Cyfrowy Polsat adds 286k subscribers in 4Q09

WARSAW — Cyfrowy Polsat S.A. (Warsaw: CPS) has released its report on activities for the fiscal year ended 31 December 2009.

Introduction

We are a leading pay digital satellite platform operator in Poland. Our core business is providing individual customers with access to television and radio channels grouped into different paid programming packages. As at 31 December 2009 our subscriber base of pay packages reached 3,202,319, an increase of 475,326 or 17.4% compared to 31 December 2008.

The launch of mobile services in September 2008 was the first step in the process of building a multi play operator offering DTH services, mobile services and internet access services launched commercially on 1 February 2010. As at 31 December 2009 the number of mobile users totaled 29,325.

We sell our services on the entire territory of Poland.

Operating results

As at 31 December 2009 we had 3,202,319 subscribers, 17.4% more than as at 31 December 2008, when we had 2,726,993 subscribers. Number of our Family Package subscribers increased by 14.1% to 2,609,567 and constituted 81% of our entire subscriber base and the number of our Mini and Mini Max Packages subscribers increased by 34.5% to 592,752 subscribers and constituted 19% of our entire subscriber base. Increase in our subscriber base can be attributable to large number of new contracts signed during the period, partially offset by an increase in churn rate, which results from the strengthen competition followed by attractive promotional offers.
Number of subscribers at the end of the period:

                      2008      Q1'09      Q2'09      Q3'09      Q4'09
                 ---------  ---------  ---------  ---------  ---------
Family Package   2,286,191  2,311,321  2,311,382  2,342,932  2,609,567
Mini Package       440,802    490,735    532,724    573,818    592,752
                 ---------  ---------  ---------  ---------  ---------
  TOTAL          2,726,993  2,802,056  2,844,106  2,916,750  3,202,319

Set-top boxes

To receive our pay television satellite service, customers must install a digital satellite receiver, consisting of an antenna with a converter and a set-top box with a remote control and a subscriber card. Our offer includes both simple SD set-top boxes as well as most technologically advanced HD set-top boxes with a hard disk drive and recording capability. In order to receive HD channels customers have to buy/rent one of our HD set-top boxes: Echostar DSB-7100HD, Echostar DSB-
7200HD and Echostar DVR-7400HD. To use the recording functionality customers need to purchase a set-top boxes with a hard disk drive: Echostar DVR-747, or rent a set-top box with a hard disk drive: Echostar DVR-7400HD. Since the beginning of our activity we have worked with selected suppliers of set-top boxes. In 2007 we started the production of SD set-top boxes in our own factory, nevertheless we continue to cooperate with Samsung Electronics Poland Sp. Ltd., Echostar International Corporation, SL and Sagem Communications Warsaw Sp. z o.o. within the purchase of more technologically
advanced set-top boxes. Starting from the second quarter of 2010 we plan to begin production of HD set-top boxes in our factory.

In 2009 we offered Mini and Family set-top boxes produced in our factory, which accounted for over 60% of contracts we concluded for the provision of satellite pay television services. Moreover, we offered set-top boxes purchased from third parties: Echostar 717, Echostar DSB-7100HD, Echostar DSB-7200HD, Echostar HDS-400E, Echostar DVR-7400HD, Echostar DVR-747, Samsung S305G, Samsung H370G.

Our subscribers can either buy or rent a set-top box from us. The price of the purchased set-top box depends on the package of pay television programs purchased by the subscriber – the more expensive a package the lower the price and a higher set-top box subsidy we allow. In 2009, customers could buy a set-top box from us at prices ranging from PLN 1 to PLN 299 per an SD set-top box, from PLN 199 to PLN 299 for an HD set-top box, and at PLN 499 for a set-top box with a hard disk drive – Echostar DVR-747. The activation fee with the purchase option was not more than PLN 1, depending on the current promotion and a model of the set-top box.

Our customers could lease a set-top box while paying a lump-sum activation fee ranging from PLN 0.5 to PLN 148 per an SD decoder, from PLN 48 to PLN 148 for an HD set-top box and from PLN 148 to PLN 198 for an HD set-top box with a hard disk drive. A lump-sum fee for the provision amounted to no more than PLN 1, depending on current promotions and a model of the set-top box. In addition, in certain promotions, subscribers pay a monthly fee for providing a set-top box with a hard disk drive.

We do not undertake the installation of digital satellite receivers and only deliver components comprising a set-top box, a card and an antenna with a converter. Our independent sales network of satellite television provides installation services within the scope of its business.

Conditional access system

Access to television channels offered in our pay programming packages is secured with a conditional access system purchased from Nagravision. This system is used to control access to particular, paid programming packages. Our client, signing a contract for the services we provide, receives a set-top box together with a card (credit card size), which is an integral part of our digital satellite receiver set and allows the client to receive the pay programming offer.

Market overview

In 2009, 38.2 million citizens lived in 14.0 million households in Poland. According to AGB Nielsen, 99.0% of all Polish households have a television set and 36.0% of Polish households have at least two television sets.

According to our estimates, in 2009 the pay television penetration rate in Poland was about 75% (based on the adopted assumption that there are 14.0 million households). About 13% of Polish householders have more than one DTH service.

The following table presents subscribers to pay television in Poland between 2005 and 2009 (in thousands at the end of a given year.)

                                                                             CAGR(1)
                                     2005    2006    2007    2008    2009  2005-2009
                                   ------  ------  ------  ------  ------  ---------
DTH satellite households (2,3)      1,439   2,265   3,410   4,692   5,696        41%
Percentage growth of the number
 of DTH satellite households          29%     57%     51%     38%     21%          -
Cable TV households                 4,380   4,500   4,600   4,650   4,700         2%
Percentage growth of the number
 of cable TV households                3%      3%      2%      1%      1%          -
IPTV households                         -       4      40     113     136          -
Percentage growth of the number
 of IPTV household                      -       -   >100%   >100%     20%          -
Pay TV households combined          5,819   6,769   8,050   9,455  10,532        16%
Percentage growth of the number
 of pay TV households                  8%     16%     19%     17%     11%          -
Number of new pay TV households       447     950   1,281   1,405   1,077          -
Number of new DTH satellite
 households                           327     826   1,145   1,282   1,004          -
Share of new DTH satellite
 households to pay TV                 73%     87%     89%     91%     93%          -
Number of new net DTH satellite
 subscribers with Cyfrowy Polsat      264     617     794     659     475          -
Share of Cyfrowy Polsat in
 pay TV growth                        59%     65%     62%     47%     44%          -
Share of Cyfrowy Polsat in
 DTH growth                           81%     75%     69%     51%     47%          -
Free of charge TV households (4)        -       -       -     331     866          -
Percentage growth of the number
 of free of charge TV households        -       -       -       -   >100%          -

1. compound average growth rate
2. Data do not contain the number of TPSA DTH customers. TPSA does not publish the number of customers attracted to their pay DTH services.
3. Data contains customers of Cyfra+, n, Cyfrowy Polsat and active customers of TnK
4. Data contains non active customers of TnK and Cyfrowy Polsat.

Source: Informa Telecoms and Media, Eastern European TV, 12 th Edition, own estimates; own calculations on the basis of PIKE, GUS, data concerning cable operators was corrected on the basis of data published by operators.

We estimate that at the end of 2009 our market share in the digital pay satellite television segment, based on the number of subscribers, was about 56%. Our share in the pay DTH satellite television segment in 2009 was over 47%.

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