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AGENDA

Multiplay on Broadband: first lessons and impact on the ARPU - FASTWEB Case Study Alessandro PETAZZI Marketing Manager, IPTV Services IDATE 27 th International Conference - Montpellier, 23 November 2005. AGENDA. Company and Market. Marketing Strategy for Multiple Play. Focus on IPTV.

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AGENDA

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  1. Multiplay on Broadband: first lessons andimpact onthe ARPU- FASTWEB Case StudyAlessandro PETAZZI Marketing Manager, IPTV ServicesIDATE 27thInternational Conference - Montpellier, 23 November 2005

  2. AGENDA Company and Market Marketing Strategy for Multiple Play Focus on IPTV

  3. The 2nd wireline network in Italy • Founded in September 1999, FASTWEB is the leading alternative operator of fixed broadband telecommunications services in Italy’s main urban areas (7.5 million households, or one third of the Italian population reached as of Sept. 2005) • FASTWEB created a fully IP-based network totally independent from the incumbent’s infrastructure Technological leadership • Recognised pioneer in broadband and triple-play • World first fully IP based network • FTTx or DSL access as relevant to maximize return on invested capital • Trusted supplier for mission critical application Integrated triple play offer • FASTWEB provides voice, Internet connectivity, data transmission and TV services over a single connection by using Fiber-to-the-Home/Office and DSL access technologies • The company offers its services to both companies and families Vision from day one (back in 1999) Rely on full-IP network to offer multiple services to both companies and families  compete on differentiation and operate with higher capital efficiency Company Overview

  4. End-to-end infrastructure ownership and control Highly capital intensive with high barriers to entry Both business and residential markets served by the network Single fully integrated IP network with no legacy technologies and IT systems Selective geographical coverage (7.5 mln households today, 10 mln final target vs 21 mln in Italy) Triple play approach coupling higher ARPU with competitive commercial offer ARPU Gross Margin Opex ~ € 900/year residential ARPU > € 8,000/year Small business ARPU ~ € 2,000/year SoHo ARPU ~ 75% Gross Margin on both residential and business segments Semi-fixed cost structure Foudation of Business Model - Creating a Triple Play Service

  5. Market Share of National Broadband Net Adds Increasing Market Share Thanks To Network expansion Upgrade to certified 6 Mbit/s ADSL connection Enrichment of IPTV content offering… … while other players still lagging behind in terms of service offering ‘000 of Access 13% 12% 11% 9% 7% Italian Broadband Market Share Evolution • 13% of national broadband net additions in 9M 2005 with an average population coverage of ~ 26% • Strong increase in market share thanks to increase in coverage during the year

  6. Broadband Penetration on Covered Market (September 2005) 100% = Number of households passed ~ 20% Telecom Italia Tin.it Alice (*) ~ 21% (**) ~ 17% (***) ~ 9% All Other Operators ~ 6% (*) FW Penetration on Areas Covered since 2000 (**) FW Penetration on Areas Covered since 2002 (***) Overall FW Penetration Broadband Co-leader in Covered Areas Mkt Shares of Total Broadband Market (September 2005) 100% = ~ 5.8 Mln BB Connections • Telecom Italia has the highest share of broadband market, as its services are deployed with a 90% national coverage (like all the other alternative players) • With 644k customers FASTWEB is the #2 Italian Broadband player despite a significantly lower market coverage and is leader or co-leader with TI in the covered areas

  7. FASTWEB Residential Offer FASTWEB Base Voice Options Mega Internet Options TV Options • FASTWEB’s residential offer: • FASTWEB Base: Compulsory entry level • Voice options: Optional flat and pay-per-use offers • Internet options: Optional flat and pay-per-use offers • TV options: Optional premium contents offers FASTWEB’s residential offer is very flexible and can be customized in order to fully satisfy customers' needs

