’ capital (deficit) andcash flows for each of the three years in the period ended December 31,2008.  These financial statements are theresponsibility of the General Partner’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  We were notengaged to perform an audit of the Partnership’s internal control overfinancial reporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of thePartnership’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of South HertfordshireUnited Kingdom Fund, Ltd. as of December 31, 2008 and 2007, and theconsolidated results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2008, in conformity with U.S.generally accepted accounting principles.

 

Asdiscussed in Note 2 to the consolidated financial statements, SouthHertfordshire United Kingdom Fund, Ltd. adopted Financial Accounting StandardsBoard Staff Position FAS 143-1 “*Accountingfor Electronic Waste Obligations*” as of December 12, 2006.

 
| /s/  Ernst & Young LLP |   |
|---------------------------------|--------|
|                            |   |
| London,  England                |   |
| March 16,  2009            |   |

 

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

**(A Limited Partnership)**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                | ** ** | **2008**              | ** ** | **2007**              | ** ** |
|                                                                                                      |       |                  |       |                  |       |
| **Assets**                                                                                                |       |                  |       |                  |       |
| Fixed assets, net                                                                                         |       | $                     | 41,405,661 |                  | $          | 61,517,485 |   |
| **Total assets**                                                                                          |       | 41,405,661            |       | 61,517,485            |       |
|                                                                                                      |       |                  |       |                  |       |
| **Liabilities and Partners’ Deficit**                                                                |       |                  |       |                  |       |
| Current liabilities                                                                                       |       |                  |       |                  |       |
| Accounts payable to affiliates and related  parties                                                       |       | $                     | 43,807,690 |                  | $          | 66,040,564 |   |
| Total liabilities                                                                                         |       | 43,807,690            |       | 66,040,564            |       |
|                                                                                                      |       |                  |       |                  |       |
| **Minority interest**                                                                                     |       |                  |       |                  |       |
| Minority interest                                                                                         |       | 525,489               |       | —                |       |
|                                                                                                      |       |                  |       |                  |       |
| **Partners’ Capital (Deficit)**                                                                      |       |                  |       |                  |       |
| General Partner                                                                                           |       |                  |       |                  |       |
| Contributed capital                                                                                       |       | 1,000                 |       | 1,000                 |       |
| Accumulated deficit                                                                                       |       | (511,003              | )          | (529,556              | )          |
|                                                                                                      |       | (510,003              | )          | (528,556              | )          |
| Limited Partners                                                                                          |       |                  |       |                  |       |
| Contributed capital, net (56,935 units  outstanding at December 31, 2008 and December 31, 2007) |       | 48,817,997            |       | 48,817,997            |       |
| Accumulated deficit                                                                                       |       | (50,308,283           | )          | (52,145,026           | )          |
|                                                                                                      |       | (1,490,286            | )          | (3,327,029            | )          |
|                                                                                                      |       |                  |       |                  |       |
| Partners’ Deficit                                                                                    |       | (2,000,289            | )          | (3,855,585            | )          |
|                                                                                                      |       |                  |       |                  |       |
| Accumulated other comprehensive loss                                                                      |       | (927,229              | )          | (667,494              | )          |
| Total Partners’ deficit                                                                              |       | (2,927,518            | )          | (4,523,079            | )          |
|                                                                                                      |       |                  |       |                  |       |
| **Total Liabilities and Partners’ Deficit**                                                          |       | $                     | 41,405,661 |                  | $          | 61,517,485 |   |

 

Theaccompaning notes are an integral part of these consolidated financialstatements.

