Telecom for beginners 2007

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Investor's guide to understand telco stocks and underlying company statistics...

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Industry Focus

Company Research

Europe Telecommunications

6 December 2006

Telecom for beginners 2007 Industry and technology primer Guy Peddy

Matthew Bloxham, CFA

Gareth Jenkins

Research Analyst (44) 20 754 58490 [email protected]

Research Analyst (44) 20 754 58163 [email protected]

Research Analyst (44) 20 754 75849 [email protected]

Primer

A real mixed bag: confusing simplicity! The telecom sector can appear confusing: the stakeholders are many and often have contradictory objectives. Balancing government/political designs, huge employee numbers, an increasing competition without limiting investment in an environment of technological evolution and substitution, can appear overwhelming. However, fundamentally the drivers of telecom business models are simple: penetration, customers and ARPU whilst balancing investment levels. Second edition: Revised and updated for 2007 and beyond This is the second edition of our Telecom for Beginners report, first published in January 2004. This comprehensive report aims to show how the telecom sector has developed over time. We focus on the influences on returns, and we examine some of the key issues for the future and we have consciously avoided drawing any company specific conclusions. Structured into discreet parts: Environmental/Technological/Reference There are three distinct sections to this report. In section 1 we examine the telecom business model, highlighting the relationship between penetration, ARPU and revenue, explain the history of telecoms over the past three decades and how the sector had ended up where it is, and assessed the wider telecoms environment showing how operators, equipment manufacturers and content providers interrelate. We study the evolution of the regulatory model, probably the single most important driver of pricing and competition industry, and finally we put telecoms into a wider industry context with some macro comparisons. We have, where relevant, attempted to use standard business analysis tools (such as the BCG matrix and Porters’ 5 forces) to highlight themes. In section 2 we look at some of the key technologies in the industry, starting with a basic explanation of the electro-magnetic wave (i.e. the signal), followed by an assessment of voice technologies (switching, PTSN and VoIP), mobile technologies 1G to 3G, HSDPA and Bluetooth) and broadband technologies DSL, fibre, WIMAX/WiFi and satellite). We also review trends in convergence (TV, IPTV, mobile TV, gaming and music).

Pan-European Telecoms Team

Finally, in section 3 we summarise basic statistical facts about each European country and a basic SWOT analysis of the industry. We also include those databases that are often forgotten: licence payments and types, European telecom IPOs, key events for large capitalized operators over the past few years, a breakdown of government ownership and a list of recent M&A transactions and finally we end the note with an ever-expanding glossary.

Guy Peddy +44 20 754 58490 Carola Bardelli +39 0286379-708 Matthew Bloxham +44 20 754 58163 Gareth Jenkins +44 20 754 75849 Vivek Khanna +44 20 754 72905

Something for everyone This primer is aimed at everyone - those that have been involved in the sector for years and those who are new, and to generalists who like to occasionally dip in and out of the sector. It has been fun to write, but is by no means exhaustive, and we are always open to suggestions on how we improve it going forwards.

Audrey Wiggin +44 20 754 50707 Jonathan Smith +44 20 754 74383

[email protected] [email protected] [email protected] [email protected] [email protected]

Sales Contact [email protected] [email protected]

Deutsche Bank AG/London All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research is available to customers of DBSI in the United States at no cost. Customers can access this IR at http://gm.db.com, or call 1-877-208-6300 to request that a copy of the IR be sent to them. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1

6 December 2006

Telecommunications Telecom for beginners 2007

Table of Contents

Section 1: Environmental.................................................................. 5 The telecoms business model .......................................................... 6 History of European telecoms ........................................................ 31 The telecoms environment ............................................................. 47 Regulation ........................................................................................ 57 Telecoms in a macro context.......................................................... 77 Section 2: Technological ................................................................. 82 Basics of Electronic Communication ............................................. 83 Technology: Traditional voice ........................................................ 86 Technology: Mobility....................................................................... 93 Technology: Bandwidth ................................................................ 105 Technology: Convergence ............................................................ 116 Section 3: Reference...................................................................... 129 Country: Austria............................................................................. 130 Country: Belgium........................................................................... 131 Country: Denmark ......................................................................... 132 Country: Finland ............................................................................ 133 Country: France ............................................................................. 134 Country: Germany ......................................................................... 135 Country: Greece............................................................................. 136 Country: Ireland ............................................................................. 137 Country: Italy ................................................................................. 138 Country: Japan............................................................................... 139 Country: Netherlands .................................................................... 140 Country: Norway ........................................................................... 141 Country: Portugal .......................................................................... 142 Country: Spain ............................................................................... 143 Country: Sweden ........................................................................... 144 Country: Switzerland .................................................................... 145 Country: US.................................................................................... 146 Country: United Kingdom ............................................................. 147 Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Appendix A: European telecoms SWOT ...................................... 148 Appendix B: European UMTS licenses ........................................ 149 Appendix C: AWS auctions........................................................... 152 Appendix D: License lives ............................................................. 162 Appendix E: European IPOs .......................................................... 166 Appendix F: European operator key dates .................................. 168 Appendix G: Government ownership .......................................... 183 Appendix H: European M&A......................................................... 184 Glossary.......................................................................................... 186

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Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Section 1: Environmental

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

The telecoms business model Penetration and ARPU Telecommunications is a very simple business complicated by regulation and politics. The standard business model relies on a trade off between pricing, penetration and capital intensity. Almost all elements of the telecoms industry follow the standard “S” growth curve in penetration as depicted in Figure 1. Figure 1: Penetration “S” curves in UK telephony Penetration slows

140%

- start of a market share battle

120% 100% Wireless penetration inflexion - mass market

80% 60%

Premium product

40%

- business focus

20%

Wireless

2006E

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

0%

Broadand

Source: Deutsche Bank

Four key drivers In Figure 2 we have attempted to describe, simplistically, the effects on what we believe are the four key drivers (business model clarity, competitive environment, pricing and capex) of telecoms profitability at different stages in the product life cycle. Although there are clearly some business models that do not conform to these characteristics, we believe most of them do. As we show later in our BCG matrix analysis (Figure 76) and as we also show in Figure 6, much of the European telecoms sector is approaching the maturity stage in the product life cycle, with broadband penetration offering a hope of growth, but with significant price deflation and an increasing risk of substitution with the technologies that it has enabled (VoIP, IPTV etc). Figure 2: Key drivers of the product life cycle Phase of the life cycle Early stage Growth Maturity

Business model clarity

Competitive environment

Pricing

Capex

Uncertain

Limited

Premium product

Capital intensive

Certain

Focused on growth

Aggressive deflation to drive penetration

Customer/demand driven

Commoditization

Market share battle

Commoditization

Replacement/maintenance

Source: Deutsche Ban

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Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Telecom cycles The telecom industry work in cycles (earning, revenue growth etc) and they tend to range from 3 to 7 years. In Europe over the past 15 years there have been several cycles, such as: Market related:

„ „

Mobile penetration and revenue growth: 1998 to 2004

„

Broadband penetration growth: 2004 to ?

„

EU regulatory focus on unbundling, mobile termination and mobile roaming tariffs: 2004 to ? Financial related

„ „

TMT bubble: 1998 to 2000

„

European earnings downgrades: 2004 to ?

„

European deleveraging: 2001 to 2004

The most important consideration currently is where is the growth driver for the European industry? Historically the telecom industry has found ways to invent growth drivers but currently the outlook is void. As such, rather than the industry growing at its historical rate (at greater than nominal GDP) expectations are that it grows at rates below nominal GDP in the coming years. This is shown in Figure 3 and in Figure 4 we proffer a view on where European and US telecom industries are in their current cycle. The outlook for the US operators appears to be more positive as the regulatory cycle has subsided and operators are more aggressively roll-out fibre and IPTV services. Figure 3: Re-inventing growth

Figure 4: Cycles in telecom trends 3-7 years? Future growth

+ ve US telecoms ?

Historic growth

Time EU telecoms ?

Today

-ve

Fixed

Mobile

Source: Deutsche Bank

What is the next technology? Source: Deutsche Bank

Evolving value chain One of the major drivers of the current change in the cycle is the revolution in the structure of the European telecom value chain. In the past, operators focused on networks, where there was an exclusivity of supply, and outsourced industry R&D to equipment manufacturers (i.e. Nokia, Ericsson etc), and distribution to third parties (such as Carphone Warehouse in the UK) and this meant that the consumer relationship was minimal. In the modern world network exclusivity is disappearing as the equipment manufactures increasingly look to manage, and even own infrastructure, and other media operators and upstarts, such as Google, are entering the distribution place. In order to respond telecom operators are investing more in R&D to deliver new products and are seeking to take control of distribution channels, both on-line and on the high street, and finally are investing in brand and market segmentation to more appropriately target the consumer. Deutsche Bank AG/London

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Figure 5: The evolving telecom value chain

R&D

Networks

New focus of operator services

Equipment

Distribution

Consumer

BSkyB Google Source: Deutsche Bank

Usage drivers: New product innovation Average revenue per user (ARPU) is one of the most common measures of customer value in the telecoms world, especially in the mobile environment. It is most often driven by usage, either with an incremental pricing-based model (i.e. a charge is incurred for every call made) or through a bundle (i.e. a flat rate package with specified or unlimited usage). With growth slowing and many markets in the maturity phase of development new product innovations, which could be additional services and products that either exploit existing infrastructure or open up new market environments, are required. In Figure 6 we flag where we believe different products/services currently are in the product life cycle and we highlight the maturity of the leading revenue streams (mobile voice and traditional wireline). There are however new services and products that offer hope for the future, such as telecoms operators offering TV services. Figure 6: European telecoms product life cycle

Mobile SMS

Mobile voice

Traditional wireline – voice

Broadband Instant messaging VoIP

ATM, X25, leased lines

Mobile data Mobile TV, IPTV, video telephony

Introduction

Growth

Maturity

Decline

Source: Deutsche Bank

However, it should be noted that there is balance between those new services that are substitutionary and those that are revolutionary products. A substitutionary product merely deflates existing pricing whereas a revolutionary product opens up a new segment to the market that is incremental (i.e. the mobile phone). In Figure 7 we have attempted to show Page 8

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Telecommunications Telecom for beginners 2007

which products and services are substitutionary to existing offers and which are revolutionary products. For those that are substitutionary, we have listed which other business areas have they affected. Figure 7: Classifying new products and services Product/Service

Categorization

Affected business

Mobile voice

Revolutionary

Mobile SMS

Revolutionary

Mobile data

?

Broadband

Substitutionary

Traditional wireline access (PTSN and ISDN)

VoIP

Substitutionary

Wireline and mobile voice

Instant messaging

Substitutionary

Email, SMS, voice

Mobile TV

Revolutionary

IPTV

Substitutionary

Traditional TV (terrestrial, cable, satellite)

Video telephony

Substitutionary

Wireline and mobile voice

Source: Deutsche Bank

Wireline – all about access and traffic Access – growth and then substitution A wireline business model (either incumbent or new entrant) is fundamentally about securing the consumer access and then charging for incremental services. Unfortunately, in most cases the premium charged for incremental services trends to be zero and as such the wireline business model is increasingly focused on access revenues. As can be seen in Figure 8, access line growth in OECD countries was consistent throughout the 1990s but more recently has started to decline as wireless competes as another form of access technology and broadband has reduced the demand for multiple access to single premises -broadband has replaced ISDN and increasingly the convergence with media is such that consumers require only a single TV/telephony access pipe rather than one for each service.

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Figure 8: Access lines (m) and growth (%) in OECD countries 700

7.0% 6.0%

600 5.0% 500 4.0% 400

3.0%

300

2.0% 1.0%

200 0.0% 100 -1.0% 0

-2.0% 1991

1992

1993

1994

1995

Access channels*

1996

1997

1998

1999

2000

2001

2002

2003

2004

Growth

Source: OECD

In many counties access line penetration has stalled at around 50% to 60% of the population reflecting the fact that the average house has over 2 residents that can share and access. In certain countries, such as Mexico, access penetration remains lower and we doubt there will be huge long-term growth, as wireless is picking up the incremental demand for access technologies, and is considerably more cost effective to deploy – the civil works in constructing wireline infrastructure can be excessive. There may, however, be incremental demand if broadband penetration picks up, but again there is an affordability issue in many of these under-developed countries.

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Telecommunications Telecom for beginners 2007

Figure 9: Access lines penetration in OECD – 2004

Mexico

Turkey

Poland

New Zealand

France

Austria

Japan

Greece

Norway

% of population

Slovak Republic

0 Czech Republic

0 Portugal

10

Hungary

10

Spain

20

Belgium

20

Italy

30

Ireland

30

Australia

40

OECD average

40

United Kingdom

50

Korea

50

Finland

60

Canada

60

Netherlands

70

Iceland

70

United States

80

Denmark

80

Germany

90

Sweden

90

Switzerland

100

Luxembourg

100

OECD average

Source: OECD

In Europe, the pressure on access lines is explicit. Using Deutsche Telekom as an example below (Figure 11), the company grew ISDN access volumes in the 1990s as if offered higher basic internet dial-up speeds and was not regulated (only PSTN access fees and traffic tariff were regulated). This ISDN growth replaced existing PSTN accesses, which were also starting to suffer the effects of the growth in mobile penetration. However, with the launch of broadband, ISDN has become more redundant and since 2005 DT has experienced access line erosion due to unbundling. Figure 10: Deutsche Telekom PSTN and ISDN access

Figure 11: Deutsche Telekom PSTN and ISDN access

lines (000)

lines changes (000)

45,000

5,000

40,000

4,000

35,000

3,000

30,000

2,000

25,000

1,000

20,000

0

15,000

-1,000

10,000 -2,000

5,000

Source: Company data

Deutsche Bank AG/London

PSTN

ISDN

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

PSTN

1993

-3,000

-

ISDN

Source: Company data

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Telecommunications Telecom for beginners 2007

Traffic – up, down and down Over the past decade it is has been difficult to construct a view on the underlying trends in tariff as there have been many material one-off events. Liberalization of the European telecoms markets and consequential tariff deflation led to increased volumes, but this was combined with huge growth in ISP dial-up accesses, which stimulated a dramatic increase in local call volumes. This has subsequently been impacted by the growth in broadband which has reduced dial-up ISP minutes and increased mobile substitution, especially in markets where mobile is the dominant traffic device (such as Portugal and Finland as shown in Figure 12). Increasingly VoIP substitution is also depressing traditional traffic volumes. Figure 12: Share of outgoing mobile minutes (%) – 2005 55.7

Portugal 49.2

Finland

48.8

Austria 42.3

France 40.6

Spain

40.0

Ireland 31.4

UK

30.3

Denmark

29.4

Italy 25.6

Greece 21.7

Netherlands 19.9

Sweden 16.2

Germany

10

15

20

25

30

35

40

45

50

55

60

Source: Analysys

In Figure 13 we show how the German fixed-line voice market grew between 1997 and 2002 due to liberalization and the growth in dial-up ISP traffic. But due to mobile, broadband VoIP, volumes in the industry have rolled over. Figure 13 also highlights how Deutsche Telekom has lost 50% market share in wireline traffic (since liberalisation in 1998).

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Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Figure 13: German market traffic growth (bn of minutes) Broadband, VoIP and mobile substitution and ISP growth

400 350

Liberalisation and ISP growth

300 250 200 150 100 50 0

1997

1998

1999

2000

2001

2002

Other

2003

2004

2005

DT AG

Source: Bundesnetzagentur

This shift in traffic revenue has led to a substantial cut in the importance of wireless traffic revenue in an operators revenue mix. Indeed at Deutsche Telekom, access revenue, due to price increases and DSL growth, has increased by 32% but traffic revenue has declined by 71% since 1998. This also reflects a huge rebalancing of tariff that has been undertaken in Europe over the past decade. Historically, and for philanthropic reasons, access fees were kept to a minimum in order to stimulate penetration, but traffic fees were high. In this scenario, heavy users (i.e. corporates) subsidised domestic telephony. However, with the charges in EV model to more accurately reflect the cost of provision, access charges have increased and traffic fees have declined. Figure 14: Access and traffic revenue at Deutsche Telekom’s domestic wireline business (Euro m) 25,000

20,000

15,000

10,000

5,000

1997

1998

1999

Access revenue

2000

2001

2002

2003

2004

2005

Traffic revenue

Source: Company data

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Mobile – penetration is the king Universally the mobile technology has been accepted by the consumer, once the price point of entry has been lowered (with advances in handset development, infrastructure costs have declined for the benefit of the consumer) and in many emerging markets the wireless device has become the pre-eminent access technology (i.e., stimulating wireline penetration). Key to this business model is penetration (access or SIM), and the industry growth becomes challenging when penetration growth slows down (as we depicted in Figure 1) and a market share battle materialises. The scale of industry growth since the turn of the century across the globe has been outstanding. The technology has grown such that penetration is now over 40%, up from low single digits a decade ago. This growth has predominantly been driven by the near universal acceptance of GSM technology (other than in Korea and Japan) which has led to a consequential reduction in both capex and handset costs as shown in Figure 16. The combination of competition in the infrastructure market, (especially with the entrance of Chinese vendors such as Huawei) and the belief that 2G technology will soon be replaced by 3G, has led to infrastructure price deflation. This has allowed mobile technology to be rolled out into emerging markets where ARPUs are low, and advances in handset technology are such that ASPs (average selling prices) have declined as the cost of low-end handsets has reduced to $30 and below. This has materially enhanced the attractiveness of the emerging market mobile business model (hence the huge growth in markets such as China and India) Figure 15: Global digital mobile customers (m)

Figure 16: Technology spread of mobile customers

3,000

3 GSM 3%

2,500

CDMA 2,000

2% CDMA 1x

1,500

9% CDMA 1x EV-DO

GSM 1,000

81% TDMA

500

1% iDEN

Source: EMC and Wireless Intelligence

2005

1%

H1 2006

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

0

PDC

1% Analog 0%

2%

Source: Wireless Intelligence

Europe was the main driver of GSM growth (as the EV adopted it as a single technology in the early 1990s) as penetration is over 100%. The US has grown on a more steady trajectory, helped by consolidation, and growth in GSM technology over the past three years (the USA also has CDMA technology), but the growth in LatAm has been the most marked, due to handset price deflation and severe competition in Brazil as the market has consolidated. In total volume terms, the Chinese market is driving the huge absolute, even if relative growth is less discernable.

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Telecommunications Telecom for beginners 2007

Figure 17: Penetration of mobile by continent

Figure 18: Geographic spread of digital mobile customers (2006E) Europe: Eastern

120%

Europe: Western

17%

22%

100% 80% 60%

Middle East 6%

40% 20%

USA/Canada 5%

0% 2003

2004

2005

2006E

2007E

Europe

Middle East + Africa

China

Asia Pacific

North America

LatAm

Source: Deutsche Bank estimates and company data

Asia Pacific

Africa

41%

9%

Source: Wireless Intelligence

However, across continents the mobile business model varies significantly, primarily due to stages in competition, development and regulatory pressures. In Figure 19 we attempt to show how the European mobile business model is changing and the importance of the current wave of regulatory pressure which is driving down roaming, SMS, data (potentially) and mobile termination revenue. Figure 19: Changes in the European mobile business model (% of revenue) 100 90 Assuming elasticity 1x

80 70 60 50 40

3.2x increase

30 20

Reduction of 2/3rds

10 0 2006E Roaming

SMS data

2010E Mobile Termination

Non SMS data

Outgoing voice

Source: Deutsche Bank estimates

Putting these trends into context, in Figure 20 we have attempted to assess the drivers of the mobile business model in each region. Figure 20: Comparing mobile markets (2006E) Europe

USA

Japan

Asia

Middle East Africa Latam

Stage in product life cycle

Maturity

Growth

Maturity

Mixed (but mostly growth)

Growth

Growth

Competition

Severe

Controlled

Controlled

Light

Light

Severe

Regulatory threat

Significant

Negligible

Limited

Limited

Limited

Significant

Source: Deutsche Bank

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Over the past 20 quarters, growth in the European mobile market has slowed down dramatically due to a combination of penetration peaking, price declines and regulation. To compensate for this slowdown and in order to support returns and cash flow generation, capex levels have been volatile but essentially flat, as there are spurts of 3G investment and then a slowdown to reflect, in many countries, a lack of usage and demand. Figure 21: Western European wireless operators: Aggregated revenue and EBITDA growth (YoY)

Figure 22: Western European wireless operators: Aggregated capex growth (YoY) 30%

40% 35%

20%

30% 25%

10%

20% 1Q06

4Q05

3Q05

2Q05

1Q05

4Q04

3Q04

2Q04

1Q04

4Q03

3Q03

2Q03

1Q03

4Q02

-10%

5%

-20%

1Q06

4Q05

3Q05

2Q05

1Q05

4Q04

3Q04

2Q04

1Q04

4Q03

3Q03

2Q03

1Q03

4Q02

3Q02

2Q02

1Q02

0% -5%

3Q02

1Q02

10%

2Q02

0%

15%

-10%

-30%

Revenue

EBITDA

-40%

Source: Deutsche Bank

Source: Deutsche Bank

Whilst penetration is king to the mobile business model it is also important to stress ARPU, elasticity and pricing. Due to a combination of penetration-mix effects, price cuts and regulatory pressure, ARPU in Europe has contracted in recent years (we show the trends in the UK since 1993 in Figure 23), whereas it has been more stable in the US. This may also reflect different usage patterns and price points. Figure 23: ARPU per month for UK operators (£) 180 160 140 120 100 80 60 40 20

Vodafone

O2

T-Mobile

Q1 2006E

Q1 2005

Q1 2004

Q1 2003

Q1 2002

Q1 2001

Q1 2000

Q1 1999

Q1 1998

Q1 1997

Q1 1996

Q1 1995

Q1 1994

0

Orange

Source: Deutsche Bank estimates and company data

In Figure 24 we compare the revenue yields in each market (mobile and fixed line) in the UK and the ratio between fixed and mobile pricing. This highlights how mobile pricing has converged in the UK closer to wireline levels over the past decade, but also reinforces the fact that mobile voice revenues are premium revenue earners. In the US, the difference between fixed and voice pricing is indistinguishable and consequently mobile usage (and elasticity) continues to be positive. Page 16

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Figure 24: Comparative UK fixed and mobile pricing (GBp) 0.70

12.0

0.60

10.0

0.50

8.0

0.40 6.0 0.30 4.0

0.20

Mobile

Fixed

Q1 2006E

Q1 2005

Q1 2004

Q1 2003

Q1 2002

Q1 2001

Q1 2000

Q1 1999

Q1 1998

Q1 1997

Q1 1996

0.0 Q1 1995

0.00 Q1 1994

2.0

Q1 1993

0.10

Fixed/mobile ratio

Source: Deutsche Bank estimates, OFCOM and company data

Broadband and regulation Broadband is a generic term describing the consumer demand for greater internet access speeds, and is predominantly a battle between two technologies; cable and DSL. Other technologies, such as WiFi, WIMAX and satellite are either infant or are merely used to infill footprint where cable and DSL are uneconomic. Generally, North America and Korea have a strong cable broadband presence and the EU is led by DSL. There are, of course, exceptions such as the Netherlands, but strength of cable in any market is driven by the legacy position of the technology and TV distribution (cable dominant in TV distribution in most of these countries) and the cable operators’ historical ability to fund a network upgrade from narrowband to broadband in the early part of the century. In Figure 25, we show the relative penetration of broadband at the end of 2005 in most OECD countries and the split by technology. The lack of cable broadband in France, Germany and Italy is as stark as is the scale of cable in the USA and Canada.

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Figure 25: OECD broadband penetration (as % of population by technology) 2005 30.0

25.0

20.0

15.0

10.0

5.0

DSL

Cable Modem

Greece

Turkey

Mexico

Poland

Slovak Republic

Hungary

Czech Republic

Ireland

Portugal

New Zealand

Spain

Italy

Australia

Germany

Austria

Luxembourg

France

United Kingdom

United States

Japan

Sweden

Belgium

Canada

Norway

Finland

Switzerland

Denmark

Netherlands

Korea

Iceland

0.0

Other

Source: OECD

In Figure 26, we show the scale of relative cable and DSL broadband in the OECD, where DSL is 2x the size of cable and in Figure 27, we reinforce the fact that the EU is dominated by DSL. From a regulatory perspective, the strength of cable has huge implications. In the US, and increasingly so in the Netherlands, technology-based competition is removing the need for regulatory body to set wholesale DSL tariffs, as effectively two competitive networks control access pipes into homes and businesses. Where DSL is dominant, regulators are forced to maintain wholesale access in order to compensate for the fact that there may only be a single access pipe connected to a home or business. Figure 26: Broadband access technology (2005) - OECD

Figure 27: Broadband access technology (2005) – EU 15 Other

Other

Cable Modem

7%

2%

16%

Cable Modem 31%

DSL 62%

DSL 82% Source: OECD

Page 18

Source: OECD

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Assessing the long-term penetration of broadband is difficult, but as shown in Figure 28 there remains growth if only to fully penetrate current internet (PC) demand. Thereafter, broadband growth will depend upon the success of non-PC access technologies (such as television and mobile). However, as we showed earlier, to date broadband is following the “S” curve trends of other technologies. Figure 28: Internet subscribers in total OECD (m) 300 250 200 150 100 50 0 1999

2000

2001

2002

2003

2004

2005E

Total Internet subscribers (including broadband)

2006E

2007E

Broadband subscribers

Source: OECD

As we show in Figure 29, email communication remains the most popular use on the internet (both in a broadband and narrowband world). However, broadband has also opened up new markets, such as gaming, music and film downloading, and is also a substitute for traditional voice telephony. In particular, we would highlight the growth in business models, such as Google and Party Gaming, which have been spawned by broadband growth. Figure 29: Applications used by broadband versus dial-up Real time gambling/trading

7%

16% 17%

Chat & voice calls Gaming

21%

Music or film downloads

22%

Banking

40% 38% 46% 38%

57% 60%

Making purchases General surfing

72% 67%

84%

e-mail 0% Broadband

82% 91%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Narrowband

Source: Deutsche Bank, Ofcom

Deutsche Bank AG/London

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6 December 2006

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Figure 30: Value transfer to new media: Aggregated market cap of Time Warner and Disney compared with Google ($m)

Figure 31: Growth in internet gaming (revenue ($bn))

200,000 16.0

150,000

14.0 12.0

100,000 10.0

50,000

8.0 6.0 4.0

Q3 2006

Q1 2006

Q3 2005

Q1 2005

Q3 2004

Q1 2004

Q3 2003

Q1 2003

Q3 2002

Q1 2002

-

2.0

Source: Datastream

2006E

2005E

2004

2003

2002

2001

2000

Google

1999

Time Warner/Disney

1998

-

Source: Deutsche Bank

Telecoms and PayTV: Converging through fear What is convergence? Convergence is an overly used generic term, which is hiding an underlying rationale: “fear” – the opportunity cost of inactivity and business model evaporation. Telecoms and PayTV operators are increasingly fearful of their existing business models, which are historically technology dependent, and are therefore executing the “prisoner’s dilemma” – entering each others markets with a marginal cost pricing model. This expansion of strategy is being driven by: „

Expectation of declining returns;

„

Increasingly technology agnostic consumers;

„

Technology evolution dissolving barriers to entry;

„

Historic returns driven by network differentiation.

In turn this is leading to a charge to “own the consumer” and the operators are seeing other business areas, preferably where they are unregulated (as they would be new entrants), to increase consumer stickiness. As a consequence telecoms and PayTV operators are chasing the residential consumer’s wallet and both industries are therefore being consumerised.

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Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 32: Current landscape of communications technology and the consumer

Figure 33: Future landscape of communications technology and the consumer

Pay TV

Consumer Consumer

Pay TV

Consumer

Free to air TV

Consumer Consumer

Free to air TV

Broadband

Consumer Consumer

Broadband

Consumer Consumer Consumer Consumer

Mobile

Consumer Consumer

Fixed voice

Consumer

Fixed voice

Consumer Consumer

Mobile

Consumer Consumer

Source: Deutsche Bank

Source: Deutsche Bank

This convergence of distribution channels for voice and data (content) is dramatically increasing the consumer choice as we highlight in Figure 34. For example television in the UK has three existing distribution channels – terrestrial free to air, satellite and cable, but all three have coexisted for the last one decade as there was sufficient differentiation. With telecoms operators entering the media sector, this framework is changing dramatically:

Deutsche Bank AG/London

„

Pricing for premium services reduces dramatically, as telecoms operators price at a more marginal cost and exploit the imbalance between traditional and IPTV content rights – triple pay offerings are now priced at Euro35;

„

Offer integrated services with mobility, currently not offered by cable operators.

„

Offer simplicity – a single provider for services in the home. The major decision maker in the home, invariably an adult, has shown a willingness to accept single electricity and gas providers in the UK, such that around 60% of all customers are dual bill.

„

The move to digital TV will require every European television consumer to acquire some kind of digital receiver (DTT box, satellite, cable or IP TV), which means telecoms operators could benefit from this transition.

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Figure 34: Broadband fixed connections into the home – The UK example

annels 00 ch ) 400-5 nk (1-way li Down

Broadband (ADSL) Up to 8 Mbit/s (downstream) Up to 0.5 Mbit/s + voice telephony

M

D O S D L E

M

2-way wireline/ wireless link

Cable Modem

Uplink of TV broadcast signals

50-70 channels (1-way)

Downlink (1 -way)

Digital Terrestrial TV (DTT)

Set Top Box

2-way internet + voice telephony Up to 10 Mbit/s downstream Up to 0.5 Mbit/s upstream

120-200 digital channels Low capacity phone line return

Cable Operator

ULL “Unbundled local loop” DSLAM

Telephone Exchange

TELCOS

Satellite Operator

INTERNET CONTENT

Source: Deutsche Bank NB. With ADSL 2+ the downstream capacity will increase to “up to 18 Mbit/s” in the UK

A measure of convergence will be the pricing of terrestrial TV and IPTV football rights. In a converged world where the technology differential is non-existent there should be limited difference. For example on the 1995 sale of Bundesliga rights the winning consortium paid Euro420m per annum for the traditional terrestrial TV rights whereas we estimate Deutsche Telekom paid around Euro40m for the IPTV rights per annum. We would expect this imbalance to narrow at the next auction in 2008. Is broadband really different? We have identified five key drivers of the change in consumer activity that is affecting the way media operators think about the internet. This was aimed at showing why current moves are different from the “super-highway” nonsense of the late 1990s. In Figure 35 we summarise these drivers, offer examples and also relate them to the telecoms space.

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Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 35: Drivers of increased economic scale of online activity Driver

Examples

Implications for telecoms operators

Investment in network expenditure

BSkyB's entrance into ULL and DT's FTTC roll-out

This is the primary focus of operators, as it protects existing revenue but also breaks into unregulated business areas

Online applications

Google and its roll out of music downloads, web-hosting, VoIP etc

Less relevant to operators, but given network advantages are diminishing, operators will focus increasingly on services as they try to circumvent "independent" gateway providers

Consumer demand

10pp growth in EU penetration in 2005

The key driver of existing market expansion and is being stimulated by declining access prices as competition increases. Operators sense a demand for integrated services and so are diversifying their technology exposure – clearly the integrated operators have an existing competitive advantage

Piracy

Content owners seeking direct customer relationships

Not relevant to telecoms operators but Vodafone and Google are now cooperating to limit exposure

Robust on-line business models

Google is not a "dot.com" era business model

Not relevant currently, but may stimulate operators to acquire business in this space in the longer term as they may offer increased access to both services and customers

Source: Deutsche Bank

PayTV: Moving offline to online? The rollout of broadband networks by telecoms operators is radically changing the European media distribution landscape, stimulated by the EU’s aggressive deregulatory policy agenda. The moves by telecoms operators into broadband access and rollout of IPTV will create higher capacity networks. These, coupled with new applications being released by portal operators and other Internet service providers, will bring about a steep change in online functionality. The media sector is pricing in a massive shift to online media operators, suggesting that historic distribution franchises are being eroded and value is being generated by businesses that provide gateways (i.e. facilitate access rather than infrastructure access). This is leading to a scenario where value lies in monetizing customer traffic rather than content exploitation or connection. Value will remain in content ownership as a driver of generating consumer interest (i.e. traffic) rather than in content aggregation. Portals will increasingly become conduits for information and services currently provided by media owners. Historical silo-based oligopoly competition will slowly break down and with it the high margin characteristics of the sector will be threatened. This in turn will lower pricing power as media companies have smaller direct audiences. Furthermore, as a longer-term threat to medium distributors, telecoms operators are increasingly purchasing content either on fixed or on mobile platforms. As an example of the devaluation of content aggregation in early 2006 France Telecom signed an agreement to access Viacom content directly, by passing TPS and Canal+; this has since stimulated their merger in order to improve their competitive strength. To compensate for this threat media companies are increasingly looking to expend their service offerings and distribution platforms. For example in the UK an unbundling strategy opens media companies to a c.£6bn market with limited capital investment and limited only by consumer’s willingness to churn and a desire for a strong marketing push.

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

10,000

8,000

8,000

6,000

6,000

4,000

4,000

2,000

2,000

-

Mobile Consumer

TV Adspend

TV Subsciption

Telephony Residential

TV Adspend

12,000

10,000

Licence fee

14,000

12,000

Mobile Consumer

14,000

Licence fee

Figure 37: Relative market size of telecoms and media in the Germany (annualized 2005E) (Euro m)

TV Subsciption

Figure 36: Relative market size of telecoms and media in the UK (annualized 2005E) (£m)

Telephony Residential

6 December 2006

Licence fee

TV -

Adspend

Mobile -

TV -

Licence fee

2,000

TV -

4,000

2,000 Adspend

6,000

4,000

TV -

8,000

6,000

Subsciption

10,000

8,000

Residential

12,000

10,000

Telephony -

14,000

12,000

Consumer

16,000

14,000

Mobile -

16,000

Subsciption

Figure 39: Relative market size of telecoms and media in Italy (annualized 2005E) (Euro m)

Residential

Figure 38: Relative market size of telecoms and media in France (annualized 2005E) (Euro m)

Telephony -

Source: Deutsche Bank, FNA, Company data

Consumer

Source: Deutsche Bank, OfCOM, Company data

Source: Deutsche Bank estimates

Source: Deutsche Bank estimates

Figure 40: Relative market size of telecoms and media in Spain (annualized 2005E) (Euro m)

Figure 41: Relative market size of telecoms and media in big five European markets (annualized 2005E) (Euro m) 80,000

12,000

70,000

10,000

60,000 8,000

50,000 40,000

6,000

30,000

4,000

20,000 2,000

10,000

Source: Deutsche Bank estimates

Licence fee

TV -

Adspend

TV -

Subsciption

Residential

Telephony -

Consumer

Mobile -

Licence fee

TV -

Adspend

TV -

Subsciption

Residential

Telephony -

Consumer

Mobile -

-

Source: Deutsche Bank estimates

In Figure 42 we attempt to highlight the potential winners and losers in the new media distribution world.

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Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 42: Winners and losers in a media world Winners

Why?

Content developers

The expansion of competing distribution technologies will increase the value of quality content (i.e. content that secures the consumer eye and wallet. It will lead to a reduction in the power of content aggregators and potentially reduce developer distribution costs). Examples: Sports rights licensors; film studios (such as DreamWorks which has recently been bought for $1.6bn by Paramount who intends to sell off its rights library which could fetch $850m to $1.0bn); TV content producers such as ITV, BBC; potentially music labels.

Content gateways

Cross media platforms that act as bucket shops to all types of media - music, print, film and video. Examples: Increasingly this is Google's domain, but strong internet brand such as Amazon.com could benefit.

IPTV platforms

Entry costs are minimal as the network capability is a core element of any telecoms network and the access to content is cheap as there is limited current demand. Deutsche Telekom acquired the IPTV rights to the Bundesliga for 1/10th of the traditional rights costs although the offering will be comparable. This represents a very cheap option in our view. Examples: Dominant IP network and IPTV operators, such as European integrated operators. Note, in their area football is a killer application in Europe and is something that US telecoms operators will struggle to replicate.

Advertising agencies

With the proliferation of new business models (IPTV for example) and the increase of the cost of “must have content”, we would anticipate significant increases in advertising and promotional spend. Where this spend is targeted is difficult to judge (i.e. high street billboards or TV or press advertising) but there may be an increase in the total budget. The consumerisation of media and telecoms will result in a greater level of marketing activity. Examples: The German cable operators will aggressively publicise their Bundesliga offerings as DT will publicize its IPTV offerings. Similarly Premiere will have to reposition its business model and this will require continued brand investment.

Losers Content aggregators

Network providers will increasingly circumvent the telecoms aggregators and source content directly from the developers. Also aggregators that previously monetized an exclusivity of content through a specific distribution platform or with premium channels are at risk. Examples: Premiere's business model is requiring immediate surgery, but others such as Sogecable and BSkyB are at risk through potentially losing rights or significant price inflation as other distributors (cable, telecoms) seek to compete.

Traditional high street media retailers

In a converged world with the ability to download content and with mass market video-on-demand, there is further risk to high street volume contraction and price declines. Also with operators such as Orange turning their retail distribution into communication centres, we would expect them to offer on-site access to content that is downloadable into CDs and DVDs (replicating the home environment for those that do not have a PC).

Source: Deutsche Bank

Small mobility premium; diversification of service; distribution and brand strength key With the value of networks diminishing it will be increasingly difficult for operators to sustain superior returns through network advantages. It will also lead to the abandonment of the generic mobile strategies (all operators currently target all segments of the market with similar networks and services) and technological differentials. Industry analysts have long talked about the integration of media and telecoms (“infotainment”) and increasingly telecoms operators across Europe are launching TV over broadband strategies (entitled IPTV or TV over DSL).

Capital intensity Most of the other areas of telecoms we have discussed so far are macro revenue growth drivers. Therefore, it is important not to forget the importance of capital expenditure, in what has historically been a capital intensive business. Admittedly, there are cycles in capex, as shown in Figure 43, which highlight the growth in telecoms infrastructure during the 1990s, and the slowdown since 2000. In particular, this reflects the growth in European mobile penetration and the subsequent focus on balance sheet recovery post 2000.

Deutsche Bank AG/London

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6 December 2006

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Figure 43: Telecommunications infrastructure investment for OECD ($bn) and growth rates 300

40%

30% 250 20% 200 10%

150

0%

-10% 100 -20% 50 -30%

0

-40% 1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

OECD Total

2002

2003

2004E

Growth

Source: OECD

Capex/sales is often assessed as the best measure of capital intensity, but it works best in a steady state environment and fails to reflect the marginal return on capex. As such, we prefer EBITDA/capex multiples. In Figure 44 we show the capex/sales ratios of US, European and Japanese operators over the past 15 years, and in Figure 45 the implied EBITDA/capex multiples, which highlight the range (from past to current levels) in the European capex cycle relative to the US. Figure 44: Comparative capex/sales ratios 60%

50%

40%

30%

20%

10%

US

EU

BT

Vodafone

DoCoMo

2008E

2007E

2006E

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

0%

NTT

Source: Deutsche Bank estimates and company data

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Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 45: Comparative EBITDA/capex multiples 3.5

3.0

2.5

2.0

1.5

1.0

0.5

US

EU

BT

Vodafone

DoCoMo

2008E

2007E

2006E

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

-

NTT

Source: Deutsche Bank estimates and company data

Indeed the greater consistency of the US relative Europe can be interpreted as offering greater certainty, we believe. The volatility in Europe was also driven by the faster mobile penetration in the late 1990s and the requirement for the year 2001 to 2003. How operators spend capex lacks clarity but Vodafone has offered details of its capex spend for its March 2006 financial year as shown in Figure 46. Interestingly only 48% was actual network investment and a further 19% was backbone transmission-related. Indeed the key determinant of capex is peak capacity, which often leaves networks underutilized (breeding marginal cost business model). In Figure 47 we show our best estimate of the usage profile of T-Mobile UK and O2 UK, highlighting the fact that networks are built for two peak hours in the day, have much residual capacity. Usage patterns differ depending on customer and tariff profiles. Figure 46: Vodafone capex analysis for FY05/06 (£5bn)

Figure 47: T-Mobile UK and O2 UK – comparison of usage patterns

Other operations 2%

100% 90% 80%

Other mobile 31%

3G network 36%

70% 60% 50% 40% 30% 20% 10% 0%

2G network 12%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Transmission 19%

Source: Company results announcement, Deutsche Bank estimates

Deutsche Bank AG/London

O2

TMO

Source: Deutsche Bank estimates

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6 December 2006

Telecommunications Telecom for beginners 2007

Earnings and P/E trends In Figure 48 we highlight the trends in earnings and P/E ratios in Figure 48, which broadly show the trend of declining multiples as the sector has converged with general market multiples. Figure 48: Cyclicality of earnings and market enthusiasm 100.0 EU liberalisation

80.0

UK liberalisation and move to digital

60.0

Technology bubble

mobile technology EU earnings

40.0

downgarde cycle

20.0 0.0 -20.0

Focus on cost control and deleveraging

P/E ratio Headline (x)

2008E

2007E

2006E

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

-40.0

Total Headline Earnings Growth (%)

Source: Deutsche Bank

In order to contextualize the environment, we have shown in Figure 50 the performance of the European telecoms sector over the past 14 years and categorized the sector into three periods: utilities, bubble and uncertainty (we explain these definitions in more detail in Figure 51).

