Telecom Markets TrendsTelecom Markets Trends

Raul Lucidovice presidentstrategic marketing &Governmental & regulatory affairs

Raul Lucidovice presidentstrategic marketing &Governmental & regulatory affairs

1995-2000: Unprecedented growth

• Internet access boom equals fixed line bonanza• Corporate data needs skyrocket• New revenue streams (US data)

– Hosting goes from zero to $2.5 billion– eCommerce services reach $20 billion

• Mobile services create a boom– Europe goes from 6% penetration to 54%– Japan goes from 7% to 50%– Hundreds of millions of handsets sold annually

0

200

400

600

800

1000

1200

1400

1600

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

US

D b

illio

n

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

As

% o

f G

DP

There is an irreversible long-term trend in demand for telecoms …

Source: Analysys

World telecoms revenue

As % GDPHistorical Forecast

… driven, in part, by technology …

Cooper’s Law states that the number of conversations (voice and data) conducted over a given area, in all of the useful radio spectrum, has doubled every two and a half years for the

last 105 years, ever since Marconi discovered radio in 1895Source: ArrayComm, Martin Copper

1

100

10 000

1 000 000

100 000 000

10 000 000 000

1 000 000 000 000

100 000 000 000 000

1895

1905

1915

1925

1935

1945

1955

1965

1975

1985

1995

2005

… and leading to a revolution in the structure of the economyStructural demand for communications and

IT

Cost of basic technologies

Cost to users Short-term demand

Telecoms revenue is an accurate indicator of wealth

Global telecoms revenue (USD million) per km2 in 1998

Source: Analysys

In a world where trade flows look like the Internet …

Prices are expected to continue to decline to less than EUR0.05/min

Source: Analysys Cutting the Cost

Average cost per call minute for an average residential user (1990 EUR): 1991–2001

CAGR reductions on call tariffs of 3–13% in

the last ten years

Average cost per call minute for a six-line business (1990 EUR): 1991–2001

CAGR reductions on call tariffs of 5–15% in

the last ten years

We know that demand grows steadily in the long run …

Source: ITU/Analysys

0

200

400

600

800

1000

1200

1400

1600

1800

2000

199

8 U

SD

bill

ion

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1985 1990 1995 2000

World telecoms revenue As % GDP

… so why have stock markets reacted like this?

Source: BigCharts.com

Deutsche Telekom

NASDAQ

OTE

Capacity is being reduced …

0

50 000

100 000

150 000

200 000

250 000

300 000

Telecomsmanufacturers

Telecomsoperators

Telecoms job cuts

Source: Telecoms job cuts, Financial Times, September 2001

… and the change in business climate could last one year or more

Over-investment

3–4 years

Collapse in values

Slow revenues

6 months?

Consolidation

Today

Demand and supply match

Revenues increase

About 1 year

Investment begins

A year or so

2001: Operators feel the bust in debt . . .

0

10,000

20,000

30,000

40,000

50,000

60,000

Q1 2000 Q1 2001

BT

Deutsche Telekom

Enitel

KPN

Sonera

Debt levels of 5 European telcos (millions of Euros)

Source: Company reports

. . . and in share prices

0

50

100

150

200

250

31 March, 2000 31 March, 2001

BT

Deutsche Telekom

Enitel

KPN

Sonera

Share prices of 5 European telcos (US dollars)

Source: Dow Jones, from ADRs listed on NYSE

Nasdaq Telecommunications Index

0

200

400

600

800

1000

1200

1400

71-0

2-0

5

73-0

2-0

5

75-0

2-0

5

77-0

2-0

5

79-0

2-0

5

81-0

2-0

5

83-0

2-0

5

85-0

2-0

5

87-0

2-0

5

89-0

2-0

5

91-0

2-0

5

93-0

2-0

5

95-0

2-0

5

97-0

2-0

5

99-0

2-0

5

01-0

2-0

5

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

“Hype decisions”