 

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

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                                                                           | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                           | ** ** | **2008**                              | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenues**                                                                                         |       | $                                     | 33,914,381 |   | $ | 39,347,302 |   | $ | 38,796,127 |   |
|                                                                                                 |       |                                  |       |   |   |   |   |
| **Costs and expenses**                                                                               |       |                                  |       |   |   |   |   |
| Operating costs                                                                                      |       | (14,233,577                           | )          | (16,770,839 | ) | (16,989,866 | ) |
| Allocated overhead                                                                                   |       | (11,541,482                           | )          | (14,437,572 | ) | (17,080,779 | ) |
| Management fees                                                                                      |       | (1,695,719                            | )          | (1,967,365 | ) | (1,939,807 | ) |
| Selling, general and administrative  expenses                                                        |       | (173,744                              | )          | (105,018 | ) | (94,878 | ) |
| **Operating income**                                                                                 |       | 6,269,859                             |       | 6,066,508 |   | 2,690,797 |   |
| **Other expenses**                                                                                   |       |                                  |       |   |   |   |   |
| Interest payable to General Partner and  affiliates                                                  |       | (4,391,017                            | )          | (5,417,314 | ) | (6,062,897 | ) |
| Exchange gains (losses)                                                                              |       | 642,274                               |       | (29,673 | ) | (277,062 | ) |
|                                                                                                 |       |                                  |       |   |   |   |   |
| **Profit (loss) before minority interest and  cumulative effect of changes in accounting principle** |       | 2,521,116                             |       | 619,521 |   | (3,649,162 | ) |
| Minority interest (expense) income                                                                   |       | (665,820                              | )          | — |   | 748,119 |   |
| Cumulative effect of changes in accounting  principle                                                |       | —                                |       | — |   | (415,878 | ) |
| **Net profit (loss)**                                                                                |       | $                                     | 1,855,296  |   | $ | 619,521 |   | $ | (3,316,921 | ) |
| **Allocation of net profit (loss)**                                                                  |       |                                  |       |   |   |   |   |
| General Partner                                                                                      |       | $                                     | 18,553     |   | $ | 6,195 |   | $ | (33,168 | ) |
| Limited Partner                                                                                      |       | 1,836,743                             |       | 613,326 |   | (3,283,753 | ) |
| **Net profit (loss)**                                                                                |       | $                                     | 1,855,296  |   | $ | 619,521 |   | $ | (3,316,921 | ) |
| ** **                                                                                           |       |                                  |       |   |   |   |   |
| **Net profit (loss) allocated to limited  partners per limited partnership unit**                    |       | $                                     | 32.26      |   | $ | 10.77 |   | $ | (57.68 | ) |
| **Average number of limited partnership units  outstanding**                                         |       | 56,935                                |       | 56,935 |   | 56,935 |   |

 

Theaccompaning notes are an integral part of these consolidated financialstatements.

 

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

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVEINCOME (LOSS)**

 
| ** **                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                     |       |                                       |       |   |   |   |   |
| Net profit (loss)                        |       | $                                          | 1,855,296  |   | $ | 619,521 |   | $ | (3,316,921 | ) |
| Foreign currency translation adjustments |       | (259,735                                   | )          | (25,605 | ) | 36,298 |   |
| Comprehensive profit (loss)              |       | $                                          | 1,595,561  |   | $ | 593,916 |   | $ | (3,280,623 | ) |

 

Theaccompaning notes are an integral part of these consolidated financialstatements.

 

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

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL(DEFICIT)**

 
| ** **                           | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|
| ** **                           | ** ** | **2008**                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                 |       |                                  |       |   |   |   |   |
| General Partner:                     |       |                                  |       |   |   |   |   |
| Balance, beginning of year           |       | $                                     | (528,556   | ) | $ | (534,751 | ) | $ | (501,583 | ) |
| Net income (loss) for the year       |       | 18,553                                |       | 6,195 |   | (33,168 | ) |
| Balance, end of year                 |       | $                                     | (510,003   | ) | $ | (528,556 | ) | $ | (534,751 | ) |
|                                 |       |                                  |       |   |   |   |   |
| Limited Partner:                     |       |                                  |       |   |   |   |   |
| Balance, beginning of year           |       | $                                     | (3,327,029 | ) | $ | (3,940,355 | ) | $ | (656,602 | ) |
| Net income (loss) for the year       |       | 1,836,743                             |       | 613,326 |   | (3,283,753 | ) |
| Balance, end of year                 |       | $                                     | (1,490,286 | ) | $ | (3,327,029 | ) | $ | (3,940,355 | ) |
|                                 |       |                                  |       |   |   |   |   |
| Accumulated other comprehensive loss |       | (927,229                              | )          | (667,494 | ) | (641,889 | ) |
| Total Partners’deficit          |       | $                                     | (2,927,518 | ) | $ | (4,523,079 | ) | $ | (5,116,995 | ) |
|                                      |            |                                       |            |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