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 49: Key characteristics of each period Utilities

Monopolies in fixed line, mobile in infancy, retail regulation

Bubble

M&A expansion, mobile growth, broadband in infancy

Uncertainty

Mobile maturity, fixed line declines, broadband explosion, commoditization of pricing, substitution, regulatory convergence

Source: Deutsche Bank

Figure 50: Telecoms sector (.SXKP) over the past 14 years 1,200 "BUBBLE" 1,000

800

600

400

"UNCERTAINTY" "UTILITIES"

200

05 July 2006

05 July 2005

05 January 2006

05 July 2004

05 January 2005

05 July 2003

05 January 2004

05 July 2002

05 January 2003

05 July 2001

05 January 2002

05 July 2000

05 January 2001

05 July 1999

05 January 2000

05 July 1998

05 January 1999

05 July 1997

05 January 1998

05 July 1996

05 January 1997

05 July 1995

05 January 1996

05 July 1994

05 January 1995

05 July 1993

05 January 1994

05 July 1992

05 January 1993

05 January 1992

0

Source: Deutsche Bank and Reuters

Telecoms: Financials relative to the total market In the following charts (Figure 51 to Figure 56), we attempt to compare the overall telecoms sector with other sectors, in order to put the sector into context. The messages are clear however; margins are high, as are operating cash flow margins. EBITDA/capex ratios for the sector as a whole are comparable with other sectors and the wider market, but the relative capital intensity (capex/sales) has declined significantly over the past few years following the end of the wireless boom. Over time telecoms earnings multiples have converged but indebtedness has increased significantly, suggesting a greater “financial risk” to the telecoms sector.

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Telecommunications

ALL SECTORS EUROPE

Telecommunications

2007E

2006E

2004

ALL SECTORS EUROPE

Source: Deutsche Bank estimates and company data

Source Deutsche Bank estimates and company data

Figure 53: Comparable EBITDA/capex ratios

Figure 54: But declining capital intensity

3.5x

2005E

2003

2002

2001

2000

1999

1998

1997

1996

1992

2007E

2006E

2004

2005E

2003

2002

0% 2001

0% 2000

5% 1999

10%

10% 1998

20%

1997

15%

1996

20%

30%

1995

40%

1994

25%

1993

30%

50%

1992

60%

1995

Figure 52: High relative operating cash flow margins

1994

Figure 51: High relative EBITDA margins

1993

6 December 2006

50%

3.0x

40%

2.5x 2.0x

30%

1.5x

20%

1.0x 10%

0.5x

Telecommunications

ALL SECTORS EUROPE

Telecommunications

2007E

2006E

2005E

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

2008E

2007E

2006E

2005E

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

0% 1992

0.0x

ALL SECTORS EUROPE

Source: Deutsche Bank estimates and company data

Source Deutsche Bank estimates and company data

Figure 55: Converged P/E multiples

Figure 56: Shift in relative indebtedness

40.0

3.0x 35.0

2.5x 30.0

2.0x 25.0

1.5x 20.0

1.0x 15.0

0.5x 10.0 2007E

2006E

2005E

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

0.0x 5.0

Telecommunications Source: Deutsche Bank estimates and company data

Page 30

2008E

2007E

2006E

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

0.0

Telecommunications

ALL SECTORS EUROPE

ALL SECTORS EUROPE Source Deutsche Bank estimates and company data

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

History of European telecoms Telecoms over the ages: Pre-1980 Before Alexander Graham Bell, the Scotland born scientist and inventor, widely considered to be the father of the telephone, communication was a haphazard affair, and was carried out using basic tools such as paper, couriers, noise, carrier pigeons, beacons, semaphore and flags. With developments in electronic communications and with advances in cable technology, networks were developed. Initially these were local area networks, but then national and international connections were made that facilitated long distance communication. Originally, most national calls were switched manually by operators but in the 1960s there was the first international direct-dial call between the UK and USA. Transatlantic services started in 1927 using two-way radio, but the first trans-Atlantic telephone cable was laid in 1956, with TAT-1, providing 36 telephone circuits. The first experimental satellite was commissioned in 1962 (Telstar 1). With the laying of TAT-8 in 1988, the 1990s saw the widespread adoption of systems based around optic fibres, which introduced a 10-fold increase in capacity, which has since been expanded by many multiples again. Figure 57: A history of transatlantic cable Cable Name

Date(s)

Initial No. of channels

Final No. of channels Western end

Eastern end

TAT-1

1956-1978

36

48 Newfoundland

Scotland

TAT-2

1959-1982

48

72 Newfoundland

France

TAT-3

1963-1986

138

TAT-4

1965-1987

TAT-5

1970-1993

TAT-6

276 New Jersey

England

138

345 New Jersey

France

845

2112 Rhode Island

Spain

1976-1994

4,000

10,000 Rhode Island

France

TAT-7

1978-1994

4,000

10,500 New Jersey

England

TAT-8*

1988-2002

40,000

- USA

France

TAT-9

1992-2004

80,000

- USA

Spain

TAT-10

1992-2003

2 x 565 Mbit/s

- USA

Germany

TAT-11

1993-2003

2 x 565 Mbit/s

- USA

France

1996

12 x 2.5 Gbit/s Transatlantic

- USA x 2

GB, FR

- USA x 2

GB, FR, NL, D, DK

- Newfoundland

Scotland

- Nova Scotia

England

TAT-12/13 TAT-14

2000

64 x 10 Gbit/s Transatlantic

CANTAT-1

1961-1986

80

CANTAT-2

1974-1992

1,840

CANTAT-3

1994

2 x 2.5 Gbit/s

PTAT-1

1989

3 x 140 Mbit/s

Canada

Europe

US-Bermuda

Ireland-UK

Source: Deutsche Bank and Wikipedia,

In Europe, telecoms was deemed a “philanthropic” investment predominately lead by governments and often combined with the national postal operators (therefore building a complete communication monopoly). Indeed, before the privatisation wave of European telecoms in the 1990s most governments had to separate out into different legal entities the telecommunications business from the post office. Indeed in some countries such as Austria, the post office still owns most of the property that houses the telecoms operators’ switches.

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In the USA, AT&T was formed through the amalgam of different geographically diverse US telecoms companies and it was not until the 1920s that the concept of universal services was developed. In Figure 58 we use the Boston Consulting Group matrix to highlight the relative development of European and US telecoms. In 1980, with penetration growth slowing, the industry was deemed “utility like” and, as can be seen, was a relatively simple. Indeed, the fax machine was deemed a revolution in the industry in the mid-1970s as it stimulated demand for incremental lines and volumes. It was also the first mover of the telecoms industry outside voice, and it started to challenge the postal services as a distributor of hard copy information. It was also the first move to immediacy.

?

CASH COW

DOG

High

STAR

European traditional wireline

Low

Business growth rate

Figure 58: European telecoms in context: Application of BCG matrix – 1980

US traditional wireline

High

Low Relative position (market share)

Source: Deutsche Bank

The 1980s: Embryonic This decade was the start of the telecommunications evolution. As the PC and the videorecorder were growing in importance dramatically, the structure of the telecoms industry changed forever. In the US, AT&T’s monopoly was broken up, BT was privatized in the UK and mobile technology, as we know it today, was born. Break-up of AT&T The break-up of AT&T was initiated in 1974 by the U.S. Department of Justice anti-trust suit against the telephone monopoly. Under the terms of a settlement finalized on 8 January 1982, AT&T (known as “MaBell”) agreed to divest its local exchange service operating companies, in return for a chance to go into the computer business, AT&T Computer Page 32

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Systems. Effective 1 January 1984, AT&T's local operations were split into seven independent Regional Bell Operating Companies (RBOCs) known as "Baby Bells". AT&T, reduced in value by about 70%, continued to run all its long distance services, although it lost some market share in the ensuing years to competitors such as MCI and Sprint. BT privatization In 1981 BT became a state-owned corporation independent of the Post Office. In 1982 BT's monopoly on telecommunications was broken, with the grant of a license to Mercury Communications, part of Cable and Wireless. BT’s privatisation occurred in 1984, with the sale of more than 50% of its shares. Cable and Wireless privatization and Mercury Communications Cable and Wireless was one of the early privatisations by the Thatcher government in the UK. It was announced in 1980, with Cable and Wireless privatised in November 1981. Mercury Communications was Cable and Wireless’ UK national telephony business (formed in 1981). Mercury proved only moderately successful at challenging BT's dominance as in 1997 the Mercury brand was abandoned and it was amalgamated into Cable and Wireless Communications (the UK cable division of the group), which in turn was eventually acquired by NTL. First generation (cellular) mobile telephony The Motorola DynaTAC 8000X, which received approval in 1983, was the first mobile telephone “brick”. Mobile phones began to proliferate through the 1980s with the introduction of "cellular" phones based on cellular networks. Networks were constructed by multiple base stations located relatively close to each other, and protocols established for the automated "handover" between two cells when a phone moved from one cell to the other. At this time analogue transmission was the technology in all systems. The weakness with analogue mobile technology was (and still is in many markets) easy to eavesdrop, and as such, was not particularly private. Mobile phones were large with a battery pack the size of a briefcase and were designed for permanent installation in cars (hence the term carphone). In Switzerland, the name of the big car-based phone models was "Nationales Autotelefon", and the abbreviation of it ("Natel") persists as Swisscom Mobile’s brand today. Towards the end of the decade the handsets were becoming “transportable" but still briefcase size. In the early days, there were multiple differences in analogue technologies (NMT, AMPS, TACS, RTMI, C-Netz, and Radiocom 2000) which later became known as first generation (1G) mobile. In September 1981 the first cell phone network with automatic roaming was started in Saudi Arabia; it was an NMT system manufactured by Svenska Radio Aktiebolaget (SRA). In late 1982 the Nordic countries started an NMT network with automatic roaming between countries and became pioneers of the technology (hence Nokia and Ericsson’s dominance today). Returning to the BCG matrix in Figure 59 we note that by 1990 the telecoms environment is becoming busier and a new growth driver has arrived with mobile technology; although at this stage there were question marks over the long-term penetration rate the technology would achieve. Indeed mobile was expected to be a premium product aimed at the corporate market, achieving a maximum of 10% penetration.

Deutsche Bank AG/London

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Figure 59: European telecoms in context: Application of BCG matrix – 1990

STAR

?

European mobile

High

US mobile

CASH COW

DOG

Low

European traditional wireline

US traditional wireline

High

Low Relative position (market share)

Source: Deutsche Bank

The 1990s: Revolution At the beginning of the 1990s the telecoms sector was slowly evolving from its utility-like reputation, but no one envisaged the growth in the industry towards the end of the decade. In the US there was the Telecommunications Act in 1996, which introduced local loop infrastructure competition. In Europe the later years of the decade were dominated by IPOs (national incumbents and new entrants) and liberalization. However, the most significant events in the decade were the dramatic pick-up in mobile penetration growth rates and the equity market bubble. In particular, the bubble-fuelled large scale M&A as operators chased scale, footprint and in some cases anything that had either “com” or “data” in its description. US Telecommunications Act of 1996 The Telecommunications Act of 1996 was the first major overhaul of United States telecommunications law in nearly 62 years, amending the Communications Act of 1934. The general intention of the Act was deregulation and promotion of competition. The Act removed barriers which had previously prevented telecoms from competing head-to-head. A new group of telephone companies, "Competitive Local Exchange Carriers" (CLECs), grew to compete with the incumbents (also known as "ILECs" or “Incumbent Local Exchange Carriers”). Deregulation and the new entrants provided consumers and businesses choice in local phone service. Over time, the passage of the Act has resulted in several major telecommunications mergers, leaving the following telecommunications companies in the US: Page 34

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„

AT&T: SBC acquired AT&T in 2005 and adopted the name AT&T. AT&T previously acquired TCI, Media One Cable, and Teleport Communications. SBC was created when, as Southwestern Bell, it acquired Pacific Telesys, Ameritech and SNET;

„

Verizon: Verizon acquired MCI in 2005. In 2000, Bell Atlantic and GTE merged to form Verizon. Bell Atlantic previously merged with NYNEX (1998) and MFS. Verizon Wireless was the analogue of Bell Atlanta mobile and Vodafone’s Air Torch business.

„

BellSouth: AT&T and BellSouth are in the process of merging. AT&T and BellSouth are already connected through their wireless joint venture, Cingular.

„

Qwest: Qwest was founded in 1996 and merged with US West in 2000.

European liberalization Most European markets were liberalized en masse on 1 January 1998, but there were a few exceptions as shown in Figure 60. In some cases delays were generally awarded to allow the incumbents to complete the tariff rebalancing processes, but effectively the delay merely just deferred the introduction of competitive pressures. Indeed, the Southern European operators still benefit in 2006 from these early liberalization delays we believe. Figure 60: European market full liberalization dates Austria

Jan-98

Belgium

Jan-98

Denmark

Jan-96

Finland

Jan-98

France

Jan-98

Germany

Jan-98

Greece

Jan-01

Ireland

Jan-00

Italy

Jan-98

Netherlands

Jan-98

Norway

Jan-98

Portugal

Jan-00

Spain

Oct-98

Sweden

Jan-93

Switzerland

Jan-98

UK

Mar-91

Source: Company data

A wave of European IPOs As the equity markets motored in the late 1990s and offered a glut of capital, there was a wave of telecoms IPOs. The trend was kicked-off with incumbent privatizations, but in 1999 and 2000, start-up or early stage new entrants dominated the list. This also reflected the liberalization of European telecoms in 1998 and the launch of many smaller start-up businesses. Since Orange (for the second time) was IPOd in 2001, the number of telecomsrelated IPOs have been small, limited primarily to eircom (also for the second time) and Belgacom, both of which were IPOd in 2004, and Iliad and Telenet, which are both focused on the growth in broadband.

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Figure 61: IPOs per annum New entrant IPOs 16 14 12 Privatisation of incumbents

10

Privatisations/ broadband

8 6 4 2 0 1994

1995

1996

1997

1998

1999

2000

2001

2003

2004

2005

Source: Deutsche Bank estimates and Bloomberg

European mobile licenses There was a proliferation of 2G operator launches in the 1990s with the auction/beauty contest of many third and fourth licenses; especially in 1992 to 1995 when the first generation analogue operators converted into digital, and GSM 1800 spectrum became available. Figure 62: An explosion in European mobile operators (service launched per annum)

14 12 10 8 6 4 2

2007E

2006E

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

0

Source: Deutsche Bank estimates, Company data and GSM Worlds Associations

The start of the M&A frenzy „ Worldcom bid for MCI – the M&A catalyst: In June 1994, BT and MCI launched Concert Communications Services which was a $1bn joint venture between the two companies. Its aim was to build a network which would provide easy global connectivity to multinational corporations. This alliance progressed further on 3 November 1996 when the two companies announced that they had entered into a full merger agreement to create a global telecommunications company to be called Concert plc, which would be incorporated in the UK with headquarters in both London and Washington DC. This Page 36

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would have given BT an entry into the US market and MCI a global reach. The merger proposition gained approval from the European Commission, the US Department of Justice and the US Federal Communications Commission and looked set to proceed. However, on 1 October 1997 Worldcom made a rival bid for MCI which was followed by a counter bid from GTE. MCI accepted the Worldcom bid and BT pulled out of its deal with a generous severance fee of $465m. BT made even more money when it sold its stake in MCI to Worldcom in 1998 for £4,159m on which it made an exceptional pre-tax profit of £1,133m. It also avoided being mired in the later Worldcom scandal. BT also bought from MCI its 24.9% interest in Concert Communications making Concert a wholly-owned part of BT. „

Vodafone’s moves to increase footprint. In January 1999, AirTouch agreed to be acquired by Vodafone, in a cash-stock transaction valued at $62bn (to be rebranded as Vodafone AirTouch) and after AirTouch had received a bid from Bell Atlantic. Then in September 1999, Bell Atlantic and Vodafone Airtouch agreed to merge their U.S. wireless operations (Bell Atlantic Mobile, AirTouch Cellular, PrimeCo Communications, and AirTouch Paging) to form Verizon Wireless.

„

In April 2000 after a long battle, Vodafone bought German conglomerate Mannesmann AG to get control over the mobile network operator Mannesmann Mobilfunk GmbH & Co KG, operating the "D2" network in Germany and control of Omnitel, the number 2 in Italy. The deal is one of the largest in European history and is Germany's first hostile takeover by a foreign firm and valued Mannesmann’s equity at Euro181.4bn. The conglomerate was subsequently broken up and all manufacturing-related operations sold off.

„

Deutsche Telekom and Telecom Italia – a deal that got away: In 1999 Deutsche Telekom and Telecom Italia tried to merge. The proposed transaction broke-up Deutsche Telekom’s partnership with France Télécom , where there were cross shareholdings, but was trumped in a wave of nationalistic frenzy by a bid by the Italian conglomerate, Olivetti.

„

Telefónica and KPN – squashed by political meddling: In early 2000 Telefónica and KPN were discussing a merger, which would have, with hindsight, saved billions of Euros in the UMTS license auction process of 2000 and 2001, but was squashed by political interference.

The globalisation trend NTT DoCoMo invested heavily outside Japan, but was consistently unsuccessful. DoCoMo had significant sums invested in KPN, Hutchison Telecom (including 3 UK, Hutch in India), KTF and AT&T Wireless, and unfortunately had to write-off or sell-off all of these investments.

„

Deutsche Bank AG/London

„

Concert with MCI, AT&T and then implosion: As mentioned above, in June 1994, BT and MCI launched Concert Communications Services. Its aim was to build a network which would provide easy global connectivity to multinational corporations. With the purchase of MCI by Worldcom, BT switched to AT&T as its global partner, but in late 2000 the two Boards eventually fell-out due to both BT and AT&T’s excess debt levels and management changes. Concert was split into two: North America and Eastern Asia went to AT&T, the rest of the world to BT. BT's remaining Concert assets were merged into Global Solutions group and Concert disappeared.

„

Global One and implosion: Global One was an international voice and data telecommunications carrier, formed in 1996 as a joint venture between France Télécom, Deutsche Telekom and Sprint Corporation (each owned 1/3rd) and France Télécom and Deutsche Telekom both owned 10% in Sprint. DT invested Euro367m and both DT and France Télécom invested $1.8bn in Sprint at the same time. Although Global One built an extensive international network, it was never a financial success. In 2000, France Télécom bought out the other partners, and in 2001 it was taken over by Equant, who themselves have since been bought by France Télécom. Page 37

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„

Unisource and implosion: Unisource was set up in 1992 by KPN and Telia. Swisscom joined in 1993 with an initial investment of CHF100m and Telefónica followed. In 1998 the owners decide to sell off and dismantle the Unisource business during 1999, except a division called AUCS, which was sold to Infonet (since bought by BT).

The satellite bubble: Telephony access where there is no demand „ Globalstar: Globalstar is a low Earth orbit satellite constellation for telephone and lowspeed data communications. The Globalstar project was launched in 1991 as a joint venture of Loral Corp. and Qualcomm. On 24 March 1994, the two sponsors announced formation of Globalstar with financial participation from eight other companies, including Alcatel, AirTouch, Deutsche Aerospace, Hyundai and Vodafone. At that time, the company predicted the system would launch in 1998. In February 1995, Globalstar Telecommunications Ltd. raised $200m from its initial public offering on NASDAQ. The IPO price of $20 per share was equivalent to $5 per share after two stock splits. The stock price peaked at (post split) $50 per share in January 2000. The stock price eventually fell below $1 per share, and the stock was delisted by NASDAQ in June 2001. After a total debt and equity investment of $4.3bn, on 15 February 2002 Globalstar Telecommunications filed for Chapter 11 bankruptcy, listing assets of $570m and liabilities of $3.3bn. „

Iridium: The Iridium satellite constellation is a system of 66 active communication satellites and spares around the Earth. The system was originally designed to have 77 active satellites, and was named from the element iridium, which has atomic number 77. Iridium communications service was launched on 1 November 1998 and went into Chapter 11 bankruptcy on 13 August 1999.

„

ICO: Founded in January 1995, ICO Global Communications, planned to build an MSS constellation in medium earth orbit (in two 45°-inclined orthogonal planes). ICO filed for Chapter 11 bankruptcy protection in August 1999, but emerged (as New ICO) in May 2000.

Again focusing on the BCG matrix as shown in Figure 63 the outlook for the Telecoms sector had changed dramatically by the end of 1990s. European mobile was now a huge growth sector and “data” was the new buzz word. Broadband, as we know it today, was in its infancy and the valuation (equity market) bubble created the M&A cycle that was to continue in the coming years. Operators were increasingly breaking down their business models by technology in order to highlight multiple growth drivers and the BCG matrix was ever more crowded.

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Figure 63: European telecoms in context: Application of BCG matrix – 2000

STAR

Emerging market mobile

High

US mobile

?

European/US broadband European mobile CASH COW

DOG

Low

European traditional wireline US traditional wireline

High

Low Relative position (market share)

Source: Deutsche Bank

The 21st century The past decade has been dynamic for the sector. Starting at the tip of the technology bubble, expectations have changed 180 degrees and pessimism now prevails. However the change has come at huge costs: firstly there was the European UMTS license bubble, then a smaller portal (“hype” bubble) and then the super expensive M&A, which has only recently abated. Footprint and geographic breadth became buzz-words, and finally technology differentials are evaporating leading to simpler business models. The UMTS bubble The beginning of the decade was marked by the UMTS license frenzy, especially in the UK and Germany. Overall a total of Euro105.0bn was invested in 3G licenses in Europe, with the leading pan-European operators spending between Euro15.1bn and Euro21.1bn and leading many (KPN, BT, TeliaSonera, France Télécom) to the edge of financial disprove, which necessitated recapitalisation. In Figure 268, Figure 269 and Figure 270 which start on page 149 we provide a full breakdown of all European UMTS licenses.

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Figure 64: Leading UMTS license spends (Euro m)

Figure 65: Breakdown of UMTS spend (Euro m) Other, 8,292, 8%

25,000 20,000 15,000 10,000

UK, 34,027,

Germany,

32%

50,490, 48%

5,000 0 France Telecom

Deutsche

Telefonica

Vodafone

Telekom

Italy, 12,141, 12%

Source: Deutsche Bank estimates and company data

Source: Deutsche Bank estimates and company data

Unfortunately, the license auction and the technology development were separated from reality such that there was a four year delay (2001 to 204/05) between most operators receiving a UMTS license and launching services. This was due to a combination of handset quality, prices, volumes and the ability for the technology to not only deliver a call but to also hand over calls from one call to another. As shown in Figure 66, the launch focus only kicked off in 2004. Figure 66: European UMTS launch profile (y-axis – operator launches per year)

35 30 25 20 15 10 5

2007E

2006E

2005

2004

2003

2002

2001

2000

0

Source: Deutsche Bank estimates, Company data and GSM Worlds Associations

The portal bubble Running hand-in-hand with the UMTS bubble was the “mobile portal” bubble. Operators jumped onto the internet bandwagon and launched online portals such as T-Motion and Vizzavi. These portals were expected to drive an explosion in critical data revenues, but were years ahead of themselves and too technology specific. Indeed Google has taken over the space originally targeted by these mobile portals.

Page 40

„

T-Motion – a joint venture between T-Mobile and T-Online but eventually consumed within T-Mobile.

„

Vizzavi – a wireless portal joint venture between Vivendi and Vodafone aimed at provision of mobile content and information services. It was established as part of the Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

overall Mannesmann acquisition by Vodafone (as a way of Vodafone gaining Vivendi’s support for the Mannesmann bid). In 2002 Vodafone acquired all of Vizzavi for £142.7m, apart from Vizzavi France which was absorbed by SFR. The super expensive M&A „ France Télécom and Orange: In 2001 France Télécom acquired Orange plc (which had been acquired by Mannesmann AG, itself purchased by Vodafone shortly after. This lead Vodafone to divest Orange as there was a conflict of interests in the UK) in a deal with an equity value of Euro40.3bn (Euro43.2bn enterprise value) and then merged it with existing mobile operations (France Telecom’s key asset was Itineris in France). „

Deutsche Telekom and VoiceStream: VoiceStream Wireless was spun off from Western Wireless in 1999 and promptly acquired regional GSM carriers Aerial Communications in the Midwest and Omnipoint in the Northeast. In May 2001, VoiceStream, along with Southern regional carrier Powertel, was acquired by Deutsche Telekom. At the time of the announcement (31 July 2000) the equity consideration was valued at $50.5bn (Euro54.9bn), with debt of $5.0bn. In September 2002, the asset was re-branded T-Mobile USA and has been a success story in the intervening years.

„

Telefónica and O2: On 26 January 2006 Telefónica completed its £17.7bn (Euro25.7bn) acquisition of the O2. This acquisition has given Telefónica additional footprint in the UK, Republic of Ireland and Germany and marked a return to Germany for the group. Telefónica previously owned a green-field UMTS license but pulled out of its 3G venture (Quam) in 2002. The acquisition of O2 has re-energised the debate in Europe over the value of inter-country consolidation.

Wireless footprint expansion After a few years of respite, operators are slowly returning to the theme of footprint breadth, with France Télécom and Telefónica at the fore of these moves over the past year. As result, the European market is starting to condense into four groupings and there is likely to be interest if assets become available in Italy and France in the future. These groupings are Deutsche Telekom, France Telecom, Telefónica and Vodafone. In the footprint maps below, we have highlighted all controlled assets in deep grey and associate assets in light grey, for the leading operators.

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Figure 67: KPN

Figure 68: OTE

Source: Deutsche Bank

Source: Deutsche Bank

Figure 69: Telefónica (including O2)

Figure 70: Telekom Austria

Source: Deutsche Bank

Source: Deutsche Bank

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Figure 71: Telenor

Figure 72: TeliaSonera

Source: Deutsche Bank

Source: Deutsche Bank

Figure 73: T-Mobile (Deutsche Telekom)

Figure 74: Vodafone

Source: Deutsche Bank

Source: Deutsche Bank

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Starting to see DSL footprint expansion There is also an increasing move to expand internationally into the DSL space, but most operators have focused on offering bundled services and therefore offer DSL services where there are existing mobile assets. „

France Télécom has launched an integrated mobile/DSL strategy in 2006 in France, Spain, Belgium, Poland and the UK;

„

Telefónica O2 has a bundled strategy in Germany, the Czech Republic and the UK;

„

Deutsche Telekom appears to be focused predominantly on wireless in their geography, but interestingly do have broadband assets in France and Spain.

„

Telecom Italia is also active in the French and German broadband markets (having bought AOL Germany in 2006), despite not owning any other wireline infrastructure outside Italy.

Focus on technology differentials evaporating At the start of the century each operator differentiated its business model by technology, as operators attempted to benefit from the technology bubble, where premium valuations were placed on anything with “.com” or “data” in its description. Telefónica has regularly been one of the most progressive operators in terms of reporting and business segmentation. As an example, in Figure 75 we depict how Telefónica’s disclosure has changed over the years and how the emphasis on different business areas has changed. We have based our analysis on the company’s investor presentations at Rio de Janeiro in 2001 and at Valencia in 2006. We also show how the company is evolving following recent changes in management structure following the merger of Telefónica with Telefónica Móviles in mid-2006.

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Figure 75: Telefónica’s evolving management structure and business model

Rio 2001

Valencia 2006

From 27 July 2006

Telefónica de España

Telefónica de España

Telefónica de España

Telefónica Latinamericana

Telefónica Latinamericana

Telefónica Latinamericana

Telefónica Moviles

Telefónica Moviles

Telefónica Data Terra Lycos

Emergia

O2

O2

Cesky Telecom

Atento

Atento

Atento

Telefónica Media Endemol

Divested or to be sold

TPI Source: Company data

Separation of wholesale and retail businesses There has been a constant debate over much of the decade as to whether an incumbent wireline business should be split (physically, economically and legally) into a wholesale business and a separate retail business, which competes with other telecoms providers for customers. Although complete separation of ownership has yet not occurred across the sector following the UK’s Telecommunications Strategic Review (TSR), in September 2005 BT signed legally-binding undertakings with Ofcom to create Openreach, which is responsible for managing the UK access network on behalf of the telecommunications industry. Theoretically, Openreach manages the UK's telecommunications infrastructure, treating the rest of BT on an equal basis as other operators, and is currently essential to the unbundling process in the UK. Returning to the BCG matrix Convergence is likely to become the most commonly used word in the telecoms space. Not only is there a convergence of technologies and services, but also of regulation. However, this convergence is lowering barriers to entry and consequently reducing returns. As we picture the BCG matrix in 2006 in Figure 76, the scarcity of business in the “?” box, highlights the uncertainty in the growth prospects of the industry in the future.

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Figure 76: European telecoms in context: application of BCG matrix – 2006 STAR

?

High

European/US broadband

US mobile CASH COW

DOG

European mobile European traditional wireline

Low

Business growth rate

Emerging market mobile

US traditional wireline

High

Low Relative position (market share)

Source: Deutsche Bank

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The telecoms environment Telecoms value chain In this section we investigate the structure by which telecoms operators deliver services to their customers. It lists the key players in the chain; and each of them participate in the telecoms industry. Figure 77 summarises the players and in Figure 87 we have adapted Michael Porter’s five forces model to the telecoms space. Figure 77: Telecoms Services Value Chain Implementers

Equipment Providers „

Network Component Providers

„

Software and hardware integrators

„

End-User & Distribution Equipment Providers

„

Also provide consulting, network maintenance support, optimisation and upgrade services

„

Test Equipment Providers

Application Providers

„

„

Basic application platform providers User application providers

Content Providers

„

Provide content to be viewed or used while communicating using various applications

They include: Content creators

„ „

„

Content aggregators Content distributors

Network Operators

„

„

Owners of the basic network on which the voice or data traffic is carried May provide services to end consumers themselves

Service Providers

„

Use their own or another network operator’s network to provide services to customers in a particular region

Source: Deutsche Bank

Players in the telecoms value chain Equipment providers (e.g. Alcatel; LG; Nokia; Palm; Sony Ericsson) Equipment can be divided into network equipment, such as cabling and routers, which constitute telecoms networks; and user equipment, such as modems and phones, which enable users to use the network. Equipment providers are thus categorised as network component providers (Alcatel, Ericsson, Siemens, Qualcomm), or end-user equipment providers (Nokia, Samsung, Sharp, LG, Sony Ericsson, Motorola). End-user equipment is sometimes sold directly to the users by the manufacturers or their agents, as is normal for PCs; but it is also often supplied by telecoms operators, generally with a subsidy of up to 100%, especially for mobile handsets. Operators may sometimes self-brand the equipment. The most significant end-user equipment relationships are probably in mobile, where users are often subsidised hundreds of Euros on new handsets, and many replace these every year. Having sought-after handsets is a useful differentiator, especially if operators can get access to these shortly ahead of their competitors; and newer handsets will be more suited to accessing the latest services, such as video and 3G data services.

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Figure 78: Wireless handset volumes (m of handsets)

Figure 79: Leading handset vendors market share trends 40%

1,200

35%

Emerging market growth

1,000

30%

800

25% 20%

600 400

15%

European growth

10% 5%

200 0% 1997

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006E 2007E

Source: Deutsche Bank estimates sand company data

Nokia

1998

1999

2000

2001

Motorola

2002

2003

Samsung

2004

2005

LG

2006E 2007E Sony-Ericsson

Source Deutsche Bank estimates sand company data

In Figure 78 we show the enormous growth in handset volumes in recent years, as component costs and manufacturing enhancements have led to the development of low-end handsets that have enabled the economic explanation of emerging markets (LatAm, India, Africa and China). In Figure 79 we show the market shares of the leading handset manufacturers, and it is worth noting the growth of LG and the recent improvement at Motorola (due to the Rzar). We also highlight in Figure 80 the continued dominance of GSM technology, especially as leading US operators have migrated from TDMA. Going forward, we expect WCDMA to become increasingly significant as the pricing of 3G handsets decline. Figure 80: 2006E handset volumes by technology CDMA 17%

WCDMA 11% US Dig ESMR 1% PDC 0% GSM 71%

Source: Deutsche Bank estimates

As with much general manufacturing, Chinese presence in telecoms equipment is large and growing. Basic hardware can become commoditised, likely to the benefit of those buying it, although this may expose large firms to greater competition by driving down start-up costs. In the wireless infrastructure market, there has been a recovery in growth due to the combination of expanding emerging 2G markets (Asia, Africa, LatAm) and 3G investments in Europe and Japan. This is detailed in Figure 83. The peak in 2001 was due to the explosion in

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both penetration and networks in European mobile and the early rollout of 3G in Japan and networks in China. Figure 81: Global wireless infrastructure market (US$ m)

Figure 82: 2005E market share of wireless infrastructure market Siemens

70,000

12%

60,000 50,000 40,000

NEC

Ericsson

7%

30%

Motorola 10%

30,000 20,000

Nortel

10,000

9% Nokia

2009E

2008E

2007E

2005

2006E

2004

2003

2002

2001

2000

1999

1998

1997

1996

0 Lucent

13% Alcatel

10%

9% Source: Deutsche Bank estimates and company data

Source: Deutsche Bank estimates and company data

Figure 82 shows two of the most important characteristics of the global wireless market. Firstly, the leading priorities of Ericsson (similar to Nokia in the handset market), but secondly, and importantly, the fragmented nature of the rest of the market, where the number two and three mobile handsets suppliers aggregate to just under 40% market share. This reflects the fact that brand, design and scale are more important drivers in the handset space than infrastructure market. Figure 83: Growth in each region of global wireless infrastructure market (US$ m) 25,000

20,000

15,000

10,000

5,000

0 1996

1997

Europe

1998

1999

Asia Pacific

2000

2001

2002

North America

2003

2004

2005

South America

2006E

2007E

2008E

2009E

Middle East & Africa

Source: Deutsche Bank estimates and company data

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In the wireline sub-sector, Huawei (which has only been a noticeable player for three or four years) has introduced a new level of competition compounding the fact that significant overcapacity remains. In Figure 84 and Figure 85 we show the DSL market share by device and revenue, highlighting Alcatel’s continued outperformance and the price discounts offered by Huawei (16% market share of parts but only 13% share of the revenue). Figure 84: Global DSL aggregation (ports) market share 2005 Huawei 16%

Alcatel 26%

Others 39%

Figure 85: Global DSL Aggregation (revenue) market share 2005 Alcatel 37%

Huawei 13%

Siemens 7%

Siemens 5%

Ericsson & Marconi 6%

Others 36%

Lucent 6%

Source: Infonetics

Ericsson & Marconi 5% Tellabs 4%

Source: Infonetics

The other major element to remember in the infrastructure market is the significant annual deflation in equipment pricing, which according to Telenor has deflated by around 20% per annum between 2002 and 2006. This has been due to a contraction of the number of buyers, with the importance of the alternative carrier sector, a focus between 2001 and 2005 in Europe on debt reduction and advancements in software/compression techniques which have added life and bandwidth to traditional infrastructure. The key in the future will be the development of a next-generation network (IP). Figure 86: Telenor’s view of telecoms equipment prices 100

80

60

40

20

0 2002

2003

2004

2005

2006E

Source: Company data

Implementers (e.g. Cisco; Lucent; Nortel) Implementers (aka ‘network integrators’ or ‘turnkey solution providers’) build networks for the network operators, using hardware components provided by the equipment manufacturers, as well as software from application providers. Most implementers offer additional services relating to planning, managing, and upgrading networks.

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Figure 87: Possible application of Michael Porter’s five forces into the telecoms space

Supplier power - Stabilising Increased handset competition; Chinese entry into infrastructure (fixed versus mobile); High switching costs – the risk of reverse actions

Threat of Substitutes = High

Barriers to Entry - High Spectrum allocation limited in mobile; Returns on wireline and wireless wholesale declining; Access to equity capital harder; Government/regulatory policy key

Competition Market specific Significant exit costs Capacity = bête noire

Fixed versus mobile; IP versus switched; Media versus telecoms; Low switching costs; High churn – reduction is key

Buyer Power = Varied Scale is key; Price elasticity in most markets; Regulatory drive; Homogenous products; Low buyer concentration

Source: Deutsche Bank

Application providers (e.g. Apple; Microsoft; Sun) Telecoms services require huge amounts of software, which is divided into two main categories: basic platforms and user applications. The application providers supply software to everyone else in the value chain. Basic platforms are underlying sets of instructions, on top of which other software may be built. These include technologies such as Java. User applications perform actual computing tasks, from the level of operating systems, like Windows, to e-mail applications. Companies need not operate their user applications, which can be outsourced to Application Service Providers (ASPs). Content providers (e.g. Disney; Google; Reuters; Yahoo) Apart from simply providing networks, telecoms can get involved in how people use them. Service providers control the user experience to varying degrees: e.g. a company might provide both handsets and front-ends to mobile customers, but just a connection to an internet customer. Increasingly, telecoms operators are looking to differentiate offerings with superior user experiences. This is often done by providing rich content, which may or may not be chargeable. Content providers produce a massive variety of products, with various pricing structures, starting at free. Offerings are more and more popular with many customers, and may draw users to telecoms services (e.g. 3G) but to date most has been information-based content and the explanation of entertainment-based content in its earliest stages by telecoms Deutsche Bank AG/London

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operators. Exclusive content can give service providers an advantage against competitors, but for exclusivity, content must have value (i.e. football rights). Content providers are broadly divided into content creators (e.g. Disney, EMI); content aggregators (e.g. B Sky B, ITV); and content distributors (e.g. MSN, Google). In Figure 88 we highlight the mobile TV value chain, where the content providers are even more important. With the increasing expectation of convergence going forward, content providers are likely to play an ever more important role, as distribution sites are dismantled and more and more access technologies fight over the ownership of the consumer “pipe”. Figure 88: The DMTV value chain

MobiTV Sky Yahoo Google Canal + NTL

Content Providers

Content Aggregation

Alcatel Nokia Ericsson IPWireless R&S DiBcom T.I Qualcomm etc

Testing kit Chipsets IP Encapsulators Muxes Software

Arqiva Modeo MediaFlo TowerCast YLE

Equipment in Network

Broadcast Network

Mobile Network Universal Fox Disney Premier League Endemol etc.

DVB-H/TDMB/FLO

Consumer Terminal

3G/2G

Cingular SKT O2 Orange etc.

Source: Deutsche Bank

Network operators (e.g. BT; Deutsche Telekom; France Télécom ) Network operators own and run the networks which carry voice and data traffic. Those who have evolved from former government monopolies are termed incumbents. In reality, much of operators’ traffic travels beyond their home network, so all service providers must pay for others’ capacity. Most important network operators are also service providers, but network ownership is a matter of degree, so that one may own a network of mobile base stations, for example, but rely on someone else’s network to link them together, and network operators rent out capacity to other operators, to varying degrees. All will charge interconnection and termination fees, but some may also provide origination to service providers with no network. In Figure 89 we show the relationship between network (wholesale) and service providers (retail) in the UK wireline market and we have also attempted to depict the influences (and forces) on incumbent operators (former monopolists) in Figure 90. Increasingly, regulators are seeking to separate networks and service providers, in order to split some of the legacy market dominant positions of incumbents. This model has been employed in the UK in the utility and raid sectors, and BT is the most advanced in this regard with open reach, and its network access business. However, as yet no telecoms operator has physically separated its network for its service provider (retail business).

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Other

Energis

Cable & Wireless

Colt

UK Cable

CPS: Tele2, Carphone Warehouse

Wholesale DSL – Tiscali, AOL

BT Retail

WHOLESALE

RETAIL

Figure 89: Network and service providers in the wireline market

BT Wholesale

MARKET SIZE Source: Deutsche Bank estimates

Clearly, this part of the value chain was changing regularly and we doubt the structure depicted in Figure 89 will be evident in five years. Indeed, it could be argued that the wholesale DSL business shown above in Figure 89 has already started to morph into the infrastructure space.

Deutsche Bank AG/London

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Figure 90: Influences on an incumbent operator

Access to Capital Defines targeted Returns; Drives scale of capital intensity

Equipment Vendors Infrastructure, software and handsets Power, pricing and competition

Regulation Incumbents

Retail market power; Wholesale pricing (ROCE, LRIC); Open network access; Political influence

Threat of Technology Inter-modal Competition; Substitution; Redundancy of infrastructure Source: Deutsche Bank

Service providers (e.g. Vodafone; Tesco Mobile; KPN) Service providers provide the telecoms services to their customers. They will usually (e.g. Vodafone), but not always (e.g. Virgin Mobile) own networks, and therefore some of the capacity they sell. Generally, service providers buy inputs from the rest of the value chain, and may be integrated with these suppliers. Service providers tend to be the main recipients of revenue from users, although not exclusively; e.g. content providers often bill customers themselves. In Figure 91 we show the relationship between mobile service providers and network owners. It should also be highlighted that H3G has outsourced its network management to Ericsson and so even here, the clarity of the picture is starting to get fuzzy. In other European markets there are a far greater number of MVNO’s, such as in Germany, where there were over 35 launched by 30 June 2006.

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H3G

Orange

Virgin

MVNO’S – Fresh, easyMobile MNVO’S T-Mobile

MVNO’S - Tesco MVNO’s –Tesco O2

BT MOBILE Vodafone

WHOLESALE

RETAIL

Figure 91: Network and service providers in the wireless market

MARKET SIZE Source: Deutsche Bank estimates

Retailers (e.g. Dixons, Carphone Warehouse) Telecoms operators use advertising to bring customers to them via phone or internet, but in mobile, for example, many customers come through third-party retailers, such as Carphone Warehouse. Retailers run both websites and physical shops, and take commission on selling products to customers. Increasingly, operators may run their own retailers, e.g. France Télécom, which owns over 700 shops in France and Cosmote, bought the number one Balkan retailer (Germanos). Additionally, some of these relationships are starting to break, as seen by Vodafone UK withdrawing its contract products from Carphone Warehouse in October 2006 and going exclusively with Phones 4 U Figure 92 summarises all players’ relationships to each other.

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Figure 92: Telecoms services relationship chart

Application Providers Set of rules or protocols for communication of devices Routers, switches, cables, towers and other network hardware and test equipment

Apps for platforms for content development such as web page development using HTML etc.

Content providers could have two business models: 1. Selling the content by having tie-up with the service providers

Network Operators

Implementers

Content Providers

2. By selling content directly to the customer. Service providers could also offer exclusive content

Service applications for various services

Equipment Providers

Equipments used in services distribution

Service Providers

Service providers could sell their offerings through a distributor or directly to customers

Service Distributor

End User

Mobile phones, PDA, wired telephone sets, DSL Transceivers, Dial up modems or Cable modems depending in the technology used Network implementers, supplied by equipment providers, build networks for network operators; and these networks are then used by service providers to deliver services and product from content providers, to users. Any link in the chain may be integrated or semi-integrated with any others, and generally many service providers are also network operators and content providers to some degree. Source: Deutsche Bank

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Regulation Why is telecoms regulated? Regulation seeks to promote the interests of consumers, and to facilitate the contribution of telecoms to the overall economy by remedying market inefficiencies and promoting competition. There are three main reasons why regulation is such an important part of the telecoms industry: market power, the importance of telecoms services, and the need for commonality. Regulators objectives are: „

To encourage competition;

„

To emulate competition in segments where it is impossible;

„

To promote consumer interests;

„

To promote the contribution of telecoms to wider economic and maybe political goals.