Main factors creating the hyper-growth and crisis

Market Investments

The hyper- growth of the late

1990’s & 2000

“Technology” Investments

• Failure in new business models delaying new services

• Financing constraints (debts, cash,…)

• Network spending exceeds demand in several areas

• Increased competition & lower margins

• Hyper-growth gone/Macroeconomic instability

• Signs of subscriber growth maturity

NowSpectrum

Geographical expansion

New competitors Internet

LH Optics

Digital Mobile

Good GDP development (US driver)

Next likely Steps

• Many more Operators/SP will go “bankruptcy”, Suppliers?

• From Growth focused to Return focused to Profitable Growth focused

• Define the core business and divest/close non-core assets

• Retain and explore installed customer base

• Fast consolidations to create necessary Returns

• The “incumbent” telcos will dominate & drive consolidations

Consolidation has started. We will see 3 (4) operators per market. The top 20 globally will have more than 80% of revenues.

Restructuring Suppliers

Main driving forces for the Future Telecom Market

Regulation Customer Demands

Technology/Products

• Consolidation & Convergence• Economy Development• New Technologies/Services• End-to-end Interoperability/Open standards• Business Models

TodaySingle-service networks

FutureMulti-services network

(carrier class)

Da

ta/I

P N

etw

ork

sD

ata

/IP

Ne

two

rks

Wir

ele

ss N

etw

ork

sW

ire

less

Ne

two

rks

Wir

elin

e N

etw

ork

sW

ire

line

Ne

two

rks

Ca

ble

TV

Ne

two

rks

Ca

ble

TV

Ne

two

rks

ConnectivityConnectivity

Communication controlCommunication control

Service Networks &Application enablersService Networks &Application enablers

A new communications architecture

Connectivity/Connectivity/Backbone NetworkBackbone Network

Access NetworksMGWMGWMGWMGW

MGWMGW MGWMGW

Content Applications

Ne

w &

Mig

r at i

ng

en

d- t

o-e

nd

Pro

toc

ol s

Seamless Interoperable Services - Key to Mass Services

End-to-End

• E-2-E Connectivity• E-2-E Call completion• E-2-E Applications

1 BMobile

1 B (400 M+ Internet)

Fixed

Business Model Mobile Services - Retail logic

SubscriberOperator/Service Provider

ContentProvider,Ads

Commission (for billing, customer care,…),Revenue sharing

charges* charges

*Entrance fee + Monthly fee + Volume based usage fee

Best Practice; i-mode,…)

Easy to use, Simple pricing, Relevant Services

SMS Growth, January 2000 to December 2002E

0

5

10

15

20

25

30

Jan-00 Mar-00 Jun-00 Sept-00 Dec-00 Mar-01 Jun-01 Sept-01 Dec-01 Mar-02E Jun-02E Sept-02E Dec-02E

Source; GSM Association

SMS was standardized in 1991/1992

Billions/Month

Aug 2002Dec 2001LaunchNov 2000

May 2001 Sept 2001

Subs

crip

tion

s (m

illi

on)

~47%of allsubs

Sources: Ovum and Reuters

Development Sha-mail service, J-Phone

Broadband Access has now taken off

• Stronger Operator Business Cases

• Competitive Technologies

1999 2000 2001 2002E 2003E

xDSL 0.7 6.0 17.0 ~33.0 ~52.0

CATV 2.4 9.0 14.0 ~23.0 ~33.0

Ethernet ~1.0 2.0 ~4.0 ~7.0

Source; Dell Oro, etc.

Subscribers (Million)

0

2

4

6

8

10

12

2002 2003 2004 2005 2006 2007 2008 2009 2010

USD bill.