** **
| ** **                                                                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Cash flows from operating activities**                                                  |       |                                       |       |   |   |   |   |
| Net profit (loss)                                                                         |       | $                                          | 1,855,296  |   | $ | 619,521 |   | $ | (3,316,921 | ) |
| Adjustments to reconcile net profit (loss)  to net cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Cumulative effect of changes in accounting  principle                                     |       | —                                     |       | — |   | 415,878 |   |
| Minority interest expense (income)                                                        |       | 665,820                                    |       | — |   | (748,119 | ) |
| Depreciation                                                                              |       | 5,899,408                                  |       | 6,978,619 |   | 6,975,343 |   |
| Loss on disposal of fixed assets                                                          |       | —                                     |       | 26,477 |   | — |   |
| Change in operating assets and liabilities:                                               |       |                                       |       |   |   |   |   |
| Decrease in accounts payable to affiliates and  related parties                           |       | (7,574,624                                 | )          | (6,092,656 | ) | (1,883,235 | ) |
| **Net cash provided by operating activities**                                             |       | 845,900                                    |       | 1,531,961 |   | 1,442,946 |   |
|                                                                                      |       |                                       |       |   |   |   |   |
| **Cash flows from investing activities**                                                  |       |                                       |       |   |   |   |   |
| Purchase of fixed assets                                                                  |       | (845,900                                   | )          | (1,531,961 | ) | (1,442,946 | ) |
| **Net cash used in investing activities**                                                 |       | (845,900                                   | )          | (1,531,961 | ) | (1,442,946 | ) |
|                                                                                      |       |                                       |       |   |   |   |   |
| **Cash flows from financing activities**                                                  |       | —                                     |       | — |   | — |   |
| **Net cash used in financing activities**                                                 |       | $                                          | —     |   | $ | — |   | $ | — |   |
|                                                                                      |       |                                       |       |   |   |   |   |
| Increase (decrease) in cash and cash  equivalents                                         |       | —                                     |       | — |   | — |   |
| Cash and cash equivalents at beginning of  period                                         |       | —                                     |       | — |   | — |   |
| Cash and cash equivalents at end of period                                                |       | $                                          | —     |   | $ | — |   | $ | — |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**Note 1 —****Organizationand Partners’ Interests**

 

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

######  

South Hertfordshire United Kingdom Fund, Ltd., or the Partnership, aColorado limited partnership, was formed on December 23, 1991, inconnection with a public offering of its limited partnership interests.  The Partnership was formed to acquire,construct, develop, own and operate cable television/telephone systems in theU.K.  NTL Fawnspring Limited, a U.K.corporation and a subsidiary of Virgin Media Inc., or Virgin Media, is thegeneral partner, or the General Partner, of the Partnership.

 

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

 

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

######  

The capitalization of the Partnership is set forth in the accompanyingstatement of partners’ capital (deficit). No existing partner is obligated to make any additional contributions topartnership capital.

 

The General Partner purchased its interest in the Partnership bycontributing $1,000 to partnership capital.

 

Profits, losses and distributions of the Partnership are currentlyallocated 99% to the limited partners and 1% to the General Partner until thelimited partners have received distributions equal to 100% of their capitalcontributions plus an annual return thereon of 12%, cumulative and non-compounded.  Thereafter, profits and distributions willgenerally be allocated 75% to the limited partners and 25% to the GeneralPartner.  Interest income earned prior tothe formation of the Partnership was allocated 100% to the limited partners.

