New Services and Opportunities in the Telecom Industry

1
New Services and Opportunities in the Telecom
Industry

• Bruce Bowden

15 Octobre 2004
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Agenda

• French fixed telecoms market environment
• Overview of neuf telecom
• New services

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2003 French fixed telco market
LDCOM estimates
17
26
All alternatives
France Telecom/Wanadoo
Alternatives share
Evolving quickly in 2004
43
41
Note excludes 4.2B Euros in revenues (from
0800, cards, public phones, annuaires,
non-corporate leased lines) which added to these
amounts results in 20B Euros total market
4
Neuf and Cegetel are the key integrated
fixed-line alternativesneuf has far superior
growth profile others like Tele2 and Free are
well-positioned in their niches
LDCOM estimates
Evolving quickly in 2004
Note net of intercompany revenues
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FT holds 75 of the fixed market and 90 of
value
New entrants
France Telecom
French fixed
telco
market 20 B
Mkt
. share
Revenue
Margin
Value
Mkt
. share
Revenue
Margin
Value
20
0.7
60
0.4
0.3
Data Internet
80
100
2.8
2.8
3.5 B
Voice (incl. dial-up _at_ mins.)
3.9
1.9
2.0
35
50
65
100
7.2
7.2
11.1 B
3
0.2
70
0.1
0.1
Access Subscriptions
95
100
5.2
5.2
5.4 B
4.8
2.4
15.2
17.6
(76)
(88)
(24)
(12)
SOURCES ART, LDCOM ESTIMATES
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Agenda

• French fixed telecoms market environment
• Overview of neuf telecom
• New services

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Who is neuf telecom?

• A growing alternative operator in the shrinking
  French fixed telco market
• A profitable challenger net income positive for
  1H04
• The company with the most unbundled ADSL lines
  in Europe
• 2 fixed-line telco for French enterprises
• A leading innovator in broadband services

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neuf has grown rapidly both organically and via
acquisition
9
Growth across all segments
Résultats au 30 juin 2004, US GAAP
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Neuf has been profitable since inception
101
CAGR 1999 - 2003 83
EBITDA Net income before extraordinary asset
write-downs
42
18
11
9
4
4
0
1
- 5
- 13
1998 1999 2000 2001
2002 2003
Note Figures in US GAAP
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Proven track record as consolidator

• Chart shows pro forma key financials of neuf plus
  8 acquired businesses since January 1st 2001
• Pro forma revenue CAGR of 12 even during
  integration revenue now re-accelerating
• SGA reduced from 61 of revenues to 26 and
  still shrinking
• EBITDA turned around from -45 of revenues
  to 10.5
• Capex divided by 6 effect of one high-quality
  network shared by nine businesses

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Neuf has been funded largely by operational cash
flow and equity capital
CUMULATIVE CASH FLOWS FROM INCEPTION TO EOY 2003
707
-1153
857
408
Financing Operations Investment Cash
Figures in US GAAP () Acquisitions, net of cash
in companies acquired and gains on sales of assets
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neufs shareholders
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The largest alternative broadband network
Liste des villes demandée
2 000 communes gt 50 of the population covered
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Agenda

• French fixed telecoms market environment
• Overview of neuf telecom
• New services

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Unbundled DSL lines are the key platform for
advanced services
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Where do we go from here?
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Faster

• Broadband up to 25 Mbps
• Priced based on free backhaul
• Using a technology already built into our network
  (same chassis, new chipset)
• Commercial launch in early 2005

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Cheaper and deeper VOIP

• Cheaper
• Lower cost long-haul protocol
• Lower cost for retail voice services for an
  alternative operator

• Deeper
• Move from single-site to multi-site to PABX
• Layer on services
• Hosted PBX, IP CENTREX
• Private numbering schemes
• Unified messaging
• Virtual offices

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Ups and downs of VOIP

• Advantages
• Industry momentum in support of IP
• Operating cost efficiency
• Service complexity
• Mass customisation of QoS
• Incrementality of BP

