Telecom Market in China François BRUN Deputy Vice President, Corporate Strategy Alcatel IDATE conference - Montpellier 29 November, 2003

Telecom Market in China

François BRUNDeputy Vice President, Corporate Strategy

Alcatel

IDATE conference - Montpellier29 November, 2003

IDATE Nov. 03(2) (L:françois:)

Page 2 All rights reserved © 2003, Alcatel

China is world’s largest single telecom market,and its share is growing

> Mobile penetration has overtaken fixed penetration (each ~30% today)

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

'02 '03e '04e '05e '06e

Chin

ese

Share

of W

W A

cces

s Li

nes

Fixed*Mobile S

ou

rce:

IDA

TE

Sou

rce:

Pyra

mid

Rese

arc

h

Chinese & US Access Lines

0

50

100

150

200

250

300

350

400

450

500

'99 '00 '01 '02 '03e '04e '05e '06e

N° o

f acc

ess

lines

(mill

ion)

China FixedChina MobileUS FixedUS Mobile

> Second largest market is the US, with M access lines (fixed+ mobile)

* Including PHS



Mobile: China is the growth engine

> Over 60% of Mobile subscribers adds till 2008 will be in Asia Pacific

> And over 30% in China, with 50+M new subs each year

Source AlcatelSource Alcatel

2003-08 Net subs add

0 100,000 200,000 300,000 400,000 500,000 600,000

WE

CEE

US

LA

AP

AME

285

83

65

41

38

22

28

21

0 50 100 150 200 250 300

China

India

US

Russia

EU

Brazil

Indonesia

Japan



Very high growth of Internet in China

> 6.6 m broadband internet usersby end 2002

620 1 180 2 100

8 900

22 500

33 700

59 100

0

10000

20000

30000

40000

50000

60000

70000

Dec. 96 Dec. 97 Dec. 98 Dec. 99 Dec.00 Dec. 01 Dec. 02

Subscribers

Internet subscribers

(‘000)

747

3 500

8 920

12 540

20 830

0

5 000

10 000

15 000

20 000

25 000

Dec. 98 Dec. 99 Dec. 00 Dec. 01 Dec. 02

Computers

Connected PCs(‘000)

Source: CNNIC semi-annual reports

PC & Internetpenetration

0%

1%

2%

3%

4%

5%

6%

7%

8%

2000 2001 2002 2003 2004 2005

PC

an

d I

nte

rnet

Pen

etra

tio

n

PC Penetration

Internet Penetration



Telecom investment vs. Telecom revenue in China

6,18

10,3 1112,8

18,1 19,4

26,9

33

24,6

3,3 4,66,8 7,1

11,8

16,818,8

26,5

33,737,5

42,7

49,7

2,51,31,20

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Investment Revenue$B

Source: CCID, MPT reports; Operators reports; MII reports and Statistics

> High growth of telecom services revenues, but investments are under pressure, especially in fixed voice



China is developing a strong telecom industry

> Chinese vendors are already well established in fixed networking

> They are increasing their market share in mobile infrastructure

> The main vendors have complete product portfolio

> They started in China, and are now exporting aggressively

Telecom industry in China

55%45%

Fixed networking

6%94%

Mobile infra

Chinese vendors: Huawei, ZTE, WRI, UT Starcom, etc

Int’l vendors: Alcatel, Ericsson, Nokia, Siemens, Lucent, Nortel, Motorola, etc



Broadband Access technologies in China

> DSL: about 7M users (12% of ww base) in 03e growing to 45m (33%) in 06e

Mostly a corporate/entreprise service, unlike rest of the world Serviced 2/3 by China Telecom, 1/3 by China Netcom

> Ethernet services via LAN First broadband approach: fiber links to buildings with LAN

distribution over Cat 5 cables. 1.67 mn LAN Ethernet users by July 2002

> Cable modem > 200,000 Internet users via cable modem in early 2002 But government control does not favor development of cable

networks in telecoms Moreover, only 10% of coaxial lines are bi-directional



Chinese Telecom Operators evolution

2001

China Netcom

China Unicom

CU HK

1993

Directorate General of Telecommunication

1994

China Unicom

China Jitong

1998

Ministry of Information Industry:MPT + MEI + networks of Aerospace

China Telecom

Ministry of Post and Telecommunications

Ministry of Electronics Industry

2000

China Telecom

China Mobile

China Satellite

1999

China Railcom

2002

CT HK

1997

CM HK

China Netcom

China Telecom

CT Corp.

op

era

tors

reg

ula

tory

State Informatization Leading Group

China Paging

China Unicom

CU HK



Operators after re-organization of May 2002

Operator

Before Reorganization After ReorganizationShare of business revenue (2001)

Ranking

Share of business revenue (I002)

Ranking

China Telecom 50.50% 1 32.50% 2

China Mobile 36.60% 2 37.40% 1

China Unicom 11.30% 3 12.10% 4

China Railcom 0.94% 4 1.20% 5

China Netcom 0.47% 5 16.60% 3

Jitong 0.16% 6 -- --

China Sat 0.03% 7 0.20% 6



Key services provided by main operators

> One operator offering all services> All operators offering data services> CT and CNC expected to obtain mobile license; in the meantime “PAS”

Service China Telecom

China Netcom

China Mobile

China Unicom

China Railcom

China Sat

Fixed services Mobile services Paging services Data services Transmission services

Satellite services



Broadband - Internet - Transmission - Mobile - Satellite - Applications

2002 Facts & Figures

16.5 Billion euros in sales 13.5% invested in R&D

76,000 employees active in 130 countries

Enterprise - Corporate - Operators - Utilities - Government - Defense

Alcatel: A Communications Powerhouse



Alcatel’s long-term Foundations in Asia Pacific

> A major long-term player (100 years in Asia)

> US$1 billion invested in the region over the past decade

> R&D and Manufacturing in region for global markets

> Huge installed base

> First to set up regional HQ in Shanghai , China

8%

2000

13%

19%

2001 2002

ASIA / Global Sales (%)



China is central to our Asia Pacific strategy

> 1983: Established the first Sino-Foreign joint-venture, Shanghai Bell

> 1994: Alcatel China established

> 1999: Shanghai Bell selected “Top 10” Most Admired JV by Fortune 500

> 2000: First to establish Regional Headquarters in Shanghai

> 2002: Launched Alcatel Telecom Technology “T Tech” Fund Formation of Alcatel Shanghai Bell Established Research & Innovation Center in Shanghai

SalesSales1/3 of China’s installed

switching base

R&DR&DProduct development for

global marketsInnovation Center

ManufacturingManufacturingOne of world’s largest

telecom plants –96,000 m2



China has the key ingredients for the next years

Huge consumer and telecoms

markets

Innovation & global

leadership

Manufacturing for the domestic

market

R&D

Factories for exports

Adaptation of global technologies

& trends

THANK YOU!

www.alcatel.com

Documents

Telecom Market in China François BRUN Deputy Vice President, Corporate Strategy Alcatel IDATE conference - Montpellier 29 November, 2003