 

The profits allocated to the limited partners and General Partner isthe net profit or loss rather than the comprehensive income or loss.  The net profit or loss does not take accountof any foreign currency translation adjustments, as these are unrealized.  The net profit or loss per limited partnerunit is calculated after allocating 1% of the net profit or loss to the GeneralPartner.  For the year ended December 31,2008, the profit per limited partnership unit amounted to $32.26.

 

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

######  

NTL (South Hertfordshire) Limited, or NTL South Herts, is a U.K.corporation owned 66.7% by the Partnership and 33.3% by Virgin Media.  Virgin Media also owns the GeneralPartner.  The General Partner providesconsulting services to the Partnership and may delegate some or all of theconsulting services to Virgin Media or to other affiliates.  NTL South Herts operates a cable system in anarea  which we refer to as the franchisearea, comprising the administrative areas in South Hertfordshire of Three Rivers,Watford and Hertsmere which are located adjacent to the northwest perimeter ofGreater London, England.  We refer tothis cable system as the South Herts System.

 

**Note 2 —****SignificantAccounting Policies**

 

***Basis of Presentation***

 

The accompanying consolidated financialstatements have been prepared in accordance with U.S. generally acceptedaccounting principles, or GAAP.

 

***Use of Estimates***

 

The preparation of financial statements in conformity with GAAPrequires management to make estimates and assumptions that affect the amountsreported in the financial statements 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 

 

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

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)**

 

**Note 2 —****Significant Accounting Policies (Continued)**

 

support services, the amount to be paid to terminate certain agreementsincluded in restructuring costs, the amount to be paid for other liabilitiesincluding contingent liabilities, estimated costs for interconnection, andestimates related to the amount of costs to be capitalized in connection withthe construction and installation of NTL South Herts’ network.  Actual results could differ from thoseestimates.

 

***Principles of Consolidation***

 

The consolidated financial statements includethe accounts of the Partnership, and its subsidiary.  Significant intercompany accounts andtransactions have been eliminated in consolidation.  Certain prior year amounts have beenreclassified to conform to the current year presentation.

 

***Foreign Currency Translation***

 

The functional currency of the Partnership’s principal operatingsubsidiary is the pound sterling, while the Partnership’s reporting currency isthe U.S. dollar.  The assets and liabilitiesof the Partnership’s U.K. subsidiary have been translated using the exchangerates in effect at the balance sheet dates, and revenue and expenses have beentranslated at the average rates for the respective years.  Exchange gains and losses on translation ofthe Partnership’s net equity investment in the subsidiary is reported as aseparate component of accumulated other comprehensive income (loss) in thestatement of partners’ capital (deficit). Foreign currency transaction gains and losses are recorded in thestatement of operations.

 

***Current Assets and Liabilities***

** **

Since May 2000, the current assets and liabilities of NTL SouthHerts have been managed by Virgin Media. Books and records related to accounts receivable, accounts payable anddeferred revenue are maintained by Virgin Media.  Pursuant to the arrangement between VirginMedia and NTL South Herts contained in the letter of appointment and agreement,NTL South Herts has the legal right to offset amounts receivable from VirginMedia against amounts payable to Virgin Media. 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 bank accounts maintained by NTL SouthHerts were closed and a bank account maintained by Virgin Media is used forcash transactions.  Accordingly, the netresult from cash transactions is also included in accounts payable toaffiliates and related parties.

 

***Fixed Assets***

** **

Fixed assets, net are stated at cost lessaccumulated depreciation.