Operators often have significant market power (SMP), in an industry where scale matters, and so, other third party interests can require protection. Regulators have been largely concerned with controlling incumbents, but as competition progresses, they regulate new players. Telecoms are obliged to provide their customers with connectivity that may be off their networks. This means it is not possible to have closed networks and scale adds power when negotiating interconnect (access to other networks). Regulation is therefore the key to ensuring scale advantages are not abused. Telecoms are heavily regulated not just because of the size of the industry, but also because of the importance of telecoms services in the wider economy. Access can be deemed almost a right in European countries, and incumbent licenses are often issued with Universal Service Obligations (USOs), which require certain service provision; e.g. equal availability for access, and free calls to emergency services. Telecoms are also subject to regulation to help law enforcement; so certain spectrum may be set aside for emergency services, for example. Operators may also be required to retain customer-usage records, which must be handed over to the police on request. Although with a wave of Human Rights and Data Protection Acts in Europe in recent years, this process is becoming harder. Finally, for networks to connect, common protocols are required. These protocols must be standardised, so for example, every Bluetooth chip can communicate with every other Bluetooth chip. Central bodies set these rules, so that everyone can benefit from standardisation.

Evolution of the European regulatory model Past In the 1990s and until the 2003 EU regulatory framework, the regulatory model in Europe was based on the principle of ex-ante regulation. In particular, the regulatory model was focused on retail regulation (price caps) and liberalization in the later part of the decade introduced the requirement for wholesale wireline offers (and a consequential raft of interconnect tariffs). To highlight the retail regulation on wireline pricing, we summarize the price caps that were applied to operators in 1997/1998 in Figure 93. All were based on CPI (or RPI) – x (an efficiency factor).

Deutsche Bank AG/London

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Figure 93: 1997/1998 retail regulatory models for selected European telecoms Company

Efficiency Factor Details

British Telecom

4.5% Price cap in effect from August 1997 to July 2001 applied to first 80% of residential customers by bill size. Retail prices to business customers and up to 20% of residential customers are no longer subject to price cap. Price cap applies to approximately 18% of BT's total revenues and requires annual price reductions of around £45 million. In addition, the normal residential bill must not increase by more than the rate of inflation. Prior price cap had efficiency factor of 7.5%; applied to all revenues, and required annual price reductions of around £350 million.

Deutsche Telekom

6.0% Price reductions in two reference periods of two years each (1988/1999 and 2000/2001) to be made at start of each reference period. Local and extended local call charges cannot be increased during the first reference period (1988/1999). The first reference period also has separate price caps for both residential and business customers.

France Télécom

6.0% France Télécom proposed to effectively lower tariffs by 9% in 1998 and by 4.5% in 1999 and 2000.

Portugal Telecom

3.0% Annual price reductions are based on forecast inflation. Price increases for installation charges, rental charges and each tariff category for national and international services may not exceed CPI plus 6%

KPN

0.0% Annual price increases limited to rate of inflation. KPN has historically remained well below this price cap due to competitive pressures.

TeleDanmark

3.0% Price-cap scheme in effect until January 1, 1998.

Telefónica

N/A No price cap in 1997, Telefónica had regulatory approval to increase rental charges 14% and local calls 13% prior to January 1, 1999, and to decrease provincial long-distance calls 15%, inter-provincial long-distance calls 35%, and international calls 23% during this time period.

Telecom Italia

N/A No price cap in 1997 but introduced through to 31 July 1999.

Source: Deutsche Bank

In the mobile space there was a soft approach to regulation. Returns were driven by the capex cycle (network build out costs) and license fees, and issues such as mobile termination were scarcely discussed. Indeed, as many networks were only just being built, the financial support from premium fixed-to-mobile revenue was important. Indeed, it was not until the significant (around 30%) cuts in UK mobile termination rates were announced in June 2004 that the issue jumped into investors’ consciousness. Present The European Commission set an EU-wide competition framework in 2003 (due for review in early 2007), which has been implemented nationally by National Regulatory Authorities (NRAs), such as Ofcom (although in some countries the initial markets review process is ongoing and progress varies greatly by country). Most regulation is carried out by the NRAs, but competition authorities may also get involved in certain cases, where the lack of competition is clear, but not evidently remediable by NRAs or where there is a cross-border transaction. The framework defines 18 markets, and requires NRAs to assess whether these are competitive (subject to European Commission approval), and then to identify players with significant market power (SMP) in those which are not fully competitive and then offer remedies. SMP is defined as market “dominance”, following from competition law, so it is not clearcut, but guidelines state that a market share below 25% is unlikely to mean dominance in a market, whilst 40% is normally indicative and 50% can be considered evidence in itself.

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Figure 94: 18 telecoms markets under EU competition framework Retail level

1. Fixed-line access to the public telephone network for residential customers. 2. Fixed-line access to the public telephone network for non-residential customers. 3. Fixed-line local/national calls for residential customers. 4. Fixed-line international calls for residential customers. 5. Fixed-line local/national calls for non-residential customers. 6. Fixed-line international calls for non-residential customers. Markets 1 through 6 are referred to as ‘the provision of connection to and use of the public telephone network at fixed locations' 7. Leased-lines to connect to the internet, up to 2 Mbps.

Wholesale level

8. Fixed-line call origination. 9. Fixed-line call termination. 10. Fixed-line call interconnection. 11. Unbundled local loop. 12. Wholesale broadband internet access. 13. Wholesale leased line termination. 14. Wholesale leased line interconnection. 15. Access and call origination on public mobile telephone networks (MVNOs). 16. Voice call termination on individual mobile networks (MVNOs). 17. International roaming on public mobile networks. 18. Broadcasting transmission to end users.

Source: Official Journal of the European Communities, Deutsche Bank

Future Commissioner Reding (a Luxembourg politician, currently serving as European Commissioner for Information Society and Media) outlined on 29 June 2006 in a speech, a radical proposal for the future of European telecom regulation. Reding believes that EU regulatory policy is working – stimulating competition which in turn is driving levels of investment in the EU telecoms sector higher than those seen in Asia or the US. A key proposal will be a reduction “by at least one third” of the list of 18 markets regulators that must review for significant market power (please refer to Figure 94). Proposals to streamline the market review process central to implementation of the current framework will also be put forward, combined with tighter timescales for regulatory action. The Commission is also looking for greater powers over regulatory remedies proposed by national regulators to smooth out distortions across markets (e.g. on the spread of mobile termination rates). This is likely to disadvantage countries where regulatory intervention has, to date, been relatively benign (i.e. the southern European operators). No room for regulatory holidays – competition drives investment

Structural separation to be put forward as an option for review

Deutsche Bank AG/London

Reding makes it clear in her speech that there is no room for “regulatory holidays”. Germany gets a specific mention, with Reding re-affirming that the current draft telecoms law is unacceptable and that infringement proceedings will be started if it becomes law without substantial changes. Ironically, this could have positive implications on the FCF for the likes of DT and FT if they now step away from significant investment plans to upgrade their access networks. Separating infrastructure provision from service provision, as we have seen in the UK through the creation of Openreach at BT Group, will be put forward as a policy option for discussion. Reding references the US where radical regulatory policy in the 1980s (i.e. the break-up of AT&T) has subsequently led to sustainable infrastructure-based competition between telco and cable operators. She suggests that perhaps similarly radical proposals might be needed in Europe to make “real progress”. Such a move could further level the playing field between incumbents and new entrants. Although the greater superior scale of cable in the US is a significant difference compared with Europe. Page 59

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Spectrum management – an EU-wide, market-based approach is needed

Commissioner Reding argues in her speech that the scarcity of radio spectrum risks is holding back the development of the European economy. To promote more efficient use of spectrum, three specific measures will be proposed: „

spectrum allocation on a technological and service neutral basis;

„

spectrum trading across the EU; and

„

a revised licensing process.

The idea of a European spectrum agency will also be tabled. The intention is to conclude the review by the end of 2006/early 2007 with concrete legislative proposals that will then be submitted to the European Parliament and the Council of Ministers sometime in 2007. Figure 95: Regulation timeline for EU regulatory framework of electronic communication networks and services

Call for input on Directives and Recommendation on relevant markets

Adoption by Commission of proposed legislative measures

Transposition of Directives in Member States

Negotiation in EP and Council

2004

2005

2006

Commission Communication launching public consultation Draft revised Recommendation on relevant markets

2007

2008

2009

Adoption by Commission of revised Recommendation on relevant markets

Source: Bundesnetzagentur

Types of regulation: Retail Retail regulation is most common in monopolistic markets in order to control consumer pricing in the absence of competition. However, it is also the most basic form of regulation and is common in nationalized industries, such as the postal service, television licenses and rail infrastructure, and was standard in the wireline telecoms environment before liberalization. As a reminder in Figure 93, we showed the price caps in the European wireline telecoms space in 1998 (at the time of European liberalisation), but most of these have been recently been removed so that operators have flexibility to increase or decrease their tariffs subject to market forces.

Types of regulation: Wholesale The basic form of competition-based regulation is wholesale. It is a regulated provided route for new entrants to access incumbent’s infrastructure and services based on either retail minus or cost plus pricing model. A basic form of resale competition is for example, call-byPage 60

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call competition in the fixed-line market, where a new entrant price discounts standard retail pricing and builds business models that effectively exploit an arbitrage between retail and interconnection pricing. In effect, wholesale is a means to drive traffic-based competition in the short term (i.e. prices down and market share battles) and allow new entrants to win market share, supporting their infant business models. Then in the longer term, when the wholesale business model has scaled, the regulatory model should act as a catalyst for infrastructure-based competition. In Figure 96 we show how Deutsche Telekom lost its monopoly of wireline-voice traffic in 1998 and simultaneously started to lose its position as the pre-eminent investor in German wireline infrastructure. Although this is only a snapshot, it effectively highlights the dynamics of basic wholesale regulation. Deutsche Telekom lost 15% market share of traffic in two years. Figure 96: German MOU and fibre investment trends around liberalization Growth MOU

1998

1999

200

7

15

35

11

24

196

235

18

39

100%

94%

85%

39%

38%

0%

6%

15%

61%

62%

150,600

157,400

165,000

6,800

7,600

41,000

56,000

72,000

15,000

16,000

191,600

213,400

237,000

21,800

23,600

DT

79%

74%

70%

31%

32%

Others

21%

26%

30%

69%

68%

DT Others Total

1997

1998

1999

178

185

0

11

178

Share DT Others Cable (Km) DT Others Total Share

Source: RegTP

In Figure 97 we depict a possible view of the evolution of wholesale competition in the mobile and fixed-line worlds.

Deutsche Bank AG/London

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Figure 97: The evolution from wholesale to infrastructure competition

Mobile

Fixed

Service provider

Enhanced service provider

Call-by-call

CPS

MVNO

Full ULL Broadband

Reseller/wholesale line rental

Partial unbundling

Wholesale Retail minus pricing Low gross margin Capex light

Infrastructure Cost plus pricing High gross margin Significant capex requirement

Source: Deutsche Bank

Service providers: Early form of competition When the European mobile market was in its infancy in the early 1990s, competition in the mobile market was driven by service providers. Service providers were set up as independent of network operators, and maintained the direct customer relationship, providing basic billing services in return for e-contribution of monthly ARPU. The concept behind service providers was to remove the risk of the monopoly/oligopoly among the network operators (of what there were only one or two in each market) dominating the market dynamics. Service providers often receive a commission from network operators when they sign up a subscriber, but have limited financial exposure to subscribers (other than billing related bad debt). However, as further network operators launched services in the mid-to-late 1990s in most markets, existing network operators were able to acquire the service providers (in the UK Vodafone acquired Talkline and Singlepoint, two of the better-known service providers). Additionally, the value of service providers diminished with the exponential growth in prepaid, which was sold either online, through independent stores or general retailers. Enhanced service providers: German phenomenon In Germany, enhanced service providers still exist (debitel, Mobilcom and Talkline et al), but the key difference with the UK is that they offer services on all the network operators and are not exclusively tied. Service providers still have around 25% market share (at the end of 2005) of the customer relationships, but are likely to consolidate as they are increasingly fragmented and missing the opportunity to benefit from scale leverage.

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Figure 98: Service providers’ and network operators’ market share (2005)

Figure 99: Market share among service providers (2005) debitel 44.0%

Mobile network operator 74.69%

Service provider 25.31%

Ph. House 4.9%

Talkline 16.7%

Drillisch 8.4% Source: Drillisch Telecom, company data

Telco 2.2%

Mobilcom 23.7%

Source: Drillisch Telecom, company data

MVNOs: The frenzy Mobile virtual network operators effectively act and interrelate with costumers as if they were network operators. However, the difference is that they acquire wholesale capacity from networks (at something around retail less 40%) rather than owning and managing infrastructure. A key difference with service providers is that MVNOs take a greater economic risk and are responsible for advertising and customer acquisition costs. The most well know MVNO is Virgin in the UK, which was set up on the T-Mobile network, and has built up such a strong brand proposition that UK consumers rarely distinguish Virgin from the other network operators. MVNOs not only provide retail competition, but are often a more targeted means to increase market segmentation, especially when most network operators’ brands are generic and therefore can not appeal to all segments of the consumer segmentation. MVNOs have also been launched in some markets, targeted at immigrants and different language speakers (such as Turkish brand in Germany).

Call-by-call and CPS When the European telecoms sector was liberalised in most markets in 1998, the immediate competition was call-by-call. In simple terms, this exploited the arbitrage between retail pricing and interconnect costs, especially in the long distance area. Consumers signed up with alternative providers and were required to dial an access code so that the call would be routed over the alternative operators’ network. CPS (carrier pre-select) is effectively a slightly more advanced call-by-call services, but where the consumer pre-agrees that all calls are transmitted via an alternate’s network, the routing is automatic. The downside of call-by-call and CPS competition is that it is nothing more than an arbitrage and is only successful whilst there is a material difference between retail and interconnect pricing. When the variance has narrowed, the ability to compete with calling tariffs disappears. As such, call-by-call and CPS are investment light solutions.

Wholesale line rental and broadband resale Wholesale line rental is the most advanced form of basic telephony competition, and enables the call-by-call and CPS operators to recharge the incumbent’s monthly line rental fee. It gives the alternate operators sole control over the billing relationship (a single bill) and breaks the direct link between the incumbents and the consumer. Deutsche Bank AG/London

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In a broadband world, basic wholesale offerings are simply the resale of the incumbents’ products at a different cost point with the alternative operator covering the marketing and customer acquisition costs. Again it is a low capital way for alternatives to test their brand strength and market proposition before investing in infrastructure (i.e. unbundling equipment).

Unbundling: What is it? European incumbent operators built their local telecommunication infrastructure over several years prior to the liberalization of their domestic market. A majority of these infrastructure developments were carried out during the time they were state-owned monopolies and hence were effectively financed by the respective governments. Although the sector was opened to competition driven by EU regulations in and around 1998, new entrants faced great difficulties in competing with the incumbents with well-established local networks. Difficulties included: „

Financial non-viability in terms of pay back in building telecommunications infrastructure, such as switching facilities and backbone as well as ‘last mile’ networks from scratch;

„

Obtaining rights of way for infrastructure constructions.

These difficulties invariable created an uneven playing field disproportionately unfavourable to the new entrants. Coupled with new developments in the telecommunications industry, such as the advent of IP-based services, it became increasingly important for incumbents to share their infrastructure, especially the ‘last mile’ network, with smaller competitors. The concept of ‘Local Loop Unbundling’ (LLU) emerged as a solution to the above difficulties and to remove the financial bottleneck in networks (the access loops). As such, smaller or new entrant operators have rights to use the local loop of the incumbent and this is achieved by allowing alternative providers to install their own equipment in local exchanges of incumbents. This process connects the local loop to their own alternative networks allowing them to effectively take over the copper wire between the exchange and the customer premises. Local loop unbundling can be classified into three main types.

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„

Full unbundling: This occurs when the copper pairs connecting a subscriber to the main distribution frame are leased to other telecoms operators for exclusive use. The lessee has full control of the local loop and the service rendered to its customers through both broadband and voice services. However, the incumbent owns and maintains the unbundled loop and this is the most widely used form of unbundling.

„

Shared unbundling: The local loop is used by both the incumbent as well as an alternate operator. Usually, the incumbent provides the telephone service while the competitor provides high-speed data transmission services on the same local loop by splitting the frequency spectrum of the copper wire signal. This allows consumers to obtain broadband services from the most competitive provider without installing a second line.

„

Bitstream access: This allows ISPs to compete with a wholesale xDSL product from the incumbent. In essence, the incumbent provides alternative operators a share of the bandwidth of the high-speed data transmission circuits between the subscriber premises and the main distribution frame of the fixed public telephone network. The alternate operators use the bandwidth for the provision of broadband services to customers. It is more of a reseller option.

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Figure 100: Differences between full unbundling, shared unbundling and bitstream access

Source: OECD

Implications on the customer LLU facilitates the development of a competitive telecommunication market by eliminating the one entry barrier for potential new operators – a local network. The competitive environment that is created as a result paves the way for improvements in the quality of services offered and can also lead to price declines making the access technology more affordable. Implementation issues and regulation Unbundling is by no means an easy game to play as good as it may sound. Experiences in the countries that have thus far taken up the concept show that many technical, pricing and logistical issues hinder implementation. It is the task of the national regulator to do the balancing act between the conflicting interests of the incumbent and the alternate operators at the outset as well as on an ongoing basis.

Deutsche Bank AG/London

„

Technical: Development of technical specifications to implement LLU is a complex process that usually drags for a significant amount of time – which potentially could retard implementation. However, technical implementation problems are no more serious in unbundling than in the case of interconnection.

„

Pricing: Another difficult issue is the setting of unbundling charges. The various price points include monthly tariffs, connection fees, and terminations fees which usually vary by the type of unbundling. The national regulator sets out the relevant charges the incumbent will be allowed to ask for from the alternate operators. The charges are determined according to a formula usually based on costs associated with building and maintaining the shared resources. Incumbents have rarely agreed with the regulator on the pricing formula or the costs assessments and ongoing litigation regarding the issue is not uncommon, as isolating the costs of a particular service from a large-scale former monopolistic network is fraught with risk.

„

Collocation: In order to connect to the incumbent’s network, alternate operators need to locate their own equipment at the exchange premises of the former. This has been a contentious issue as incumbents have not always cooperated in terms of providing rack Page 65

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space, connecting slots and other forms of general assistance (especially timing and resource allocated to the process). Some alternate operators have had to fight hard for collocation and, as a result, some regulators have stipulated minimum obligations on the part of the incumbent in their regulations. There is also the fear that in some markets there is a shortage of space to actually fit unbundling equipment and so remote collocation is often mentioned (remote collocation is where the alternative operator bases its equipments within a separate building within 50m of the incumbents exchange). „

Quality of service (QOS): The incumbents play a key role in maintenance of the local loop especially in shared access and bitstream access scenarios where the alternate operators have minimal control over the loop. Service disruptions, extended down-time and QOS declines - all due to lack of maintenance of the local loop - have not been uncommon. Alternate operators have usually been quick to accuse the incumbent of deliberate actions or negligence to undermine their operations while incumbents have attributed such incidents as normal or indiscriminate and regulators have generally sought to formalise the service obligations.

In addition to the national regulators, the EU has issued several pieces of regulation on LLU. „

Regulation no 2887/2000 of the European parliament and of the European Council which as of 2 January 2000 is directly applicable to member states.

„

Recommendation 2000/417/EC of 25 May 2000 on unbundled access to the local loop: enabling the competitive provision of a full range of electronic communications services including broadband multimedia and high-speed internet. Additionally in its Notification of 26 April 2000, the European Commission laid down detailed guidelines for the provision of assistance to regulatory Authorities, so that these may regulate fairly the various forms of Local Loop Unbundling.

„

Law 2867/2000 of 19 December 2000 provides for the obligation of Telecommunications Operators with significant market power to provide Fully Unbundled Access to the Local Loop to a new entrant in this particular field of activity, under the same terms, with the same quality and at the same deadlines as those applicable to the provision of the same facility to enterprises which are already associated to them, without discriminations and at a price that corresponds to the actual cost.

Types of unbundling charges and their declining trend There are several types of fees and charges associated with LLU. „

Installation charges: These are usually one-off charges made at the time of providing a connection. Some operators may refer to these as connection charges when reporting.

„

Access fees: These usually take the form of a monthly rental. Direct charges associated with LLU have been on a steady path of decline. In recent years as regulator have sought to stimulate ULL in order to build alternative competitive networks, prices have been reduced in order to improve the economics for alternative networks.

„

Termination charges: These are charges for terminating a line lease. End customers may be charged when they opt to obtain communication services from an alternate operator or the alternate operator providing such services may be charged instead. There may also be a termination charge levied on alternate operators when they terminate a line lease.

„

Collocation cost: These may include the cost of renting space, site preparation, exchanging site surveys, power usage and security.

In Figure 101, we show the trends in different elements of Deutsche Telekom’s ULL charges.

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Figure 101: Deutsche Telekom’s LLU charges (Euro per month) 120.0

14.0

100.0

12.0 10.0

80.0

8.0 60.0 6.0 40.0

4.0

20.0

2.0 0.0

0.0 1999

2000

2001

2002

2003

Access charge (RHS) Customer shifts to another carrier

2004

2005

Installation charge Competitors stop using (no shift to another carrier)

Source: Company data

Current charges The declining trends in LLU charges, both at the connection fee level and the monthly access rental level, are clear and endemic. Connection fees, as shown in Figure 102 and Figure 103, for both full unbundling and shared access have either remained flat or come down across the 25 European countries studied by the EU except in Greece where there has been a sizeable increase. Denmark has also seen a slight increase. Accordingly, both the EU 25 and EU15 weighted average connection charges for full unbundling have come down by close to 31% to Euro 52 and Euro 46 respectively while the weighted average connection charges for shared access have come down by 26% and 28% to Euro 59 and Euro 51, respectively.

„

Figure 102: Prices per full unbundled loop – Connection (Euro)

Figure 103: Prices per shared access – Connection (Euro)

CZ not to scale: 339

160

180 139

120

140

160

150

140

140

Connection August 2004

Connection October 2005

EU22 avg. connection 2004

EU25 avg. connection 2005

Source: EU

83 69

51 123

118

118

38 69

88

40

37 109

37

50

59

150

196

122

36 50

45

58

78

August 2004

45

30 79

30

47

123

38

BE CZ DK DE EE EL ES FR IE

81

55

65 51

56

61

0

36

129

20

IT CY LV LT LU HU MT NL AT PL PT SI SK FI SE UK

October 2005

EU21 avg. 2004

EU25 avg. 2005

Source: EU

„

Deutsche Bank AG/London

165

168

0

74

84

IT CY LV LT LU HU MT NL AT PL PT SI SK FI SE UK

40

57

51 38

41 0

55

29

0

186

150

95

50

29

33

60

55

54

50

58

64

37

BE CZ DK DE EE EL ES FR IE

37

122

22 22 79

36

57

48

46

20 57

50

57

55

48

43

56

40

59

69

80

60

97

100

100

80

109

120

100

0

CZ not to scale: 346

171

200 163

180

150

200

Monthly rentals, as shown in Figure 102 and Figure 103, have been on a decline except for the marginal increases in Denmark and Italy (shared access only). The EU 25 and EU15 weighted average rentals for full unbundling have come down by 6% and 9% to Euro 10.6 and Euro 10, respectively, while the EU15 weighted average shared access rental has come down by 9% to Euro 2.8 even as the EU25 average has marginally increased to Euro 3.4 due to figures of new EU member states (which joined in May 2004) pushing up the average. Page 67

Telecommunications Telecom for beginners 2007

Source: EU

IT CY LV LT LU HU MT NL AT PL PT SI SK FI SE UK

Monthly rental August 2004

Monthly rental October 2005

EU22 avg. monthly rental 2004

EU25 avg. monthly rental 2005

5.4

3

1.9 3.3

5.4

5.7

3

5.5

1.9

2.9 1.9

4.3

7.5

1.8

6.7

4.2

7.4

2.8

9

5.6

6.3 5.5 4.3

5.5 2.9

3

2.9 2.9

3

5.2

BE CZ DK DE EE EL ES FR IE August 2004

4.7

4.2

4.7 4.1 2.3

1.6

2.4

0

9.3

12.9

11.3

11.3

15.3

12

10.9

9.6

11.7

15.8

12.5

8.4

11.9

8.3

16.8

10.5

11.4

10.4

8.9

11.8

8.6

1

16.6

2

2

11.6

3

4

BE CZ DK DE EE EL ES FR IE

4.5

4

6

0

5.3

5

4.3

11.3

6 9.8

11.2

14.5 9.7

10.9

9.6

11.1

12.9

7

7.8

8.1

8.3

8.4

9.6

11.4 9.5

10.7 8.9

8

11.7

14.7

13.6 9

10

11.6

12

7.1

8 7.4

9

14

14.1

10

16 14.8

18

9.9

Figure 105: Prices per full shared access - Monthly rental (Euro)

7.5

Figure 104: Prices per full unbundled loop – Monthly rental (Euro)

1.7

6 December 2006

IT CY LV LT LU HU MT NL AT PL PT SI SK FI SE UK

October 2005

EU21 avg. 2004

EU25 avg. 2005

Source: EU

Mobile termination, roaming and number portability An important point to highlight in the world of mobile telephony is whether the environment is based on a “calling party pays” tariff structure (where the caller picks up the entire cost of a premium cost call from a phone to a mobile) or “receiving partly pays” (where the callers pays a standard calling rate for the call to a mobile and the receiver pays any incoming premium). Where a calling-party-pays mobile pricing exists (most countries outside the US), mobile interconnection rates (often knows as mobile termination or fixed-to-mobile charges) are regulated. Mobile termination is the cost the mobile operator charges the wireline operator (or any other operator) to complete a call on its network. Historically, the cost of calling a mobile was deemed a premium rate call, in order to provide a sustainable revenue and gross profit contribution for start-up mobile operators. However, as the European telecoms space is maturing, there is increased regulatory pressure to lower mobile interconnection. In Figure 106 we show the spreads of average mobile termination rates across Europe (as detailed in January, which highlights a current average of Euro 0.115 per minute in Western Europe). We would highlight that we have adjusted the tariffs for Greece to reflect the tariff cuts announced in June 2006.

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Figure 106: Average mobile termination rate per country (as at 1 January 2006 but Greece has been adjusted for cuts announced in April) 0.180 0.160 0.140 0.120 0.100 0.080 0.060 0.040 0.020 Switzerland

Luxembourg

Belgium

Portugal

Italy

Greece

Netherlands

Average

Germany

Spain

Denmark

Austria

Ireland

Norway

France

UK

Finland

Sweden

0.000

Source: Company data and ERG

However, the national regulatory bodies are attacking these tariffs and recent moves in Belgium, the Netherlands and Spain as shown in Figure 107 and Figure 108, are targeting a medium-term rate around Euro 0.06 per minute and are debating whether asymmetry (i.e. different rates for different operators in the same country to reflect differing stages in life cycle) remain valid. Figure 107: Recent changes in mobile termination (Euro cents per minute) Belgium - Agreed

Current

01-Nov-06

01-May-07

01-Jan-08

01-Jul-08

Cumulative cut

Proximus

12.66

8.09

7.33

7.48

6.56

-48%

Mobistar

15.98

12.75

10.16

9.38

8.21

-49%

Base

19.60

15.81

12.76

11.82

10.41

-47%

Asymmetry - Mobistar

3.32

4.66

2.83

1.90

1.65

Asymmetry - Base

6.94

7.72

5.43

4.34

3.85

Netherlands - Proposed

Current

01-Jul-06

01-Jul-07

01-Jul-08

Cumulative cut

KPN/Vodafone

11.00

9.70

7.33

5.50

-50%

Orange/T-Mobile

12.40

10.63

8.86

7.09

-43%

1.40

0.93

1.53

1.59

Asymmetry Source: Company data, NRAI

Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 108: Spanish mobile termination glide path (Euro cents per minute) Final revised

Current

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

TEM España

11.97

11.14

10.31

9.48

8.66

7.83

7.00

Vodafone España

12.21

11.35

10.48

9.61

8.74

7.87

7.00

Amena (Orange)

13.15

12.13

11.1

10.08

9.05

8.03

7.00

Originally proposed

Current

Oct-06

Mar-07

Sep-07

Mar-08

Sep-08

Apr-09

TEM España

11.97

11.97

10.07

8.47

7.13

6.00

6.00

Vodafone España

12.21

12.21

10.23

8.56

7.17

6.00

6.00

Amena (Orange)

13.15

13.15

10.81

8.89

7.31

6.00

6.00

TEM España

-6.9%

2.4%

11.9%

21.5%

30.5%

16.7%

Vodafone España

-7.0%

2.4%

12.3%

21.9%

31.2%

16.7%

Amena (Orange)

-7.8%

2.7%

13.4%

23.8%

33.8%

16.7%

Variance

Source: Deutsche Bank estimates and CMT

US: receiving party pays In the US wireless industry there is no need for mobile termination charges as the industry is based on a receiving-party-pays structure. As such all calls to mobiles are charged at the standard operator rate (local, long distance or mobile) and the mobile owner pays a premium for receiving the call. Initially this system was a restriction on mobile usage, as mobile phone users turned their phones off in order to avoid incoming call liabilities. However, on 11 May 1998 AT&T Wireless introduced the first “Digital One Rate” plan, which effectively was a huge bundle of minuets that could be used for either incoming and outgoing calls and effectively capped a mobile user’s total tariff. The plan also eliminated roaming (as networks were regional rather than national in the late 1990s) and long-distance tariffs. This stimulated a dramatic increase in usage and significant price deflation. (AT&T Wireless’ initially offered three tariff bundles: 600 minutes for $89.99; 1,000 minutes for $119.99; and 1,400 minutes for $149.99.) European roaming In 2006, the regulation of roaming was a key target area for Commissioner Reding, especially as national regulatory authorities had indicated that they did not have a mandate to regulate as no operator had market dominance on EU roaming. Originally, the EU proposed the "home pricing" principal for calls made whilst abroad where customers would not pay anymore to make mobile calls whilst roaming compared with what they would pay at home. The final proposals, however, have tagged the wholesale rates to national mobile termination rates. For local calls whilst roaming (i.e. calls to another number in the same country), the wholesale premium should be capped at 2x national mobile termination rates (currently around Euro 0.115 per minute average for Europe) and 3x national mobile termination for international calls. The wholesale rates for incoming calls, a charge the EU expects to eradicate, are still being debated. These roaming rates will obviously fall overtime, reflecting the downward pressure on national termination rates. Since the focus on roaming was kicked off in the EU, many European operators have proactively led a price-cutting agenda, and in 2006 alone, pricing has declined by around 40% to 50% and a variety of different roaming pricing options have developed.

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Number portability Wireless number portability has also been a major driver of churn in markets as it reduces a barrier to the switching provider and implicitly tags a consumer to a number rather than a network. The timetable for number portability has, however, varied considerably in different markets. With the rapid penetration of the mobile phone and the increased dependency consumers have with the technology, the requirement to maintain the same number has inherently become a quasi-personnel identification for individuals. Figure 109: Mobile number portability Singapore

1997

UK

1998

Hong Kong, Netherlands

1999

Spain, Sweden, Switzerland

2000

Australia, Denmark, Italy, Norway

2001

Belgium, Germany

2002

France, Ireland, Austria, Finland, Portugal

2003

USA

2004

Japan

2006

Source: Deutsche Bank, ITU

Figure 110: Churn rates by market 1998

1999

2000

2001

2002

2003

2004

2005*

UK

2.7%

2.5%

2.1%

2.3%

2.5%

2.5%

2.5%

3.1%

Hong Kong

4.0%

5.8%

4.9%

5.6%

4.7%

3.8%

3.6%

3.5%

Netherlands

2.1%

1.9%

1.5%

2.4%

2.1%

1.8%

1.2%

1.6%

Spain

1.8%

2.0%

3.1%

2.5%

1.1%

0.9%

1.4%

1.8%

Italy

1.1%

1.0%

1.2%

1.3%

1.5%

1.1%

1.6%

1.1%

Germany

1.0%

1.4%

1.5%

1.4%

1.5%

1.4%

USA

2.6%

2.8%

2.8%

2.4%

2.4%

2.0%

Source: Deutsche Bank, company reports

Access to spectrum Spectrum is a key instrument in the development of wireless technologies, and the most memorable and highly publicised event has been the auction for UMTS licenses in 2000 and 2001. WIMAX, WIFI and the mobile spectrum are a scare resource and different wavelengths in the electromagnetic spectrum are used for different applications. Spectrum, therefore, has a material value (this is one of the major differences with fixed-line business models, where there are no spectrum restraints) and is an undeniable barrier to providing wireless services. As we discussed earlier, there is also a move to enable spectrum trading, to more actively mirror capacity demand and supply.

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Figure 111: Summary of electromagnetic spectrums Band name

Abbreviation

ITU band

Frequency/Wavelength

Example uses

Extremely low frequency

ELF

1

3–30 Hz, 100,000 km – 10,000 km

Communication with submarines

Super low frequency

SLF

2

30–300 Hz, 10,000 km – 1000 km

Communication with submarines

Ultra low frequency

ULF

3

300–3000 Hz, 1000 km – 100 km

Communication within mines

Very low frequency

VLF

4

3–30 kHz, 100 km – 10 km

Submarine communication, avalanche beacons, wireless heart rate monitors

Low frequency

LF

5

30–300 kHz, 10 km – 1 km

Navigation, time signals, AM longwave broadcasting

Medium frequency

MF

6

300–3000 kHz, 1 km – 100 m

High frequency

HF

7

3–30 MHz, 100 m – 10 m

Shortwave broadcasts and amateur radio

Very high frequency

VHF

8

30–300 MHz, 10 m – 1 m

FM and television broadcasts

Ultra high frequency

UHF

9

300–3000 MHz, 1 m – 100 mm

Television broadcasts, mobile phones, wireless LAN, ground-to-air and air-to-air communications

Super high frequency

SHF

10

3–30 GHz, 100 mm – 10 mm

Microwave devices, wireless LAN, most modern Radars

Extremely high frequency

EHF

11

30–300 GHz, 10 mm – 1 mm

Radio astronomy, high-speed microwave radio relay

< 2 Hz, > 100,000 km

Above 300 GHz, < 1 mm

AM (Medium-wave) broadcasts

Night vision

Source: Deutsche Bank

Licenses (a bag of spectrum) are either awarded for indefinite periods, as are many in the US, or for set periods, such as 15 or 20 years. In Europe most have been set for specified periods so that there are regulatory reviews of spectrum utilization. Setting the licenses for specific periods provides a framework to review the most efficient use of the spectrum and refarming (re-allocating) to different uses, technologies or operators. In Figure 284 on page 162 we highlight Vodafone’s wireless licenses, with its key four European properties at the head of the table and the European, and also much of the license data for the other large European operators (Deutsche Telekom, France Telecom, Telefónica and Telecom Italia.

Regulatory effects The regulators are generally driven by the principles of increasing competition without restricting levels of investment. The liberalization of the telecoms market and the introduction of wholesale regulatory pricing has lead to a dramatic increase in the number of operators (as shown in Figure 112 which looks at the growth in wireline operators) and in the mobile space, MVNO’s have added to the competitive intensity (but not to the level of investment). The former wireline incumbents are no longer dominant provided and in many cases now control less than 50% of traffic and ULL is reducing their control of accesses. As a general comment, wholesale competition possibly limits investment as it just exploits an arbitrage opportunity between retail pricing and its underlying costs. In order to sustain return in the face of wholesale competition, operators have often restricted investment.

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Figure 112: Wider choice of operators

Figure 113: Former monopolies less dominant (market shares)

2,000

1,738

1,800

1,583

1,561

100%

1,484

1,600

80% 1,239

1,400 1,200

60%

945

1,000 800

40% 526

600

20%

400

0%

200 0

1997 1998

1999

2000

2001

2002

2003

1998

1999

2000

2001

2002

2003

2004

2004

Access

EU15 estimated number of fixed public network operators Source: European Commission

Traffic

Source: Deutsche Telekom

The competition has lead to a reduction in pricing for both wireline and mobile, but in the wireline segment it has also led to a change in the mix as access pricing has increased and traffic tariffs have declined. Initially liberalization stimulated an increase in volumes, partly driven by dial-up ISP access, but due to substitution from mobile (and more recently VoIP) and the moves to broadband, minute volumes have also started to decline on wireline. The impact on incumbents has been even more extreme due to the simultaneous loss of market share. Also, the early demand for dial-up ISP access stimulated a demand for incremental access lines. Homes often had more than one line such that there was always a dedicated voice channel for calling and a dedicated ISP access. However, a noticeable differentiation with broadband is that it can simultaneously deliver both broadband and voice connectivity. Figure 114: Falling costs of wireline telephony

Figure 115: Falling retail prices: annual MOU (m) and average revenue per minute (Euro)

30%

200

20%

180

10%

160

0%

140

-10%

120

12.0 10.0 8.0

100

-20%

6.0

80

-30%

4.0

60

-40%

40

-50%

2.0

20

-60%

-

1998

1999

Average

2000

Line rental

2001

2002

0.0 1995

1996

1997

1999

2000

2001

2002

2003

2004

2005

National call (10 mins) MOU (Bn)

Source: European Commission

1998

Revenue yield (Euro cents per minute)

Source: Deutsche Telekom

Liberalization and competition has also stimulated a dramatic increase in mobile and broadband penetration as prices have reduced to levels where the product has mass market affordability. This has led to a significant increase in mobile usage as show in Figure 117. Indeed in the broadband arena, the pace of growth has picked up in 2006 as shown in Figure 119.

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Figure 116: Mobile growth extraordinary: total customers (m) and penetration

Figure 117: US mobile usage growth (millions of minutes per annum) 120.0%

450

2,500,000

400 100.0% 350

2,000,000 80.0%

300 250

60.0%

1,500,000

200 40.0%

150

1,000,000

100 20.0%

500,000

50 0.0%

-

2005

EU15 penetration (weighted)

Source: European Commission

Source: OECD

Figure 118: Penetration (of population) of broadband (pp)

Figure 119: Broadband growth accelerating: net additions (m)

18

2006E

2004

2005

EU15 customers (million)

2003

2004

2002

2003

2001

2002

2000

2001

1999

1999

1998

2000

-

14

16

12

14 10

12 10

8

8 6

6 4

4

2 2

Source: OECD

3Q 2005

1Q 2005

OECD

0

3Q 2004

2005

1Q 2004

EU15

2004

3Q 2003

2003

1Q 2003

USA

2002

3Q 2002

2001

1Q 2002

0

Source: OECD

Country differentials Although the EU has set the framework for regulation, each NRA has adopted a separate interpretation of the model. We have attempted to encapsulate this in Figure 120, where we picture the “regulatory axis”. On the X-axis we highlight the scale of the regulators’ bias towards the incumbent fixed-line operator or the new entrants, and on the Y-axis the scale of protection versus the focus on rate of return regulation on the incumbent. In reality these axes coexist, such that there are only two realistic outcomes: incumbent biased with political protection, or net entrant biased with rate of return regulation. We have also attempted to depict how we perceive the interpretation of the Austrian, French and German regulators has changed in recent months.

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Telecommunications Telecom for beginners 2007

Figure 120: Axes of regulatory influence

Political protection

Iberia and Greece

France

Italy Germany Switzerland

Austria

Incumbents

New entrants

UK/Netherlands

Nordics

EU objective

Scale regulated returns Source: Deutsche Bank estimates

The effects of these regulatory differences are highlighted in Figure 121 and Figure 122, which compare the average costs of a fixed-line and a mobile telecoms basket in each market.

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 121: Average annual costs of an OECD national residential basket (at June 2006) (US$/PPP inc VAT) 900

Figure 122: Average annual costs of an OECD medium user post-paid basket (at June 2006) (Euro/PPP inc VAT) 700

800

600

700 500 600 400 500 400

300

300

200

200 100 100

Page 76

Access

Usage

Voice usage

Czech Republic

Italy

Germany

Spain

Slovakia

Portugal

UK

Hungary

Greece

Belgium

France

EU Average

Ireland

Poland

Austria

Netherlands

Luxembourg

Finland

Sweden

Poland

Czech Rep

Hungary

Slovakia

Portugal

Spain

Greece

Italy

EU Average

France

Finland

Belgium

Ireland

Netherlands

Austria

Luxembourg

UK

Germany

Sweden

Denmark

Access

Source: Comreg

Denmark

0 0

Messages

Source: Comreg

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Telecoms in a macro context Important in economic development The telecoms sector has been and continues to be an important driver of global economic activity. The boost in communication technologies, speeds and automation, when combined with society’s greater demand for immediacy (of service, information, delivery etc), has over the past 20 years opened up telecoms as a new retail market (we have called this process consumerisation in the past). In the early 1990s, the growth was fuelled by the penetration of the PC both as a tool at work and then at home. This was hand-in-hand with the explosion in the electronic games market, which built a whole new market in the home entertainment segment. In the late 1990s, the mobile phone became a phenomenon, and today we are in the midst of an acceleration of broadband but without actually knowing how the incremental bandwidth (capacity and speed) will be utilised. However, in developed markets, especially Europe the consumerisation of telecoms is leading to a commoditization of pricing and consequently growth rates and returns are declining. Most new products are substitutionary and we await the next revolutionary product. Figure 123: ICT revenue ($bn) and growth in OECD 1,200

18% 16%

1,000 14% 800

12% 10%

600 8% 400

6% 4%

200 2% 0

0% 1991

1992

1993

1994

OECD Total

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Growth

Source: OECD

The growth in ICT spend, as shown in Figure 123, has lead to a pick-up in the relative importance of the sector as an employer. Indeed of the countries shown in Figure 124 only Portugal has seen a decline in employment levels and others such as Finland and Austria have benefited from a strong increase. The growth in Finland, as shown in Figure 125, highlights the positive effect of Nokia and the world of mobile technology.