Ethernet metro access

Fiber Ethernet

DSL–Ethernet up–link

DSL–ATM up–link

Sources: EU commission, Jefferies & Company, Inc and ECTA, Pioneer Consulting 2001

Growth of Wireline Broadband Access

(Year -end)

Su

bs

cri

pti

on

s (

mil

lio

n)

Fixed Broadband(Cable, xDSL, LMDS, Fibre)

Fixed (POTS/ISDN)

Mobile

0

300

600

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1200

1500

1800

2000 2001 2002 2003 2004 2005 2006 2007

… Mobile Subscriptions Doubling to 1.8 Billion by 2007

World-wide Operator Services Revenues - “demand”

70’s 80’s 90’s 2000

• GDP development• Digitalization & SPC

• GDP development• Deregulation

• GDP development• Mobile• Internet

• GDP development/Asia• Broadband, Multi-Media, Mobile & Fixed• “Convergence”

?

Growth Opportunities

• Subscriber Growth

• Traffic/Usage Growth

• New Communication Services (Voice, Messaging, Imaging/Video,…)

• New Content & Applications

Our Product Visions;We believe in a main Product Strategy that is based on the following;

• Next Generation Networks that is based on an “end-to-end” carrier class “all IP solution” both mobile (3G) and fixed (Broadband)

• Seamless migration between today’s networks and subscribers to Next Generation, driven primarily by the large operators

• Next Generation “all IP” is based on a single network and multi-purpose terminals (or networks) for multiple services (Multi-Services)

• Open defined standards and APIs, end-to-end

Local AreaNetwork (~50m)

Personal AreaNetwork (~20m)

Wide AreaNetwork (~10km)

Wireless Evolution

4GCombined

devices

Digital

DECT, PHS

Infra Red

Wideband

WLAN

Bluetooth

Analog

CT1

“wire”

3GWCDMA,

EDGECDMA2000

2GGSM, PDC

TDMA,CDMA

1GAMPS, NMT,

TACS etc

Fibre Access

Ericsson Next Generation carrier class Broadband Multi-services Network

Ethernet DSL Access(+ POTS/ISDN)

Fiber Ethernet Access LMDS (+W-LAN & 3G)

Copper Access Fixed Radio Access

Backbone NetworkIP/MPLS/ATM/SDH/WDM

IP Multimedia

(TSP)

Softswitch Control & ApplicationsTelephony &

IN

(ENGINE/AXE)

MGW MGWMGW

Apartment 1e/o

e/o

RJ45

RJ45

Apartment 1+n

Entrance e/o

RJ45

Name tableInformation

board

Surveillance camera

HubHub

ELN220

DRG22

Regional Node

Ethernet DSL Access

Switched Ethernet

Ethernet access

IP network

ATM

Service EngineService Engine

Backoffice systems

DSLAMDSLAM

Public Broadband access

AAAService

Selection

xDSL Access

Broadband access server

Copper

Fiber

Product portfolio strategy – Invest in Next Generation

SDH opto/WDM/DXX,MINI-LINK, Juniper

Messaging, Browsing, Download, Streaming,

Positioning, VPN

Softswitch(TeS/MSC, IP-MM), HSS

EDGE NODE/BRAS ENGINE Integral (ATM/IP)/MGW

Ethernet Access/DSLLMDS/MINI-LINK BAS

Packet core, Circuit core, WCDMA RAN/OSS, EDGE/GSM RAN, CDMA2000, MGW

Backbone/Transport

3-party applications Partners.

Ericsson Mobility World

Applications

Application enablers

Control

BroadbandAccess 2.5/3G

Network/roll-out/Integration, System Integration,

Customer Management,Managed Services

Services

Convergence & Substitutions - Content migration

Substitutionsfrom othervalue chains

Time

BUSD

1000

2000

Messaging

Gaming/Gambling

Media & Music

Mobile office

Positioning

m-commerce

Public Services

Advertisement

Telecom services- GDP development- Business Productivity- Competition- New Services

“The ability to learn faster than yourcompetitors may be the only sustainable

competitive advantage”

Arie de Geus

The New Market logic