 

The cost of fixed assets includes amountscapitalized for labor and overhead expended in connection with the design andinstallation of NTL South Herts’ operating network equipment andfacilities.  Costs associated withinitial customer installations, additions of network equipment necessary toenable enhanced services, acquisition of additional fixed assets andreplacement of existing fixed assets are capitalized.  The costs of reconnecting the same service toa previously installed premise are charged to expense in the periodincurred.  Costs for repairs andmaintenance are charged to expense as incurred.

 

Depreciation is provided on fixed assets at rates that are intended towrite off the cost of the assets over their estimated useful lives.  Effect is given to commercial and technicalobsolescence.  Depreciation is providedon a straight-line basis over 5-30 years for the cable network and otherelectronic equipment, 20 years for buildings and 3-12 years for office andother equipment.  Repairs and maintenancecosts are charged to expense when incurred.

 

The assets are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable.  If the sum of the expected futureundiscounted cash flows is less than the carrying amount of the asset, a lossis recognized for the difference between the fair value and the carrying amountof the asset.  The fair value of theasset is determined by the higher of the discounted cash flows and the netrealizable value upon sale.

 

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

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)**

 

**Note 2 —****SignificantAccounting Policies (Continued)**

 

***Revenue Recognition***

** **

We recognize revenue only when it is realizedor realizable and earned.  We recognizerevenue when all of the following are present:

 

·                            persuasiveevidence of an arrangement exists between us and our customers;

·                            deliveryhas occurred or the services have been rendered;

·                            theprice for the service is fixed or determinable; and

·                            collectibilityis reasonably assured.

 

*Fixed line telephone, cable television andinternet revenues* are recognized as the services areprovided to customers.  At the end ofeach period, adjustments are recorded to defer revenue relating to servicesbilled in advance and to accrue for earned but unbilled services.

 

*Installation revenues*are recognized in accordance with the provisions of FASB Statement No. 51,*Financial Reporting by Cable TelevisionCompanies*, in relation to connection and activation fees for cabletelevision, as well as fixed line telephone and internet services, on the basisthat we market and maintain a unified fiber network through which we provideall of these services.  Installationrevenues are recognized at the time the installation has been completed to theextent that those fees are less than direct selling costs.  Installation fees in excess of direct sellingcosts are deferred and amortized over the expected life of the customer’sconnection.

 

*Rental revenue* inrespect of line rentals and rental of equipment provided to customers is recognizedon a straight-line basis over the term of the rental agreement.

 

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

 

For bundled packages that have separatelyidentifiable components, the total consideration is allocated to the differentcomponents based on their relative fair values. Where the fair value of a delivered component cannot be determinedreliably but the fair value of the undelivered component can be, the fair valueof the undelivered component is deducted from the total consideration and thenet amount is allocated to the delivered components based on the “residualvalue” method.

 

***Advertising Costs***

** **

Advertising costs are expensed as incurred.  Advertising costs allocated to NTL SouthHerts were $840,174, $1,048,929 and $1,090,705 in 2008, 2007 and 2006,respectively.

 

***Asset RetirementObligations***

*** ***

In June 2005, the Financial Accounting Standards Board, or FASBissued FSP FAS 143-1, *Accounting for ElectronicEquipment Waste Obligations,* or FSP 143-1.  The FASB issued FSP 143-1 to address theaccounting for certain obligations associated with the Waste Electrical andElectronic Equipment Directive adopted by the European Union.  FSP 143-1 requires that the commercial usershould apply its provisions to certain obligations associated with historicalwaste (as defined by the Directive), since this type of obligation is an assetretirement obligation.  The Directive wasadopted by the U.K. on December 12, 2006, and was effective January 2,2007.  Virgin Media has reviewed itsobligation under the law and concluded that an obligation existed for certainof our customer premises equipment.  As aresult, we recognized an addition to fixed assets of $319,380 and an obligationto Virgin Media 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 standardresulted in a change in the allocated overheads from the General Partner.

