European Broadband overview

1. Europe Is moving on…Internet & high-speed access European Broadband overview Roland Montagne Head of Broadband Division IDATE

2. Agenda • Broadband Europe vs. rest of the world • European national broadband markets • Short-term developments in the broadband market • Broadband access market forecasts

3. Agenda • Broadband Europe vs. rest of the world • European national broadband markets • Short-term developments in the broadband market • Broadband access market forecasts

4. Broadband Europe vs. the US : end 2001 • End 2001 : Total Europe 6.9 M vs. Total USA 11.1 M • A gap of 4.2 M between the USA and Europe • In the USA, cable dominates with 7.2 M subscribers…. … while DSL access reaches a figure of 3.9 M • Whilst in Europe it is the reverse, with DSL dominating with 5.3 M and only 1.6 M cable modem subscribers Population (in millions) USA: 278.1 / Europe-17: 390.5 11.1 6.9 + 4.2M Source: IDATE

5. Broadband Europe vs. the US: end 2002 * Estimates year-end 2002 • End 2002 : Total Europe 12.15 M vs. Total USA 16.5 M • Additional 5 million + subscribers expected in Europe this year • In comparison to the situation at the end of 2001, the gap between the 17 countries Europe group and the US is widening : 4,35 M expected Population (in millions) USA: 280.6 / Europe-17: 391.42 Source: IDATE

6. Broadband Europe vs. rest of the world : end 2002 • Burst of growth for DSL in Japan in 2002 • High-speed connections for competitive prices is one reason for the success of DSL in Japan • South Korea was the great DSL success story of 2000 and 2001 with around 5.2 M ADSL subscribers by December 2001 • But the rate of growth has visibly slowed in 2002 as the market approaches saturation 16.5 12.15 10.5 6.5 Source: IDATE

7. High Speed Access (DSL –Cable) providers -TOP 20 June 2002 Source: IDATE

8. Agenda • Broadband Europe vs. rest of the world • European national broadband markets • Short-term developments in the broadband market • Broadband access market forecasts

9. National broadband subscriber bases Source: IDATE

10. DSL: key driver of broadband growth • Following in the lines of 2000 and 2001, broadband growth is driven by DSL accesses in Europe • Germany still has a clear lead with more than 3 M DSL subscribers expected and a virtually non-existent cable modem market • In second position,much further down, comes France, which may top 1.7 M broadband subscribers - almost 1.4 million DSL lines… followed by Spain and Italy • UK despite the acceleration of DSL (50% increase in 2nd quarter 2002) includes a very high cable modem component • The picture in the Netherlands illustrates the situation in all densely cabled countries where cable modem maintains a clear lead

11. Incumbents still dominate DSL • Mid-2002, the European DSL market is largely dominated by incumbents holding between 75 and 95% of the market in most countries (1) Lines that had been ordered but not actually fully installed in June 2001 Source: IDATE

12. Broadband population and coverage • Over 70% of the population is covered by DSL or cable modem broadband access in Western Europe • Despite this wide coverage, less than 5% of the population is actually connected via broadband • Other obstacles preventing the wide-scale spread of broadband in Europe : • Previously low penetration of PSTN-based internet in homes • Small number of households possessing a PC • Broadband subscription prices still too elevated • Broadband-related application portfolio is insufficiently appealing and far too modest

13. Broadbandenabled homes • In terms of broadband penetration rates in homes, the Netherlands (11.3%) and Sweden (11.2%) are way ahead of the other major European countries, such as Germany (7.4%), Spain (6.4%), France (4.7%) and the UK (3.6%) • … by considering only broadband households previously equipped by PSTN Internet : • Surprisingly Spain occupies the number one position, followed by the Netherlands : 29 and 23% respectively • Despite the rapid acceleration seen in recent months, the UK, with a mere 8%, is still having a lot of trouble convincing its PSTN subscribers to switch over to broadband

14. Agenda • Broadband Europe vs. rest of the world • European national broadband markets • Short-term developments in the broadband market • Broadband access market forecasts

