New Services and Opportunities in the Telecom Industry

New Services and Opportunities in the Telecom Industry Bruce Bowden | 15 Octobre 2004 |

Agenda § French fixed telecoms market environment § Overview of neuf telecom § New services 2

2003 French fixed telco market LDCOM estimates 17% 26% All alternatives France Telecom/Wanadoo Alternatives’ share 43% Evolving quickly in 2004 41% Note: excludes 4. 2 B Euros in revenues (from 0800, cards, public phones, annuaires, noncorporate leased lines) which added to these amounts results in ~20 B Euros total market 3

Neuf and Cegetel are the key integrated fixed-line alternatives neuf has far superior growth profile; others like Tele 2 and Free are well-positioned in their niches LDCOM estimates Evolving quickly in 2004 Note: net of intercompany revenues 4

FT holds ~75% of the fixed market and ~90% of value French fixed telco market: 20 B€ New entrants Mkt. share Revenue Data & Internet 3. 5 B€ 20% Voice (incl. dial-up @ mins. ) 35% 0. 7 France Telecom Margin Value 60% 0. 4 80% 3. 9 50% 65% 3% 0. 2 70% 2. 8 Margin Value 100% 0. 3 2. 8 100% 2. 0 7. 2 100% 0. 1 5. 2 1. 9 11. 1 B € Access & Subscriptions 5. 4 B € Mkt. share Revenue 7. 2 0. 1 95% 5. 2 4. 8 2. 4 15. 2 17. 6 (24%) (12%) (76%) (88%) SOURCES: ART, LDCOM ESTIMATES 5

Agenda § French fixed telecoms market environment § Overview of neuf telecom § New services 6

Who is neuf telecom? § A growing alternative operator in the shrinking French fixed telco market § A profitable challenger: net income positive for 1 H 04 § The company with the most unbundled ADSL lines in Europe § #2 fixed-line telco for French enterprises § A leading innovator in broadband services 7

neuf has grown rapidly both organically and via acquisition § § 8% share of the fixed market #1 alternative operator for ISPs and other telcos #1 alternative operator for enterprises #4 residential alternative operator 8

Growth across all segments Résultats au 30 juin 2004, US GAAP 9

Neuf has been profitable sinception 3= R G CA 0 9 999 1 200 - % 3 +8 101 EBITDA 42 18 11 4 Net income before extraordinary asset write-downs 4 1 -5 - 13 1998 1999 2000 2001 2002 2003 Note: Figures in US GAAP 10

Proven track record as consolidator § § § Chart shows pro forma key financials of neuf plus 8 acquired businesses since January 1 st 2001 Pro forma revenue CAGR of 12% even during integration; revenue now re-accelerating SG&A 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 11

Neuf has been funded largely by operational cash flow and equity capital In M€ Cash flows from operations Tangible and intangible investments Other net investments (*) (1 153) Capital increases Minority interests Other financing - net of repayments 800 14 43 Cash flows from financing 857 Exchange rate variations -3 Cash as of 31 December 2003 +707 (1 329) 176 Cash flows from investments CUMULATIVE CASH FLOWS FROM INCEPTION TO EOY 2003 707 408 -1153 +857 Financing Operations Investment 408 € 200 million in Cap. Ex in 2004 (vs. € 130 million in 2003) Cash Figures in US GAAP (*) Acquisitions, net of cash in companies acquired and gains on sales of assets 12

neuf’s shareholders 13

The largest alternative broadband network 2 000 communes > 50% of the population covered Liste des villes demandée 14

Agenda § French fixed telecoms market environment § Overview of neuf telecom § New services 15

Unbundled DSL lines are the key platform for advanced services 16

Where do we go from here? 17

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 Virtual fiber to the home 18

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 19

Ups and downs of VOIP Advantages § Industry momentum in support of IP § Operating cost efficiency § Service complexity § Mass customisation of Qo. S § 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) 20

More disruptive: MVNO & F-M Convergence French mobile penetration rate is still relatively low with potential strong additional growth … Penetration rate : 69. 5% … probably linked to low competition within market maintaining high profitability 2003 figures (+1% Q 303 -Q 104) France is lagging behind Market share Revenue (Bn€) EBITDA (Bn€) Orange 17. 9 6. 6 SFR 35. 3% 6. 8 1. 9 Bouygues 15. 9% Source : CSFB 48. 8% 3. 3 1. 0 Stable market share with 30 -35% EBITDA return 21

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 ? … 22

Convergence of fixed and mobile driven by technology (I) Broadband Internet strong growth multiplies access points usable for mobile calls collect § Strong growth of mobile calls made in-house or inside workspace … Emergence of IP technology enables services platforms convergence § Full IP networks already enable voice and data intergated services § Mobile phone usage by consumers § § Fixed and mobile network integration will add mobile sevices § § § Voicemail / directory available for consultation over computer or IP phone … Universal voicemail Unified SMS / MMS … that can be captured by fixed operator through millions of residential and corporate modems or routers On net « base station » with a 6 fold lower cost than GSM / UMTS cost 23

3 Convergence of fixed and mobile driven by technology (II) Hybriphone technology should be available by Q 1 2005 Customer value Hybriphone principles : § Same handset for all calls (indoor & outdoor) § Simplicity § § § Communications between handset and access points through short range wireless (Bluetooth or WLAN) § Access points located at home or in workspace § Pay less § GSM Mobile Network interconnexion required Fixed PSTN & IP Network Bluetooth/Wifi Access Point OSP HLR Mobile minute = 6 X fixed minute cost Fixed-operator value § § Bluetooth, Wi. Fi One handset for all calls One phone number One voicemail One bill § Capture revenue (increase ARPU) & margin on mobile calls Capture revenue & margin on mobile incoming traffic Optimize cost structure Already tested & being implemented : • BT in the UK ('Blue Phone' project) • Hutchinson in Hong Kong 24

MVNO can create major new IT platform needs MVNO B : a 'common offer' on the business segment MVNO proposal A § § Mobile operator responsibility All network Traffic management § § § MVNO responsibility Customer relation (incl. billing) Customer care SIM cards (delivered by SFR) Brand 'Neuf Telecom' Added value services § No direct proposal to become MVNO yet § Commercial partnership for common offer with Neuf Telecom on the business segment (<100 employees) § § § VPN Fixed-Mobile One bill, one customer care … MVNO requirements § § § Minimum yearly traffic Mobile adapted distribution & customer care 9 years contract § Already a distribution agreement for the business segment Not a full MVNO offer, even though mobile operator proposes to start discussion on a possible future network interconnection 25

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 … 26

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