 

**Note 3 —****   Recent Accounting Pronouncements**

 

In September 2006, FASB issued Statement No. 157, *Fair Value Measurements*, orFAS 157.  FAS 157 providesguidance for using fair value to measure assets and liabilities.  It also responds to investors’ requests forexpanded information about the extent to which companies measure assets andliabilities at fair value, the information used to measure fair value, and theeffect of fair value 

 

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

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)**

 

**Note 3 —****   Recent Accounting Pronouncements (Continued)**

 

measurements on earnings. FAS 157 applies whenever other standards require (or permit) assetsor liabilities to be measured at fair value, and does not expand the use offair value in any new circumstances. FAS 157 is effective for certainfinancial instruments included in financial statements issued for fiscal yearsbeginning after November 15, 2007 and for all other non-financialinstruments for fiscal years beginning after November 15, 2008.  The provisions of FAS 157 relating tocertain financial instruments were adopted by us in the first quarter of 2008effective January 1, 2008, and did not have a material impact on ourconsolidated financial statements.

 

In February 2007, the FASB issued Statement No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities—Including an amendment of FASB Statement No. 115*,or FAS 159.  FAS 159 allowscompanies to elect to measure certain assets and liabilities at fair value andis effective for fiscal years beginning after November 15, 2007.  We did not elect to measure any of ourfinancial assets or liabilities at fair value as a result of the implementationof FAS 159.

 

In May 2008, the FASB issued Statement No. 162, *The Hierarchy of Generally Accepted AccountingPrinciples*, or FAS 162. FAS 162 sets forth the level ofauthority to a given accounting pronouncement or document by category.  Where there might be conflicting guidancebetween two categories, the more authoritative category will prevail.  FAS 162 will become effective 60 daysafter the SEC approves the PCAOB’s amendments to AU Section 411 of theAICPA Professional Standards.  We do notexpect FAS 162 to have an effect on our consolidated financial statementsat this time.

 

**Note 4 —****   Transactions with the General Partner andAffiliated Entities**

 

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

######  

An affiliate of the General Partner is entitled to be paid a consultingfee by NTL South Herts.  During theconstruction phases of the South Herts System, this consulting fee was 2% ofconstruction costs.  Since completion ofconstruction of each portion of the system, the consulting fee for thecompleted portion has been 5% of the gross revenue, excluding revenue from thesale of cable television/telephone systems. The consulting fee is calculated and payable monthly.  Consulting fees paid or payable by NTL SouthHerts for the years ended December 31, 2008, 2007 and 2006 were$1,695,719, $1,967,365 and $1,939,807, respectively.  These amounts were expensed in the statementof operations each year.

 

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

######  

Any Partnership distributions made from cash flow (defined as cashreceipts derived from routine operations, less debt principal and interestpayments and cash expenses) are allocated 99% to the limited partners and 1% tothe General Partner.  Any distributionsother than interest income on limited partner subscriptions earned prior to theacquisition of the Partnership’s first cable television system or from cashflow, such as from the sale or refinancing of a system or upon dissolution ofthe Partnership, will be made as follows: 99% to the limited partners and 1% tothe General Partner until any negative balances in the limited partners’capital accounts are reduced to zero; 100% to the General Partner until anynegative balance in its capital account is reduced to zero; 99% to the limitedpartners and 1% to the General Partner until the balance in the limitedpartners’ capital accounts is equal to their adjusted capital contribution plusa 12% return; 100% to the General Partner until the balance in its capitalaccount is equal to its adjusted capital contribution, and any remaining incomeor gain shall be allocated 75% to the limited partners and 25% to the GeneralPartner.

 

The General Partner and its affiliates are entitled to reimbursementfrom NTL South Herts for direct and indirect expenses allocable to theoperation of the South Herts System, and from the Partnership for direct andindirect expenses allocable to the operation of the Partnership which includebut are not limited to salaries of any full or part-time employees, rent,supplies, telephone, travel and restructuring and other charges.  The General Partner believes that themethodology used in allocating these expenses is fair and reasonable.  During the years ended December 31,2008, 2007 and 2006, reimbursement made by NTL South Herts and the partnershipto the General Partner or its affiliates for any allocable direct and indirectexpenses totaled $11,541,482, $14,437,572 and $17,080,779, respectively.