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Figure 124: Share of ICT-related occupations in total economy (percentage points) in selected OECD countries 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5

1995

Portugal

Greece

Spain

Belgium

Ireland

Italy

Germany

United Kingdom

France

Luxembourg

Austria

Denmark

Finland

Netherlands

Sweden

Australia

United States

Canada

0.0

2004

Source: OECD

We are also intrigued that the Nordics are among some of the greatest employers and the southern Europeans the lowest, which possible highlights the differing pace of technological innovation in these regions and that the southern European economies are more service (tourist) dependent. Indeed the southern European countries (although a generalisation) are absorbers/implementers of technology rather than developers/investors.

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Figure 125: Change in share of ICT-related occupations in total economy (percentage points) in selected OECD countries between 1995 and 2004 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2

Portugal

Greece

Spain

Belgium

Ireland

Italy

Germany

United Kingdom

France

Luxembourg

Austria

Denmark

Finland

Netherlands

Sweden

Australia

Canada

United States

-0.4

Source: OECD

More specifically broadcasting and telecommunication have grown in most economies. We show the trend for the USA in Figure 126 and the relative growth compared with nominal GDP growth rates in Figure 127. These charts not only highlight the solid growth of the industry but also that there is occasional volatility, which offers a glimmer of hope to operators in Europe, where returns are currently under structural pressure. Figure 126: Broadcasting and telecommunications as % of US GDP 2.9%

Figure 127: Nominal GDP and broadcasting and telecoms growth 18.0% 16.0%

2.8%

14.0% 2.7%

12.0%

2.6%

10.0% 8.0%

2.5%

6.0%

2.4%

4.0%

2.3%

2.0% 0.0%

2.2%

-2.0%

Source: Deutsche Bank estimates and US Bureau of Economic Analysis

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

-4.0%

1977

2.1%

Source: Deutsche Bank estimates and US Bureau of Economic Analysis

Again using the USA as a data-point, in Figure 128 we graph the quarterly growth in telephony and telegraph revenue since 1959. The purpose of the chart is to highlight the constant growth in the industry over the past 50 years. But the chart also shows that the pace of absolute growth has slowed from the aggressive rates in the 1990s. The uncertainty Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

as to what happens next (ie. a reacceleration or a further showdown in growth rates) is probably the most important issue dominating telecoms and broadcasting. Figure 128: Quarterly spend in telecommunications and telegraphy in USA ($m) 160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

2004-I

2005-II

2001-III

2002-IV

1999-I

2000-II

1996-III

1997-IV

1994-I

1995-II

1991-III

1992-IV

1989-I

1990-II

1986-III

1987-IV

1984-I

1985-II

1981-III

1982-IV

1979-I

1980-II

1976-III

1977-IV

1974-I

1975-II

1971-III

1972-IV

1969-I

1970-II

1966-III

1967-IV

1964-I

1965-II

1961-III

1962-IV

1959-I

1960-II

0

Source: US Bureau of Economic Analysis

Finally, in Figure 129, we show the contribution of ICT investment to GDP growth. It is difficult to draw significant conclusions, other than the step up in growth between 1995 and 2003, but the data again shows the power and importance of the ICT industry in the US economy, reflecting the fact the country is at the vanguard of industry trends. It is surprising that three of Europe’s largest economies (Italy, Germany and France) are at the tail of the chart and are materially divergent from the UK. Interestingly, four of the economies which have benefited from ICT growth are English speaking, piggy-backing off the innovation in the US and all running similar “competition”-based economic models.

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Telecommunications Telecom for beginners 2007

Figure 129: Contributions of ICT investment to GDP growth in selected OECD countries (percentage points) 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1

1990-95

Austria

France

Germany

Italy

Greece

Ireland

Finland

Portugal

Netherlands

Spain

New Zealand

Japan

Canada

Belgium

United Kingdom

Denmark

Sweden

United States

Australia

0.0

1995-2003 (1)

Source: OECD

Deutsche Bank AG/London

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Section 2: Technological

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Basics of Electronic Communication The importance of waves All of the data transmitted in telecommunications is transmitted as an electromagnetic wave. These waves can either travel down a guided channel, i.e. a fixed line, such as a fibre-optic cable, or they can travel through the air, i.e. wirelessly, such as mobile phone signals. But what is wave? In general terms there are four key details describing a radio wave: Wavelength The wavelength measures the length of each wave; the distance from the start to the end of a wave. Each wave has amplitude, i.e. an individual strength, which is the value that will be recorded for it. In a digital wave, there will be two distinct amplitudes, with one corresponding to 1, and one to 0 (i.e. its binary coding) Longer wavelength signals bend more easily around obstacles, so they will travel further than shorter wavelengths. As such a light-wave, where the amplitude is around 1 billionth of 1meter will not bend easily around obstacles (hence the reason we have shadows), whereas TV signals which has an amplitude around 1meter are more malleable and can therefore bend around obstacles. Frequency Measures how many waves come each second. Frequency is inversely proportional to wavelength, according to the formula Frequency= Speed/Wavelength. Electromagnetic waves travel at the speed of light (300,000,000 meters per second), so frequency would be 0.3 × 109 / wavelength. High frequency waves have high data capacity (bandwidth) and so can carry lots of data. This is due to the fact there are many waves, i.e. data-points, in a short space of time and each wave can carry a coding point (bit). Strength Stronger signals travel further as the wave will take longer to peter out. The downside is that they may interfere with other signals being transmitted elsewhere in the same frequency. Analogue/Digital Analogue signals vary continuously, so there is a value at each point, and analogue waveforms look smooth. People see and hear analogue signals. Digital signals have discrete values, typically one of two different values at each data-point. This data can then be interpreted by recording and processing a string of 1s and 0s, called bits (binary digits).

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Figure 130: Analogue wave

Figure 131: A 32-bit digital wave

Amplitude

1 wavelength

Wavelength

1 1 1 1 0 0 1 1 1 1 0 0 1 1 1 1 0 0 1 1 1 1 0 0 0 0 0 0 1 1 0 0

Digital wave

Analogue wave Source: Deutsche Bank

Source: Deutsche Bank

Packets and switching Telecom traffic (voice and data) typically needs to be directed along a network, like traffic on a railway system. Routers and switches sit on junctions in the network, and direct traffic along the right route, according to its destination, and their knowledge of the network. Networks are most commonly built in loops so there are multiple means of getting to the end point. This allows for capacity management and is fails safe, ensuring the sustainability of service of a network element fails. In a circuit-switched network, such as the traditional PSTN, when two users wish to communicate, a circuit or route is identified (by routers), and then held open all the way between them (i.e. bandwidth is reserved). This ensures constant quality of service on the connection, but is very inefficient. When users are not sending each other data, bandwidth is still reserved for them, and so remains empty. Using a modern day analogy circuit-switching is equivalent to running a marathon route that has been roped off so that people not racing are excluded from the running route. In a packet-switched network, such as the internet (running on IP), when users wish to communicate, their data is split into packets, labelled with their source and destination addresses. Routers then direct the packets along the network towards the destination, using dynamic databases of the most appropriate route to each address. All packets travel together, fitting into whatever space (capacity) is available, and where excess space is available routers will identify a potentially quick route, so bandwidth can be used fully. This is equivalent to a mass of pedestrians walking around and consulting signposts when they reach a junction, with space never reserved in advance, but allocated to people on the basis of their occupying it at the moment. The randomness of packet-switching is its key advantage. Because circuit-switching involves massively cordoning off bandwidth and preventing its use, whilst packet-switching uses it as needed, packet-switching is vastly more efficient. However, packet-switching means that time to delivery is unknown, as it depends on how many others are using each portion of the route. This is a serious problem for time-sensitive traffic such as a voice conversation especially when it is important that the order of packets is reconnected on the correct order. To solve this, protocols such as MPLS may be used, which label packets according to their temporal priority, and then allow bandwidth to be reserved for these to run along a predictable circuit-connection that is part of a network where other data travels as packets. Implementation of MPLS enables the bandwidth efficiency of packetswitching to be combined with the reliability of circuit-switching for data that needs it. BT is currently building a “21st Century Network” (21CN), which will utilise MPLS to provide bandwidth suitable for all of its services in one unified network. Page 84

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Figure 132: Services available by technology Voice

VoIP

SMS

MMS

E-mail

Browsing





Broadband

IPTV Video-calls (VoD)

Games

PSTN



GSM (2G)





GPRS (2.5G)











3G

















3.5G (HSDPA)

































DSL

• •

Cable

















Wi-Fi (802.11g)

















Wi-Max















Satellite













Source: Deutsche Bank

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Technology: Traditional voice There are multiple ways of carrying voice traffic; traditional PSTN networks, IP networks (VoIP) or on mobile network are three examples that are in people’s consciousness. We discuss mobility later in this Primer and therefore in this section we focus on voice, where it is carried on a fixed-line pipe of some-kind. However, this definition is determined by type of infrastructure carriage, whereas VoIP is possible on any data network, including mobile, and therefore a more appropriate split of voice may be technological (switched versus IP (VoIP)). Voice traffic was traditionally carried on PSTN and mobile phone networks but with the move to packet-switching IP is becoming increasingly important (and price deflationary). However in many cases these networks run parallel and internet access technology such as cable and DSL may have a PSTN voice channel in addition to an internet channels. VoIP requires a moderately fast internet connection, and is unsuitable for narrowband connections such as dial-up. In Figure 133 we show the evolution of wireline networks and one interesting conclusion is that there is increasing simplicity within network developments.

Data -Fr. Relay, ATM

Access - POTs, ISDN, cable modem, ‘DSL’ Data - IP over ATM

Voice -Circuit Switching

Voice -Packet Switching (ATM)

SDH/Sonet Transport

SDH/Sonet/WDM Transport

Fibre Optics

Yesterday

Access - IPDSL, , cable modem, VDSL Voice/Data IP Switching

Security/QoS

Access - DLCs, POTs, ISDN, analog modem

Network Management

Figure 133: Technological evolution of wireline networks

FFTx

Fibre Optics

Today

Tomorrow

Source: Deutsche Bank

Switching (circuit-switching; IP; MPLS) - detail Network switches connect to each other to transmit information. Simplistically to send data from one point (node) to another a switch opens the channel between the points and then sends the data. In complex networks, the route between two communicating nodes will typically involve a string of such channels. There are two important types of switching: packet-switching, and circuit-switching. In packet-switched networks, data for transmission is split up into discrete packets, which then travel independently to their destination along whatever route is determined for them individually, and are then reassembled at the destination. In circuit-switched networks, a route is determined between the point of origin and the destination, and then bandwidth along this route is reserved for the duration of the connection, with all data travelling along this same route, and so arriving in the order sent. Page 86

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Figure 134: A structural mess: A 2003 attempt to map the internet; routers and switches sit on all these junctions and direct traffic

Source: The Opte Project

Basic small networks Most nodes on a network have a MAC (Media Access Control) address providing a unique identity. Switches are increasingly intelligent and learn the MAC addresses of the other nodes connected to them, and when a switch receives information for a known MAC this becomes the preferred route. If the MAC is not recognised, the packet is sent to all alternative neighbouring switches to all neighbours save the sender. Switches are appropriate to small networks, whereby each node connects to the switch. In a network consisting of two sets of computers attached to two different connected switches, each switch knows the MAC of those connected to it: firstly the set of computers, and secondly the other switch. If a computer attached to the first switch sends a message to one connected to the second, its switch will broadcast the message to all it other neighbouring switches hoping that other switches recognises the MAC and then redirects the message to the correct recipient. If switches are only connected to end systems and other switches, every packet for a nonneighbour would propagate throughout the network, overloading it with duplicate misdirected traffic, so fail if packets are intended for destinations other than their neighbours. The importance of routers A router is like a switch but learns that there are other routes beyond its immediate neighbours, and therefore are able to connect multiple networks together. It can then use these routes to instruct switches. In an IP network, routers inform each other (either automatically or on request) about the networks they are connected to. Routers that receive this information record it in a look-up table, so that they know which of their neighbours can be used to reach particular systems, and they thus build up a picture of the network. Each node is assigned a unique IP address, which is attached to packets to or from it, in the IP header. When routers need to send a packet, they consult their look-up table for the MAC they have recommended for packets to that IP (a certain portion of the IP will identify the host network of the node, and the rest will identify it within that network, so routers need only retain routes for host addresses, not routes to every individual IP). Routers can be Deutsche Bank AG/London

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attached to multiple switches, and will then tell switches about which MACs to send packets to, based on their database of IP addresses. Switches thus send packets to other nodes on routers’ instructions, without knowing where they will end up. Figure 135: A wireless router

Source: Telindus

The most widely distributed version of IP is IPv4, but is being slowly replaced by IPv6. The main difference is that IPv4 addresses are 32-bit long, compared to 128 bits in IPv6. 32 bits allows for around 4 billion unique addresses (~4.3×109), which is too few for one per person; whilst IPv6 allows for around 3.4×1038, or about 4.3 x 1020 addresses per square inch of the Earth's surface; plenty for every device to have an IP address. Having a huge amount of spare numbers also means that the system of assigning them can be tidier, much the same as in a system where telephone numbers have many digits. For example, if an IPv4 host network has many members, it may need to have several host addresses, in order to generate enough unique addresses for its members, and so this will generate multiple entries in routers’ address records for that single host, but in IPv6 it is easy to provide a host address that allows for plenty of user addresses in the network domain. There are typically many routes along which a router could send packets for a particular destination, just as there are different routes and modes of transport one can take on a journey. IP itself doesn’t specify which route to choose, rather it describes the sending process; it is thus a routed protocol. A routing algorithm is required to decide which routes to take, based on things like speed and reliability. This then determines which MACs a router chooses when sending packets. A dynamic routing algorithm will constantly update the lookup table as it receives data about the network in order to achieve efficient routing. Data about the network is typically received via TCP (Transfer Control Protocol), which transmits data about IP transfers, e.g. when a router can’t pass on an IP packet it sends a message back via TCP to tell the originating system that the packet has failed. TCP is essential to ensure reliability, as without it there would be no way of knowing whether packets have arrived. Circuit switched versus packet switched In circuit-switched networks, bandwidth is reserved to a particular channel of communication, and so packets do not displace each other, but in a packet-switched network, the capacity available to a packet depends on what is being used by other packets. Here the traffic’s inherent unpredictability means that the speed of a packet’s arrival will vary dependent on network traffic. For applications where latency (the time for a single packet to traverse the network) matters; this is unacceptable. MPLS is a routing protocol that allows for the differentiation of packets to remedy this. It attaches a label to an IP packet in addition to the IP header, which is intended to guide it through the network. Certain circuit-bandwidth can then be reserved when required for time-sensitive packets, whilst the MPLS label allows this to co-exist with packet-switching by recording whether it is necessary for particular packets. Instead of routers determining one route for all packets to a particular IP address, the MPLS Page 88

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label enables different routes to be chosen depending on the packet, e.g. so that those routes with constant and sufficiently low latency may be chosen for time-sensitive packets, whilst other packets are sent where bandwidth is greater. The description of the route in the label saves routers from searching for the IP in their look-up tables, thus saving time and computing for intermediate routers. Figure 136: Packet-switching

Figure 137: Circuit-switching

A

A

A

A

B

B

B

B

C

C

C

C

Source: eArchiv, Deutsche Bank

Source: eArchiv, Deutsche Bank

Public Switched Telephone Network (PSTN) This was the foundation of telecoms, copper cables that carry voice calls as analogue electronic signals, using circuit-switching. In the basic version, two wires are twisted around each other, with one carrying the signal, and the other reducing interference; after the design of Alexander Graham Bell. In the modern network, copper is generally the “last mile” into homes, with the main network carried over fibre-optic lines and cable. Though mobile phones connect to the PSTN, the networks of base stations that connect them into it are generally thought of separately. The PSTN is formally the concatenation of telephone networks. (This commentary is restricted to vanilla PSTN, leaving aside enhancements.) Figure 138: Twisted Pair Copper Cable

Source: "Evolution of the Technology", Australian Photonics CRC, 1999

A universal technology PSTN is literally worldwide, with just about every home in Europe connected. It varies in quality a little between countries, depending on age and maintenance. PSTN connects everybody potentially to everybody else: most homes have landline telephony, which links in directly to the PSTN. Apart from its main role for analogue voice calls customers can use a modem to dial-up through the vanilla PSTN to the internet’s packet-switched network via an ISP, but as internet usage matures, dial-up’s low-bandwidth (up to 56kbps) is increasingly inadequate. Numerous additional technologies (e.g. ISDN and DSL) have been designed to exploit the massive fixed resource in the PSTN network, to better the low speed it offers in vanilla form. Deutsche Bank AG/London

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…but a legacy technology The PSTN is essentially a legacy technology, which has been upgraded with other software and technologies to add bandwidth (especially compression technologies). However is most European and other developed count roes there has been little growth in provision of the basic offering. It represents a large and integral asset for both those who own it, and those to whom they lease it (as required by regulators). As with infrastructure generally, expense can become more of an issue in remote areas, but even this is not generally a significant factor. Though the invested capital base was significant (Deutsche Telekom has a domestic asset base in its domestic network of Euro 27.8bn at the end of 2005), this is a sunk cost, and marginal costs are fairly small (often negligible) for many types of calls. Marginal costs depend mainly on interconnecting and termination fees, whereby the service provider does not actually own the entire network involved. Costs thus depend on what connection is being made, and operators can match costs to revenues by creating pricing structures that encourage intra-network traffic. Figure 139: Basic representation of a switched network

Source: International Engineering Consortium

Voice/VoIP Voice traffic has traditionally dominated telecommunications and in most market fixed-line virus remains the dominant call origination technology. Value-added options to vanilla voice include services such as caller-identification and voicemail. There are also services offered via premium-rate numbers, such as tech-support, adult services, directory enquiries, telephonevoting, and conference-call hosting. Traditional voice traffic is carried over circuit-switched channels, ensuring a constant speed of communication. Voice was revolutionised by the mobile phone, which turned a service that people used separately in their homes and offices into one they could carry with them wherever they went, shifting traffic away from fixed networks whilst growing overall volume.

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Voice over IP (VoIP) is voice traffic carried as packet-switched data via the internet, rather than PSTN or mobile networks, taking advantage of its much cheaper bandwidth. VoIP requires either a normal point of internet access (e.g. a PC) equipped with a microphone; speakers; and software, or else a dedicated device, which may be designed to look like a traditional phone, and which plugs into an internet connection. Figure 140: UK fixed and mobile voice traffic volumes (bn of minutes) 200

174

173

180

166

167

164

58

62

2003

2004

160 140 120 100 80 60

34

43

51

40 20 0 2000

2001

Fixed voice minutes

2002

Mobile voice minutes

Source: Ofcom

Fixed-line users will typically pay a fee to be connected to the network, and then per-usage fees, although there may be some services (e.g. minutes of calls) included in the fee. Call prices vary depending on who is called, as the operator must pay termination and interconnection charges. Third parties may offer services (usually cheap international calls), typically pre-paid, that enable users to route calls via their networks whilst on another service provider’s line. Revenue for premium services is shared between the telephone operator and the content provider. VoIP technology bypasses the PSTN by going through the internet, thus saving interconnection charges. Mobile and normal telephones cost more because they must pay for access to the PSTN, with mobiles more expensive than normal telephones because of the historic cost of mobile networks and licences. All three voice technologies are networked with each other, but it is easier, e.g. to organise VoIP-to-VoIP, than VoIP-to-mobile. Note that the PSTN is a circuit-switched network, whilst the internet is packet-switched and thus much more efficient.

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Figure 141: VoIP System overview

Customer Premises DSL or Cable Modem

Access

Transit

Transit

Core

Access

Customer Premises

Broadband Broadband

VSP**

Internet

VSP** VoIP user

ATA*

Router

PSTN Gateway

Narrowband PSTN user

* ATA = Analog Telephone Adaptor, connects an Analog Telephone to a VOIP network ** VSP = VOIP Service Providers:the next generation telco

Source: Ofcom

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Technology: Mobility The electro-magnetic spectrum and the allocation of frequencies are key to the mobile industry, which is in the Ultra High Frequency (UHF) range. This allocations of spectrum effectively creates a barrier to access and a capacity restraint, whereas in the fixed-line arena capacity barriers are negligible. Figure 142: The frequency spectrum 3G mobile services: at c.3.2GHz

100,000 km

Super Low Frequency (SLF) Communications with submarines

Very Low Frequency (VLF) Submarine communication, avalanche beacons, wireless heart rate monitors

Medium Frequency (MF) AM (medium-wave) broadcasts

Very High Frequency (VHF) FM and television broadcasts

Super High Frequency (SHF) Microwave devices, mobile phones (W-CDMA), WLAN, most modern Radars

3-30 Hz 10,000 km -1,000 km

3-30 kHz 100 km -10 km

300 kHz 1 Km – 100 m

30 – 300 MHz 10 m – 1 m

3 – 30 GHz 100 mm – 10 mm

Night Vision

Above 300 GHz 40 channels. Functionality may be greatly improved when this is accessed through a PVR. Page 116

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Figure 179: The digital switchover timetable Year Country

1998 1999 2000 2001 2002 2003 2004 2005 2006E

2008E

2009E

2010E

2011E 2012E

Dec

Italy United Kingdom

ITV Digital

Nov

July May

France May

Germany Oct

Spain

Quiero TV

May

Nov

Aug

Finland Apr

Sweden

??

Hungary Apr

USA Apr

2007E

DTT launch/re-launch

Official national switch-off date

National switch-off date based on latest news

Source: Mediaset

IPTV Internet Protocol Television (IPTV) replaces the traditional broadcasting model of television with a dynamic internet-based service whereby the user selects content to watch from a database, and only this is transmitted to them, rather than a selection of channels from which to choose. Content is retained on servers connected to the internet, which stream it to users when requested, a process termed as video on-demand (VoD). To combat bandwidth problems during peak hours, it has been proposed that popular content could be downloaded off-peak to an inaccessible portion of a PVR hard drive, with the user then paying to unlock it, rather than for the actual download. IPTV is transmitted via the internet, but restricted to fast connections, as to obtain decent video quality requires high bandwidth (a DVD movie is played at around 3Mbps). It is accessed either via a set-top box or through a normal internet browsing platform, e.g. a PC. IPTV is extremely new, and so business models are in flux, but it is likely to follow the mix of models found in existing multi-channel TV. This would include some free-to-air content, (advertising-supported and public-service), as well as subscription services and pay per view (PPV). As one core feature of VoD should be user-control, there may be pressure on advertising that users can skip past, although the level of control over this entirely digital technology should make it possible to prevent this if users will tolerate such functionality. PPV should be a much larger factor in the development of IPTV and a differentiation from existing broadcasting technologies. „

Deutsche Bank AG/London

Firstly, in contrast to most broadcasting, whereby the marginal viewer makes little difference to the network, VoD is likely to mean that there will be a marginal bandwidth cost each time users access content. (There are experiments with peer-to-peer distribution techniques, to save bandwidth by also utilising users’ own connections, but these may not reach commercial mass market.) Page 117

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„

Secondly, as users are choosing exactly what they want to watch, they are likely to be more willing to pay for it. However, much content is currently free-to-air; for example, more than 95% of US cable operator Comcast’s VoD content and in the short-term most IPTV operators will add free content to their portfolio as it is easier to aggregate and allows IPTV to at least offer the same basic offering as moist of the TV forms. It also allows IPTV operators to stress the additional services in their marketing in order to pitch the product as a premium/higher quality offering.

European operators have different IPTV strategies such as Deutsche Telekom and Swisscom which are pursuing the VDSL route, whereas others are focused on ADSL2+ (France Telecom and Telefónica). In France there are also moves to build fibre in France, by all three leading broadband providers (France Telecom, Iliad and NeufCegetel). In Figure 180 we show some of the leading IPTV strategies in Europe. Figure 180: Summary of rollout of Telco operators’ IPTV investments Operators

Technology

Capacity (MB/s)

Coverage now

ADSL

up to 2

Over 90%

No IPTV service

ADSL + MPEG4

up to 8

None

4-5mbits with 50% coverage IPTV + Freeview; launch 4 Dec 2006

Moving to ADSL 2+

18

None

Available sometime in 2008/2009

ADSL T-Online Vision

1

>91%

VDSL

up to 50

None

France Tel

ADSL2+

18

15m homes

1m IPTV subs by end 2008

0.18m subs

Telefónica

ADSL2+ with MPEG 4

6

4m homes

1m IPTV subs by end 2008

0.3m subs

ADSL (MPEG 2)

35% coverage end 06 for IPTV

Announced Euro 2.1bn investment

ADSL2+

50% coverage end 2006

BT

Deutsche Tel

Telecom Italia

Target

Launched Q1 2004. c30-50k subs

Comments

Video delivered to PC

20% coverage by 2006 Build out from 2006 with Euro 3bn capex budget 30% coverage by 2008

Source: Deutsche Bank

Mobile TV Mobile TV is in its infancy and as such there are multiple technologies that are looking to exploit the space (as there were in the early days of mobile). There are also two ways to propagate the services to devices. The broadcast approach employees a blanket coverage (as in UK radio and TV), where as the unicast approach sends a dedicated signal to each device.

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Figure 181: Broadcast versus unicast approach

Broadcast Approach

Unicast Approach

Source: Alcatel

Working out whether there is demand for mobile TV is a harder task, but existing data on TV viewing patterns suggest that mobile TV could be a an ideal technology for event driven viewing when the consumer is seeking tome sensitive data. In Figure 182 we show the viewing patterns on Sky in the UK when there was a whale in the Thames and in Figure 183 the pick up in usage when Sky launched its mobile TV services. Figure 182: Sky mobile TV viewing patterns – event driven Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Figure 183: Sky mobile TV, streaming usage pre and post launch

Saturday

Whale in the Thames Mobile TV Launch

Ashes

6pm

6am

Midday

6pm

Midnight

6am

Midday

6pm

Midnight

6am

Midday

6pm

Midnight

6am

Midday

6pm

Midnight

6am

Midday

6pm

Midnight

6am

Midday

6pm

Midnight

6am

Midday

Midnight

Big Brother

May-05

Jun-05

Source: SKY

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Video streaming usage

Average weekly viewing figures

Source: Deutsche Bank

The key will be to apply mobile TV into existing usage patters, and it is most likely to challenge the strong early morning usage of the radio and the newspapers.

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Figure 184: Existing usage patterns (N=7000) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6am-10am Watch TV

10am-5.30pm

5.30-9pm

Use Internet

Read Newspaper

9pm-6am Listen to radio

Source: Mediascope

3G network snot suitable for mobile TV Traditional 3G networks – even with HSDPA overlays – are not designed to cope with DMTV broadcasting owing to capacity constraints and device power issues, operators wishing to offer DMTV services have two options. „

First, they can attempt to adapt 3G networks to a broadcast environment;

„

Second, they can embrace new technologies, specifically designed to spectrally optimise for broadcast DMTV taking elements from both the digital terrestrial television (DTV) environment and applying them to a mobile world.

New broadcast technologies have the benefit of reaching many people simultaneously though they require new networks to be built. In addition, content providers feel comfortable with the broadcast medium as it enables firmer control over digital rights management (DRM). Further benefits of broadcast are the downlink speeds which offer higher quality picture resolution. On a 3G mobile network, video runs at c.15 frames per second (2G is c.3/sec), while new broadcast technologies run at 20-30 frames per second. Therefore, currently, the industry momentum is very much with the new broadcast approach as most mobile operators recognise that new broadcast driven technologies are needed. Even here, however, there is significant fragmentation – again along regional lines.

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Figure 185: Emerging mobile TV technologies

many

e.g DVB-H ~330 kb/s e.g DVB-H ~330 kb/s (13.3 (13.3Mbps/40 Mbps/40channels channels MBMS/UMTS: MBMS/UMTS: 64-256+ 64-256+kb/s kb/s (7-30% (7-30%ofofcell cellpower) power) MBMS/GSM: MBMS/GSM: 32-128 32-128kb/s kb/s (4 TS with 8-32 kbps/TS) (4 TS with 8-32 kbps/TS)

Simultaneously reachable users

DVB-H T-DMB FLO

MBMS

as Unic

few

U

st nica

t+

Unicast Multimedia services

UMTS: UMTS: 64 64kbs kbs(CS) (CS) 128 kb/s (PS) 128 kb/s (PS) CPRS: CPRS:~~40 40kb/s kb/s(PS) (PS) EDGE: ~ 100 kb/s (PS) EDGE: ~ 100 kb/s (PS)

low

high Service customisation

(service differentiation, personalisation, etc) Source: Ericsson

There are over 12 mobile TV standards world-wide. We identify 5 DMTV technologies which are most likely to emerge, which we summarise in Figure 186 and in the section below we discuss each of these technologies in more detail. Figure 186: Mobile TV Standards — Summarised System

ISDB-T

Region/Country deployment Codec Video/Audio Frequency/Channel size Max Modulation Optimized Handset Power Reduction

DMB/DAB-IP

MediaFLO

MBMS

Japan

Europe/US

Korea/Europe

US

Any WCDMA

MPEG-2 (H.264)

MPEG 4 (H.264)

MPEG 4 (H.264)

MPEG 4 (H.264)

MPEG 4 (H.264)

MPEG-2 / AAC

MPEG-2 / AAC

MPEG4 / BASC

MPEG4 / AAC

MPEG4/H.264

6MHz

8MHz

6MHz

6MHz

5MHz

23Mbps

31Mbps

9.2Mbps

11MBps

3x0.128 QPSK

OFDM (13-seg/ch)

COFDM

COFDM

COFDM

Mobile use, 1 segment only

Time slicing

Micro time-slicing

Time slicing

Early-2006

Early 2006

Today

2006 (locally through analog channels)

2005

2004

2006

2008

Wide industry support, Time to market, power standards consumption on terminal

Spectrum there, technologically sound

Existing infrastructure used

Spectrum needed Proprietary, only 700MHz in US

Likely to fall over with lots of usage

Service availability Handset availability

2006

Advantages Disadvantages

DVB-H

Time to market Likely to be Japan only, battery life

Spectrum tied up in several markets

2007

Source: Texas Instruments, Deutsche Bank, DVB.org

MBMS (Mobile Broadcast/Multicast Service)/BCMCS (Broadcast & Multicast Service) MBMS or BCMCS is the name given to the technology family which sits as an overlay (i.e. it just requires a software upgrade) on top of the traditional 3G network to offer broadcast and multicast services (bespoke broadcast to a group of users). Instead of the network setting up dedicated point-to-point contacts to each device through the entire network, MBMS requires just a single broadcast channel in each cell which has the benefit of increasing capacity.

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Figure 187: 3G Network consumption with and without MBMS 6,000 5,000 4,000 3,000 2,000 1,000 0 3G Voice

Other data

3G with MBMS Point-to-point video

Broadcast video

Source: Analysyss

„

Advantages: The benefit of MBMS, which is supported by Ericsson and IPWireless, is that upgrade costs are low, it is standardised already (under 3GPP), offers lots of channels (up to 50) using existing spectrum and can offer more interactive services owing to the bi-directional nature of 3G networks.

„

Disadvantages: There are three main problems for MBMS. First, the major disadvantage of MBMS is that the underlying 3G network would still likely suffer capacity constraints with multiple users and as a result the operators will still choose to allocate spectrum to higher revenue/bit services like voice. This argument is of course premised on the fact that revenue/bit of voice does not fall significantly which itself is questionable. Second are technological issues and we question the speed of hand-off between cells as well as constraints on power consumption of devices. Third, and perhaps most serious, is that the industry support for this approach has been weak. Of the operators globally, arguably Vodafone has been the most supportive of MBMS to date (perhaps unsurprising given Ericsson is the company’s main infrastructure supplier), but even Vodafone is keeping its options open and has been trialling a competing system (DVB-H). As O2’s CTO stated at the recent CTIA conference “We believe that the 3G networks will not be reliable enough. There is no room in TV for dropped calls…. That is why we think a broadcast service without complex hand-offs will be the way forward”. Orange UK recently committed to trialling MBMS using IPWireless’ solutions in 2006.

DAB (Digital Audio Broadcast) derivatives, S-DMB/T-DMB Developed between 1988 and 1992, DAB was commercially launched globally in 1998 with a view to replacing traditional analogue radio sets with digital receivers tuned to a terrestrialbased network capable of overcoming the faults of analogue. It is now available (primarily in two frequencies 175-240MHz and 1450-1500MHz) to over 475m people globally. Several television broadcast systems based on DAB have extended by modifications to some of the inadequacies of DAB in regard to video transmission at higher data rates. These modifications fall under the title DMB (digital multimedia broadcast) and these come in two forms – networks with terrestrial-based antennae (T-DMB) and those piped directly from satellites (S-DMB). Both types of networks have been supported by, and commercially launched in, Korea (by TU-Media/SKT), ahead of any other dedicated mobile TV network and with the backing of the Korean device manufacturers, LG and Samsung.

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Figure 188: T-DMB, S-DMB S-DMB Network T-DMB Network

S-DMB

Broadcasting Centre

Audio Video Data

Content Providers

Mobile Devices

Broadcasting Centre

T-DMB

Transmitter

Source: Deutsche Bank

„

Advantages/Disadvantages: There is a great deal of posturing (it reminds us of GSMCDMA) between major proponents of T-DMB and those of DVB-H (see below) as to which technology is “best”. In reality, both are based on similar technological principals (both use OFDM, time interleaving, etc.) and the differences are so small that they are irrelevant (device power consumption is a little better on DVB-H but greater transmission power is needed due to operating at higher frequency than DMB). In reality, the biggest advantage for T-DMB is time to market related and the biggest disadvantage is that the world’s biggest manufacturer of terminals, Nokia, supports DVB-H. In terms of operator momentum, T-DMB is gaining some good traction outside of Korea with debitel (Germany), Virgin Mobile (UK), and Bouygues (France), all either trialling or commercially committed to T-DMB (DAB-IP) solutions. Moreover, there have been tests in both China (Beijing Radio Broadcasting) and India.

DVB-H (Digital Video Broadcasting-Handheld) DVB-H is the latest derivation of the DVB transmission standard which historically has been responsible for bringing DTV to consumers via satellite, cable and terrestrial networks. DVB-H adapts DVB technically for a mobile environment, overcoming issues such as weakening signal strengths while travelling at speed and also lowering power consumption (through “time-slicing” technology). DVB has been well supported in the past with over 270 organisations in the industry-led consortium in over 35 countries. „

Deutsche Bank AG/London

Advantages/Disadvantages: Perhaps the most significant advantage DVB-H currently has is that it is gathering momentum with operators in Europe and the US (through Modeo - a subsidiary of Crown Castle) as well as with Nokia, Motorola, Siemens, LG and Samsung. Technologically speaking it is very similar in performance to both T-DMB and while MediaFlo (see below) may have some technological benefits over DVB-H, the advantage that DVB-H has is that it is standardised by the European Telecoms Standard setting Institute (ETSI 302/4 in 2004). The disadvantage DVB-H has is that it requires new networks to be built and new spectrum to be allocated to it.

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Figure 189: Example of the equipment needed in a DVB-H network

Source: UDCast

Integrated Services Digital Broadcasting-Terrestrial (ISDB-T, “one seg”) ISDB-T is the terrestrial DTV standard developed in Japan and the Japanese government has allocated 1/13th (“one seg”) of available broadcasting spectrum to mobile. The Japanese mobile companies are all currently in the process of launching “one seg” handsets. The advantage with the technology is that it is available today. The disadvantage is that - like PDC - it is restricted to Japan. In addition, it is regionally based, terminals have short battery life and perhaps the worst problem is that it is controlled by NHK, Japan’s Broadcasting Company, which offers the service free for terrestrial TV users. Forward Link Only (FLO) FLO technology is a multicast proprietary DMTV technology designed by Qualcomm based on many of the similar technological principals as both T-DMB/DVB-H – i.e. aimed at increasing capacity and coverage (1 transmitter covers 60km) and lowering cost for multimedia content delivery to mobile handsets. It supports up to 20 streaming channels of up to 30 frames per second. „

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Advantages/disadvantages - It is difficult to pull out the exact benefits that FLO has over the other two main DMTV technologies although Qualcomm claims that it is more efficient as it does not attempt to use historic terrestrial standards as a reference (improving both transmission and receiver power consumption). In addition, Qualcomm highlights its low channel switching time of 1.5 seconds, though according to both TDMB/DVB-H proponents, this is equivalent to these technologies. Perhaps the difference between FLO and other technologies is the vertical integration that Qualcomm has applied. Through its wholly-owned subsidiary, MediaFLO, Qualcomm is actually rolling out (at a cost of US$800m) and operating the network (at 700MHz completed end 2006) for the adopters of FLO, which to date include Verizon Wireless. The single biggest disadvantage of FLO is its proprietary nature (hence concentrated royalty fees) which means it is unlikely to proliferate in areas outside North America.

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 190: MediaFLO in action

Media Players

MediaFLO Client MPEG4 Player

Radio Access Networks/FLO Network

Windows Media Player

H.26-4 Player

Content

MPEG4

News

Microsoft

Sports

RealOne

Money

H.26-4

Music

1XEV-DO

1XEV-DO Gold Multicast

Real Player

Encoding Schemes

MediaFLO Server

Other Multicast Networks -Digital Rights Management -Billing via existing systems

Client-Server Architecture Source: Qualcomm, Deutsche Bank, engadget

Other technological possibilities In addition to DVB-H, which runs on terrestrial antennae, a satellite-based version (DVB-H(S)) has also been developed and Alcatel and Eutelsat hope to launch satellite-based DVB-H services by 2007/8. Another technological option is to utilise a mobile Wimax network. Mobile Wimax, or 802.16e, will significantly increase speed over 3G. However, commercial availability is unlikely prior to 2009 and we believe that its ability to hand-off between cells and on a ubiquitous basis will mean it is unlikely to be used for mobile TV this decade. Perhaps one of the biggest technological competitors to live streaming broadcast TV comes from a non-streamed source. Apple has already introduced a video version of its iPod, which has a 30GB memory capable of storing 150 hours of video. Given that today’s generation is comfortable with “time-shifted” technologies such as pod-casting, it is possible that an elegant iPod/TV synchronisation will render mobile TV obsolete. Indeed, Sky reported that 32% of its Sky+ watch recorded TV. The fact that 68% still watch live TV suggests to us that mobile TV does indeed have a future.

Deutsche Bank AG/London

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Figure 191: Mobile TV timeline

2005

Mobile Networks

3G/UMTS (2110-2170 MHz)

2006

Unicast video over 3G

DVB-S

Networks

in S-Band

2008

Beyond ‘08

MBMS

HSPDA

3GLTE

Service launches

Mixed Interactivity

Broadcast

2007

Better Video Quality

Unicast/Broadcast

DVB-H S-Band Broadcast Terrestrial launch

DVB-H S-Band Trials

(2170-2200 MHz)

DVB-H S-band National Coverage

Unlimited Usage plus Access Everywhere WiMAX Networks

WiMAX

Unicast video

(2.3/3.5 GHz)

Over WiMAX Networks

Possible Broadcast Implementation

Optimization Implementation

Alternative to 3G Broadcast Networks

DVB-H

DVB-H

in UHF

trials

(470-700 MHz)

Broadcast Networks

Unlimited Usage

S/T-DMB VHF/L/S-band (T=175-245-1400 MHz S=2.6GHz)

Broadcast Networks

FLO multi band (USA = 700MHz)

From 2010 on: Massive DVB-H Deployment

DVB-H Local Implementations

T-DMB T-DMB: Korean govt driving into other regions

Already launched

Unlimited Usage Trials with Verizon Wireless

Qualcomm pushing into other US carriers/CDMA customer base

Unlimited Usage

Source: Alcatel, Deutsche Bank

Video-telephony Since the early days of consumer-telephony, people have talked of adding video to their calls. Technology to do so was demonstrated in the early 1960s, but; although dedicated videophones have yet to find mass-popularity, the service is now used on other devices such as PCs and 3G mobiles. Video-calling is implemented on some 3G phones, and can be used on broadband-connected computers (often called video-conferencing) so long as they have a microphone, speakers and a webcam (a cheap digital camera - down to €20 - providing a video feed to a computer). Video-calling on mobiles is charged per minute like voice-calling, but at a premium. 3G tariffs often include a certain monthly allowance of video calls. Pricing varies in a range around €0.30 - €1 per minute. As bandwidth improves and more users discover the technology, free video-conferencing could challenge fixed-line call charges as the high-bandwidth cousin of VoIP (especially if image quality improves towards data-rates of TV or even DVD), whilst offering a service superior to the PSTN, rather than identical. Mobile video-calling is not yet popular, but enabled phones are increasingly widespread, creating a latent possibility for the service to take off if users develop a taste for it. Page 126

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Figure 192: Number of subscribers with TV embedded mobile phones 80 70 60 50 40 30 20 10 0 2005

2006

2007

DVB-H

2008 T-DMB

2009

2010 S-DMB

Source: Nokia

Gaming Computer games range from sophisticated fully-immersive experiences, using advanced technology to offer experiences akin to movies, to extremely basic offerings that may be entirely text-based. Particularly interesting are games played online with other players connected to the internet, games downloaded to mobile phones and online gambling. Games may be played through TVs, mobile phones, computers such as PCs and PDAs, and also dedicated gaming devices such as the Sony Playstation series. Figure 193: Game offered on 2G phones

Figure 194: Game offered on PCs and dedicated devices

Source: Deutsche Bank

Source: Games Digest

Music Advances in storage, compression, and processing technology, such as the invention of MP3, made it convenient to keep large amounts of music on computers, and to transmit it digitally. This means that music no longer requires physical media only the digital storage space that is found on all sorts of electronic devices, and it can thus be offered through telecommunications channels, then stored and played on communications devices. Music is offered through many different devices. Mobile phones are now available with sufficient storage capacity to act as music players, and these may well converge, with plans Deutsche Bank AG/London

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to produce a phone that mirrors the functionality of Apple’s iPod (a high-capacity digital music player, storing currently up to about 1000 hour-long albums). Even where storage is inadequate for much music, it may be sold as short ring-tones, which can have quality up to that of CDs. Computers such as PCs also store music, and this may be transferred onto dedicated music players, as is usual for the iPod. Music can be downloaded to devices through a sufficiently fast connection to the internet, as well as imported from media such as CDs. Any sufficiently fast internet platform that can connect to a music player, or can play music itself, may offer music downloads.

