Developments in Telecoms Capital Markets

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Developments in Telecoms Capital Markets
3 June 2002
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Contents

• What happened?
• What was the role of Government and regulator?
• What are investor attitudes to telecom stocks
  now?
• How should Government and regulators react?

3
What happened?
1.1 European TMT sector 1999-2002 ytd
European performance
Source Datastream
4
1.2 TMT Incumbents in CEE 1999-2002 ytd
CEE operators
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1.3 Equity and equity linked issuance 1999 2002
ytd
European telco sector equity linked issuance
European telco sector equity issuance
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1.3 Capital markets highlights

• European DS Telecoms, Media and IT Index is
• gt70 lower than June 2000
• gt50 lower than 2001 high
• gt25 lower than 2002 high
• CEE

Values are lower
7

Capital markets highlights

• Fixed 4.5x EBITDA now vs nearly 4x Revenues
  then
• Mobile 6-7x EBITDA now ( fixed line
  valuations at peak)
• Issues by BT and KPN account for 70 (15bn) of
  European equities issuance in the last 12 months
• Convertible/exchangeable issuance rose in 2001 in
  response to low prices and interest rates and
  high volatility

Valuations are lower
ˆ
New issuance is down
8

Capital markets highlights

• Further growth possible towards European levels
• BUT
• Cannibalisation of fixed revenues in voice
• Ceiling of ? 2.5 mobile spend/GDP
• Concerns about 3G
• Disappointing volumes

Mobile exceeded expect-ations until 2001
Data, broadband
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In a Nutshell - 1
Source Bloomberg
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In a Nutshell - 2
800
700
600
500
400
300
200
100
0
1997
1998
1999
2000
2001
2002
Source Bloomberg
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In a Nutshell - 3
Source Bloomberg
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What was the role of Government and the regulator?
Faster liberalisation
Slower liberalisation

• Consumer choice/business needs
• New entrant push
• EU accession
• FCC pressure on settlement rates

• Network development obligations
• Digitalisation/broadband vision
• Tariff rebalancing/price control
• Labour issues
• Privatisation proceeds

Most CEE Governments/regulators favoured
infrastructure based competition model
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What are investor attitudes to telecoms stocks
now?
Strategic investors
Institutional investors
Private equity

• Where are they now?
• Highly geared
• 3G write offs
• Strategies under attack

• Wary, especially of 3G cost/benefits
• Visibility/momentum of earnings
• Driving dividend
• High liquidity/free float requirements

• Beginning to play
• But still relatively few in CEE
• High rates of return
• Stability of cashflow

The telco reinvented as a utility?
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How should Governments / regulators react?

• Infrastructure as a utility
• Services based competition over incumbent network
• Interconnection
• Carrier (pre) selection
• Local loop unbundling
• Number portability
• Second National Operators rarely succeed
• MVNO for 3G?
• Regulatory (transparent) bite
• Temper price / other ambitions