 

The General Partner and its affiliates may make advances to, and defercollection of fees and allocated expenses owed by, the Partnership, althoughthey are not required to do so.  ThePartnership is charged interest on such advances and deferred amounts at a rateequal to the General Partner’s or certain affiliates’ effective average cost ofdebt financing from unaffiliated entities, which does not differ from theirweighted average cost of debt financing. For the years ended December 31, 2008, 2007 and 2006, aggregatedinterest, bank fees and finance charges of $4,218,586, $5,239,018 and $5,922,488,respectively, relating to non-permanent loans was charged by affiliates of theGeneral Partner, and interest on advances of $172,431, $178,297 and $140,409,respectively, was charged by an affiliate of the General Partner.

 

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

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)**

 

**Note 4 —****   Transactions with the General Partner andAffiliated Entities (Continued)**

 

The General Partner and its affiliates areentitled to recover interest on the full amount of non-permanent loans theyprovide to the Partnership or NTL South Herts and the portion of bank fees anddeferred financing costs relating to Virgin Media’s senior credit facilityallocable to the Partnership or NTL South Herts.  They have elected to recover these amountscommencing in the fourth quarter of 2005.

 

**Note 5 —****Fixed Assets**

 

Fixed assets consist of:

 
| ** **                                    | ** ** | **Estimated**         | ** ** | **Year ended December 31,** | ** **  |
|-----------------------------------------------|------------|-----------------------|------------|--------------------------------------------|-------------|
| ** **                                    | ** ** | **useful lives** | ** ** | **2008**                                   | ** **  | **2007** | ** ** |
|                                          |       |                  |       |                                       |        |   |   |
| Cable network and other electrical  equipment |       | 5-30 years            |       | $                                          | 105,174,057 |   | $ | 173,896,134 |   |
| Building and other equipment                  |       | 3-20 years            |       | 6,413,085                                  |        | 8,414,232 |   |
|                                          |       |                  |       | 111,587,142                                |        | 182,310,366 |   |
| Accumulated depreciation                      |       |                  |       | (70,181,481                                | )           | (120,792,881 | ) |
|                                          |       |                  |       | $                                          | 41,405,661  |   | $ | 61,517,485 |   |

 

For the years ended December 31, 2008, 2007,and 2006, depreciation expense included in operating costs was $5,899,408,$6,978,619 and $6,975,343, respectively.

 

The changes in the asset retirement obligations related to customerpremises equipment were as follows (in millions):

 
| ** **                                                | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
|                                                      |       |                                       |       |   |   |
| Asset retirement obligation at the beginning  of the year |       | $                                          | 784,801    |   | $ | 761,359 |   |
| Increase in liability                                     |       | 108,960                                    |       | 145,036 |   |
| Liabilities settled                                       |       | (56,328                                    | )          | (103,305 | ) |
| Accretion expense                                         |       | 42,171                                     |       | 50,071 |   |
| Revision in cash flows                                    |       | (113,398                                   | )          | (77,931 | ) |
| Foreign currency translation                              |       | (215,500                                   | )          | 9,571 |   |
| Asset retirement at the end of the year                   |       | $                                          | 550,706    |   | $ | 784,801 |   |

 

**Note 6 —****Financing**

 

The Partnership and NTL South Herts have no indebtedness other thanaccounts payable to affiliates and related parties, all of which are part ofthe Virgin Media group.  Accordingly thePartnership and NTL South Herts are reliant upon the support of Virgin Media tocontinue their operations as a going concern.