• Drawbacks
• Disruptive to the voice market (user cost of
  voice -70 over 5 years)
• Bandwidth anarchy / parasitism
• Security
• Hyperactive technological advancement (ROI
  challenges)

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More disruptive MVNO F-M Convergence
French mobile penetration rate is still
relatively low with potential strong additional
growth
probably linked to low competition within
market maintaining high profitability
Penetration rate 69.5 (1 Q303-Q104) France
is lagging behind
Market share
Revenue (Bn)
EBITDA (Bn)
2003 figures
Orange 48.8 17.9 6.6
SFR 35.3 6.8 1.9
Bouygues 15.9 3.3 1.0
Stable market share with 30-35 EBITDA return
Source CSFB
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Convergence of fixed and mobile driven by
customer needs

• Telephony becomes personal and portable. Using a
  phone means more and more using a 'Mobile phone'
• 16 of households are now mobile only
• France Telecom will launch fixed-mobile bundles
  before the end of the year

SIgnificant mobile vs fixed line substitution

• Customers expect "universal" usages
• Voicemail, directory, navigator,

Indoor usage of mobile phones as a continuity of
service is growing (already 30 of mobile calls)

• Some customer segments need fixed-mobile
  integrated offers
• Consumer need for more simplicity regarding
  telecom providers
• Futur Telecom already proposes fixed-mobile
  bundles for the business segment
• Cegetel business offer includes SFR mobile offer
  with bundled prices (special rates for calls
  between employees)
• a single customer care ? a single bill? VPN
  rates ?

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Convergence of fixed and mobile driven by
technology (I)
Broadband Internet strong growth multiplies
access points usable for mobile calls collect
Emergence of IP technology enables services
platforms convergence

• Strong growth of mobile calls made in-house or
  inside workspace

• Full IP networks already enable voice and data
  intergated services
• Voicemail / directory available for consultation
  over computer or IP phone
• Fixed and mobile network integration will add
  mobile sevices
• Universal voicemail
• Unified SMS / MMS

Mobile phone usage by consumers

• that can be captured by fixed operator through
  millions of residential and corporate modems or
  routers

On net  base station  with a 6fold lower cost
than GSM / UMTS cost
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Convergence of fixed and mobile driven by
technology (II) Hybriphone technology should be
available by Q1 2005
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Hybriphone principles
Customer value

• Simplicity
• One handset for all calls
• One phone number
• One voicemail
• One bill
• Pay less
• Mobile minute 6X fixed minute cost

• Same handset for all calls (indoor outdoor)
• Communications between handset and access points
  through short range wireless (Bluetooth or WLAN)
• Access points located at home or in workspace

Network interconnexion required
Fixed-operator value

• Capture revenue (increase ARPU) margin on
  mobile calls
• Capture revenue margin on mobile incoming
  traffic
• Optimize cost structure

HLR

• Already tested being implemented
• BT in the UK ('Blue Phone' project)
• Hutchinson in Hong Kong

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MVNO can create major new IT platform needs
MVNO proposal A
MVNO B a 'common offer' on the business segment
Mobile operator responsibility

• All network
• Traffic management

• No direct proposal to become MVNO yet
• Commercial partnership for common offer with Neuf
  Telecom on the business segment (lt100 employees)
• VPN Fixed-Mobile
• One bill, one customer care
• Already a distribution agreement for the business
  segment

MVNO responsibility

• Customer relation (incl. billing)
• Customer care
• SIM cards (delivered by SFR)
• Brand 'Neuf Telecom'
• Added value services

MVNO requirements

• Minimum yearly traffic
• Mobile adapted distribution customer care
• 9 years contract

Not a full MVNO offer, even though mobile
operator proposes to start discussion on a
possible future network interconnection
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More content-rich
Starting this Fall in unbundled zones 40 chains
in digital quality Paired with digital
terrestrial TV (Télévision Numérique Terrestre
or TNT) and a few surprises
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