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Section 3: Reference

Deutsche Bank AG/London

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Country: Austria Figure 195: Austria: Key information Regulator

Rundfunk und Telekom Regulierungs (formerly TelekomControl )

Regulator URL

http://www.rtr.at

Liberalised

1998

Population

8,192,880 (July 2006 est.)

Median Age

total: 40.9 years

GDP 2005 est.(PPP)

$265.8bn

GDP per capita 2005 est. (PPP)

$32,500

Source: Deutsche Bank, CIA

Fixed-line services Figure 196: Austria: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

6

Total incumbent copper subscriber lines

2,749,831

Total Broadband

1,175,855

BB cable

40%

BB DSL

58%

Incumbent own-branded DSL

68%

Broadband penetration (lines per 100 inhabitants)

14.5%

Source: EcTA, EU

Mobile phones Figure 197: Austria mobile market Operator

Parent

Technology

Mobilkom Austria

Telekom Austria

GSM 900/1800, 3G

T-Mobile Austria

Deutsche Telekom

One Gmbh

Telenor/ EON AG

tele.ring 3 Austria

Launch date

Subscribers

Market share

2G

3G

(2Q’06)

(%)

Dec-93

Apr-03

3,437

39.3%

GSM 900/1800, 3G

Jul-96

Dec-03

2,095

24.0%

GSM 1800, 3G

Oct-98

Dec-03

1,817

20.8%

Deutsche Telekom

GSM 1800, 3G, WCDMA

May-00

Dec-03

1,053

12%

Hutchison Telecom

3G

-

May-03

345

3.9%

Source: GSM world, Company data

TV Figure 198: Austria: TV by household 2005 (Y/E) Total households

4,569,434

Cable penetration

38.2%

Satellite penetration

49.1%

Source: Screen Digest, Deutsche Bank analysis

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Country: Belgium Figure 199: Belgium: Key information Regulator

Belgian Institute of Postal services and Telecommunications

Regulator URL

http://www.ibpt.be

Liberalized

1998

Population

10,379,067 (July 2006 est.)

Median Age

total: 40.9 years

GDP 2005 est.(PPP)

$322bn

GDP per capita 2005 est. (PPP)

$31,100

Source: Deutsche Bank, CIA

Fixed-line services Figure 200: Belgium: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

8

Total incumbent copper subscriber lines

4,273,464

Total Broadband

1,904,491

BB cable

33%

BB DSL

67%

Incumbent own-branded DSL

78%

Broadband penetration (lines per 100 inhabitants)

18.3%

Source: EcTA, EU

Mobile phones Figure 201: Belgium mobile market Launch date

Subscribers

Market share

Operator

Parent

Technology

2G

3G

(2Q’06)

(%)

Proximus

Belgacom

GSM 900/1800, 3G

Jan-94

May-04

4,270

47.4%

Mobistar

France Telecom

GSM 900/1800, 3G

Aug-96

-

3,020

33.5%

BASE NV SA

KPN

GSM 900/1800, 3G

Mar-99

Sep-06

1,725

19.1%

Source: GSM world, Company data

TV Figure 202: Belgium: TV by household 2005 (Y/E) Total households Digital terrestrial penetration Cable penetration Satellite penetration

4,569,434 0.0% 93.8% 7.4%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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Country: Denmark Figure 203: Denmark: Key information Regulator

National IT and Telecom Agency http://www.itst.dk

Regulator URL Liberalised

1994

Population

5,450,661 (July 2006 est.)

Median Age

total: 39.8 years

GDP 2005 est.(PPP)

$189.3bn

GDP per capita 2005 est. (PPP)

$34,800

Source: Deutsche Bank, CIA

Fixed-line services Figure 204: Denmark: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

7

Total incumbent copper subscriber lines

1,982,848

Total Broadband

1,508,877

BB cable

26%

BB DSL

65%

Incumbent own-branded DSL

61%

Broadband penetration (lines per 100 inhabitants)

28%

Source: EcTA, EU

Mobile phones Figure 205: Denmark mobile market Operator

Parent

Technology

TDC Mobile

TDC

GSM 900/1800, 3G

Sonofon

Telenor

Launch date

Subscribers

Market share

2G

3G

(2Q’06)

(%)

Jul-92

Oct-05

2,516

49.6%

GSM 900/1800

Jul-92

-

1,310

25.8%

Telia Sonera Mobile Telia Sonera

GSM 900/1800, 3G

Jun-97

Dec-06*

1,127

22.2%

HI3G

3G

-

Oct-03

120

2.4%

Hutchison Telecom

Source: GSM world, Company data * Planned

TV Figure 206: Denmark: TV by household 2005 (Y/E) Total households

2,613,013

Cable penetration

60.4%

Satellite penetration

21.8%

Source: Screen Digest, Deutsche Bank analysis

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6 December 2006

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Country: Finland Figure 207: Finland: Key information Regulator

Finnish Communications Regulatory Authority http://www.ficora.fi

Regulator URL Liberalised

1998

Population

5,231,372 (July 2006 est.)

Median Age

total: 41.3 years

GDP 2005 est.(PPP)

$161.9bn

GDP per capita 2005 est. (PPP)

$31,000

Source: Deutsche Bank, CIA

Fixed-line services Figure 208: Finland: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

3

Total incumbent copper subscriber lines

3,180,000

Total Broadband

1,171,363

BB cable

13%

BB DSL

79%

Incumbent own-branded DSL

67%

Broadband penetration (lines per 100 inhabitants)

22%

Source: EcTA, EU

Mobile phones Figure 209: Finland mobile market Operator

Parent

Technology

Launch date 2G

3G

Subscribers

Market share

(2Q’06)

(%)

Sonera Mobile Networks

Telia Sonera

GSM 900/1800, 3G

Jun-92

Oct-04

2,466

46.5%

Radiolinja

Elisa

GSM 900/1800, 3G

Dec-91

Sep-04

1,983

37.4%

DNA

Finnet

GSM 900/1800, 3G

Jan-01

Dec-05

858

16.2%

Source: GSM world, Company data

TV Figure 210: Finland: TV by household 2005 (Y/E) Total households

2,459,567

Digital terrestrial penetration

26.9%

Cable penetration

52.0%

Satellite penetration

10.5%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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Country: France Figure 211: France: Key information Regulator

Autorité de Régulation des Télécommunications

Regulator URL

http://www.art-telecom.fr

Liberalised

1998

Population

60,876,136 (July 2006 est.)

Median Age

total: 39.1 years

GDP 2005 est.(PPP)

$1,794 bn

GDP per capita 2005 est. (PPP)

$29,600

Source: Deutsche Bank, CIA

Fixed-line services Figure 212: France: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

4

Total incumbent copper subscriber lines

33,150,028

Total Broadband

9,950,561

BB cable

6%

BB DSL

94%

Incumbent own-branded DSL

47%

Broadband penetration (lines per 100 inhabitants)

17%

Source: EcTA, EU

Mobile phones Figure 213: France mobile market Launch date

Subscribers

Market share

Operator

Parent

Technology

2G

3G

(2Q’06)

(%)

Orange

France Telecom

GSM 900/1800, 3G

Jul-92

Mar-06

22,390

46.3%

SFR

Vivendi /Vodafone

GSM 900 , 3G

Apr-93

Nov-04

17,415

36.0%

Bouygues

Bouygues

GSM 900/1800

Jan-96

-

8,542

17.7%

Source: GSM world, Company data

TV Figure 214: France: TV by household 2005 (Y/E) Total households Digital terrestrial penetration Cable penetration Satellite penetration

25,754,219 6.9% 14.28% 22.2%

Source: Screen Digest, Deutsche Bank analysis

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Country: Germany Figure 215: Germany: Key information Regulator

Federal Network Agency

Regulator URL

http://www.bundesnetzagentur.de

Liberalised

1998

Population

82,422,299 (July 2006 est.)

Median Age

total: 42.6 years

GDP 2005 est.(PPP)

$2,480 bn

GDP per capita 2005 est. (PPP)

$30,100

Source: Deutsche Bank, CIA

Fixed-line services Figure 216: Germany: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

12

Total incumbent copper subscriber lines

35,600,000

Total Broadband

10,711,952

BB cable

2%

BB DSL

97%

Incumbent own-branded DSL

62%

Broadband penetration (lines per 100 inhabitants)

13%

Source: EcTA, EU

Mobile phones Figure 217: Germany : mobile market Operator

Parent

Technology

Launch date

T-Mobile

Deutsche Telekom

GSM 900/1800, 3G

Vodafone

Vodafone

GSM 900/1800, 3G

E-Plus (KPN)

KPN

GSM 1800, 3G

O2

Telefónica

GSM 1800, 3G

Oct-98

Subscribers

Market share

2G

3G

(2Q’06)

(%)

Jul-92

Apr-04

30,415

37.2%

Jun-92

Jan-05

29,444

36.0%

May-94

Aug-04

11,852

14.5%

Nov-05

10,099

12.3%

Source: GSM world, Company data

TV Figure 218: Germany: TV by household 2005 (Y/E) Total households Digital terrestrial penetration

39,537,186 4.2%

Cable penetration

57.3%

Satellite penetration

41.7%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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Country: Greece Figure 219: Greece: Key information Regulator

EETT National Telecommunications and Post Commission

Regulator URL

http://www.eett.gr

Liberalised

2001

Population

10,688,058 (July 2006 est.)

Median Age

total: 40.8 years

GDP 2005 est.(PPP)

$238.2bn

GDP per capita 2005 est. (PPP)

$22,300

Source: Deutsche Bank, CIA

Fixed-line services Figure 220: Greece: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

4

Total incumbent copper subscriber lines

5,519,381

Total Broadband

160,113

BB cable

0%

BB DSL

99%

Incumbent own-branded DSL

70%

Broadband penetration (lines per 100 inhabitants)

1.5%

Source: EcTA, EU

Mobile phones Figure 221: Greece : mobile market Parent

Technology

2G

3G

(2Q’06)

(%)

CosmOTE

OTE

GSM 900/1800, 3G

Jan-98

May-04

4,825

37.3%

Vodafone Greece

Vodafone

GSM 900 , 3G

Jul-93

Nov-04

4,636

35.8%

TIM_Hellas

Private equity

GSM 900 , 3G

Jul-93

Sep-04

2,516

19.4%

GSM 1800

Jun-02

-

968

7.5%

Q Telecommunications Private equity

Launch date

Subscribers

Market share

Operator

Source: GSM world, Company data

TV Figure 222: Greece: TV by household 2005 (Y/E) Total households Digital terrestrial penetration Cable penetration Satellite penetration

4,139,299 0.0% 0.0% 13.1%

Source: Screen Digest, Deutsche Bank analysis

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Country: Ireland Figure 223: Ireland: Key information Regulator

The Commission for Communications Regulation

Regulator URL

http://www.comreg.ie

Liberalised

2002

Population

4,062,235 (July 2006 est.)

Median Age

total: 34 years

GDP 2005 est.(PPP)

$165.1bn

GDP per capita 2005 est. (PPP)

$41,100

Source: Deutsche Bank, CIA

Fixed-line services Figure 224: Ireland: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

n/a

Total incumbent copper subscriber lines

1,600,000

Total Broadband

271,078

BB cable

9%

BB DSL

75%

Incumbent own-branded DSL

75%

Broadband penetration (lines per 100 inhabitants)

7%

Source: EcTA, EU

Mobile phones Figure 225: Ireland : mobile market Launch date

Subscribers

Market share

Operator

Parent

Technology

2G

3G

(2Q’06)

(%)

Vodafone Ireland

Vodafone

GSM 900/1800, 3G

Jul-93

Nov-04

2,090

45.2%

O2 Ireland

Telefónica

GSM 900/1800, 3G

Mar-97

Mar-05

1,606

34.7%

Meteor Communications

Eircom

GSM 900/1800

Feb-01

-

683

14.8%

Hutchison 3G Ireland limited

Hutchison Telecom

3G

-

Jul-05

250*

5.4%

Source: GSM world, Company data, *23_aug 2006

TV Figure 226: Ireland: TV by household 2005 (Y/E) Total households

1,272,424

Cable penetration

48.7%

Satellite penetration

38.3%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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Country: Italy Figure 227: Italy: Key information Regulator

Italian Communications Authority (Autorità per le Garanzie nelle Comunicazioni)

Regulator URL

http://www.agcom.it

Liberalised

1998

Population

58,133,509 (July 2006 est.)

Median Age

total: 42.2 years

GDP 2005 est.(PPP)

$1,667 bn

GDP per capita 2005 est. (PPP)

$28,700

Source: Deutsche Bank, CIA

Fixed-line services Figure 228: Italy: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

4

Total incumbent copper subscriber lines

21,917,000

Total Broadband

7,028,300

BB cable

0%

BB DSL

95%

Incumbent own-branded DSL

73%

Broadband penetration (lines per 100 inhabitants)

12.1%

Source: EcTA, EU

Mobile phones Figure 229: Italy : mobile market Launch date

Subscribers

Market share

Operator

Parent

Technology

2G

3G

(2Q’06)

(%)

TIM

Telecom Italia

GSM 900/1800, 3G

Apr-95

Mar-05

30,408

43.4%

Vodafone Omnitel

Vodafone

GSM 900/1800, 3G

Sep-95

Mar-04

18,559

26.5%

Wind

Weather Investments SPA

GSM 900/1800, 3G

Mar-99

Oct-04

14,300

20.4%

H3G

Hutchison Telecom

3G

-

Mar-03

6,810*

9.7%

Source: GSM world, Company data * 23_Aug 2006

TV Figure 230: Italy: TV by household 2005 (Y/E) Total households (000’)

22,176

Digital terrestrial penetration (D DTT)

17.6%

Cable penetration Satellite penetration

0% 21.2%

Source: Screen Digest, Deutsche Bank analysis

Page 138

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6 December 2006

Telecommunications Telecom for beginners 2007

Country: Japan Figure 231: Japan: Key information Regulator

Ministry of Public Management, Home Affairs, Posts and Telecommunications

Regulator URL

http://www.soumu.go.jp

Liberalised

2001 (final stage liberalization)

Population (000)

127,464 (July 2006 est)

Median Age

Total: 42.9 years

GDP 2005 est.(PPP)

$4,025 bn

GDP per capita 2005 est. (PPP)

€31,600

Source: Deutsche Bank, CIA

Fixed-line services Figure 232: Japan: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

3

Total incumbent copper subscriber lines

52,545,000

Total Broadband

24,267,000 (Sept 2006)

BB cable

14%

BB DSL

60%

Source: Company data, Deutsche Bank

Mobile phones Figure 233: Japan : mobile market Launch date

Subscribers

Market share

Operator

Parent

Technology

2G

3G

(2Q’06)

(%)

NTT DoCoMo, Inc

NTT

3G

-

Oct-01

51,672.2

55.6%

Vodafone K.K. (JPhone)

Softbank mobile corp

UMTS, PDC, 3G

-

Dec-02

15,240.2

16.4%

Au (KDDI)

KDDI

CDMA

-

Apr-02

23,616.3

25.4%

TU-KA

KDDI

PDC

-

Apr-02-

2,340.6

2.5%

Source: Company data, Deutsche Bank

TV Figure 234: Japan: TV by household 2005 (Y/E) Total households

48,475.9

Digital terrestrial penetration (DTT)

10.0%

Cable penetration

38.8%

Satellite penetration

37.9%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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6 December 2006

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Country: Netherlands Figure 235: Netherlands Regulator

OPTA

Regulator URL

http://www.opta.nl

Liberalised

1998

Population

16,491,461 (July 2006 est.)

Median Age

total: 39.4 years

GDP 2005 est.(PPP)

$497.9bn

GDP per capita 2005 est. (PPP)

$30,300

Source: Deutsche Bank, CIA

Fixed-line services Figure 236: Netherlands: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

2

Total incumbent copper subscriber lines

6,907,000

Total Broadband

4,113,573

BB cable

38%

BB DSL

62%

Incumbent own-branded DSL

72%

Broadband penetration (lines per 100 inhabitants)

25.3%

Source: EcTA, EU

Mobile phones Figure 237: Netherlands : mobile market Operator

Parent

Technology

Launch date 2G

3G

Subscribers

Market share

(2Q’06)

(%)

KPN Mobile The Netherlands BV

KPN

GSM 900/1800, 3G

Jul-94

Oct-04

8,264

43.7%

Libertel-Vodafone

Vodafone

GSM 900/1800, 3G

Sep-95

Nov-04

3,881

20.5%

Telfort BV

KPN

GSM 1800

Sep-98

-

2,400*

12.7%

T-Mobile Netherlands

Deustche Telekom

GSM 1800, 3G

Feb-99

Nov-05

2,381

12.6%

GSM 1800

-Dec-98

-

1,996

10.5%

Orange Nederland France Telecom Source: GSM world, Company data

TV Figure 238: Netherlands: TV by household 2005 (Y/E) Total households Digital terrestrial penetration Cable penetration Satellite penetration

6,932,377 2.7% 93.5% 7.8%

Source: Screen Digest, Deutsche Bank analysis

Page 140

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6 December 2006

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Country: Norway Figure 239: Norway: Key information Regulator

Norwegian Post and Telecom Authority

Regulator URL

http://www.npt.no

Liberalised

1998

Population

4,610,820 (July 2006 est.)

Median Age

total: 38.4 years

GDP 2005 est.(PPP)

$196.4bn

GDP per capita 2005 est. (PPP)

$42,800

Source: Deutsche Bank, CIA

Fixed-line services Figure 240: Norway: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

4

Total incumbent copper subscriber lines

2,63,1000

Total Broadband

685,940

BB cable

11%

BB DSL

82%

Incumbent own-branded DSL

52%

Broadband penetration (lines per 100 inhabitants) Source: Informa; company data; Deutsche Bank analysis

Mobile phones Figure 241: Norway : mobile market Launch date

Subscribers

Market share

Operator

Parent

Technology

2G

3G

(2Q’06)

(%)

Telenor Mobil

Telenor

GSM 900/1800, 3G

May-93

Dec-04

2,709

68.6%

Netcom

Telia Sonera

GSM 900/1800, 3G

Sep-93

Jun-05

1,242

31.4%

Hutchison

Hutchison Telecom

3G

0.0%

Source: GSM world, Company data

TV Figure 242: Norway: TV by household 2005 (Y/E) Total households

1,900,003E

Cable penetration

48.6%

Satellite penetration

34.9%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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6 December 2006

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Country: Portugal Figure 243: Portugal: Key information Regulator

ANACOM Autoridade Nacional de Comunicações

Regulator URL

http://www.icp.pt

Liberalised

2000

Population

10,605,870 (July 2006 est.)

Median Age

total: 38.5 years

GDP 2005 est.(PPP)

$200.6bn

GDP per capita 2005 est. (PPP)

€19,000

Source: Deutsche Bank, CIA

Fixed-line services Figure 244: Portugal: Fixed-line subscribers: (Q405) No. of major competing fixed line operators (as at Sept ’05)

3

Total incumbent copper subscriber lines

3,201,757

Total Broadband

1,219,915

BB cable

42%

BB DSL

58%

Incumbent own-branded DSL

83%

Broadband penetration (lines per 100 inhabitants)

12%

Source: EcTA, EU

Mobile phones Figure 245: Portugal : mobile market Parent

Technology

2G

3G

(2Q’06)

(%)

TMN

Portugal Telecom

GSM 900/1800, 3G

Oct-92

Apr-04

5,343

44.1%

Optimus

Sonaecom / France Telecom

GSM 900/1800, 3G

Aug-98

Jul-04

2,403

19.8%

GSM 900/1800, 3G

Oct-92

Feb-04

4,366

36.0%

Vodafone Portugal Vodafone

Launch date

Subscribers

Market share

Operator

Source: GSM world, Company data

TV Figure 246: Portugal: TV by household 2005 (Y/E) Total households

3,362,402

Cable penetration

44.4%

Satellite penetration

15.0%

Source: Screen Digest, Deutsche Bank analysis

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6 December 2006

Telecommunications Telecom for beginners 2007

Country: Spain Figure 247: Spain: Key information Regulator

CMT Comision del Mercado de las Telecommunications

Regulator URL

http://www.cmt.es

Liberalised

Q4 1998

Population

40,397,842 (July 2006 est.)

Median Age

total: 39.9 years

GDP 2005 est.(PPP)

$1,033bn

GDP per capita 2005 est. (PPP)

$25,600

Source: Deutsche Bank, CIA

Fixed-line services Figure 248: Spain: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

6

Total incumbent copper subscriber lines

17,266,520

Total Broadband

4,788,484

BB cable

20%

BB DSL

80%

Incumbent own-branded DSL

70%

Broadband penetration (lines per 100 inhabitants)

11%

Source: EcTA, EU

Mobile phones Figure 249: Spain : mobile market Parent

Technology

2G

3G

(2Q’06)

(%)

TEM

Telefónica

GSM 900/1800, 3G

Jul-95

Feb-04

20,655

45.7%

Vodafone Espana SA

Vodafone

GSM 900/1800, 3G

Jul-95

May-04

13,949

30.9%

GSM 1800, 3G

Oct-95

May-04

10,601

23.5%

-

Dec-06 (planned)

-

-

(Amena) Retevision France Telecom Movil S.A Xfera

TeliaSonera

3G

Launch date

Subscribers

Market share

Operator

Source: GSM world, Company data

TV Figure 250: Spain: TV by household 2005 (Y/E) Total households Digital terrestrial penetration Cable penetration Satellite penetration

14,175,767 5.2% 9.28% 17.52%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

Country: Sweden Figure 251: Sweden: Key information Regulator

PTS The National Post and Telecom Agency (Post-och Telestyrelsen)

Regulator URL

http://www.pts.se

Liberalised

1993

Population

9,016,596 (July 2006 est.)

Median Age

total: 40.9 years

GDP 2005 est.(PPP)

$268.3bn

GDP per capita 2005 est. (PPP)

$29,800

Source: Deutsche Bank, CIA

Fixed-line services Figure 252: Sweden: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

10

Total incumbent copper subscriber lines

5,403,000

Total Broadband

1,886,821

BB cable

19%

BB DSL

66%

Incumbent own-branded DSL

58%

Broadband penetration (lines per 100 inhabitants)

21%

Source: EcTA, EU

Mobile phones Figure 253: Sweden : mobile market Operator

Parent

Technology

Launch date

Subscribers

Market share

(2Q’06)

(%)

2G

3G

GSM 900/1800, 3G

Nov-92

-

4,439

46.9%

GSM 900, 3G

Sep-92

-

3,235

34.2%

Telenor Sverige AB Telenor

GSM 900/1800, 3G

Sep-92

Dec-04

1,676

17.7%

Hi3G Access AB

3G

-

Jan-04

120

1.3%

TeliaSonera Mobile Networks AB Telia Sonera Tele 2 AB

Tele2 Hutchison Telecom

Source: GSM world, Company data

TV Figure 254: Sweden: TV by household 2005 (Y/E) Total households

4,035,744E

Digital terrestrial penetration

13.6%

Cable penetration

61.9%

Satellite penetration

28.0%

Source: Screen Digest, Deutsche Bank analysis

Page 144

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6 December 2006

Telecommunications Telecom for beginners 2007

Country: Switzerland Overview Figure 255: Switzerland: Key information Regulator

Federal Office for Communications (OFCOM/BAKOM)

Regulator URL

http://www.bakom.admin.ch

Liberalised

1998

Population

7,523,934 (July 2006 est.)

Median Age

total: 40.1 years

GDP 2005 est.(PPP)

$240.9bn

GDP per capita 2005 est. (PPP)

$32,200

Source: Deutsche Bank, CIA

Fixed-line services Figure 256: Switzerland: Fixed-line subscribers: (Q4’05) No. of major competing fixed line operators

3

Total incumbent copper subscriber lines

3,931,000

Total Broadband

1,600,000

BB cable(Oct 2005)

36%

BB DSL(Oct 2005)

64%

Incumbent own-branded DSL

39%

Broadband penetration (lines per 100 inhabitants)

25%

Source: Informa; company data; Deutsche Bank analysis

Mobile phones Figure 257: Switzerland : mobile market Operator

Parent

Swisscom Mobile Ltd

Swisscom and Vodafone

TDC Switzerland AG (Sunrise) Orange Communications SA

Technology

Launch date

Subscribers

Market share

(2Q’06)

(%)

2G

3G

GSM 900/1800, 3G

Mar-93

Aug-04

4,469

63.5%

TDC

GSM 900/1800, 3G

Dec-98

Dec-05

1,289

18.3%

France Telecom

GSM 1800, 3G

Jun-99

Sep-05

1,285

18.2%

Source: GSM world, Company data

TV Figure 258: Switzerland: TV by household 2005 (Y/E) Total households Digital terrestrial penetration

3,111,536 0.1%

Cable penetration

90.4%

Satellite penetration

26.1%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

Country: US Overview Figure 259: US: Key information Regulator

Federal Communications Commission(FCC)

Regulator URL

http://www.fcc.gov

Liberalised Population

298,444 (July 2006 est.)

Median Age

total: 36.5 years

GDP 2005 est.(PPP)

$12.31 trillion

GDP per capita 2005 est. (PPP)

$41,600

Source: Deutsche Bank, CIA

Mobile phones Figure 260: US : mobile market Operator

Cingular Wireless T-Mobile USA, Inc

Sprint Nextel Verizon Wireless

Alltel

Parent

Technology

HSDPA, UMTS, EDGE, GPRS, TDMA,GSM AT&T and BellSouth 850/1900/3G

Launch date

Subscribers

Market share

2G

3G

(2Q’06)

(%)

Jul-96

Jul-04

57,308

30.4%

23,534

12.5%

Deutsche Telekom

UMA, EDGE, GPRS,GSM 1900

Jan-96

Sprint Nextel Corporation

CDMA2000 1xEV-DO, CDMA2000 1x, CDMA (Sprint PCS), WiDEN, iDEN

Apr-99

Aug-02

41,860

22..2%

Verizon

CDMA2000 1xEV-DO, CDMA2000 1x, CDMA

Apr--00

Jan-02

54,834

29.1%

Alltel Corp

GSM 850 /1900CDMA2000 1xEVDO, CDMA2000 1x, CDMA, AMPS

Jan-96

Sep-03

11,085

5.9%

Source: GSM world, Company data

TV Figure 261:US TV by household 2005 (Y/E) Total households

113,428

Cable penetration

65.9%

Satellite penetration

24.3%

Source: Screen Digest, Deutsche Bank analysis

Page 146

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6 December 2006

Telecommunications Telecom for beginners 2007

Country: United Kingdom Figure 262: United Kingdom: Key information Regulator

Ofcom

Regulator URL

http://www.ofcom.org.uk

Liberalised

1997

Population

60,609,153 (July 2006 est.)

Median Age

total: 39.3 years

GDP 2005 est.(PPP)

$1,818 bn

GDP per capita 2005 est. (PPP)

$30,100

Source: Deutsche Bank, CIA

Fixed Line Services Figure 263: United Kingdom: Fixed-line subscribers (Q4’05) No. of major competing fixed line operators (as at Sept ’05)

11

Total incumbent copper subscriber lines

25,874,403

Total Broadband

9,840,518

BB cable

27%

BB DSL

73%

Incumbent own-branded DSL

37%

Broadband penetration (lines per 100 inhabitants)

16.5%

Source: EcTA, EU

Mobile phones Figure 264: United Kingdom : mobile market Launch date

Subscribers

Market share

Operator

Parent

Technology

2G

3G

(2Q’06)

(%)

T-Mobile

Deutsche Telekom

GSM 1800, 3G

Sep-93

Oct-05

16,730

24.7%

O2

Telefónica

GSM 900/1800, 3G

Dec-93

Feb-05

16,341

24.1%

Vodafone

Vodafone

GSM 900/1800, 3G

Jul-92

Apr-04

16,185

23.9%

Orange

France Telecom

GSM 1800, 3G

Apr-94

Jul-04

14,951

22.1%

Hutchison 3G

Hutchison Telecom

3G

-

Mar-03

3,500*

5.2%

Source: GSM world, Company data *23 Aug Company data

TV Figure 265: United Kingdom: TV by household 2005 (Y/E) Total households

26,616,883

Digital terrestrial penetration

25.0%

Cable penetration

12.9%

Satellite penetration

32.0%

Source: Screen Digest, Deutsche Bank analysis

Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

Appendix A: European telecoms SWOT In the following two figures (Figure 266 and Figure 267 we compare the SWOT of an incumbent operator with that of a new entrant. Clearly, there are some generic overlaps and many of the threats to one set of operators are opportunities to others, but there are also several distinct differences. Figure 266: Incumbent operator SWOT Strengths

Weaknesses

Strong domestic market share

Often running inefficient business models with high cost base (especially headcount) due to legacy of state ownership

Ownership of local access network

Burden of interconnect fees (origination / transit / termination charges)

Strong brand awareness and distribution

Difficulties in balancing revenue and market share declines

Benefit from scale economies – can generate strong margins and continues to generate high returns

Often subjects to political influence, where the “good of the state” may be put before economic/value add considerations.

Significant free cash flow allowing operates to mount a defence against competition High gross margins Opportunities

Threats

Interestingly, incumbents are technology incubators and therefore can benefit from new products such as IPTV

Competition - Local Loop Unbundling (infrastructure light competitors); alternative infrastructure e.g. Cable; and alternative technologies and platforms such as VOIP

Opportunity to invest in new markets. Often a strong cash flow position and strong asset base enabling them to raise finance easily

Regulation - e.g. Ofcom continues to increase competition in the UK through introduction of LLU and pressure on wholesale pricing and interconnect rates

Opportunity for cross selling and bundling of products

Alternative providers bundling ‘free’ fixed line services such as broadband with existing products

Source: Deutsche Bank

Figure 267: New entrant SWOT Strengths

Weaknesses

Exploiting declining barriers to entry

Lack of infrastructure means they are wholesale dependent

Speed of entry into market

Low gross margins

Low capital expenditure enables them to be price competitive

Lack scale of large established fixed line / wireless operators

Suitable cost base

Risk of being single technology exposed

Opportunities

Threats

Local loop unbundling enabling cross-sell and bundling of products into dual/triple play packages

Price competition from incumbents

Further regulatory pressures on incumbents making infrastructure access more price competitive

Threat of other infrastructure light entrants e.g. MVNOs which also have low barriers to entry

First more advantage can drive superior returns

Large operators with greater scale and resources can offer wider product range and new technologies

Can more appropriately segment markets Source: Deutsche Bank

Page 148

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Appendix B: European UMTS licenses Figure 268: Summary of European UMTS licenses (Euro m) Austria

License winner

Current parent

License cost

Spectrum

Telekom Austria

Telekom Austria

121

2x 5 MHz + 5 MHz

T-Mobile

Deutsche Telekom

120

2x 5 MHz + 5 MHz

Connect

Various (Eon, Telenor, France Telecom and TDC)

120

2x 5 MHz + 5 MHz

tele.ring

Deutsche Telekom

118

2x 5 MHz + 5 MHz

H3G

Hutchison Telecom

114

2x 5 MHz + 5 MHz

TEM

Returned to regulator by Telefónica

113

2x 5 MHz + 5 MHz

Total Belgium

706

Proximus

Belgacom

150

2x 15 MHz + 5 MHz

Mobistar

France Telecom

150

2x 15 MHz + 5 MHz

Base

KPN

150

2x 15 MHz + 5 MHz

Total Denmark

450

TDC

TDC

129

2x 20 MHz + 5 MHz

Orange

Telenor

129

2x 20 MHz + 5 MHz

TeliaSonera

TeliaSonera

129

2x 20 MHz + 5 MHz

H3G

Hutchison Telecom

129

2x 20 MHz + 5 MHz

Total France

516

Orange

France Telecom

619

2x 15 MHz + 5 MHz

also 1% of 3G revs

SFR

SFR (Vivendi)

619

2x 15 MHz + 5 MHz

also 1% of 3G revs

Bouygues

Bouygues Telecom

619

2x 15 MHz + 5 MHz

also 1% of 3G revs

4th license available

2x 15 MHz + 5 MHz

Total Finland

1,857

TeliaSonera

TeliaSonera

0

2x 15 MHz + 5 MHz

Elisa

Elisa

0

2x 15 MHz + 5 MHz

DNA

DNA (Finnet)

0

2x 15 MHz + 5 MHz

Total Germany

0

T-Mobile

Deutsche Telekom

8,490

2x 10 MHz + 5 MHz

Vodafone

Vodafone

8,420

2x 10 MHz + 5 MHz

mmO2

Telefónica

8,440

2x 10 MHz + 5 MHz

KPN E-Plus

KPN

8,390

2x 10 MHz + 5 MHz

Mobilcom

Returned to regulator by Mobilcom

8,340

2x 10 MHz + 5 MHz

TEM (Quam)

Returned to regulator by Telefónica

8,410

2x 10 MHz + 5 MHz

Total Greece

Comments

50,490

Vodafone Panafon

Vodafone

176

2x 20 MHz + 5 MHz

Cosmote

OTE

161

2x 20 MHz + 5 MHz

Stet Hellas

Private equity

147

2x 20 MHz + 5 MHz

Q Telecom

Private equity

Total

484

Source: National regulators and company data

Deutsche Bank AG/London

Page 149

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 269: Summary of European UMTS licenses (Euro m) Ireland

Italy

License winner

Current parent

License cost

Spectrum

Vodafone mmO2

Vodafone

114

2x 15 MHz + 5 MHz

Telefónica

114

H3G

Hutchison Telecom

2x 15 MHz + 5 MHz

51

2x 15 MHz + 5 MHz

Smart

57

2x 15 MHz + 5 MHz

Total

336

TIM

Telecom Italia

2,417

2x 10 MHz + 5 MHz

Vodafone Omnitel

Vodafone

2,448

2x 10 MHz + 5 MHz

Wind

Weather Investments

2,427

2x 10 MHz + 5 MHz

H3G

Hutchison Telecom

2,427

2x 15 MHz + 5 MHz

TEM (IPSE)

Returned to regulator by Telefónica

2,422

2x 10 MHz + 5 MHz

Total Netherlands KPN

12,141 KPN

715

2x 15 MHz + 5 MHz

Vodafone Libertel

Vodafone

714

2x 15 MHz + 5 MHz

mmO2

KPN

430

2x 10 MHz + 5 MHz

Dutchtone

France Telecom

437

2x 10 MHz + 5 MHz

Ben

Deutsche Telekom

395

2x 10 MHz + 5 MHz

Total Norway

2,691

Telenor

Telenor

50

2x 15 MHz + 5 MHz

Netcom

TeliaSonera

50

2x 15 MHz + 5 MHz

H3G

Hutchison Telecom

50

2x 15 MHz + 5 MHz

50

2x 15 MHz + 5 MHz

4th license available Total Portugal

200

TMN

Portugal Telecom

100

2x 15 MHz + 5 MHz

Vodafone Telecel

Vodafone

100

2x 15 MHz + 5 MHz

Optimus

Sonae.com

100

2x 15 MHz + 5 MHz

OniWay

Distributed to the other three license holders

100

2x 15 MHz + 5 MHz

Total Spain

400

Telefónica Móviles

Telefónica

130

2x 15 MHz + 5 MHz

Vodafone

Vodafone

130

2x 15 MHz + 5 MHz

Amena

France Telecom

130

2x 15 MHz + 5 MHz

Xfera

TeliaSonera

130

2x 15 MHz + 5 MHz

Total Switzerland

520

Swisscom Mobile

Swisscom

33

2x 15 MHz + 5 MHz

Sunrise

TDC

33

2x 15 MHz + 5 MHz

Orange

France Telecom

33

2x 15 MHz + 5 MHz

TEM

Returned to regulator by Telefónica

33

2x 15 MHz + 5 MHz

Total

Comments

132

Source: National regulators and company data

Page 150

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 270: Summary of European UMTS licenses (Euro m) Sweden

License winner

Current parent

License cost

Spectrum

Tele2 Vodafone Europolitan

Tele2

0

2x 15 MHz + 5 MHz

Telenor

0

2x 15 MHz + 5 MHz

TeliaSonera

TeliaSonera

0

2x 15 MHz + 5 MHz

H3G

Hutchison Telecom

0

2x 15 MHz + 5 MHz

Total UK

0

Vodafone

Vodafone

9,030

2x 15 MHz

mmO2

Telefónica

6,100

2x 15 MHz + 5 MHz

Orange

France Telecom

6,200

2x 10 MHz + 5 MHz

T-Mobile

Deutsche Telekom

6,061

2x 10 MHz + 5 MHz

H3G

Hutchison Telecom

6,636

2x 10 MHz + 5 MHz

Total Total

Comments

34,027 104,950

Source: National regulators and company data

Deutsche Bank AG/London

Page 151

6 December 2006

Telecommunications Telecom for beginners 2007

Appendix C: AWS auctions On 19 September 2006, the FCC ended the AWS auction in the US. The total spent was $13.9bn for the 90MHz nationwide spectrum. In Figure 274 we show the winning bids in term of total spend and by license category, and in Figure 275, the wining bids on the most valuable licenses. We would also flag however that Cellco, the Verizon wireless bidding vehicle, spent the most per pop, at around $14.6, whereas T-Mobile USA spent around $8.8 as we show in Figure 271. To calculate the population we have attributed to each license the population as defined by the allocation of bidding units, which does not account for license overlap. Figure 271: Total license spend per pop ($) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0

Atlantic Wireless, L.P.

AWS Wireless Inc.

Barat Wireless, L.P.

Denali Spectrum License, LLC

Cricket Licensee (Reauction), Inc.

Cingular AWS, LLC

MetroPCS AWS, LLC

SpectrumCo LLC

Wireless

Cellco Partnership d/b/a Verizon

T-Mobile License LLC

0.0

Source: FCCs

In Figure 272 we show the cost per license per pop, normalizing for spectrum capacity.

Page 152

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 272: Cost per pop of the REA licenses adjusted for spectrum allocation Cost per pop

Cost per pop (adjusted for spectrum allocation)

Cellco Partnership d/b/a Ve

26.7

13.3

T-Mobile License LLC

17.9

8.9

Great Lakes

Cellco Partnership d/b/a Ve

10.6

5.3

AW-REA002-F

Southeast

Cellco Partnership d/b/a Ve

11.5

5.8

AW-REA001-D

Northeast

MetroPCS AWS, LLC

11.0

11.0

AW-REA001-E

Northeast

T-Mobile License LLC

9.4

9.4

AW-REA005-F

Central

T-Mobile License LLC

11.7

5.8

AW-REA006-E

West

Cingular AWS, LLC

7.3

7.3

AW-REA003-E

Great Lakes

T-Mobile License LLC

6.1

6.1

AW-REA006-D

West

MetroPCS AWS, LLC

7.1

7.1

Lic. Name

Market Name

PW Bidder

AW-REA001-F

Northeast

AW-REA006-F

West

AW-REA003-F

Source: FCC

Figure 273: Adjusted cost per pop ($) 14

13.3

12

11 9.4

10

8.9 7.3

8

7.1 6.1

5.8

5.8 5.3

6 4 2

Cellco

Great Lakes -

Central - TMO

Cellco

Southeast -

TMO

Great Lakes -

West -

MetroPCS

West - Cingular

West - TMO

TMO

Northeast -

MetroPCS

Northeast -

Cellco

Northeast -

0

Source: FCC

Deutsche Bank AG/London

Page 153

6 December 2006

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Figure 274: Top 10 bidders by net provisionally winning bids Bidder T-Mobile License LLC Cellco Partnership d/b/a Verizon Wireless SpectrumCo LLC MetroPCS AWS, LLC

PWBs*

Population

Net PWB* Total ($)

PWB* Total ($)

120

474,718,308

4,182,312,000

4,182,312,000

13

192,047,611

2,808,599,000

2,808,599,000

137

267,387,437

2,377,609,000

2,377,609,000

8

144,544,402

1,391,410,000

1,391,410,000

Cingular AWS, LLC

48

198,768,198

1,334,610,000

1,334,610,000

Cricket Licensee (Reauction), Inc.

99

117,802,839

710,214,000

710,214,000

1

58,178,304

274,083,750

365,445,000

Barat Wireless, L.P.

17

41,601,174

127,140,000

169,520,000

AWS Wireless Inc.

154

60,498,394

115,503,000

115,503,000

15

35,803,110

75,294,000

100,392,000

PWBs*

Population

Net PWB* Total ($)

PWB* Total ($)

Denali Spectrum License, LLC

Atlantic Wireless, L.P. Top 10 Bidders by Number of Provisionally Winning Bids Bidder AWS Wireless Inc.

154

60,498,394

115,503,000

115,503,000

SpectrumCo LLC

137

267,387,437

2,377,609,000

2,377,609,000

T-Mobile License LLC

120

474,718,308

4,182,312,000

4,182,312,000

Cricket Licensee (Reauction), Inc.

99

117,802,839

710,214,000

710,214,000

American Cellular Corporation

84

22,639,578

64,782,000

64,782,000

Cingular AWS, LLC

48

198,768,198

1,334,610,000

1,334,610,000

Red Rock Spectrum Holdings, LLC

42

5,481,709

7,466,000

7,466,000

Cable One, Inc.

30

4,795,074

22,148,000

22,148,000

Cavalier Wireless, LLC

30

13,313,269

14,957,250

19,943,000

Barat Wireless, L.P.