 

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

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)**

 

**Note 7 —****IncomeTaxes**

 

Income taxes have not been recorded in the accompanying consolidatedfinancial statements because net income and losses of the Partnership accruedirectly to the partners, and its U.K. subsidiary, NTL South Herts, has netoperating losses which offset taxable 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 suchexaminations result in changes with respect to the Partnership’s qualificationas such, or in changes with respect to the Partnership’s recorded income orloss, the tax liability of the general and limited partners would likely bechanged accordingly.

 

The tax basis in the Partnership’s assets and liabilities is $7.8million higher than its book basis in its assets and liabilities at December 31,2008 for financial reporting purposes.

 

U.K. profits (comprising income and gains) of NTL South Herts will besubject to U.K. corporation tax. However, for U.K. corporation tax purposes, corporations are able tocarry forward losses from operations to be offset against subsequent profits ofthe same operations.

 

Deferred income taxes reflect the net tax effects of temporarydifferences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes.  Significant components of deferred taxliabilities and assets related to NTL South Herts are as follows:

 
| ** **                      | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
| Deferred tax liabilities:       |       |                                       |       |   |   |
| Depreciation                    |       | $                                          | —     |   | $ | — |   |
| Total deferred tax liabilities  |       | —                                     |       | — |   |
| Deferred tax assets:            |       |                                       |       |   |   |
| Depreciation                    |       | 11,595,958                                 |       | 10,691,291 |   |
| Net operating loss carryforward |       | 3,026,960                                  |       | 6,143,922 |   |
| Purchase accounting liabilities |       | —                                     |       | — |   |
| Total deferred tax assets:      |       | 14,622,918                                 |       | 16,835,213 |   |
| Valuation allowance             |       | (14,622,918                                | )          | (16,835,213 | ) |
| Net deferred tax assets         |       | —                                     |       | — |   |
| Net deferred tax liabilities    |       | $                                          | —     |   | $ | — |   |

 

## At December 31, 2008, NTL South Hertshad U.K. net operating loss carryforwards of approximately $10.8 million.  The U.K. net operating loss carryforwards areavailable for utilization in future years and do not expire.  Management has established a valuationallowance against the net operating loss carryforwards on the basis that it wasnot more likely than not that such assets would be realized in the future.

##  

Effective January 1, 2007, we adopted FASB Interpretation No. 48,*Accounting for uncertainty in Income Taxes—anInterpretation of FASB Statement 109*, or FIN 48.  FIN 48 prescribes a comprehensive model forrecognizing, measuring, presenting and disclosing in the financial statementstax positions taken or expected to be taken on a tax return, including adecision whether to file or not to file in a particular jurisdiction.  The adoption did not result in a cumulativeeffect adjustment and did not have a material effect on our consolidatedfinancial statements.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the 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 16, 2009

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 
| **Name**             | ** ** | **Title**                                                                                  | ** ** | **Date**            |
|----------------------|------------|--------------------------------------------------------------------------------------------|------------|---------------------|
| /s/ ROBERT MACKENZIE |       | Director of Virgin Media Directors Limited, Corporate Director of NTL                      |       | March 16, 2009 |
| Robert Mackenzie     |       | Fawnspring Limited, the General Partner of South Hertfordshire United  Kingdom Fund, Ltd.* |       |                |
|                 |       |                                                                                       |       |                |
| /s/ ROBERT GALE      |       | Director of Virgin Media Directors Limited, Corporate Director of NTL                      |       | March 16, 2009 |
| Robert Gale          |       | Fawnspring Limited, the General Partner of South Hertfordshire United  Kingdom Fund, Ltd.* |       |                |

 

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*            The Partnership has no principal executiveofficer, principal financial officer or principal accounting 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 principal executive officer, pursuant to  Rule 13a-14a or Rule 15d-14(a) of the Securities Exchange  Act of 1934, as amended, or Exchange Act                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                      |
| 31.2*       |       | Certification of principal financial officer, pursuant to  Rule 13a-14a or Rule 15d-14(a) of the Exchange Act                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                      |
| 32.1*       |       | Certification of principal executive officer and principal 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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