  8. FASTWEB Base FASTWEB Base Voice Options Mega Internet Options TV Options • FASTWEB Base is the entry level that enables customers to experience 300 min per month of: • Carrier-class Voice over IP service (national and local land line calls included) and • Broadband Internet @10 Mbit/s for Fiber, 6 Mbit/s certified for DSL • In addition: • Voice mail from phone, PC and TV • 4 mailboxes included • Option for a diversified bouquet of premium video contents • Option for TV-based Video-communication • FASTWEB Base costs: • One off activation fee: 95 € with number portability or 170 € with new number • Monthly fee:25 €, currently promoted at 19 € forever  low entry level point, possibility to add flat voice/Internet and TV options on top

  9. Value Value 30 + 15 Voice Minutes Bundled 150 6€ 2€ BB Internet Minutes Bundled 150 4€ n.a. None 10€ E-mail access free Pay-per-use None Voice Mail free 1€ Pay for use None 25€ Up to 2€ Monthly Fee Up to 21€ 15€ 19€ Calculating a Sustainable Price Point • Need-based segmentation • Different value bundled for different customer needs: Voice, Internet and TV Options  triple play operators must have the best offer for all customer segments, not only for triple play customers! • Value-based pricing • Flat Fee vs Subscription Fee: selling bundled value vs charging back industrial costs 19€/month better than 15€/month

  10. Flat-Fee Voice Options FASTWEB Base Voice Options Mega Internet Options TV Options On top of FASTWEB Base, 2 flat-fee voice options are available Italia Senza Limiti Città Senza Limiti Unlimited national land line calls Unlimited local land line calls 20€/month 14€/month “Italia Senza Limiti” and “Città Senza Limiti” can not be cumulated

  11. FASTWEB’s answer to the market need of a price point at 20 € for ‘flat’ Internet Flat-Fee Internet Options FASTWEB Base Voice Options Mega Internet Options TV Options On top of FASTWEB Base, 3 flat-fee broadband Internet access options are available Giorno e Notte 30 ore 10 ore Unlimited broadband Internet access 1,800 minutes per month flat Internet access 600 minutes per month flat Internet access 40€/month 20€/month 10€/month “Giorno e Notte”, “30 ore” and “10 ore” can not be cumulated

  12. FASTWEB TV FASTWEB Base Voice Options Mega Internet Options TV Options FASTWEB Set Top Box provides access to free TV content and value added services VoD and S-VoD Free to air channels Free to satellite channels • 8 vod ‘channels’ with 1.300 programs (not movies) always available included in the fee • Network PVR • 700 movies on-demand from 3.5€ to 6€ each • Dolby Digital 5.1, original language To access TV contents, value added services and a S-VoD package, customers need to pay 8€/month(and they get the STB for free until they keep their subscription) True triple play with FASTWEB starts at 27 €/month(19€ with voice/Internet minutes included + 8€ for STB and S-VoD)

  13. TV Options FASTWEB Base Voice Options Mega Internet Options TV Options VoD and S-VoD PAY TV A-la-carte Channels 8.0 €/month 16 €/month 2 €/month each 16 €/month • Free STB rental with ONtv subscription • 8 vod ‘channels’ with 1.300 programs (not movies) always available included in the fee • Network PVR • 700 movies on-demand from 3.5€ to 6€ each • Dolby Digital 5.1, original language 28 €/month 46 €/month combined 4 €/month each • Italian “Serie A” football at 5€/match and Champions Legue at 8€/match in pay per view • Week-end Calcio: “Serie A” at 10€ for all the matches of the week-end 8 €/month each 7.5 €/month • Movies on-demand in DVD quality from 3€ to 5€ each

  14. TV services Pay-per-use only 10% 70 VOD 35% Flat Internet 25% Flat Voice 30% TLC services 817 Pay Tv & Thematic Channels 65% Flat Bundled 35% How Triple Play Drives ARPU TV service penetration ~ 30% 100% = 887€ 100% ~500K 100% ~ 320€ • 80% of non-for-free TV service has VOD; 60% has Pay TV; 10% has thematic channels • ~ 13 VOD views per video customer per month, 1 buy • ¼ of total video customer are PVR users, 10 recordings per month per user • More than 2/3 of total ARPU comes from flat monthly fees • Both Voice and Internet relevant, with Internet ARPU increasingly important Total ARPU €/year % residential customers, by TLC service take up TV services ARPU, €/year (on non-for-free TV service customers) As of September 30th, 2005