17

41,601,174

127,140,000

169,520,000

PWBs*

Population

Net PWB* Total ($)

PWB* Total ($) 2,376,176,000

Top 5 Bidders by Number of PWBs* In Each Geographic Licensing Group BEA

Bidder

SpectrumCo LLC

136

266,175,900

2,376,176,000

AWS Wireless Inc.

48

28,333,075

42,979,000

42,979,000

Cricket Licensee (Reauction), Inc.

25

34,932,012

139,021,000

139,021,000

Cingular AWS, LLC

24

65,557,424

450,314,000

450,314,000

T-Mobile License LLC

17

45,436,013

229,503,000

229,503,000

PWBs*

Population

Net PWB* Total ($)

PWB* Total ($)

105

28,248,097

69,798,000

69,798,000

T-Mobile License LLC

93

93,681,616

1,088,866,000

1,088,866,000

Cricket Licensee (Reauction), Inc.

73

42,526,867

448,909,000

448,909,000

American Cellular Corporation

73

16,703,526

53,133,000

53,133,000

Red Rock Spectrum Holdings, LLC

37

4,416,425

6,264,000

6,264,000

PWBs*

Population

Net PWB* Total ($)

PWB* Total ($)

CMA

Bidder

AWS Wireless Inc.

REA

Bidder

T-Mobile License LLC

10

335,600,679

2,863,943,000

2,863,943,000

Cellco Partnership d/b/a Verizon Wireles

4

189,240,313

2,798,738,000

2,798,738,000

Cingular AWS, LLC

3

94,260,346

500,232,000

500,232,000

MetroPCS AWS, LLC

2

100,057,254

908,420,000

908,420,000

Space Data Spectrum Holdings, LLC

2

626,932

782,250

1,043,000

* PWB = Provisionally Winning Bid Source: FCC

Page 154

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 275: Top 10 licenses by provisional winning bids (net) ($) Geo. Desc. BEA Lic. Name

Market Name

PW Bidder

Round of PWB*

Pops

PWB* (Net) ($)

PWB* (Gross) ($)

AW-BEA010-B

NYC-Long Is. NY-NJ-CT

SpectrumCo LLC

20

25,712,577

468,178,000

468,178,000

AW-BEA010-C

NYC-Long Is. NY-NJ-CT

MetroPCS AWS, LLC

41

25,712,577

363,945,000

363,945,000

AW-BEA064-B

Chicago-Gary-Kenosha

SpectrumCo LLC

43

10,328,854

228,041,000

228,041,000

AW-BEA160-B

LA-Riverside-Orange Cn

SpectrumCo LLC

32

18,003,420

215,620,000

215,620,000

AW-BEA064-C

Chicago-Gary-Kenosha

Cingular AWS, LLC

53

10,328,854

162,082,000

162,082,000

AW-BEA013-B

Wash.-Balt. DC-MD-VA-

SpectrumCo LLC

47

8,403,130

148,708,000

148,708,000

AW-BEA160-C

LA-Riverside-Orange Cn

T-Mobile License LLC

34

18,003,420

114,816,000

114,816,000

AW-BEA163-B

San Fran.-Oakland-San

SpectrumCo LLC

46

9,111,806

80,834,000

80,834,000

AW-BEA057-B

Detroit-Ann Arbor-Flint

SpectrumCo LLC

50

6,963,637

78,988,000

78,988,000

AW-BEA012-B

Phil.-Atl. City PA-NJ-DE

SpectrumCo LLC

37

7,309,792

77,838,000

77,838,000

Lic. Name

Market Name

PW Bidder

Round of PWB*

Pops

PWB* (Net) ($)

PWB* (Gross) ($)

AW-CMA001-A

New York-Newark, NY-

T-Mobile License LLC

23

16,134,166

396,232,000

396,232,000

AW-CMA003-A

Chicago, IL

T-Mobile License LLC

51

8,091,720

254,821,000

254,821,000

AW-CMA002-A

Los Angeles-Anaheim,

Cingular AWS, LLC

33

15,620,448

179,161,000

179,161,000

AW-CMA008-A

Washington, DC-MD-VA

Cricket Licensee (Reauctio

38

4,182,658

133,150,000

133,150,000

AW-CMA004-A

Philadelphia, PA

Cricket Licensee (Reauctio

48

5,036,646

82,565,000

82,565,000

AW-CMA005-A

Detroit-Ann Arbor, MI

T-Mobile License LLC

52

4,775,452

65,187,000

65,187,000

AW-CMA009-A

Dallas-Fort Worth, TX

Cingular AWS, LLC

36

5,120,721

50,682,000

50,682,000

AW-CMA014-A

Baltimore, MD

Cricket Licensee (Reauctio

52

2,512,431

43,657,000

43,657,000

AW-CMA006-A

Boston-Brockton-Lowell,

T-Mobile License LLC

32

4,279,111

36,787,000

36,787,000

AW-CMA012-A

Miami-Fort Lauderdale,

T-Mobile License LLC

32

3,876,380

35,633,000

35,633,000

Lic. Name

Market Name

PW Bidder

Round of PWB*

Pops

PWB* (Net) ($)

PWB* (Gross) ($)

AW-REA001-F

Northeast

Cellco Partnership d/b/a Ve

16

50,058,090

1,335,374,000

1,335,374,000

AW-REA006-F

West

T-Mobile License LLC

15

49,999,164

894,590,000

894,590,000

AW-REA003-F

Great Lakes

Cellco Partnership d/b/a Ve

14

58,178,304

615,923,000

615,923,000

AW-REA002-F

Southeast

Cellco Partnership d/b/a Ve

14

49,676,946

572,446,000

572,446,000

AW-REA001-D

Northeast

MetroPCS AWS, LLC

18

50,058,090

552,694,000

552,694,000

AW-REA001-E

Northeast

T-Mobile License LLC

17

50,058,090

472,553,000

472,553,000

AW-REA005-F

Central

T-Mobile License LLC

15

40,343,960

470,290,000

470,290,000

AW-REA006-E

West

Cingular AWS, LLC

15

49,999,164

362,757,000

362,757,000

AW-REA003-E

Great Lakes

T-Mobile License LLC

19

58,178,304

356,780,000

356,780,000

AW-REA006-D

West

MetroPCS AWS, LLC

14

49,999,164

355,726,000

355,726,000

Geo. Desc. CMA

Geo. Desc. REA

* PWB = Provisionally Winning Bid Source: FCC

How Auction 66 worked? On 9 August, bidding started in the auction of Advanced Wireless Services (AWS) licenses in the 1710-1755MHz and the 2110-2155MHZ bands (known as Auction 66). In total, 168 applicants qualified to participate and the auction was conducted through the simultaneous auction of a total of 1,122 licenses and lasted for 161 rounds.

Deutsche Bank AG/London

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6 December 2006

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Figure 276: AWS band plan

Source: FCC

Figure 277: AWS band plan (additional details)

Source: FCC

Spectrum and licenses In each geography there were multiple licenses (up to 6) with different spectrum allocations (either 20 MHz or 10 MHz). The licenses are split into Cellular Market Areas (CMA), Economic Areas (EA/BEA) and Regional Economic Areas (REA/REAG).

Page 156

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 278: Breakdown of AWS licenses Frequency Bands (MHz)

Total Bandwidth

Geographic Area Type

No. of Licenses

A

1710-1720 / 2110-2120

20 MHz

CMA

734

B

1720-1730 / 2120-2130

20 MHz

EA

176

C

1730-1735 / 2130-2135

10 MHz

EA

176

D

1735-1740 / 2135-2140

10 MHz

REAG

12

E

1740-1745 / 2140-2145

10 MHz

REAG

12

F

1745-1755 / 2145-2155

20 MHz

REAG

12

Block

Source: FCC

For example, in the New York area there are six routes to gaining spectrum and we summarize all the licenses that cover New York City and New York State in Figure 279. Figure 279: Summary of license options for New York and New York State Market Number

Description

License Number

Frequencies Channel Block (MHz)

Population

Bandwidth Bidding Units (MHz)

Upfront Payment

Minimum Opening Bid

CMA001

New York-Newark, AW-CMA001-A NY-NJ

1710-1720 / 2110-2120

A

16,134,166

20

16,134,000

$16,134,000

$16,134,000

CMA559

New York 1 - AW-CMA559-A Jefferson

1710-1720 / 2110-2120

A

250,613

20

150,000

$150,000

$150,000

CMA560

New York 2 - AW-CMA560-A Franklin

1710-1720 / 2110-2120

A

230,331

20

138,000

$138,000

$138,000

CMA561

New York 3 - AW-CMA561-A Chautauqua

1710-1720 / 2110-2120

A

476,152

20

286,000

$286,000

$286,000

CMA562

New York 4 - Yates AW-CMA562-A

1710-1720 / 2110-2120

A

355,651

20

213,000

$213,000

$213,000

CMA563

New York 5 - Otsego AW-CMA563-A

1710-1720 / 2110-2120

A

393,028

20

236,000

$236,000

$236,000

CMA564

New York 6 - AW-CMA564-A Columbia

1710-1720 / 2110-2120

A

111,289

20

67,000

$67,000

$67,000

BEA010

NYC-Long Is. NY-NJ- AW-BEA010-B CT-PA-MA-VT

1720-1730 / 2120-2130

B

25,712,577

20

24,972,000

$24,972,000

$24,972,000

BEA010

NYC-Long Is. NY-NJ- AW-BEA010-C CT-PA-MA-VT

1730-1735 / 2130-2135

C

25,712,577

10

12,486,000

$12,486,000

$12,486,000

REA001

Northeast AW-REA001-D

1735-1740 / 2135-2140

D

50,058,090

10

23,877,000

$23,877,000

$23,877,000

REA001

Northeast AW-REA001-E

1740-1745 / 2140-2145

E

50,058,090

10

23,877,000

$23,877,000

$23,877,000

REA001

Northeast AW-REA001-F

1745-1755 / 2145-2155

F

50,058,090

20

47,754,000

$47,754,000

$47,754,000

Source: FCC

Bidding units In Figure 279 we highlight the bidding units in New York. A bidding unit was effectively equivalent to $1 and based on the population in the license area. A bidding unit was required to participate in the auction for a license. For example, again referring to Figure 279, for an operator to bid for a Block F license, it needs to have bought 47.754m bidding units. Given New York is one of the key states in the auction, T-Mobile USA has bought sufficient bidding units to participate in all 12 license listed (150.19m units at a cost of $150.19m). Although TMobile USA may choose to bid for a REAG license Block F, the company may decide it is more economic to win Block D. In Figure 280 we summarize how the US geography was spit by license type and the bidding units. It is worth highlighting that the final license payments at the conclusion of the auction were net of the upfront payments (i.e. the cost of the bidding units).

Deutsche Bank AG/London

Page 157

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 280: Summary of AWS licenses Market Area

Totals By Channel Block* Total Number of licenses

Total bidding units Total upfront payments

Total of minimum opening bid amounts

Cellular Market Area (CMA) Licenses Channel Block A (20 MHz)

734

259,332,500

$259,332,500

$259,332,500

Channel Block B (20 MHz)

176

259,342,000

$259,342,000

$259,342,000

Channel Block C (10 MHz)

176

129,678,000

$129,678,000

$129,678,000

Total EA Licenses

352

389,020,000

$389,020,000

$389,020,000

Channel Block D (10 MHz)

12

129,672,000

$129,672,000

$129,672,000

Channel Block E (10 MHz)

12

129,672,000

$129,672,000

$129,672,000

Channel Block F (20 MHz)

12

259,341,000

$259,341,000

$259,341,000

Total REAG Licenses

36

518,685,000

$518,685,000

$518,685,000

1,122

1,167037,500

$1,167,037,500

$1,167,037,500

Economic Area (EA) (or Basic Economic Area (BEA)) Licenses

Regional Economic Area Grouping (REAG) Licenses

Total Source: FCC

In Figure 281 to Figure 283 we show the relevant market areas for each license and it highlights the spread in geographic breadth of each.

Page 158

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 281: Map of CMA licenses

Source: FCC

Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 282: Map of EA licenses

Source: FCC

Page 160

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 283: Map of REA licenses

Source: FCC

Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

Appendix D: License lives Figure 284: Vodafone: licenses and network infrastructure Country by region Germany Italy

License type License expiry date

GSM/GPRS

3G December 2020

W-CDMA

2G January 2015 3G December 2021

Spain

2G July 2023 (1) 3G April 2020

UK

Network type

2G December 2009

2G See note (2) 3G December 2021

GSM/GPRS W-CDMA GSM/GPRS W-CDMA GSM/GPRS W-CDMA

Other mobile operators Albania

2G June 2016

Australia

2G June 2017 (3) 3G October 2017

Czech Republic

2G November 2020 3G February 2025

GSM GSM/GPRS W-CDMA GSM/GPRS W-CDMA

Egypt

2G May 2013

GSM/GPRS

Greece

2G September 2012

GSM/GPRS

Hungary Ireland

3G August 2021

W-CDMA

2G July 2014 (4)

GSM/GPRS

3G December 2019

W-CDMA

2G December 2014

GSM/GPRS

3G October 2022 Malta

2G September 2010 3G August 2020

Netherlands

2G February 2013 (1) 3G December 2016

New Zealand

2G See note (6) 3G March 2021 (5)

Portugal

2G October 2006 3G January 2016

Romania

2G December 2011 3G March 2020

W-CDMA GSM/GPRS W-CDMA GSM/GPRS W-CDMA GSM/GPRS W-CDMA GSM/GPRS W-CDMA GSM/GPRS W-CDMA

Notes: (1) Date relates to 1800MHz spectrum licence. Vodafone Netherlands and Vodafone Spain also have separate 900MHz spectrum licences which expire in March 2010 and February 2020, respectively (2) Indefinite licence with a one yea notice of revocation (3) Date refers to 900MHz spectrum licence. Various licences are held for 1800MHz licences, which are issued by specific regional regulators. the earliest expires in June 2013 and the latest in March 2015 (4) There is an option to extend this licence for seven years (5) Vodafone New Zealand owns three GSM 900 licences (2x21MHz) and one GSM18000 licence (2x15MHz). The GSM900 licences expire in November 2011, July 2012 and September 2021. The GSM 1800 licence expires in March 2021 Source: Vodafone 2006 annual report

Page 162

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 285: Telefónica: licenses and network infrastructure Country by region Spain

Morocco

License type

License expiry date

Extension period

Network type

3G

April 2020

10 years

UMTS

2GHz

2G

February 2010

5 years

GSM

900MHz (12 bands)

2G

June 2020

5 years

GSM

900MHz (4 bands)

2G

July 2023

5 years

DCS

1800MHz (2 bands)

2G

August 2024

5years

GSM

900MHz

Fixed

April 2036

5years

WiMAx

3G

July 2006

25years

UMTS

2GHz

Varies by region: between Must be solicited 30 months 2007 - 2020 before expiration

CDMA, CDMA 1XRTT, CDMA EVDO, TDMA, GSM

850MHz

Brazil

Frequency

Other Latam countries Mexico

2G

2018/2025

20 years

CDMA, GSM

1900MHz

Mexico- Other Northern region

2G

2010

20 years

CDMA, GSM

850MHz

Venezuela

2G

May 2011

Colombia

2G

March 2014

10yrs+10yrs

GSM, CDMA 1XRTT, TDMA

850/1900MHz

Perú

2G

2011/2012

20years

CDMA/CDMA 1XRTT, GSM

850MHz/1900MHz

Ecuador

2G

November 2008

15 years

GSM, CDMA 1XRTT.

850MHz

Chile

2G

2032/2033

30 years

TDMA, GSM, CDMA

850MHz/1900MHz

Argentina

2G

Unlimited

Uruguay

2G

2022/2024

Panama

2G

Guatemala

2G

El Salvador

2G

2018/2019/2021

Nicaragua

2G

July 2013

Czech Republic

2G

2016

GSM

900MHz

2G

2019

GSM

1800MHz

20years CDMA, 1X EVDO CDMA

850MHz

TDMA, GSM, CDMA

850MHz/1900MHz

-

CDMA, GSM

850MHz/1900MHz

February 2016

20years

TDMA, GSM, CDMA

850MHz

April 2014

15 years

CDMA/GSM

1900MHz

20 years

CDMA/GSM

850MHz/1900MHz

To be negotiated 2 yrs before end, another 10 yr. Period

TDMA, GSM, CDMA

850MHz

3G

GPRS, 1X EVDO CDMA

O2 UK

Germany

Ireland

Isle of man

2G None. Can be revoked with a minimum of one year's notice.

GSM

900 MHz (2x16.8MHz)

2G

As above

GSM

1800 MHz (2x5.8MHz)

3G

31st December 2021

UMTS 2100 MHz (2x10 MHz + 5MHz unpaired)

2G

31st December 2016

GSM 1800 MHz (2 x 22.5 MHz paired) until 31.01.2007, from 01.02.2007 (2x17.5 MHz paired) due to assignment of 2G 900 MHz

2G

31st December 2016

GSM

900 MHz (2x5 MHz paired)

3G

31st December 2020

UMTS

2 GHz (2 x 9.9 MHz paired)

2G

2011

GSM

900 MHz

2G

2015

GSM

1800 MHz

3G

2022

UMTS

2100 MHz

2G

2019

GSM

3G

2019

UMTS

Source: Telefónica annual report

Deutsche Bank AG/London

Page 163

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 286: France Telecom: licenses and network infrastructure Country by region France UK

Spain

License type

Romania Slovakia

900MHz / 1800MHz

March 2021

GSM UMTS

2G

Annual renewal

GSM

3G

December 2021

900MHz

UMTS 10MHz (2 bands), 5MHz (1 band)

2G

GSM

900MHz

2G

GSM

1800MHz

2G

April 2020

UMTS

July 2014

GSM

900MHz

August 2012

GSM

1800MHz

January 2023

UMTS

March 2021

UMTS

3G

December 2016

UMTS

2G

2011

GSM

3G

March 2020

UMTS

July 2022

UMTS

2G

GSM

2G

GSM

2G 3G

Switzerland

Frequency

August 2021

3G Netherlands

Network type

3G

3G Belgium

Extension period

2G

3G Poland

License expiry date

GSM

2G 3G

December 2016

900MHz / 1800MHz 900MHz / 1800MHz 900MHz 900MHz / 1800MHz

GSM

1800MHz

UMTS

15MHz (2 bands)

Moldavia

2G

GSM

900MHz

Egypt

2G

GSM

900MHz

Botswana

2G

GSM

900MHz

Cameroon

2G

GSM

900MHz

Ivory Coast

2G

GSM

900MHz / 1800MHz

Madagascar

2G

GSM

900MHz

Dominican Republic

2G

GSM

900MHz

Senegal

2G

GSM

900MHz / 1800MHz

Mali

2G

GSM

900MHz

Jordan

2G

GSM

900MHz

Mauritius

2G

GSM

900MHz / 1800MHz

Austria

3G

November 2020

UMTS

Portugal

3G

2015

UMTS

Source: France Telecom annual report

Page 164

Deutsche Bank AG/London

6 December 2006

Telecommunications Telecom for beginners 2007

Figure 287: Telecom Italia: licenses and network infrastructure License type

License expiry date

2G

December 2015

GSM

900MHz

2G

December 2015

GSM

1800MHz

3G

December 2022

UMTS

1920-1980Mhz, 21102170MHz, 19001920MHz, 20102025MHz

TIM Celular

2G

Varies between 2016 - 2018

GSM

Maxitel

2G

Varies between 2012 - 2013

GSM, TDMA

TIM Participaçoes

2G

Varies between 2012 - 2013

GSM

Network type

Frequency

Country by region Italy

Extension period

Network type

Frequency

Brazil

Source: Telecom Italia annual report

Figure 288: Deutsche Telekom: licenses and network infrastructure Country by region Germany

UK Austria

Netherlands Czech Republic

Hungary

Croatia Slovakia

USA

License type

License expiry date

2G

December 2009

GSM

900MHz (2 bands)

2G

December 2009

GSM

1800MHz (2 bands)

3G

December 2020

UMTS

2GHz

Extension period

2G

Annual renewal

GSM

3G

December 2021

UMTS

2G

December 2015

GSM

900MHz

2G

December 2019

GSM

1800MHz

3G

November 2020

UMTS

2G

February 2013

GSM

3G

December 2016

UMTS

2G

October 2024

GSM

1800MHz

2G

April 2015

UMTS

872MHz

3G

October 2024

UMTS

2G

June 2008

GSM

900MHz

2G

October 2014

GSM

1800MHz

3G

December 2019

UMTS

2G

October 2009

GSM

3G

October 2024

UMTS

2G

August 2011

GSM

900MHz

2G

July 2011

GSM

1800MHz

3G

June 2022

UMTS

3G 15 year license (2006 auction)

UMTS

1800MHz

900MHz

Source: Deutsche Telekom annual report

Deutsche Bank AG/London

Page 165

6 December 2006

Telecommunications Telecom for beginners 2007

Appendix E: European IPOs Figure 289: Selected list of European telecoms IPOs Company name

Currency

Offering price

Date

TDC

DKK

310

28/04/1994

Europolitan Vodafone

SEK

74

27/05/1994

Royal KPN

NLG

49.75

13/06/1994

Telewest Communication

GBp

182

22/11/1994

Ceske Radiokomunica

CZK

4100

01/03/1995

Portugal Telecom

PTE

2800

02/06/1995

Orange Plc

GBp

205

27/03/1996

Hellenic Telecom

GRD

4000

19/04/1996

Netcom ASA

NOK

91

03/05/1996

Fibernet Group

GBp

100

18/06/1996

Deutsche Telekom

DEM

28.5

18/11/1996

Vodafone Portugal

PTE

7950

10/12/1996

Mobilcom AG

DEM

62.5

10/03/1997

Magyar Telekom

HUF

730

14/11/1997

Energis Pls

GBp

290

09/12/1997

DEM

86

22/04/1998

LUF

6000

06/07/1998

$

27

21/07/1998

Swisscom

CHF

340

05/10/1998

Mobistar

BEF

1235

06/10/1998

Drillisch SES Global Equant

Telekomunikacja

PLN

15.2

18/11/1998

Vodafone Panafon

GRD

5100

07/12/1998

Eesti Telekom

EEK

85

11/02/1999

Debitel AG

EUR

31

29/03/1999

Vodafone Libertel

EUR

21

15/06/1999

Eircom

EUR

3.9

08/07/1999

Kingston Communication

GBp

225

12/07/1999

Versatel Telecom

EUR

10

23/07/1999

Redstone

GBp

120

25/10/1999

Tiscali

EUR

46

27/10/1999

KPNQwest

EUR

20

09/11/1999

Thus Group

GBp

310

10/11/1999

PT Multimedia

EUR

27

15/11/1999

Jazztel

EUR

17

09/12/1999

Source: Bloomberg and company data

Page 166

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 290: Selected list of European telecoms IPOs continued Company name

Currency

Offering price

Date

Carrier1 International

EUR

87

24/02/2000

Song Networks Holding

SEK

160.79

16/03/2000

Completel Europe

EUR

17.5

28/03/2000

Fastweb

EUR

160

30/03/2000

Eutelia

EUR

105

19/04/2000

QSC

EUR

13

19/04/2000

Sonaecom

EUR

10

02/05/2000

Pipex Communication

GBp

19

04/07/2000

Turkcell Ilesti

TRL

44000

11/07/2000

Cosmote Mobile Telecom

GRD

3200

12/10/2000

Telekom Austria

EUR

9

21/11/2000

Telefónica Móviles

EUR

11

22/11/2000

Telenor

NOK

42

04/12/2000

Orange SA

Euro

10.0

13/02/2001

Vanco

GBp

103

06/11/2001

Iliad

EUR

16.5

29/01/2004

eircom group

EUR

1.55

19/03/2004

Belgacom

EUR

24.5

22/03/2004

Virgin Mobile

GBp

200

21/07/2004

Smart Telecom

GBp

15

10/09/2004

Telenet

EUR

21

11/10/2005

Source: Bloomberg and company data

Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

Appendix F: European operator key dates Operator time lines The following figures [Figure 291 to Figure 306] show the time lines for selected operators, where we highlight key factors in each company’s history, such as management changes, capital raisings/IPOs and M&A transactions. Figure 291: Belgacom’s time line •Belgacom created as a single standalone entity

1987

1988

•Commences joint venture with Swisscom in the fixed-line business

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

•Shares floated on Brussel Euronext, which also marks the end of the state monopoly Source: Deutsche Bank and company data

Figure 292: COLT’s time line •Raises £204m in new capital

•COLT is founded by Fidelity Investments

1992

1993

1994

1995

1996

•Floated shares on LSE and NASDAQ

1997

•Raises £494m in new capital

•Raises £1.3bn in new capital

1998

•Raises £626m in new capital

1999

2000

•Raises £724m in new capital

2001

2002

2003

2004

2005

2006

•Changes domicile to Luxembourg and reporting into Euro

Source: Deutsche Bank and company data

Page 168

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 293: Deutsche Telekom’s time line

•Acquires Matav (Hungary)

1993

1994

•Deutsche Telekom AG is formed; separated from the German Postal Service

1995

•Restructured into four major business line: TOnline, T-Com, T-Mobile, T-Systems •T-Online is floated •Acquires Debis, the systems division of Daimler Chrysler

•Liberalization of German telecom market

1996

1997

1998

1999

2000

2001

2002

2003

•Acquires VoiceStream (US) and Powertel (US)

•Acquires One2One (UK). •Acquires 22.5% stake in Polska Telefonia Cyfrowa (Poland)

•DT is floated

•Management reshuffle Mr. Kai-Uwe Ricke elected as the new CEO, Mr. Rene Oberman (T-Mobile) and Mr. Thomas Haltorp (T-Online)

•Mr. Lothar Pualy is named the new CEO of T-Systems •Revised 3-year business plan (Nov)

2004

2005

2006

•T-Online International is merged with Deutsche Telekom •Acquires tele.ring (Austria) •Profit warning and revised FCF focus (Aug) •Management and strategy changes (Nov and Dec)

Source: Deutsche Bank and company data

Figure 294: France Télécom ’s time line

•Becomes public limited company •Global One was formed a joint venture between DT, FT and Sprint

France Telecom founded

1988

1989

1990

1991

1992

1993

1994

1995

•Acquired 6.4% stake in NTL

1996

•FT is floated

1997

•Acquired 54.1% stake Equant by selling Global One to Equant •Acquiers Orange (UK) •Finished acquiring interests in NTL (UK) •13% of Orange is floated on Euronext Paris and LSE

1998

1999

•Internet subsidiary Wanadoo is floated •FT acquires the remaining stake of Global One •Acquired 35% Telekomunikacja Polska SA (Poland) •Acquires 28.2% Mobilcom (Germany)

2000

•Increased capital by EUR14.85bn •Divested both Telecom Argentina and CTE Salvador

2001

•Mr. Thierry Breton appointed CEO

2002

2003

•Mr. Didier Lombard appointed Chairman and CEO of FT •Divested stake in Mobilcom •Acquired remaining stake of Equant •Sold a further 8% of Pages Juanes •Acquires 80% of Amena (Spain)

2004

•Acquired minority interests of Orange S.A. and Wanadoo S.A. •Floated 36% of PagesJuanes

2005

2006

•Michel Combes resigns as CFO

Source: Deutsche Bank and company data

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Figure 295: KPN’s time line •Acquires Netherlands and German UMTS licences •NTT Docomo acquires 15% of KPN Mobile for Euro 4bn

•Demerged from PPT Post and becomes Royal KPN NV

1998

1999

•Acquires Telfort Beheer BV (Netherlands)

2000

2001

•Acquires E-Plus (Germany) •Issued Euro 4bn in new capital

2002

2003

2004

2005

2006

•Mr. Ad Scheepbouwer appointed CEO •Raises Euro 4.8bn in share issue

Source: Deutsche Bank and company data

Figure 296: OTE’s time line •Acquires Armentel (Armenia) •Acquires 35% in RomTelecom (Romania) •Third Public Offering, also listing on NYSE •Founded Cosmote in corporation with Telenor

•OTE floated

1996

1997

•Second Public Offering •Acquires 20% stake in Telekom Serbia

1998

1999

•Cosmote established activities in FYR of Macedonia, later called Cosmofon

2000

•Cosmote acquires 80% stake in AMC (Albania) •Starts operations in Bulgaria, through Globul •Cosmote floated

2001

•Cosmote acquires from OTE stakes in Globul, Cosmorom (Romania) and Cosmofon

•Increases stake in RomTelecom to 54%

2002

•Transfers management and control of Globul and Cosmofon to Cosmote

2003

2004

•Transfers shares of Globul to Cosmote

2005

2006

•Cosmote acquires Germanos

Source: Deutsche Bank and company data

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Telecommunications Telecom for beginners 2007

Figure 297: Portugal Telecom’s time line

•Floated on Lisbon and NYSE

1995

•Acquirers TCP (Brazil)

1996

1997

•Enters in a corporation agreement with Telefónica mainly concerning international investments in Latin America

1998

•PTM.com is floated on Eurronext Lisbon •Portuguese Government reduces its interest in TP to 6.93% •Sistemas de Informacao is created

1999

•PT Multimedia is formed •PT Multimedia acquires SAPO an internet portal •In a joint venture with Telefónica Moviles and other Moroccan business, PT won GSM licence in Morocco (Medi Telecom)

2000

•PT Multimedia acquirers PTM.com •PT acquires 100% of PTM.com, 24.75% interest in Paginas Amarelas and 50% interest in Sportinveste Multimedia all from PT Multimedia •Joint venture with Telefónica Moviles in Brazil under the brand name Vivo

2001

2002

•PT Multimedia acquires Lusomondo •PT Multimedia is floated on Euronext Lisbon •Acquires 81.6% stake in Global Telecom (Brazil)

2003

2004

2005

2006

•Vivo acquired Tele Centro Oeste (Brazil)

Source: Deutsche Bank and company data

Figure 298: Swisscom’s time line •Unisource is broken up •Mr. Jens Alder is appointed CEO of Swisscom Group •Acquirers Debitel (Germany)

•Became the third party in Unisource initially a joint venture between Telia and KPN

1993

1994

1995

1996

1997

1998

•Floated on Zurich Stock Exchange

1999

2000

•Acquires a 97.99% stake in Antena Hungaria •Mr. Carsten Schloter appointed CEO

•Acquires a 49% stake in Cinegrade AG

2001

•Formed a partnership with Vodafone , which also bought 25% of Swisscom Mobile AG

2002

2003

2004

•Divested 95% of its stake in debitel •Attempts to buy Telekom Austria before Swiss/Austrian governments veto

2005

2006

•Attempts to buy eircom before Swiss government veto

Source: Deutsche Bank and company data

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Figure 299: Telecom Italia’s time line

•TIM acquired 25% of mobilkom (Austria) •Merged into STET (Italy), the new group takes the name Telecom Italia

•Telecom Italia is formed by merging five Italian telecom operators

1995

1994

1996

•Olivetti acquires 55% of shares in TI

1997

•Telecom Italia Mobile (TIM) is founded and floated

•Olimpia (Italy) acquires 27.7% of Olivetti, which own 55% of TI •Launches nationwide mobile in Peru and Brazil •Seat Pagina Gialle completes a public exchange offer

1998

1999

2000

2001

•Merged into Olivetti, the new entity is called Telecom Italia •Divests its last stake in Telekom Austria

2002

•Merges Seat Pagina Gialle and Tin.it (fully owned subsidiary)

•Acquires assets in Brazil

2003

2004

•SEAT Pagine Gialle spins off businesses non related to Yellow Pages into Telecom Italia Media, which is floated

•Mr Tronchetti Provera resigns as Chairman

2005

2006

•Acquired remaining stake of TIM •Divest TIM Hellas (Greece)

Source: Deutsche Bank and company data

Figure 300: Telefónica’s time line

•100m shares sold by government

1995

•Mr. Juan Villalonga appointed CEO

1996

1997

•Full privatization due to deregulation by EU

•Acquires Telesp (Brazil)

1998

•Tender offers for Telefónica Argentina, Telefónica de Peru, Telesp and Tele Sudeste •Acquires Lycos Inc •Mr. Cesar Alierta appointed CEO

1999

2000

•Reorganises group as Telefónica Móviles, Telefónica Datacorp, Terra, Telefónica Publidad e informacion (TPI), Telefónica Media •Telefónica Móviles floated •Telefónica Móviles wins UTMS licences Spain, Germany, Italy, Switzerland and Austria

•Acquires some of Bell South's Latin American wireless assets •Acquires Telefónica Movil de Chile

•Forms Vivo joint venture in Brazil with Portugal Telecom •Acquires mediaways in Germany

2001

2002

2003

•Acquires outstanding Terra Network shares •Acquires outstanding Telefónica Contenidos

2004

•Completes acquisition of Telefónica Móviles • Completes acquisition of O2 (UK)

2005

2006

•Acquires outstanding Terra Network shares •Acquires Cesky Telecom

Source: Deutsche Bank and company data

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Telecommunications Telecom for beginners 2007

Figure 301: Telekom Austria’s time line •Independent company was created out of the Post- und Telegrafenverw altung (PTV): Post- und Telekom Austria AG (PTA AG)

1996

•Acquired a 30% stake in VIPnet (Croatia) •New company Telekom Austria AG formed •Telecom Italia acquired a 25% stake in TA

1997

1998

•Acquires controlling stake of 75% in Si.mobil (Slovenia)

1999

2000

2001

•Acquires Czech Online SA •Floated on the Vienna Stock Exchange

•Telecom Italia Mobile acquires 25% of mobilkom

•Acquires the remaining stake of VIPnet (Croatia) •Telecom Italia sells off its shares OIAG sells a part of its shares making their holding 30%

2002

2003

2004

•Acquires the remaining 25% stake of mobilkom from Telecom Italia Mobile

•Mr. Boris Nemsic is appointed CEO of Telekom Austria Group and CEO of mobilkom austria

2005

2006

•Acquires 100% in Mobiltel Bulgaria

Source: Deutsche Bank and company data

Figure 302: Telenor’s time line

•Acquires 25% stake of Pannon GSM (Hungary) •Started Telenor Mobil business in Norway

1993

1994

•Acquires 75% of OAO Comicom (Russia) •Acquires 69.30% stake of DTAC (Thailand) •Acquires 53.3% stake in Sonofon (Denmark)

•Acquires 56.51% stake of Kyivstar GSM (Ukraine)

1995

1996

1997

•Acquires 17.45% stake in ONE (Austria)

1998

1999

•Acquires 29.91% stake in VimpelCom (Russia)

2000

•Acquires the remaining stake in Pannon GSM (Hungary) •Mr. Jon Fredrik Baksaas is appointed CEO of Telenor

2001

•Acquires ComSat Mobile •Acquires DiGi.com (Malaysia) •Started operation in Sweden

2002

•Acquires remaining stake in Sonofon (Denmark)

2003

2004

•Acquires Mobil63 (Serbia)

2005

2006

•Acquires Vodafone Sweden •Acquires Bredbandsbolaget (Sweden) and Cybercity (Denmark)

Source: Deutsche Bank and company data

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Figure 303: TeliaSonera’s time line •Telia and Sonera merged and formed the new entity of Telia Sonera

1998

1999

2000

2001

2002

•IPO in November

•Acquires Xfera Móviles (Spain) •Acquires NextGenTel

•Acquires Denmark Telecommunicati on operation of Orange SA

2003

2004

2006

2005

•Acquires Volvik Gruppen

•Acquires UAB Omnitel (Lithuania) •Divested Com Hem AB (Sweden) to Private group lead by EQT

Source: Deutsche Bank and company data

Figure 304: Telia’s time line •Enters into an agreement with Sonera and CT Mobile to combine 8 local Russian carries into one nationwide carrier Megafon •Mr. Anders Igel is appointed CEO of Telia

•Divested Siris (part of Unisource) to Deutsche Telekom

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

•Acquires Netia Holdings (Poland) •Acquires NetCom ASA •IPO in June Source: Deutsche Bank and company data

Page 174

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Telecommunications Telecom for beginners 2007

Figure 305: Sonera’s time line •Acquires a 35% stake of International GSM Business of Fintur Holdings BV for EUR140m, Fintur holds majority stakes in K Cell (Kazakhstan), Azercell (Azerbaijan), Geo Cell (Georgia) and Mold Cel (Moldova)

•Sonera participated in the forming of Turkcell, and was one of the original owners

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

•Acquires an additional 23.55% share in International GSM Business of Fintur Holdings BV

•Acquired 19.4% of AOC (US)

Source: Deutsche Bank and company data

Figure 306: Vodafone’s time line •Mr. Chris Gent appointed CEO •VOD is reorganized in three main components Vodafone Corporate, Vodafone Retail and Vodafone Connect •Agreed to offer fixed-lined services through Energis

1987

1988

•20% of Racal Telecoms Division is floated

•Acquires New Zealand GSM Network

•Acquires Packnet

•Vodadata is created

1989

1990

1991

1992

•Vodafone launches GSM net •Vodafone and Racal demerge fully

•Acquires Eircell •Acquires 25% of Swisscom Mobile •Acquires 17.8% of Airtel Movil to up its stake to 91.6%

1993

1994

1995

1996

1997

•Launch PrePay service in UK

•Form partnerships in Germany, South Africa, Australia, Fiji and Greece. Enables VOD buy licences in these markets •Form partnerships in Netherlands, Hong Kong and France. Enables VOD to buy licences in these markets

1998

1999

2000

2001

•Increases holding in Telecel and Libertel •New functions Group Marketing and Group technology and Business Integration are formed •Mr. Arun Sarin appointed CEO

2002

2003

2004

•Acquires Mannesmann AG (Germany) •Divested Orange to France Telecom

•Vodafone PLC merges with Air Touch Communications •Agrees to create a new wireless business network in USA in corporation with Bell South Atlantic

•Acquires Telsim (Turkey)

2005

2006

•Acquires Mobifon S.A.(Romania) and Oskar Mobile (Czech Republic)

•Acquires Vivendi's part in the joint venture Vizzavi •Gains 41% of SFR post merger with Cegetal

Source: Deutsche Bank and company data

Deutsche Bank AG/London

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6 December 2006

Telecommunications Telecom for beginners 2007

Figure 307: Belgacom Event Type

Year

Description

Founding

1987

Belgacom came to be as a single standing entity

IPO

2004

Shares are floated on Brussel Euronext, which also marks the end of the state monopoly.

Joint Venture

2005

Commenced joint venture with Swisscom in the fixed-line business.

Source: Company data

Figure 308: Colt Event Type

Year

Description

Founding

1992

COLT is funded by Fidelity Investment

IPO

1996

Floated shares on LSE and NASDAQ

Capital Raise

1997

Raises GBP 204m in new capital

Capital Raise

1998

Raises GBP 626m in new capital

Capital Raise

1999

Raises GBP 1.3bn in new capital

Capital Raise

2000

Raises GBP 724m in new capital

Capital Raise

2001

Raises GBP 494m in new capital

Source: Company data

Figure 309: Deutsche Telekom Event Type

Year

Description

Acquisition

1993

Acquires Matav (Hungary).

Restructuring

1995

Deutsche Telekom AG is formed as a single standing shareholder company separated from the German Postal Service.

IPO

1996

DT is floated through a IPO.

Liberalization

1998

Regulators liberalizes the German telecom market.

Acquisition

1999

Acquires British mobile operator One2One for EUR 7bn.

Acquisition

1999

Acquires 22.5% stake in Polska Telefonia Cyfrowa, which also increased DTs Russian holdings.

Restructuring

2000

Restructured into four major business line: T-Online, T-Com, T-Mobile, T-Systems.

IPO

2000

T-Online is floated as T-Online Holding AG.

Acquisition

2000

Acquires Debis, the systems division of Daimler Chrysler.

Acquisition

2001

Acquires VoiceStream and Powertel for equity values of Euro 29bn and Euro 4bn, respectively.

Management

2002

Management reshuffle Mr. Kai-Uwe Ricke is elected as the new CEO, Mr. Rene Oberman (T-Mobile) and Mr. Thomas Haltorp (T-Online).

Management

2005

Mr. Lothar Pualy is named the new CEO of T-Systems.

Merger

2006

T-Online International is merged with Deutsche Telekom.

Acquisition

2006

Tele.ring (Austria) is acquired for EUR 1.3bn.

Management

2006

Rene Obermann replaces Kai-Uwe Ricke and instigates a wider change in management and strategy

Source: Company data

Page 176

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Figure 310: France Telecom Event Type

Year

Description

Founding

1988

France Telecom is founded

Separation

1991

Became an autonomous provider of public service

Reformation

1996

Became a public limited company

Joint Venture

1996

Global One was formed a joint venture between DT, FT and Sprint. FT invested EUR 340m in the joint venture.

IPO

1997

The firms shares started trade at Euronext Paris and New York.

Acquisition

1999

Acquired 6.4% stake in NTL for EUR 1200m.

IPO

2000

Internet subsidiary Wanadoo is floated on Paris Stock Exchange

Acquisition

2000

FT acquires the remaining stake of Global One.

Acquisition

2000

Acquires 35% Telekomunikacja Polska SA (Poland)

Acquisition

2000

Acquires 28.2% Mobilcom (Germany)

Acquisition

2001

Acquires 54.1% stake Equant by selling Global one to Equant.

Acquisition

2001

Acquires Orange (UK) for EUR 35.5bn.

Acquisition

2001

Finished acquiring interests in NTL (UK)

Floating

2001

13% of Orange is floated on Premier Marche on Euronext Paris and London Stock Exchange

Management

2002

Mr. Thierry Breton is appointed CEO.

Capital increase

2003

Increased capital by EUR 14.85bn, through a secondary share offering.

Divesture

2003

Divested both Telecom Argentina and CTE Salvador

Acquisition

2004

Exercised a option programme to up their stake in TPSA.

Buy-Back

2004

Bought back minority interests of Orange S.A. and Wanadoo S.A.for EUR 245m respectively EUR 1276bn.

IPO

2004

Floated 36% of PagesJuanes. Proceeds were EUR 1.46bn.

Management

2005

Mr. Didier Lombard was appointed Chairman and CEO of FT.

Divesture

2005

Divested its whole stake in Mobilcom EUR 265m .