15. Short-term developments in the broadband market • Unbundling vs. Wholesale • Despite a trend towards rule-tightening with regards to local loop unbundling (LLU)… • … the number of carriers who have opted to install their own equipment in telephone operators’ central offices - option 1 unbundling - is still very small • Incumbents are leaving less than 10% of the market to unbundled lines - except in Denmark where 70% of DSL lines are unbundled • Same situation in the US where LLU-based DSL connections accounted for less than 600,000 lines mid-year 2002 • Today, we are currently witnessing the development of the wholesale market instead of LLU • the wholesale approach enables new entrants to provide an offering which is available in a large part of the country at limited costs • even if it means investing in DSLAM equipment afterwards to target central offices where penetration rates are sufficiently high

16. Short-term developments in the broadband market • Public authorities and broadband access • Public authorities continue to attach a great deal of importance to the development of broadband access… …even if investments remain fairly limited • Communes and regional authorities are concerned about avoiding the existence of geographic areas devoid of broadband services • The advent of W-LAN / Wi-Fi technology, particularly 802.11b (followed later on by 802.11a which offers greater throughput) may constitute a complementary solution, … … although the business modes related to these W-LAN technologies are still difficult to discern

17. Short-term developments in the broadband market • Recent pricing and marketing initiatives • In 2002 players focused their efforts on improving the segmentation of their offers: • Broadening their customer base with a view to lowering the entrance barrier… • … even if this means selling 128K or 64K DSL and cable connections for less than 30 EUR • These services are no longer strictly speaking high-speed accesses, although they do retain their flat-rate and always-on characteristics • A price war started recently in Europe’s broadband access market like that in the US and Asia

18. Short-term developments in the broadband market • Multimedia over DSL :a path towards the mass market ? • Offers of TV or Video over DSL are not expected to develop on a large scale before 2004 • Several service providers are positioned in this niche market, number of trials are being carried out and a few commercial offers have been introduced : • In the UK, Kingston Communications posted over 11,000 subscribers to its ADSL-based TV and VoD, while Video Networks claims to serve 12,000 London subscribers through its Home Choice service • Telecom Italia, Telefonica, Telekom Austria… • In September 2002, Microsoft announced the launch of its online game service (Xbox Live) in Europe and signed agreements with broadband access providers such as Noos and Wanadoo in France

19. Agenda • Broadband Europe vs. rest of the world • European national broadband markets • Short-term developments in the broadband market • Broadband access market forecasts

20. Broadband access market forecasts Valuation of the total broadband access market for 17-countries Europe – Breakdown by country (high-growth scenario) (*) • The appropriate definition is more « always on » access market than broadband access market • This « always on » access market (business + residential) will be worth close to 20 billion EUR in 2007 which represents 5% of the Telecom services market • Germany represents nearly one-third of the market in 2002 and one-quarter in 2007 (*)Residential/SoHo and Business broadband access market Source: IDATE

21. Broadband access market forecasts Broadband diffusion among homes (17 countries Europe) • Over one-third of European households will have subscribed to a broadband access service in 2007 Source: IDATE

22. Broadband access market forecasts • Over 65 million broadband subscribers , with more than 50 millions DSL lines in 2007 Growth of the total Residential/SoHo and Business(*) subscriber base 17-countries Europe (*) the Business segment encompasses all establishments attached to companies with 6 or more employees Source: IDATE

23. Key Questions 1 2 3 4 • Over one-third of European households with “Always on” access in 2007 : a realistic forecast ? • A market which will stay controlled by local loop owners (telephony and cable) ? • What are the drivers towards the mass market for broadband ? • Multimedia over DSL • Recent pricing and marketing initiatives… • … 128K or 64K DSL/Cable connections are not really broadband What are the right business models for broadband providers ? • Wholesale, ULL and regulatory environment • Partnerships with content providers • Increase of revenues with bundling of services • Combination of technologies : • Cable, DSL …. …but also Satellite, WLAN, FTTH