  15. IPTV in a Global Supply-side Perspective… World largest IPTV providers – Thousands of customers (Sept. 2005) 441 160 160 142 • World second largest IPTV provider in terms of customers and penetration of the total customer base… • …first for TV ARPU… 100 Telefonica (ES) France Tel (FR) Free (FR) FASTWEB PCCW (HK) IPTV penetration on broadband customer base TV ARPU: 140 €/year 51% TV ARPU: 320 €/year 30% 31% pay 10% 22% pay 3% 3% Telefonica (ES) France Tel (FR) Free (FR) FASTWEB PCCW (HK)

  16. … and in a National Demand-side Perspective Digital TV platforms in Italy – Thousands of customers 3,300 • …but relatively small among Italy’s digital TVs… • … with a high penetration among customers interested in the triple play concept (TV as a ‘value extractor’)… • … and a lower one among total addressable customers (FASTWEB is first of all a telco supplier) 2,600 2,200 160 FASTWEB DTT SKY Free sat dishes Penetration on potential customers 30% on customer base 15% 12% 10% 2% on addressable families FASTWEB FASTWEB Free sat dishes DTT SKY

  17. IPTV in FASTWEB strategy 1. Increase customer NPV through value extraction • Not necessarily triple play customers have longer average life • High speed of innovation required • Special retention initiatives needed • TV has not been a strong ‘reason to buy’ FASTWEB for those who are not interested in its voice or Internet offers • However TV customers have a significantly higher ARPU 2. Contribute to differentiation vs other broadband offers • Multiple play can have little to do with churn… • And giving away premium content to subsidise broadband adoption is not necessarily a smart move… • … but multiple play does impact customer NPV

  18. Consequences on IPTV positioning • Linear services are important for customer experience but… • Difficult to differentiate vs satellite competitors only with them • Only part of SKY premium content available through FASTWEB • Limited rationale for bidding for (expensive) exclusive linear content • Difficult to act as pure neutral carrier (due to strong ties between content producers and existing TV platforms) 2. IPTV P&L must be self-sustaining

  19. Consequences on future product priorities Opportunity to differentiate TV services and sustain competitive advantage by leveraging technology • Better and richer VOD product • More majors, shorter time windows, balanced buy-rates (library vs current) • More types of VOD content (eg.: Disney’s Magic English) • Push for pricing and bundling flexibility: permanent rental, SVoD, … • Other non-linear services • Retroactive PVR, ‘personal TV’, multiplayer gaming, T-Betting, community services, … • Better customer experience • Replicate and enhance DVD experience

  20. Executing Planned Strategy: Recent Actions and Next Planned Steps Actions Taken Next Actions New dedicated channels for music, fictions, reality shows and kids content 150,000 music video-clips watched in September 7,000 Subs 500,000 games per month in the new gaming area World first experiment of edu-tainment on-demand Maintaining focus on enhancing: VoD Content – Not only movies Interactive Services User experience Disney Touchstone Miramax New VoD Channels and Content New user friendly interface and remote control New Majors New Services New Interactive Areas 2005 2006

  21. Executing Planned Strategy : The new GUI (launched on November 21st ) New graphics, rules of navigation and editorial organization: • Easier access to content and services • Same rules of interaction and navigation across different content areas • Respect of existing customer base

  22. Executing Planned Strategy : The new remote (will be launched on December 1st) The project of the new remote control has responded to two different needs: • USE: easier interaction with GUI (new remote and GUI have been designed coherently) • LOOK and FEEL: coherence with FASTWEB brand and image • Unified design (Pininfarina) to be applied by all HW vendors

  23. Contacts Thank you Alessandro PETAZZI Marketing Manager, IPTV Services alessandro.petazzi@fastweb.it

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