Acquisition

2005

Acquired remaining stake of Equant for EUR 214 m.

Divesture

2005

Sold a further 8% of PagesJuanes. Proceeds were EUR 440m.

Acquisition

2005

Acquires 80% of Amena (Spain) for EUR 8.4bn.

Source: Company data

Figure 311: KPN Event Type

Year

Description

Founding

1998

Demerged from PPT Post and becomes Royal KPN NV

Acquisition

1999

KPN Mobile acquires 77.49% of E-Plus (Germany) for EUR 19bn

Transfer

1999

transferred all mobile operations to KPN Mobile.

Capital Increase

2000

Raised EUR 22.3bn in debt

Acquisition

2000

Acquires 15% of Hutchison for EUR 1.5bn

Capital Increase

2000

Increased capital by EUR 4.8bn to pay off debt

Divesture

2000

NTT Docomo acquires 15% of KPN Mobile for EUR 4bn

Acquisition

2000

KPN Mobile acquires Netherlands and Germany UMTS License

Management

2001

Mr. Ad Scheepbouwer appointed CEO

Dilution

2002

NTT DoCoMo share in KPN Moblie was diluted to 2.16%

Acquisition

2005

KPN buys NTT DoCoMo share in KPN Mobile

Acquisition

2005

Acquires Telfort Beheer BV (Netherlands) for EUR 980m

Source: Company data

Deutsche Bank AG/London

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Telecommunications Telecom for beginners 2007

Figure 312: OTE Event Type

Year

Description

IPO

1996

OTE floated

SEO

1997

Second Public Offering

Acquisition

1997

Acquires 20% stake in Telekom Serbia

Acquisition

1998

Acquires Armentel (Armenia) for EUR 143m

Acquisition

1998

Acquires 35% in Romtelecom (Romania) for EUR 580m (USD 675m)

SEO

1998

Third Public Offering, also listing on NYSE

Founding

1998

Founded Cosmote in corporation with Telenor

Acquisition

2000

Cosmote acquires 80% stake in AMC (Albania) for EUR 92m (USD 85.6m)

Founding

2000

Starts operation in Bulgaria, through Globul

IPO

2000

Cosmote floated

Establishing

2001

Cosmote established activities in FYR of Macedonia, later called Cosmofon

Transferring

2002

Transfers management and control of Globul (Bulgaria) and Cosmofon (FYROM) to Cosmote

Acquisition

2003

Increases stake in Romtelecom to 54% for EUR 235m (USD 273m)

Transfer

2004

Transfers the shares of Globul to Cosmote

Acquisition

2005

Cosmote acquires minority stakes of Globul for EUR 614m

Acquisition

2005

Cosmote acquires Cosmorom (Romania) and Cosmofon (FYR of Macedonia) for EUR 120m (ROL 4340505.5m)

Acquisition

2006

Cosmote acquires Germanos for Euro 1.3bn

Source: Company data

Figure 313: Portugal Telecom Event Type

Year

Description

IPO

1995

Stocks start trade at the Lisbon, London and NYSE. This also marks the beginning of the privatization process.

Alliance

1997

Enters in a corporation agreement with Telefonica mainly concerning international investments in Latin America.

Acquisition

1998

Acquirers TCP (Brazil)

New Line

Business 1999

PT Multimedia is formed, which marked the beginning of PTs march into the media field, including media, cinema. Cable vision and internet services.

Acquisition

1999

PT Multimedia acquires SAPO an internet portal, which later form the business unit PT.COM.

Joint Venture

1999

In a joint venture with Telefonica Moviles and certain Moroccan entities, PT bid for a GSM license in Morocco and formed Medi Telecom. The initial investment was EUR 182m (USD 166m).

IPO

2000

PTM.com is floated on Eurronext Lisbon.

Privatization

2000

Portuguese Government ends its privatization campaign started in 1995 and reduces its interest in TP to 6.93%.

New Line

Business 2000

Sistemas de Informacao is created, which today is one of Portugal's largest companies in the consulting and information system sector.

Acquistion

2001

PT Multimedia acquires Lusomondo.

IPO

2001

PT Multimedia is floated on Euronext Lisbon, PT still retains majority interest.

Acquisition

2001

Acquires 81.6% stake in Global Telecom (Brazil) for EUR 337m (BRL 902.6m)

Acquisition

2002

PT Multimedia acquirers all PTM.com shares of the Euronext Lisbon exchange and delists the company.

Acquisition

2002

Acquires 100% of PT.com, 24.75% interest in Paginas Amarelas and 50% interest in Sportinveste Multimedia at the aggregate price of EUR 199m.

Joint Venture

2002

Joint venture with Telefonica Moviles in Brazil under the brand name Vivo

Source: Company data

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Figure 314: Swisscom Event Type

Year

Description

Joint Venture

1993

Became the third party in Unisource initially a joint venture between Telia and KPN, the initial investment was CHF 100m.

Acquisition

1998

Acquired 50% plus one share interest UTA Telecom (Austria)

IPO

1998

The company is floated on Zurich exchange and also as ADS

Divesture

1999

The joint venture between Telia, KPN and Swisscom; Unisource is broken up.

Management

1999

Mr. Jens Alder is appointed CEO of Swisscom Group.

Partnership

2001

Formed a partnership with Vodafone , which also bought 25% of Swisscom Mobile AG

Acquisition

2003

Acquires a 49% stake in Cinegrade AG

Acquisition

2004

Attempts to buy Telekom Austria before Swiss/Austrian governments veto

Divesture

2004

Divested 95% of its stake in debitel for a price of CHF 1bn (EUR 640m).

Acquisition

2005

Attempts to buy eircom before Swiss government veto

Acquisition

2006

Acquires a 97.99% stake in Antena Hungaria, the deal was completed in two moves.

Management

2006

Mr. Carsten Schloter is appointed CEO of the Swisscom Group

Source: Company data

Figure 315: Sonera Event Type

Year

Description

Joint Venture

1993

Sonera participated in the forming of Turkcell, and was one of the original owners.

IPO

1998

Shares starts to trade on Helsinki and also as ADS.

Acquisition

1998

Acquired a 27.5% stake in UAB Omnitel (Lithuania)

Acquisition

1998

Acquired 19.4% of AOC (US), with an investment of USD 200m

Acquisition

2000

Acquires a 35% stake of International GSM Business of Fintur Holdings BV for EUR 140m, Fintur holds majority stakes in K Cell (Kazakhstan), Azercell (Azerbaijan), Geo Cell (Georgia) and Mold Cel (Moldova).

Acquisition

2002

Acquires an additional 23.55% share in International GSM Business of Fintur Holdings BV, totalling its direct and indirect holdings to 74%.

Source: Company data

Figure 316: Telecom Italia Event Type

Year

Description

Founding

1994

Telecom Italia is formed by merging five Italian telecom operators

Founding

1995

Telecom Italia Mobile (TIM) is founded and floated on the Milan Stock Exchange.

IPO

1997

Floated 20% stake of TI.

Acquisition

1997

TIM acquired 25% of mobilkom (Austria).

Merger

1997

Merged into STET (Italy), the new group takes the name Telecom Italia

Acquisition

1998

Acquires assets in Brazil

Acquisition

1999

Olivetti acquires 55% of shares in TI

Merger

2000

Merges Seat Pagina Gialle and Tin.it (fully owned subsidiary) and then the entitiy is put into SEAT with a TI stake

Acquisition

2001

Olimpia (Italy) acquires 27.7% of Olivetti, which own 55% of TI.

Launches

2001

Launches nationwide in Peru and Brazil

Divesting

2001

SEAT Pagina Gialle completes a public exchange offer

Spin off

2003

SEAT Pagine Gialle spins off busineses non related to Yellow Pages into Telecom Italia Media, which is floated.

Merger

2004

Merged into Olivetti, the new entity is called Telecom Italia.

Divest

2004

Divests its last stake in Telekom Austria

Acquisition

2005

Acquired remaining stake of TIM for EUR 13.8bn, delised shares.

Divest

2005

Divest TIM Hellas (Greece)

Management

2006

Mr Tronchetti Provera resigns as Chairman. Replaced by Mr Rossi.

Source: Company data

Deutsche Bank AG/London

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Figure 317: Telefónica Event Type

Year

Description

IPO

1995

Floated 100m shares

Privatization

1997

Full privatization due to deregulation by EU.

Acquisition

1998

Acquires Telesp (Brazil)

Reorganization

2000

Reorgainises group as Telefonica Moviles, Telefonica Datacorp, Terra, Telefonica Publidad e informacion (TPI), Telefonica Media.

IPO

2000

Telefónica Móviles is floated

UMTS

2000

Telefónica Móviles win UTMS license Spain, Germany (EUR 8471m), Italy (EUR 3259m), Switzerland (EUR 32.5m), and Austria (EUR 117m)

IPO

2000

tender offers for Telefonica Argetina, Telefonica de Peru, Telespe and Tele Sudoeste

Acquisition

2000

Acquires Lycos Inc.

Joint venture

2001

Forms Vivo; a joint venture in brazil with Portugal Telecom

Acquisition

2001

Acquires Iberola's Brazilian assets

Acquisition

2001

Telefónica Moviles acquires Norcel, Cedetel, Bajatel and Moviel (all Mexico) for USD 1.89bn

Acquisition

2001

Acquires media ways GMBH (Germany) for EUR 1.5bn

Acquisition

2003

Acquires outstanding Terra Network shares for EUR 1bn.

Acquisition

2003

Acquires outstanding Telefonica Contenidos (EUR 567.4m)

Acquisition

2004

Acquires some of Bell South's Latin American wireless assets for USD 5.9bn

Acquisition

2004

Acquires Telefónica Movil de Chile for USD 1bn

Acquisition

2004

Acquires S.A. for EUR 530m

Divesture

2004

Divested Lycos

Acquisition

2005

Acquires 4.97% of O2 (UK) for EUR 1.3bn

Acquisition

2005

Acquires 5% of China Netcom Group Corporation (China) for EUR 1.3bn

Acquisition

2005

Acquires Cesky Telecom for EUR 3.7bn

Acquisition

2006

Completes acquisition of Telefónica Móviles

Acquisition

2006

Acquires remaining stake of O2 (UK) for EUR 25.7bn

Source: Company data

Figure 318: Telekom Austria Event Type

Year

Description

Founding

1996

In 1996 an independent company was created out of the Post- und Telegrafenverwaltung (PTV): Post- und Telekom Austria AG (PTA AG).

Divesture

1997

Telecom Italia Mobile becomes a strategic partner and acquires 25% of mobilkom.

Acquisition

1998

Acquired a 30% stake in VIPnet (Croatia)

Liberalization

1998

The telecom market was fully liberalized and the new company Telekom Austria AG formed.

partnership

1998

Telecom Italia acquired a 25% stake in TA, which was later upped to 29%.

Acquisition

1999

Acquirers Debitel (Germany) for CHF 3.4bn

Acquisition

2000

Acquires Czech Online SA for EUR 231.5m and also expands its stake in VIPnet SA (Croatia) to 61%.

Merger

2000

Merged with industrial holding company OIAG fully owned by the government.

IPO

2000

The shares of Austria Telekom are floated in an IPO on the Vienna Stock Exchange. With OIAG holding 44.4% and Telecom Italia holding 29%.

Acquisition

2001

Acquires controlling stake of 75% in Si.mobil (Slovenia) for EUR 141m, while increasing its stake in VIPnet (Croatia)

Acquisition

2002

Acquires the remaining 25% stake of mobilkom form Telecom Italia Mobile.

Acquisition

2004

Acquires the remaining stake of VIPnet (Croatia) to make its stake 100%

Divesture

2004

Telecom Italia sells off its shares in the company, while also OIAG sells a part of its share making their holding 30%.

Acquisition

2005

Acquires a 100% in Mobiltel Bulgaria, for EUR 1214m

Management

2006

Mr. Boris Nemsic is appointed CEO of Telekom Austria Group and CEO of mobilkom austria.

Source: Company data

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Figure 319: Telenor Event Type

Year

Description

Acquisition

1993

Acquires 25%% stake of Pannon GSM (Hungary)

New Operation

1993

Commenced Telenor Mobil digital business in Norway

Acquisition

1997

Acquires 17.45% stake in ONE (Austria)

Acquisition

1998

Acquires 56.51% stake of Kyivstar GSM (Ukraine) for NOK 257m

Acquisition

1999

Acquires 29.91% stake in VimpelCom (Russia)

Acquisition

2000

Acquires 75% of OAO Comicom (Russia) for NOK 1.1bn

Acquisition

2000

Acquires 69.30% stake of DTAC (Thailand) for NOK 6.5bn

Acquisition

2000

Acquires 53.3% stake in Sonofon (Denmark) for USD 600m

Acquisition

2001

Acquires ComSat Mobile for NOK. 1.1bn

Acquisition

2001

Acquires DiGi.com (Malaysia) for NOK 3.1bn

New Operations

2001

Started operation in Sweden

Acquisition

2002

Acquires the remaining stake in Pannon GSM (HUN) for NOK 495m (HUF 308155m)

Management

2002

Mr. Jon Fredrik Baksaas is appointed CEO of Telenor.

Acquisition

2004

Acquires remaining stake in Sonofon

Acquisition

2005

Acquires Vodafone Sweden for NOK 11bn (EUR 1,345m)

Acquisition

2005

Acquires Bredbandsbolaget (Sweden) and Cybercity (Denmark) for NOK 4.5bn and NOK 1.3bn

Acquisition

2006

Acquires Mobil63 (Serbia) for NOK 12bn (EUR 1.513m).

Source: Company data

Figure 320: Telia Event Type

Year

Description

Divesting

1999

Divested Siris (part of Unisource) to Deutsche Telekom for SEK 6.4bn (EUR 700m).

Acquisition

2000

Acquires Netia Holdings (Poland) for SEK 1.6 bn (USD 171.5m)

Acquisition

2000

Acquires NetCom ASA for SEK 24 bn (GDP 1.73bn)

Acquisition

2002

Enters into an agreement with Sonera and CT Mobile to combine 8 local Russian carries into one nationwide carrier Megafon, where the combined stake of Telia Sonera is 43.8%.

Management

2002

Mr. Anders Igel is appointed CEO of Telia.

Source: Company data

Figure 321: TeliaSonera Event Type

Year

Description

Merger

2002

Telia and Sonera merged and formed the new entity of Telia Sonera the deal was valued at SEK 61bn (EUR 6.64bn)

Acquisition

2003

Acquires UAB Omnitel (Lithuania) for SEK 1bn (USD 117m).

Divested

2003

Divested Com Hem AB (Sweden) to Private group lead by EQT for Sek 2bn

Acquisition

2004

Acquires Denmark Telecommunication Operation of Orange SA for SEK 5.5bn (EUR 610ms)

Acquisition

2005

Acquires Volvik Gruppen for SEK 1.9bn

Acquisition

2005

Attempts to additional 27% of Turkcell becoming the majority stakeholder. The Cykorowa group instead seel a smaller share to Alfa Group (Russia). TeliaSonera's bid was SEK 22bn.

Acquisition

2006

Acquires Xfera Moviles(Spain) for SEK 4.5bn (EUR 475m)

Acquisition

2006

Acquires NextGenTel for SEK 2.3bn (NOK 1.9bn),

Source: Company data

Deutsche Bank AG/London

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Figure 322: Vodafone Event Type

Year

Description

Foundation

1982

Racal Telecoms Division is set up after winning bid for mobile license in UK.

Foundation

1987

Vodadata is created

IPO

1988

20% of Racal Telecoms Division is floated

Launch

1991

Vodafone launches its GSM net

De-merger

1991

Vodafone and Racal demerge fully

Acquisition

1992

Acquires Packnet

Partnerships

1994

Form partnerships in Germany, South Africa, Australia, Fiji and Greece. Enables To buy licenses in these markets.

Partnerships

1994

Form partnerships in Netherlands, Hong Kong and France. Enables VOD to buy licenses in these markets.

Launch

1996

Launch Pre-Pay service in UK

Management

1997

Mr. Chris Gent appointed CEO.

Reorg

1997

VOD is reorganized in three main components Vodafone Corporate, Vodafone Retail and Vodafone Connect

Partnership

1997

Agreed to offer fixed-lined services from Energis

Acquisition

1998

Acquires New Zealand GSM Network

Merger

1999

Vodafone PLC merges with Air Touch Communications

Partnership

1999

Agrees to create a new wireless business network in the US in corporation with Bell South Atlantic.

Acquisition

2000

Acquires Mannesmann AG (Germany)

Divested

2000

Divested Orange to France Telecom. Orange was before a part of Mannesmann

Acquisition

2001

Acquires Eircell

Acquisition

2001

Acquires 25% of Swisscom mobile

Acquisition

2001

Acquires 17.8% of Airtel Movile to up its stake to 91.6%.

Acquisition

2002

Acquires Vivendi's part in the joint venture Vizzavi

Acquisition

2002

Acquires 41% of Cegetel, which implied a post merger with SFR.

Acquisition

2003

Increases holding in Telecel and Libertel to 70.3% respectively 98.2%

New functions

2003

New functions Group Marketing and Group technology and Business Integration are formed

Acquisition

2005

Acquires Mobifon S.A.(Romania) and Oskar Mobile (Czech Republic)

Acquisition

2006

Acquires Telsim Mobil Telekomunikasyon Hizmetleri (Turkey)

Source: Company data

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Appendix G: Government ownership Figure 323: Government shareholdings and overhang (Euro m) Company

Government stake

Total overhang

% of market cap

BELGACOM

50.1%

0

0.0%

DEUTSCHE TELEKOM

32.9%

18,423

32.9%

FRANCE TELECOM

32.5%

15,934

32.5%

KPN

0.0%

0

0.0%

OTE

38.7%

543

5.7%

0.0%

0

0.0%

PORTUGAL TELECOM SWISSCOM

67.7%

2,477

17.7%

TELECOM ITALIA

0.0%

0

0.0%

TELEFONICA

0.0%

0

0.0%

TELEKOM AUSTRIA

25.2%

2,312

25.2%

TELENOR ASA

54.0%

721

4.0%

TELIASONERA

56.7%

13,812

56.7%

Lock up expiry

23 April 2007

Source: Reuters sand company data

Deutsche Bank AG/London

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Appendix H: European M&A Figure 324: Recent European M&A multiples Date

Operator

Acquired asset

Yr +1

10/12/2003

Telenor

Sonofon-Bell South

8.8x

Yr +2

Yr +3

14/10/2004

Telefónica Móviles

10 Latam assets

6.1x

29/10/2004

TDC

Song Networks

10.2x

20/12/2004

UGC

Chorus (Ireland)

6.9x

26/04/2005

Orascom Telecom

Wind

9.2x

10/05/2005

UGC

NTL Ireland

8.3x

31/05/2005

Vodafone

MobiFon/Oskar

7.0x

5.9x

5.9x

Stake increase (Mobifon) and footprint expansion (Oskar)

28/06/2005

KPN

Telfort

8.0x

7.1x

6.5x

Intra-country consolidation. 5th operator with market contracting to 4 network players

29/06/2005

Telecom Italia

Turk telecom

3.8x

3.9x

4.1x

Strengthening existing position

05/07/2005

Telenor

Cybercity

9.4x

7.9x

6.8x

Inter-country footprint (broadband in Denmark)

06/07/2005

TeliaSonera

Chess/Sense

13.9x

12.8x

11.8x

Intra-country scale

08/07/2005

Telenor

B2

20.1x

15.2x

12.7x

Inter-country footprint (broadband in Sweden)

18/07/2005

Tele2

Versatel

11.7x

25/07/2005

Eircom

Meteor

42.0x

14.0x

7.6x

Intra-country consolidation. Re-entering mobile market to offer integrated services

28/07/2005

France Telecom

Amena - gross EV

9.5x

8.6x

7.8x

Inter-country consolidation adding to existing broadband business, allowing proliferation of integrated services

Amena - EV adjusted for tax asset

8.0x

7.2x

6.6x

5.8x

5.5x

Footprint expansion & inter-country consolidation 7.6x

6.7x

Inter-country consolidation

Ono

Auna Cable

10.8x

Deutsche Telekom

tele.ring - Gross EV

8.3x

7.0x

6.0x

tele.ring - EV adjusted for tax asset

7.5x

6.3x

5.6x

Energis - pre synergies

6.1x

6.3x

6.5x

Energis - post synergies

6.1x

6.6x

4.7x

Saunalahti - pre synergies

69.6x

Saunalahti - post synergies

4.3x

20/09/2005

Elisa

Inter-country consolidation Footprint expansion & inter-country consolidation

10/08/2005

Cable & Wireless

Footprint expansion & inter-country consolidation Enhance profile of corporate data services

29/07/2005

17/08/2005

Comment Assuming control, inter-country

Intra-country consolidation Inter-country consolidation. 3rd operator with market contracting to 4 network players

Intra-country consolidation in the UK Intra-country consolidation in Finland

30/09/2005

Liberty Global

Cablecom

10.4x

17/10/2005

TIM Hellas

Q-Telecom

14.3x

28/10/2005

Vodafone

Bharti Televentures

15.4x

11.5x

9.0x

Global footprint expansion

31/10/2005

Telefónica

O2

8.4x

7.5x

7.0x

European footprint expansion

31/10/2005

Telenor

Vodafone Sweden

11.0x

10.1x

8.1x

European footprint expansion

02/11/2005

Vodafone

Vodacom

9.5x

8.0x

6.8x

Global footprint expansion

13/11/2005

Vodafone

Telsim

22.9x

16.2x

11.5x

Global footprint expansion

30/11/2005

TDC

Apax, Blackstone, KKR, Permira, 6.3x Providence

6.1x

6.0x

Private equity acquisition

06/02/2006

Sonaecom

Portugal Telecom

7.5x

6.7x

6.5x

Subject to competition approval. Intra-country consolidation

29/03/2006

Telefónica

Telefónica Móviles

8.9x

7.6x

6.4x

Minority buy-ins

07/04/2006

Telefónica

Colombia Telecom

5.4x

03/05/2006

MTN

Investcom

11.0x

23/05/2006

eircom

Babcock & Brown

5.6x

02/08/2006

Proximus

Belgacom

6.9x

Median

Intra-country consolidation Intra-country consolidation in Greece

Latam footprint expansion Global footprint expansion 5.4x

5.3x

7.2x 8.8x

Private equity acquisition

7.5x 7.2x

Minority buy-ins 6.6x

Source: Deutsche Bank estimates and company data

Page 184

Deutsche Bank AG/London

Buyer

Country

14-Oct-04

UTA

Tele2

Austria

1-Feb-05

Tiscali Denmark

Tele2

30-Sep-05

Comunitel

30-Sep-05

Cablecom

30-Jun-06

Stake Price (Reported m)

Price (Euro m)

Subs (000)

100.0% EUR 213

213

Over 500,000 customers

Denmark

100.0% EUR 20.7

20.7

26

Tele2

Spain

99.96% EUR 257

Liberty Global

Switzerland

100.0% CHF 2,825

E.ON

Tele2 AB

Sweden

19-Jul-06

UPC - France

Altice and Cinven

France

100.0% USD 1,600

1,250 2000 Voice,Video and data Customers

8-Sep-06

Casema

Cinven and Warburg Pincus

Netherlands

100.0% USD 3,570

2,100

1,836

15-Sep-06

Tiscali Netherlands

KPN

Netherlands

100.0%

255

276

924

19-Sep-06

AOL Germany

Telecom Italia (Hansenet)

Germany

100.0%

675

1,100

614

22-Sep-06

AOL France

NeufCegetel

France

100.0%

288

500

576

3-Oct-06

Tele2 - France

SFR

France

100.0% USD 3,300

355 3393 (broadband and fixed subs)

15-Nov-06

Esenet

TDC

Denmark

100.0%

Source: Deutsche Bank estimates and company data

75.1% USD 319

257

N/a

1,775

Over 2m customers

35

Capacity 500,000customer s

40

Price per sub

Comments

426 On a debt-free basis with consideration consisting of cash and assumed debt. Cash position of UTA as at 31,Aug 2004 Eur11.8m 796 Additional 50,000 dial-up internet subs come on board. Purchase price on a debt-free basis. Purchase price on a debt free basis 887 Reported multiple - 10.4 x 2006E (not specified what multiple; EV/EBITDA?) N/a Reported purchase price of SEK 409 includes the obligation to assume debt of SEK 90m 625 Subs: Voice video & data

1,144 1.3m TV subscribers, 136,000 telephony subs in addition to BB subs

105 Subs includes fixed subs. Purchase price in cash on a debt free basis. -

Telecommunications Telecom for beginners 2007

Asset

6 December 2006

Deutsche Bank AG/London

Figure 325: Summary of recent broadband asset M&A multiples and details Date

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Glossary A

AAC (or MP4) Advanced Audio Coding is a codec providing greater fidelity and compression than MP3. Importantly, it is the default codec for Apple’s iTunes software, while not included as a default in most versions of Microsoft’s Windows Media Player. Both pieces of software will read MP3 files, but having a user create their music library in AAC files can commit them somewhat to iTunes, as conversion requires specialist software. Access Channels These are channels set aside by the cable operator generally for use on a non-commercial basis. Users include educational institutions and local municipal governments. These channels may be leased out on a non-discriminatory basis. Access Charge Refers to a fee charged by local exchange carriers to subscribers or other telephone companies for the use of their local exchange networks. Access Concentrator An access device which integrates several data transmission signals into a single shared channel. It provides access between the multiple hardware and applications "behind" the device. Access Line The telephone line from the telephone company central office to a point on the physical, private premise. Also called the local loop or "last mile." See also Local Loop. Access Network Part of the carrier network, which extends from the carrier's central office to individual homes/businesses. ACD (Automatic Call Distributor) A telephone system that manages incoming calls and routes calls to the first available station in a predefined group. If all stations are busy then a recorded messaged is activated and the call is put into a holding pattern, until stations become available. Addressable The ability to signal from hub in such a way that only the desired subscriber's receiving equipment is affected. In this manner, it is possible to send a signal to a single subscriber and effect changes in the subscriber's level of service. Advanced Intelligent Network (AIN) An advanced telephone network architecture that separates the computer programming that controls new telephone services from the programming that controls the switching equipment embedded in the network. Alternative Access Provider A telecommunications firm, other than the local telephone company, which provides a connection between a customer location and a point of presence of the long-distance carrier. Amplifiers A device which increases the strength of an electronic signal. It is placed at 2000foot intervals in coaxial-based cable networks to maintain signal strength throughout the network. While amplifiers extend the practical length of traditional cable networks, they lead to lower channel capacity, reduced signal quality, and carry higher installation and maintenance costs. Fibre optic cable networks require less amplifiers. Analog (Analogue) Method of transmission employing a continuous (versus pulsed) electrical signal that continuously varies in amplitude or frequency in response to changes in sound impressed on a transducer in the sending device. (As opposed to digital, which varies only by being on or off.)

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Analog-to-Digital Conversion of a signal whose input is information in the analog form to output of the same information in digital form. Ancillary Charges Charges by telcos for optional services, such as caller ID or call waiting. Anti-Siphoning FCC rules which prevent cable systems from "siphoning off" programming for pay cable channels that otherwise would be seen on conventional broadcast TV. "Antisiphoning" rules state that only movies no older than three years and sports events not ordinarily seen on television can be cable cast. ARPU Average revenue per user. Financial measure used to evaluate performance in the cable industry. Asymmetric Connection A connection where data flows in one direction at a much higher speed than in the other. Some examples of asymmetric connections are ADSL, 56K modems, and satellite downlinks. Asymmetric Digital Subscriber Line (ADSL) A process by which information (voice, video, and data signals) is compressed and sent over copper wires at high transmission rates, between 1.5 and 8.0 Mbps downstream and between 16 and 640 Kbps upstream (only within 18,000 feet of the central office). A more advanced technology than ISDN. ADSL is an asymmetric connection type. ADSL Lite (sometimes known as G.Lite in the US) The most popular form of DSL for consumer use, ADSL-Lite can achieve downstream transmission speeds of up to 1.5 Mbps. The advantages of ADSL-Lite include its ability to co-exist with regular telephone service on a single twisted pair line without the aid of a splitter. Aspect Ratio Refers to the ratio of width to height of a picture. Standard definition has a 4:3 aspect ratio while High definition television uses a 16:9 aspect ratio. Asynchronous Transfer Mode (ATM) A process in which data is broken into packets of fixed length, mixed with packets from multiple sources, and reassembled at their final destination. Information is organized into cells under Asynchronous Transfer Mode. This fixed-length 53-byte transmission technology allows users to exchange voice, data and video signals with a single connection to the network at speeds up to 2.4 Gbps. Attenuation A process by which electrical signals weaken. It is usually related to the distance that the signal must travel and is expressed in decibels. ATV Forum A membership association founded in 2000 which promotes interactive TV.

B

B Channel An ISDN B Bearer channel that can be used to carry voice or data connections at speeds of 56 or 64 bps. Backbone The backbone is the underlying central network that enables smaller networks to communicate. The central nodes of networks connect into the backbone, rather than to each other; so it performs a role analogous to the motorway network, as distinct from the local roads. The most important backbone is probably the internet backbone, i.e. the highbandwidth connections that handle massive traffic between smaller networks (e.g. subAtlantic cables to which country-level transmissions are aggregated); but backbone is a relative term, which may refer to any network that connects smaller networks together; so there is no clear boundary that defines the backbone.

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Backwards-compatible Many technologies are incrementally upgraded over time, such as Microsoft Windows: backwards-compatibility is provision for applications designed for a previous version to work on the upgraded version: so XP is backwards-compatible with 2000 if programs created for 2000 work on XP. Bandwidth In telecommunications, a band describes a hypothetical space in which data can be transmitted; bandwidth is the thickness of that pipe. This gives rise to two important concepts in telecommunications: the bandwidth of a connection, and that of spectrum. The bandwidth of a connection describes how fast it can transmit data, and is measured in multiples of bps. Bandwidth determines what applications a connection may have, as applications require that different amounts of data be transmitted; e.g. a video might need, every second, data describing 28 different full-screen images; so video requires a lot of bandwidth. Bandwidth is a crucial differentiator between telecommunications technologies, as there is a fundamental difference in the utility of a connection that can transmit high-quality real-time video, and one that is only suitable to load text fast enough to read. Baseband Transmission technique utilizing a single digital transmission channel shared by all users, primarily used for local area networks, especially in a cable network. Base station A base station is a network node to which devices connect wirelessly, such as the transmitters that constitute mobile networks. Base stations are generally linked into a backbone and constitute a wireless last-mile service. Basic Trading Area (BTA) A US term for a geographic area, based on the Rand McNally 1992 Commercial Atlas & Marketing Guide, 123rd Edition, pages 38-39, used by the Federal Communications Commission to define the coverage of spectrum licenses for certain services. The United States is divided into 487 BTAs. The Commission has further defined six other BTA-like areas: American Samoa; Guam; Northern Mariana Islands; San Juan, Puerto Rico; Mayaguez/Aguadilla-Ponce, Puerto Rico; and the United States Virgin Islands, for a total of 493 BTAs. Baud A measure of the rate of data transmission, computed in the number of elements changed per second. Baud Rate The speed at which a computer can transfer data through a modem. (Elements changed per second.) Bit The smallest unit of data and the standard unit of memory, usually with a binary value of 0 or 1, representing an on or off state in a digital system. To represent the 26-letters of the alphabet; we would take a 5-bit number, taking 25 = 32 possible values. Each stream of 5-bits would represent one letter. Numbering the letters 1-26, they can then be represented by the 5-digit binary number equivalents. As in the decimal system, each digit can be thought of as representing a different power of the base, so as 21=2×101+1×100; 10101 means 1×24+0×23+1×22+0×21+1×20=16+4+1=21; and numbering the alphabet, this means “U”. A stream of such data can then encode a message such as text, or an image, whereby each pixel is given a number to say what colour it should be, with longer numbers meaning more variety in the colour values that can be assigned. A 24-bit image records each pixel’s colour as one of a possible 224=16,777,216 different values. To interpret it, the computer takes the first 24-bits to describe the first pixel, and the second to represent the second etc. Bits are typically used to record transmission rates in networks measured in bits-per-second (bps). A string of bits that can be addressed as a group is called a byte. One byte is comprised of eight to ten bits. Bits-per-second (bps) is the standard unit of measurement for data transmission. Kilo bps (Kbps)-one thousand bits per second. Mega bps (Mbps)-one million bits per second. Giga bps (Gbps)-one billion bits per second. Page 188

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Bluetooth A short-range wireless standard that enables data connections between electronic devices like wireless phones, desktop computers and electronic organizers. Electronic devices can connect with each other when they are within 30 feet of each other. Broadband Transmission medium that allows high speed data transfer. Broadband transmission media can generally carry multiple channels each at a different frequency. Broadband includes any transmission rate above 1.5 Mbps. Broadcasting It is sending signals to a large group or area, at the same time. Broadcaster’s Service Area Geographical area encompassed by a station’s signal. Bundling The grouping of various telecommunication services – wireline & wireless into a package to increase appeal to potential customers. Bundled Rates A pricing metric whereby individual service rates are combined into one. i.e. cable and cable modem charges bundled together. Byte A string of bits that can be addressed as a group is called a byte. In most computer systems, a byte consists of eight bits. One byte may represent a character like a letter or a number. 8 bits translate to 256 possible values, enough to describe any textual character, so 1 byte represents 1 character of data in a text file.

C

Cable Modem A data transmission device connected to a computer that transmits data via coaxial cable rather than the traditional copper wire telephone lines. Cable modems transmit data at speeds up to 10 Mbps, which is 1,000 times faster than the standard computer modem. Cable Network The cable television plant typically used to carry data for cable services. Such plants generally employ a downstream path in the range of 54 MHz on the low end to a high end in the 440 to 750 MHz range and an upstream path in the range of 5 to 42 MHz. Cable Television Relay Services (CARS) Terrestrial microwave frequency band used to relay television, FM radio, cablecasting and other band signals from the original reception site to the head-end terminal for distribution over cable. Cable Termination The ends of all trunk and distribution cables are terminated with a 75ohm load to ground. If this is not done, serious signal distortion will result because RF frequency signals traveling in coaxial cable will reflect off any impedance that does not match the 75-ohm impedance of the cable. Call Center A facility with operators, computers and client databases that field large numbers of calls (incoming/outgoing) - usually related to customer service and marketing. Capacity The highest transmission speed that can be carried on a channel. Capacity can be expressed as either raw speed or net throughput. Carriage A cable system's procedure of carrying the signals of television stations on its various channels. FCC rules determine which signals cable systems must or may carry. Carrier's Carrier A telecoms company that provides services to other telecoms companies. Since the company does not provide services to the public, it is faced with less stringent regulations.

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CATV (Community Antennae Television) A television served by cable and connected to a common antenna. CCPU (Cash Cost per User-Costs) Total cost (G&A, cost of goods sold, etc.) to run the network divided by total subscriber base. CDMA (Code Division Multiple Access) The code division technology was originally developed for military use more than 30 years ago. CDMA is a multiple access technique, which uses code sequences as traffic channels within common radio channels – used for CDMA One (IS-95) air interface. The technology assigns a code to each multiple access stream of bits, transmits the data stream and then reassembles the data stream to the original format. CDMA One (IS-95) A narrowband, second-generation digital air interface technology developed by Qualcomm. CDMA2000 A third generation standard evolved from CDMA One. It is the CDMA community's proposal for a system standard for 3G services. 1xRTT CDMA Specifically, 1xRTT (otherwise known as 3G 1x) represents one times radio transmission technology with 1.35 MHz channels. This technology supports peak data speeds up to 144 kbps, up to a doubling of voice capacity and improved standby time. HDR or 1xEV CDMA A packet data solution that focuses on providing support for data-it does not support for voice. Peak speeds are 2.4 mbps, with each user in a loaded network expected to see speeds around 800 mbps. CDPD Cellular digital packet data. A digital cellular standard used in some smart phones. Transmission rates are limited to 19.2 kbps. Permits data files to be broken into a number of packets and sent along idle channels of existing cellular voice networks. Cell The basic geographical unit of a cellular communications system. Service coverage of a given area is based on an interlocking network of cells, each with a radio base station (transmitter/receiver) at its center. The size of each cell is determined by the terrain and forecasted number of users. Cell Relay Data transmission technology, which transmits data in small, fixed-sized packets (or cells). Cellular Service Radio telecommunication services provided using a cellular system. See Cellular System. Cellular System An automated high-capacity system of one or more multi-channel base stations designed to provide radio telecommunication services to mobile stations over a wide area in a spectrally efficient manner. Cellular systems employ techniques such as low transmitting power and automatic hand-off between base stations of communications in progress to enable channels to be reused at relatively short distances. Cellular systems may also employ digital techniques such as voice encoding and decoding, data compression, error correction, and time or code division multiple access in order to increase system capacity. Cell Splitting A process used to increase coverage and capacity in a wireless system by having more than one cell site in particular geography.

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Central Office (CO) Telephone switching office that connects the local loop to the Public Switched Telephone Network (PSTN). Typically, the line from the home to the CO is constructed of twisted pair. Churn Rate of measure used to describe the percentage of subscribers who leave or switch from a service provider. Circuit Switching Circuit-switching is the most intuitive way of designing a communications network: it means fixing a channel for each connection that is made, e.g. reserving a portion of bandwidth for communication between two people having a telephone conversation. Circuit-switching is relatively easy to organise, but it is not efficient, as during periods of silence bandwidth is reserved but not utilised. Circuit-switched connections are generally charged per second, as the amount of other traffic displaced is proportional to the time connected, not data sent, due to bandwidth being reserved for the duration of the connection. Circuit-Switched Network A telephone network that transports information over a dedicated connection between two connected parties for the length of their call. The public switched telephone network (PSTN) uses circuit switching. Additionally, circuit switching holds the network open for the duration of the call. CLEC (Competitive Local Exchange Carrier) An alternate local telephone company which competes with existing local exchange carriers for local and access business. Clustering The tendency of cable companies to operate in specific geographical locations in order to optimize economies of scale. Coaxial Cable An insulated central wire (axis) within a metal cylinder. The transmission medium widely used in the cable television industry. Code Division Multiple Access Digital cellular technology in which signals are thinly spread out across a broad band spectrum of 1.25 MHz. This medium could increase existing cellular/analog subscriber capacity by as much as ten to twenty times. Codec A Coder-Decoder (codec) is a piece of software that enables a piece of software to read or to write a particular type of file, like knowing someone’s language. Without the appropriate codec, the file may not be read. Codecs can be available freely or for purchase, and generally exist to compress data (they are also known as Compressor-Decompressors), although they may also serve encryption functions. Collocation Allows competitive LECs and LD carriers to operation (house equipment) in local exchange carrier offices. Common Carrier A private company offering telecommunications service to the general public on a Non-discriminatory basis, under government-mandated operating procedures (i.e. a telephone company). The company cannot control message content. Community Antenna Relay Service (CARS) The 12.75-12.95 GHz microwave frequency band which the FCC has assigned to the cable television industry for use in transporting television signals. Compression Compression is a major factor in the ability to store and transmit large amounts of information digitally. It means representing large amounts of information with less information. A simple method of compression would be to represent a region of a picture in which each pixel is black by recording not a value for each pixel, but rather the Deutsche Bank AG/London

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boundaries of the region and its blackness. Data-compression requires processing (and therefore potentially expensive hardware and energy) at both ends; to encode the data using the compression-technique at the sending end, and to decode it back to the full set of values at the receiving end. This can save huge amounts of bandwidth; as the software knows how to extrapolate a lot of information from the smaller amount it is sent, like a person who knows the complex instruction behind a relatively simple one. Converter Device attached between the television set and the cable system that increases the number of channels available on the TV. Convergence Convergence is the process by which different services or products come closer together, such as the convergence of voice services and internet services in VoIP. Convergence is a large issue in telecoms, as communications functionality has become important for many other services, such as internet music downloading becoming a crucial issue for the music industry. Convergence has been predicted to change business models, such as in the idea behind the AOL-TimeWarner merger, that it would enable massive synergies between media owners and telecoms. More recently, convergence between fixed and mobile services has become an issue, with designs for phones that migrate from the fixed to the mobile network as a user leaves their domestic point of access. Copper Wire (Twisted Pair) Used by telephone companies to carry electrical signals via two copper wires twisted around each other. One major drawback is that electrical signals degenerate over long distances, a process called attenuation. Covered POP The number of individuals in an area to which a wireless provider can provide service. CPE (Customer Premise Equipment) Terminating equipment (i.e. terminals, telephones. Modems). Usually supplied by telephone companies-installed at customer sites and connected to the telephone company's network. CPGA-Cost Per Gross Add The average cost for a carrier to sign up a customer, including handset subsidies, marketing, advertising and promotions. Commonly used in the US. Cross-Ownership Ownership of two or more kinds of communications outlets by the same individual or business. The FCC prohibits television stations and telephone companies from owning cable systems in their service areas. Television networks are prohibited from owning cable systems anywhere in the U.S. Customer Acquisition Cost The average cost incurred by a carrier to sign up an individual subscriber.

D

Dark Fibre Refers to an optical fibre that is in place but not in use. Optical fibre utilizes pulses of light, so fibre not in use is "dark." Dark fibre can refer to fibre that has been installed but is not yet ready to be used. For example many cable companies and power companies have over built in the expectation of future use or to lease to other providers. Dedicated Line A communication cable dedicated to a specific application. Also called a Private Line. Dense Wave Division Multiplexing (DWDM) A technology that dramatically increases the capacity of existing fibre optic networks by projecting multiple light beams of information onto a single glass fibre. The technology puts data from different sources together on an optical fibre.

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Digital A digital signal is encoded in a finite number of digits, which take discrete values, usually 1 or 0 in binary coding. These bits then can scale up to a complex message, through, for example, representing textual characters with bytes. Digital signals have two key benefits: firstly, a signal that can only take one of two values is less likely to get distorted; as distortion from one extreme to the other would need to be very large. Secondly, digital signals are the language of computers; offering, for example, advanced compression, which can greatly reduce the amount of data that it is necessary to store or transmit. Digital Cable A Cable TV product that takes advantage of the digital infrastructure of HFC networks to expand the range and variety of video programming services available to subscribers. The expanded capacity of the network allows MSOs to offer greater number of video programming channels, including enhanced PPV and VOD offerings, advanced onscreen menus, and CD-quality music channels. Several MSOs report higher buy-in rates and lower churn with their digital cable offerings compared to their standard analogue service. Digital Set Top Box A unit that converts a digital signal to analogue resulting in expanded channel capacity, improved picture and sound quality on analogue TV. Digital Subscriber Line (DSL) A data transmission technology that provides high-speed, "always on" Internet access over standard twisted-pair telephone lines-allowing concurrent transmission of high speed data and voice. DSL can achieve transmission speeds of between 1.5 and 52 Mbps, depending on the type of DSL used. However, transmission speeds degrade significantly if the subscriber's home is beyond a certain distance from the CO. Digital Subscriber Line Access Multiplexer (DSLAM) A device (usually housed in a CO) used to aggregate data traffic from many DSL subscribers into one high-speed signal for hand off to the data communications network. Digital Rights Management (DRM) is the process of safeguarding IPR on digital channels. Many of the benefits in terms of cost and speed associated with digital distribution, concern the ease to produce infinite copies of data, but when content providers want to charge users to access the data, this becomes problematic. DRM uses encryption in order to control who can access content, usually to restrict this to those who have paid for it. Digital Video Broadcasting (DVB) The European Standard for digital television. Dim Fibre A fibre optic system which does not originate the optical signals on one or both ends, but one for which the carrier provides regenerators. Direct Broadcast Satellite (DBS) A broadcasting technology which employs geostationary satellites to transmit broadcast signals directly to individual subscribers. In order to receive the service, subscribers must have a small antenna or "dish" and a set-top receiver, which decodes the signals so that they can be processed by a TV or VCR. Direct-To-Home or Direct Broadcast Satellite Same as Direct Broadcast Satellite. Distribution (Feeder) Cable The portion of the cable system that comes from the trunk cable and branches into the local neighbourhoods, typically consists of coaxial cable. Distribution cables make up approximately 40% of the cable system's total footage. Domain A unique name/locator that identifies a particular Internet site. Down Payment Each winning bidder in a typical auction must submit a down payment to the Federal Communications Commission with an amount sufficient to bring its total deposits up Deutsche Bank AG/London

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to 20 percent of its winning bid within ten business days following the release of a public notice announcing the close of bidding. Upfront funds on deposit will be applied toward the down payment, after satisfying any withdrawal payments and/or defaulted net high bid amounts due. In certain auctions, e.g., where installment payments were permitted, bidders were able to break their initial down payment into two components: first and second down payments. Downstream Communications path in a cable network reserved for sending signals from head end to the subscriber's home. In cable systems the downstream channel occupies the 50 MHz and higher portion of the spectrum. HFC networks have a more robust downstream capacity than traditional coax-based networks to support the increased upstream data flow required by digital cable, Internet access, and telephony. DS-0 Basic North American 64 Kbps digitized voice channel. DS-1 First level in North American digital hierarchy; the 1.544 Mbps signal consists of 24 DS0s multiplexed together.

E

Earth Station Refers to a "dish," or structure used to receive and/or transmit electromagnetic signals from or to a satellite. EDGE (Enhanced Data rates for Global Evolution) A radio based high-speed mobile data standard. It was formerly called GSM 384 and was initially developed for mobile network operators who did not win Universal Mobile Telephone System (UMTS) spectrum. E-GPRS (Enhanced GPRS) Another term for EDGE. Encryption is the process of putting a message into a code in order to prevent unauthorised access to it. Encrypted data requires a key to access it, which is a piece of data or software that has been engineered to provide access to the data. Much media that is sold to a user will be encrypted, with a key personalised to them or to their media viewer, so that they may not distribute it. Encryption is also important in transmitting confidential user-generated data; e.g. when credit card details are entered into a website, this is typically done over an encrypted channel. Encrypting data with sufficient sophistication that it may not be read by someone unauthorised requires a lot of processing power, which may be an issue in lowerpower devices. Encryption is a matter of degree, and generally any encrypted data may be decrypted by a sufficiently powerful computer with sufficient processing-time. Endpoint A terminal, gateway or Multipoint conference unit Erlang A statistic used in measuring the traffic in the cellular system equivalent to the average number of simultaneous calls. One erlang equals 3600 call seconds per hour or 36 CCS (call century seconds) per hour. Ethernet A local data communications network that transmits data over shielded coaxial cable or over shielded twisted pair telephone wire. It is mainly used for localized network Internet connections and is the most popular LAN technology in use today. Exclusivity The exclusive playback rights for the film or episode to a broadcast station in the market it serves. Exclusivity is granted through contract provisions. Under FCC rules cable operators cannot carry distant signals which violate local television stations' exclusivity agreements. Extended Time Division Multiple Access (ETDMA) A variation of half-rate voiced TDMA (see TDMA).

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F

Facilities Based Carrier A carrier that uses its own facilities to provide service. Federal Communications Commission (FCC) The U.S. government agency responsible for regulating interstate and international communications. Fibre-Optics A transmission medium composed of glass or plastic fibres; pulses of light are emitted from a laser-type source approximately the diameter of a strand of hair. Data travels via pulses of light that are sent through the fibre strand. Fibre-Optic Cable A strand of flexible glass approximately the diameter of a strand of hair. Data travels via pulses of light that are sent through the fibre strand. It offers greater capacity and speed than traditional co-axial cable. Fibre-to-the-Curb (FTTC) Refers to the use of optical fibre cable directly to the curbs near homes or any business environment. Assumes that coaxial cable or other medium will carry signals from curb to the user inside home/business Fibre-to-the-Home (FTTH) A network where the optical fibre runs from the switching station directly into a subscriber’s home. Fibre-to-the-Node (FTTN) A characteristic of modern cable networks in which optic fibre runs from the cable head-end, where broadcast signals are received, to nodes located in neighbourhoods served by the network. In typical HFC networks, coaxial cable runs from the node to the subscribers' homes. Fidelity is the closeness of a reproduction to the original it reproduces File Transfer Protocol (FTP) A protocol used to move large files on the Internet. Final Payment After verifying receipt of the proper down payment, reviewing the winning bidder's long-form application, and resolving any petitions to deny or other oppositions filed, the Federal Communications Commission will announce by public notice that the license is ready to be issued. A winning bidder that is not a small business will then have ten business days from the release of this public notice to submit the full balance of its winning bid. Firewall Router or access server acting as a buffer between any connected public networks and a private network-ensuring the security of the private networks. Fixed-line Telecoms are broadly divided between mobile and fixed line. Fixed-line connections involve a physical connection between the network and the point of access, such as a DSL line into the back of a computer. Home-networking via technologies such as Wi-Fi may enable roaming within the home, but lack of roaming capability, due to the need for wires, is generally the key disadvantage of fixed-line. Fixed-line services can usually offer faster and cheaper bandwidth than wireless services, Fixed Wireless (or Fixed Cellular) This apparent contradiction in terms signifies a cellular network that is set up to supper fixed rather than mobile subscribers. Fixed wireless is increasingly being used as a fast and economic way to roll out modern telephone services, since it avoids the need for fixed wires. Flexible (Drop) Cables The distribution cable is tapped by flexible "drop" cables as it runs past customers homes. The flexible cable drops to the home comprise approximately 45% of the system's total footage.

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Footprint The footprint of a network is the area where it’s available; so footprint describes its reach, and is a general measure of presence (e.g. the extent of a retail network may be its footprint). Frame Grouped information sent as a data link layer unit over a transmission medium. Frame Relay A high-speed, packet-switched data communications service, similar to X.25. Frame relay is a leading contender for LAN-to-LAN interconnect services, and is well suited to the burst-laden demands of LAN environments. Frequency Telecommunications are carried out by sending signals via electro-magnetic radiation; which can be simply understood as waves. The relationship between speed, wavelength, and frequency makes sense if one imagines a particular point on the signal travelling the wavelength each time the wave repeats, i.e. its frequency. If frequency is one per second, the wave will travel the wavelength once every second. Electromagnetic signals travel typically at or close to the speed of light, though slower in some media, so wavelength and frequency are inversely proportional, as maintaining constant speed requires travelling a long distance less often, or a short distance more often. Thus, frequency = speed/wavelength. Front end The user-facing portion of any interface is referred to as the front end. Fully Integrated System A cable television system which establishes the optimum amplifiercable relationship for best performance at lowest cost.

G

Gateway (GW) A gateway provides access to something, so that it might allow two distinct networks to exchange traffic, or it may be the user’s point of access, e.g. a portal is a gateway to the Internet. Control of gateways means control of traffic, and so gatekeepers may be able to take shares of revenues for content distributed through their gateways. Geostationary Satellites (GEOs) Orbit the earth at an altitude of 22,300 miles. GEOs are geosynchronous. The orbit of the GEOs provides an advantage in that the satellite is relatively fixed above a point on earth and the end user can utilize a lower cost antenna or dish fixed on the satellite's location in orbit. However, the GEOs do suffer from one major drawback: there is an audible time delay due to the distance the signal must travel. Geosynchronous Orbit Orbits the earth in the same amount of time it takes the earth to rotate, relatively fixed above a point on earth. Gigabits per Second (Gbps) A measure of bandwidth capacity or transmission speed. It stands for a billion bits per second. Gigahertz (GHz) A measure of spectrum equal to one billion hertz or one thousand megahertz. GPRS (General Packet Radio Service) Wireless standard for high speed transmission of data packets over GSM networks. It is a 2.5G technology. GSM (Global System for Mobile Communications) Originally defined as a pan-European standard for a digital cellular telephone network, to support cross-border roaming, GSM is now one of the world's main digital wireless standards. GSM uses TDMA air interface and has provision for text messaging and Subscriber Information Memory (SIM) cards.

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H

Hardware is physical computing; anything that exists in reality, such as handsets, processors, speakers, etc. Hardware may be replaced in part or in whole, but it is not mutable. Harmonic Distortion A form of interference involving the generation of harmonics according to the frequency relationship f=nf1 for each frequency present, where n is a whole number equal to two or more. Handoff The process occurring when a wireless network automatically switches a mobile call to an adjacent cell site. HDTV (High Definition TV) is TV with a higher resolution than traditional systems, typically around 5× the resolution, although there is no necessary standard for HDTV, so all numbers depend on what is chosen to broadcast. The greater amount of information demands higher bandwidth to transmit it, and so one HDTV channel may take the place of up to four other channels. HDTV is a coming offering across higher bandwidth distribution channels, although it is unclear what portion of TV will end up high definition. Head-end End point of a broadband network. Stations transmit to the head-end, which is then the origination point for signals distributed to cable television subscribers. Hertz A unit for measuring frequency that equals one cycle per second. Kilohertz (KHz) equals one thousand cycles per second. Megahertz (MHz) equals one million cycles per second. Gigahertz (GHz) equals one billion cycles per second. High Bit Rate Digital Subscriber Line (HDSL) A modulation method that enables T-1 and E1 signals to be delivered over two and three pairs of copper wire, respectively. Originally designed to bypass costly repeat installations required to provision T-1 and E-1 services to the far flung, HDSL is now being positioned in single-pair configurations that will deliver up to 768Kbps to residences. High Definition Television (HDTV) A television signal with greater detail and fidelity than the current TV systems used. The USA currently uses a system called NTSC. HDTV provides a picture with twice the visual resolution as NTSC as well as CD-quality audio High Frequency The entire subsplit (5-30 MHz) and extended subsplit (5-42 MHz) band used in reverse channel communications over the cable television network. Homes Passed The total number of homes, which have the potential for being hooked up to the cable system. Hop In a circuit-switched connection, all data is going from one end to the other end, so it doesn’t need directing; but in packet-switched networks, there is not a clear channel established between communicating nodes. Packets travel by moving towards their destination from node to node, rather like a traveller using a chain of scheduled bus services to go from city to city. Each node-to-node journey is a hop. A packet is redirected at each hop, as it requests the node it has reached to send it to the next node en route to its destination; so the number of hops is a crucial factor in determining speed. Packets travelling the same wire distance will take different times if they travel a different number of hops. Host Device A set-top or receiver containing and executing the OpenCable Application Platform implementation. It is also host to the CableCARD device. House Drop The coaxial cable that connects each building or home to the nearest feeder line of the cable network.

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Hub A signal distribution point for part of an overall system. Larger cable systems are often served by multiple hub sites, with each hub in turn linked to the main headend with a transportation link such as fibre optics, coaxial supertrunk, or microwave. A hardware device that interconnects computers on a Local Area Network and acts as a central distribution point for the communications lines. Hybrid Fibre/Coax (HFC) A cable network that consists of both fibre-optic lines and coaxial cable. Hybrid Communications Network A communications network that uses a combination of line facilities, i.e., trunks, loops, or links, some of which use only analog or quasi-analog signals and some of which use only digital signals HyperText TTP is the protocol defining communication between web browsers and web servers. HyperText Markup Language (HTML) The coding (set of commands) used to create and format HyperText documents; the coding language of an Internet page. HyperText Transport Protocol (HTTP) The protocol for transporting hypertext files through the Internet.

I

i-Mode i-mode is NTT DoCoMo’s mobile Internet access system. "i-mode" is also a trademark and/or service mark owned by NTT DoCoMo. Technically, i-mode is an overlay over NTT's ordinary mobile voice system. While the voice system is "circuit-switched" (i.e., you need to dial-up), i-mode is "packet-switched," thus, "always on." IMT-2000 The term used by the international Telecommunications Union for a family of standards and technologies targeted at increasing efficiency and improving the performance of mobile wireless networks for the projected third-generation wireless services. Incumbent Local Exchange Carrier (ILEC) A local exchange carrier (LEC) which, when competition begins, has the dominant position in the market; the original carrier in the market prior to the entry of competition. Independent Operator Individually owned and operated cable television system, not affiliated with a Multiple System Operator. Industry Standard Architecture (ISA) An interface standard for connecting hardware expansion cards to a computer. The typical ISA connection is a slot, or edge-card connector, on the computer's motherboard allowing devices such as sound cards and telephone modems to be plugged in to the computer. Informercial A commercial, usually 90 seconds or more in length, designed to supply information about a product or service rather than to present a specific sales message. Integrated Digital Enhanced Network (iDEN) A Motorola Inc. enhanced specialized mobile radio network technology that combines two-way radio, telephone, text messaging, and data transmission into one network. Integrated Services Digital Network (ISDN) Technology that transmits data at speeds up to 128,000 bits per second over the traditional copper wire. Interactive Cable Cable systems through which viewers are able to order movies and video games, access library information, and request sales brochures and coupons from home.

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Interactive TV A form of television in which the viewer is able to respond to and/or manipulate onscreen images, and have on-screen access to supplementary content about a program's content. Currently in trials in several U.S. markets. Interactive Voice Response System (IVR) The automated telephony systems that direct calls within a company or organization, e.g., “Please press one for customer service, press two for technical support, press zero for the operator.” Interconnection In a network connection, be it voice or data, there is a point of origination, a point of termination, and travel in between; interconnection refers to the work of carrying the connection between the two ends. Interconnection may well be carried out by entirely different parties than origination and termination, e.g. a call from a customer of a regional US operator to one of a regional Swedish operator could be carried across the Atlantic by AT&T, and maybe then through the UK by BT etc. Interdiction A method of receiving TV signals by jamming unauthorized signals but having all other signals received in the clear. Because the jamming is accomplished outside the home it does not require a set-top terminal in the home. InterWorking Unit (IWU) The network "modem" where all the digital to analogue (and vice versa) conversions take place within the digital GSM networks. Inter-exchange Carrier (IXC) In U.S. terminology, an IXC is a long-distance telecommunications provider that offers a range of circuit-switched, packet-switched, leased line, and enhanced communications services; any company that provides communications services between exchanges on a long haul basis. In Europe, Asia, and other nations around the world, the local telco also serves as the major IXC in the country. Interface A point of connection between two systems, networks, or devices. International Telecommunications Union (ITU) A United Nations organization that establishes standards for telecommunications devices, like ISDN hardware, modems, and Fax machines. Interconnection A term that defines the inter-working of two separately owned and operated networks. Interconnection is used to refer both to the technical interface and to the commercial arrangements between two network operators providing service. InterLATA Telecommunications services that originate in one and terminate in another LATA. Internet Collection of local, regional, national and international networks into one global network. The Internet uses TCP/IP protocols (Transmission Control Protocol/Internet Protocol) which was originally designed for the UNIX operating system. IP(Internet Protocol) Specifies the format of packets, also called datagrams, and the addressing scheme used to route a message to a different network or sub-network. Most networks combine IP with a higher-level protocol called Transport Control Protocol (TCP), which establishes a virtual connection between a destination and a source. Internet Service Provider (ISP) Internet Service Providers (ISPs) provide consumers with connections to the internet, and also value-added services such as e-mail and technical support. They own varying amounts of the connections offered, including incumbents who own the entire network, and brands who don’t even own the lines into the internet. IntraLATA Transportation within a LATA (voice, data, or video information). Deutsche Bank AG/London

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IP stands for Internet Protocol: the underlying system that organises the internet, without which it couldn’t really exist. In IP, each system on the network is assigned an IP address, which identifies it uniquely. Packets bound for that system are addressed to its IP address, and marked with that of their origin, just like mailed parcels. IP is packet-switched, so packets are simply passed between nodes via the quickest route available at the time, until they reach their destination. IP is occasionally upgraded, to accommodate the changing needs of the network, but its core functionality remains, and it is kept backwards-compatible. Intellectual Property is data or content with an owner, which may be e.g. copyrighted or patented. It is sometimes referred to as IP. Intellectual Property Rights, or IPR, refer to the rights that a particular owner or owners in general have in respect of their IP, such as the rights of a record company to sell copies of an artist’s back catalogue. IPVPN A Virtual Private Network (VPN) is a network which uses encryption to emulate the performance of a closed private network, such as an office network, over open public channels. The effect is analogous to having private conversations whilst communicating across in a crowded public space, by speaking in code. IPVPN offers VPNs using IP, and is a data-service often offered by telecoms companies, so that their customers may establish private networking between remote locations, without installing closed physical channels. IP Number The unique address of every computer on the Internet. IP Telephony An alternative to standard circuit switched telephony in which voice signals are placed via computer over the Internet, using Internet protocol technology. ISDN-Integrated Services Digital Network A switched network providing end-to-end digital connectivity for the simultaneous transmission of voice, data, video, imaging and fax over several multiplexed communications channels. ISDN employs high-speed, out-of-band signalling protocols that conform to international standards. This technology can transmit data at speeds up to 128,000 bits per second over the traditional copper wire. ISDN Digital Subscriber Line(IDSL) IDSL is a 128 Kbps standard proposed by the Ascend Corporation for providing low cost, dedicated 128 Kbps data service using telephone lines and central office switch facility space leased from the telephone company. It uses standard point-to-point ISDN signalling techniques to link the customer to the central office head-end.

K

Ka-Band 33 to 36 GHz frequency band used by satellites. Key Performance Indicators (KPIs) Due to the complexity of valuing telecoms businesses; the sector has a particular focus on KPIs, rather than just pure financial data. KPIs can drive valuations significantly, and are often released more regularly than financials, though the degree and regularity of disclosure vary significantly. Kilobits per Second (Kbps) A measure of bandwidth capacity or transmission speed, a thousand bits per second. Kilohertz (KHz) A measure of spectrum equal to one thousand hertz. Ku-Band Microwave frequencies within the 12 to 18 GHz band; the band of satellite downlink frequencies from 11.7 to 12.2 GHz.

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LAN (Local Area Network) A high-speed data network intended to serve a small area, such as a building. Usually controlled by a network operator.

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LATA (Local Access and Transport Area) A contiguous local exchange area, including all points served by a local phone company within a particular area. Laser A device that generates coherent electromagnetic radiation in, or near, the visible part of the spectrum. Last Mile This describes the connection between large-scale networks and individual users: e.g. the copper PSTN wires into houses. Leapfrogging Cable television operators' practice of skipping over one or more of the nearest TV stations to bring in a further signal for more program diversity. FCC rules establish priority for carrying stations that lie outside a cable system's service area. Line or Loop An analog or digital access connection from a user terminal which carries user media content and telephony access signalling Line Speed The rate at which individual bits are transmitted on a telephone connection. A modem’s line speed may be set at 14,400 bits per second, an ISDN line at 64,000 bits per second. Lit Fibre activated or equipped with the requisite equipment needed to use the fibre for transmission. Local Area Network (LAN) is a closed network (it may connect to the internet, but access to it is controlled); such as an office network; typically operating at very high speeds Local Access and Transport Area (LATA) A geographical area used for regulatory, pricing, and network organization purposes to organize the public telephone network into distinct regions. Local Exchange Carrier (LEC) One of the U.S. telephone access and service providers that resulted from the U.S. deregulation of telecommunications. Local Franchise Authorities (LFAs) Authorities which grant licenses to cable companies to operate within their jurisdictions usually for a share of revenues. LFAs have been at the centre of the debate over open access. Local Loop The connection between the customer's premises (e.g. home or office) and the provider's central office servicing this customer. Historically, this has been a wireline connection, however, wireless options are increasingly available for local loop capacity. Also referred to as "the last mile" (even though the actual distance can vary). Local Multipoint Distribution Systems (LMDS) A line-of-sight wireless technology which delivers two-way audio and video signals via microwaves. System operates at 28 GHz spectrum level. Coverage cells have a range of approximately three miles, which solves the terrain and one-way limitations faced by MMDS, however, the greater number of coverage cells required increases the cost over traditional MMDS. The FCC has not allocated this spectrum for use, and if the commission chooses to auction the spectrum, costs will rise dramatically Local Number Portability (LNP) A system that allows subscribers to change local phone companies without experiencing a change in phone numbers. Local to Local The retransmission of local TV signals by DBS back into their local broadcast markets Deutsche Bank AG/London

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Low Earth Orbiting Satellites (LEOs) Orbit the earth at an altitude between 400 and 1,500 miles. Due to the LEO's low orbit, they must travel at high speeds in order to maintain their altitude, which only keeps them in the line-of-sight of a fixed terrestrial antenna for ten minutes. LEOs have a shorter lifespan and are less powerful than GEOs. However, unlike GEOs, LEOs transmit signals with no time delay, which offers a large marketing advantage compared with the GEO.

M

Major Economic Area (MEA) A geographic area established and used by the Federal Communications Commission to define the coverage of spectrum licenses for certain services. There are 52 MEAs, including 46 in the continental United States and 6 covering Alaska, Hawaii, Guam and the Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands. Medium Earth Orbit Satellites (MEOs) Orbit the earth at an altitude of 10,000+ miles. As with LEOs, MEOs transmit signals with no perceptible time delay. Proposed MEO networks would consist of approximately twelve satellites. Megabits Per Second A measure of bandwidth capacity or transmission speed, a million bits per second. Megahertz (MHz) A measure of spectrum equal to one million hertz or one thousand kilohertz. Microbrowser A Web browser optimized to run in the low-memory and small-screen environment of a Net device. Microwaves High-frequency radio waves used for telecommunications transmission. Line-ofsight, point-to-point transmission of signals at high frequency, usually above 890 MHz. Many cable television systems receive some television signals from a distant antenna location via microwave relay. Microwave frequencies require direct line-of-sight to operate. Trees and buildings distort or block the signal. Migration Something migrates when it connects to something different. This occurs in mobile networks, where a mobile device migrates from base station to base station as the user moves around, and also technically, when services migrates from technology to technology, such as voice traffic migrating from the PSTN to mobile and VoIP. Mobile Telephone Switching Office (MTSO) Monitors all cellular phone traffic signal strength and, at appropriate times, transfers a call from one cell site to another. Modem A data communications device that accepts a digital signal, then converts or modulates it into an analog signal; that another modem can convert back or demodulate into digital form again. Modulator An electronic equipment that combines video and audio signals from a studio and convert them to radio frequencies (RF) for distribution on a cable system. MPEG (Moving Pictures Experts Group) The group that defined the standards for compressed video transmission. MPEG also refers to the format itself. MP3 is formally Motion Picture Experts Group Audio Layer 3; a method of compressing audio data. MP3 produces CD-quality sound at a data-rate of around 1MBps. Multichannel Multipoint Distribution System (MMDS) A line-of-sight wireless technology that delivers audio and video signals one way, to homes via microwaves. Coverage cells have

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a range of approximately thirty-five miles. Current analog systems will be upgraded to digital thereby increasing channel capacity from 30 channels to 120 channels. Multimedia In the context of mobile communications, a service that may combine voice, data, graphics and video information. Multipoint Access User access in which more than one piece of terminal equipment is supported by a single network termination. Multiplexing Enables cable operators to offer on a given service multiple feeds, each of which carries a different line of programming. Made possible by digital compression technology. Multiple Service Operator (MSO) A term applied to cable TV companies that hold certificates of franchises allowing them to provide cable TV service in several different cities or geographic locations. Must Carry Refers to the 1992 Cable Act, which requires Cable TV operators to carry local commercial and non-commercial broadcast channels in areas where the cable companies provide service. MVNO Mobile Virtual Network Operators run a mobile phone service without owning a network of their own, by renting network capacity from others.

N

Narrowband Medium that is capable of carrying voice, fax, paging, and relatively slow-speed data (not full video applications), typically at 64Kbps or less. Narrowcasting is sending signals to a small and select group of users, e.g. subscribers. Near Video on Demand (NVOD) An entertainment and information service that broadcasts a common set of programs to customers on a scheduled basis. At least initially, NVOD services are expected to focus on delivery of movies and other video entertainment. NVOD typically features a schedule of popular movies and events offered on a staggered-start basis (every 15 to 30 minutes, for example). See also Video on Demand. Network Congestion A state of overload within a network, where there is a risk of traffic loss or service degradation. Network Interface Card (NIC) A hardware interface card that connects a computer to the network cabling. Node Transition point in networks where signals travelling over optical fibre are converted into radio signals and distributed to homes and businesses via standard coaxial cable. Nodes in modern high frequency networks serve approximately 750 homes, though this number is higher in older networks. The capacity of high frequency networks can be increased by constructing additional nodes, which reduces the number of users per node. Noise The word "noise" is a carryover from audio practice. Refers to random spurts of electrical energy or interference. Heavy noise is sometimes called "snow." Number Portability The possibility for individuals and corporations to retain the same phone number and same quality of service when switching to a new local service provider.

O Deutsche Bank AG/London

OC-1, OC-3, OC-48, OC-192 OC-1 stands for Optical Carrier, level 1. It is a direct SONET optical signal, transmitting at 51.840 Mbps. All higher levels are direct multiples of OC-1. Page 203

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On-Demand Service A type of telecommunication service in which the communication path is established almost immediately in response to a user request brought about by means of a user-network signaling. Open Access A term describing the view advocated by AOL and other members of the openNET coalition that MSOs should be forced to open their cable systems to competing ISP's. The issue is currently under review by the FCC. OpenNET An advocacy group co-founded by AOL to lobby congress, the FCC and Local Franchise Authorities to force cable companies to open up their networks to competing ISPs. Open Systems Interconnection (OSI) A framework of the International Organization for Standardization (ISO) standards for communication between different systems made by different vendors. Operation Systems Support (OSS) The back office software used for configuration, performance, fault, accounting and security management. Optical Fibre An extremely thin, flexible thread of pure glass, able to carry 1,000 times the information possible with traditional copper wire. Overbuild The construction of a second cable TV system in a franchise area where a system already exists.

P

Packet is a discrete piece of data, of a certain length. Any amount of data can be split up into packets, which may then travel independently, and be reassembled into the original data later on. Packets often contain meta-data concerning e.g. what portion they contain. Packet-Switched Network (PSN) A network which transports information by breaking up the information stream into addressable digital "packets" that are transmitted independently and then reassembled in the correct sequence at the destination. These networks allow "sharing" of communications links and are more efficient than circuit-switched networks. Packet Switching Packet-switching is the underlying principle of IP. In contrast to circuitswitching, it doesn’t maintain channels according to connections, but rather chops data into discrete packets, and then sends packets mixed together. When users access websites, they download a lot of data when first accessing the site, but then very little whilst reading it. In a circuit-switched system, a channel would be assigned to the user-webpage connection, dormant as long as the user requested no new data. Not many such connections could be maintained, given limited bandwidth. In a packet system, the data is sent to the user in packets, each of which travels independently along the quickest route, without space reserved for them in advance. This means that traffic is allocated wherever there is free bandwidth, and bandwidth is never reserved and empty, rather traffic fills the empty space, and thus more can be sent. The volume of data able to travel in a packet-switched network is vastly greater than if each required a dedicated channel. This is analogous to the difference between cars that travel after each other along roads, and those which require that their whole route be cleared in advance. Packet-switching is much more efficient. Parasitic networking is a way of decentralising networking. A parasitic network is one in which each node is hierarchically equal, and uses other nodes indiscriminately to make its connections, rather than relying on central nodes and a backbone (although parasitic networks may access the backbone). The postal system is a traditional network, whereby users send their messages to a central post office, and these are then transmitted in highvolume to another central location, from which they are then distributed to their destinations. The parasitic equivalent would involve messages being handed between connected people,

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in the direction of their intended recipient; with each node’s connectivity parasitic on the connections of the nodes to which it is connected. Parasitic networks are potentially very powerful because the number of distributing nodes on a parasitic network (everyone involved) may be exponentially greater than in a traditional network; no central network need be installed; the network is automatically dynamically distributed according to users; and nodes may be automatically parasitic on each other; using cheap spare capacity in their ability to transmit and to receive. Pay-Per-View A service that enables subscribers to purchase films and other programming on a onetime basis. In most cases, PPV programs are aired according to a schedule set by the cable operator. Bandwidth constraints have been the main barrier to offering subscribers the added convenience of more flexible programming schedules. Offers less flexibility than Video on Demand. Pay Programming Programming that is available to cable customers for a fee in addition to basic subscriber fee. Penetration describes the ability of a technology or service to reach people. 100% penetration means being available to everyone, e.g. the PSTN has near-100% penetration. This is distinct from market share; as availability doesn’t compel people to pay for something. Per-Inquiry Advertising Type of advertising where the cable network running the commercial is paid based on number of responses received rather than air time used. Personal Communications Services (PCS) A broad range of telecommunications services (i.e., voice and data) that enable wireless communication independent of location. PCS systems operate at higher frequencies than analog cellular systems. PCS cover the 1.9 gigahertz (GHz-one billion cycles per second) or 1900 MHz spectrum in the United States (1800 MHz in Europe and 1500 MHz in Japan). Personal Digital Assistant (PDA; Pocket PC; Handheld) were originally designed as electronic personal organisers, but as technology has advanced they have become more sophisticated, and now offer functionality such as internet access, or music. There is convergence between some mobile phones and PDAs, as connectivity enhances mobile computing, and the line between the two is unclear, but a PDA is, broadly, a handheld device of which the primary function is to display the user’s data. PDC (Personal Digital Cellular) The digital wireless standard used in Japan. PDC uses TDMA air interface. Personal/Digital Video Recorder (PVR/DVR) record TV onto a hard drive in digital format (some will convert analogue signals), so that programmes may be played back when they aren’t live. Sophisticated PVRs will regularly record users’ favourite programmes, so that they may watch what they want at any time. They can also offer features such as pausing live television, and fast-forwarding (only as far as the live feed); or rewinding (typically retaining in memory the last few minutes of what is being watched); as well as recording to DVD. PVRs usually incorporate an electronic programme guide for browsing, and may be offered either by a television service provider such as Sky; or a third-party such as TiVo. PVRs offer both competition to IPTV functionality in their current form, and the likely device through which IPTV will be accessed. Pixel Digital images are made of grids of discrete dots, each of which is a particular colour. Pixel is a contraction of picture element; meaning a single-dot in a digital picture.

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POP (Point of Presence) A POP is the location of an access point to the network. It may be (physically) located in rented space (from a large telco) and houses routers, servers, etc. The number of POPs an ISP has is usually indicative of its size. Portal is a central access-point through which a user accesses content, such as the MSN homepage, with links to different categories and items. With huge amounts of content available, users need help navigating through it, and portals provide this by organising what may be of interest. Portals may be customised to the user (as is the case with the Amazon internet shopping front page), to offer them personalised content based on past usage and purchase patterns. Popular portals can influence heavily the content that users access, and are often owned by ISPs and mobile phone service providers, whose portals may be loaded by default when customers connect to the internet. Plain Old Telephone Service (POTS) Refers to analog voice telephone services provided over the public switched telephone network. Plastic Optical Fibre (POF) A plastic cable used as a substitute to more expensive fiber optic cable. Can be used for only short distances. Point of Presence (POP) A measure of population covered; one person is equal to one POP. Post-paid (Contract) A post-paid account (sometimes referred to as contract), allows the user credit, and bills them regularly, typically every month. A certain amount of service is often (especially in mobiles) included in the regular subscription fee. Regular fees mean that contracts guarantee revenue regardless of usage, with usage in excess of services-included being chargeable, and providing extra revenue. Users may be locked into a post-paid contract for a minimum period, and will continue to be charged until they cancel the contract, meaning that they will be sure to terminate. Premium Cable Additional cable programming services for which subscribers pay a fee in addition to a basic cable charge. Prepaid A pre-paid account is one whereby a user pays for credit prior to accessing services, which are then paid for from this credit. When the user has used up their credit, they must top-up their account, in order to be able to purchase more services. Pre-pay accounts include no commitment to future spending, and so the account simply lapses by dormancy, with the conditions under which lapse will occur specified in the terms of contract. Program Non-Duplication Refers to the rules by FCC to the black out of programming by a cable operator of a distant television station program it carries when a local station also carries the same programming leading to problems with duplication. Protocol A protocol is a set of rules governing communication between network nodes; governing error-checking; compression; end-of-message notification; and received notification. PSTN Public Switched Telephone Network. The traditional, wired telephone network.

R

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Radio Frequency Identification (RFID) RFID tags are small electronic chips that are attached to something to track it, and report back data when requested by readers. Cards that are read by holding them near to readers, such as the London Underground Oyster Card, contain RFID chips. Active tags contain their own power source, and usually therefore have greater functionality; such as longer-range transmission, and reading and writing data, e.g. to provide feedback from a sensor system. Passive tags contain no power source, and transmit using power gained from the reader’s signal. These typically will transmit only their unique Deutsche Bank AG/London

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identifier, but are extremely small and cheap (prices have been projected to drop to €0.05 by one manufacturer). Passive RFID tags may replace barcodes, being embedded in products to allow product-tracking. Wal-Mart and the US Department of Defence have demanded that all their suppliers begin to label all shipments with RFID. Far off proposals for RFID include person-specific tags that would enable ID authentication, and universal product-tagging. RFID is hard to predict, but extreme scenarios could involve a massive amount of extra data travelling across telecommunications networks, as everything everywhere reported itself back to its owner or vendor. Rate Adaptive Digital Subscriber Line (RADSL) ADSL modems that are able to adjust to varying lengths and qualities of lines are said to be rate adaptive. Unlike fixed rate ADSL modems, these modems will connect over varying lines at varying speeds, making them a good choice for service providers attempting to deploy ADSL past 18,000 feet. Modems can be designed to select their connection speed at train-up, during a connection, or upon signal from the central office. Real-Time Communications A communication service (usually two-way) in which the information sent is received instantly by the other party in a continuous stream. Telephone calls and videoconferencing are real-time: database access and e-mails are not. Rebuild The physical upgrade of a cable system, often involving the replacement of amplifiers, power supplies, passive devices and sometimes the cable, strand, hardware and subscriber unit. Reciprocal Compensation Payment from telecoms providers to one another in exchange for providing terminals for each other's exchange traffic. Regional Bell Operating Company (RBOC) One of (originally) seven U.S. telephone companies that resulted from the break up of AT&T. The RBOCs were created in 1984. However, through consolidation, there are now four RBOCs-SBC, BellSouth, Verizon and Qwest. Resellers Carriers which purchase services from other carriers and than resell them to end users. Revenue Generating Units (RGU) Refers to every additional cable subscription unit. For example if a customer signs up for both digital video and high-speed internet access, it counts as two RGUs. Roaming use involves the ability to stay connected to a network whilst moving around. Pervasive wireless networks provide connectivity over a wide area by allowing users to hop between base stations with overlapping cells, so that as they begin to go out of range of one, they come into range of another. Roaming may also be offered over a small area, such as a Wi-Fi base station that offers a user wireless connectivity throughout their home. When users connect outside their home network, this is also roaming use. Roll-out is the process of implementing a new technology or service in its target area; so roll-out starts when the product is first offered in the market, and continues until it can reach the whole market (i.e. has full penetration). Roll-out can involve heavy investments, such as building new networks of mobile base stations; and is crucial, as people can’t buy services that have not been rolled out to them; and most technologies (especially innovations) have a limited shelf-life, so lost revenues will not be replaced. Router A computer system that connects two or more networks. The router will examine an incoming document (packet-switched) and forward it to the appropriate address. Deutsche Bank AG/London

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Rural Service Area (RSA) A geographic area used by the Federal Communications Commission to define coverage of spectrum licenses in certain services in the US. There are 428 RSAs, which, when combined with 306 Metropolitan Statistical Areas (MSAs), comprise the 734 cellular geographic service areas.

S

Sampling Analogue signals are continuous; varying constantly, whilst digital signals are discrete, having values at regular intervals, e.g. digital pictures have separate values for each pixel. To convert an analogue signal, e.g. a sound to digital; it is sampled at regular intervals. The rate at which values are recorded is the sampling rate, so a sampling rate of 1 kHz (1000 times per second) means that 1000 values are set for each second of audio. Sampling rates are set appropriate to context, typically as twice the highest frequency wished to be represented, so as not to miss any waves. Quality is a combination of sampling frequency and the number of bits in each value, a binary equivalent to decimal places. With a bit-rate of 10, each value is recorded in a 1024 (2^10) range, equivalent to measuring with 0.1% accuracy. A signal sampled at 1 kHz with a bit-rate of 10 would be roughly 10kbps with no compression. Satellite A device in orbit above the earth, often geostationary, which receives transmissions from separate points on the earth and retransmits them to cable systems, DBS, and others over a wide area. Satellite Dish Antenna A device or system which receives broadcast signals from a satellite, for transmission to home or system use. Satellite Downlink A data service that broadcasts data from an orbital satellite to terrestrial receivers. Used by some satellite TV vendors to provide a high-speed feed for receiving data from the Internet. Data sent to the Internet (Web page requests, outbound email, etc.) must be sent through more conventional means, such as a dial-up modem connections to a local ISP. Satellite Home Viewers Improvement Act-Legislation signed by President Clinton in November 1999 that authorizes the retransmission of local network signals to DBS subscribers under terms similar to those that govern the retransmission of local signals by cable companies. Satellite Master Antenna Television System (SMATV) Systems that serve a concentration of TV sets such as an apartment building, hotel, etc, utilizing one central antenna to pick up broadcast and/or satellite signals. Set-Top Box A device which coverts, displays data from analog, digital or digital broadcast television to a standard frequency for display on a standard analog television set. Shared Tenant Services (STS) The provision of centralized telecommunications services to tenants with in the same building(s). Short Message Service (SMS) A service available on digital networks allowing users to send/receive short alphanumeric messages. (Works with GSM networks.) Subscriber Identity Module (SIM) SIMs are 25 × 15 mm cards, containing the details unique to a mobile phone user. A phone’s SIM can be changed by the user. Newer phones often have appreciable internal storage, for e.g. media content and SMS archives, but older phones stored most data on the SIM. When a user connects to a network, it is SIM data that represents their account. Mobile service providers can sell SIMs to users without handsets, allowing the user to source the handset themselves (users may have a spare phone, or buy SIM-free). This model is extremely low-cost, as SIMs are commoditised, and cheap to manufacture; with low input and transportation costs. Many service providers sell SIM-locked handsets that won’t accept another SIM without entry of a code; which guards against

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thieves and customers who don’t intend to use their account: but unlocking is available relatively widely on the grey market. Slamming The unauthorized switching of customers from one long distance company to another, by a company. Slamming violates FCC rules. SONET (Synchronous Optical Network) A fiber-optic transmission system for high-speed digit traffic. SONET speeds range from 51 megabits to multiple gigabits per second. It uses a "self-healing" ring architecture that is able to reroute traffic if a line goes down. Spatial Division Multiple Access (SDMA) A complement (not an alternative) to CDMA and TDMA; this technology increases the number of users that can access an existing wireless phone or data. Specialized Mobile Radio (SMR) Also known as Trunked Radio System-Wireless radio communications systems which employ either conventional or trunking technology. Historically, these systems have provided one-to-many and many-to-one voice communications service-also known as mobile dispatch services. These systems are operated by commercial entities, otherwise known as service providers that are in the business to resell their services to other entities for a profit. Spectrum The electromagnetic spectrum, on which all radio communication takes place, describes different wavelengths and frequencies of electromagnetic radiation, including radio waves of 10m and more and gamma waves 10-14 that size; with no theoretical limit. When an electromagnetic signal is interpreted, waves of a restricted wavelength are considered, and all the rest ignored. When we see visible light, this comprises waves in the restricted range of 4-7 millionths of a meter, and our eyes are blind to other waves. This range is the spectrum, or bandwidth, of visible light, i.e. all we can see. Light cannot travel through most things, so interference is not a massive issue, but for waves intended to permeate over large areas, such as microwaves, we need to control access to bandwidth, in order that signals are not broadcast together, and we get the correct signal when we listen to a particular frequency. Bandwidth on the radio spectrum then, is a massive restriction on telecoms, and is allocated as licenses to transmit a particular strength of signal in a particular bandwidth in a particular area. If two separate signals were trying to use exactly the same part of the spectrum, communication could not take place; as they would interfere with each other. Streaming A stream is a continuous flow of data: when content is streamed, the user does not download it all at once prior to use, but rather accesses it continuously, with only a small buffer loaded in advance to cope with flow fluctuations. Streamed content is often music or video, although an information ticker may provide streamed data. Streaming allows access to content that is still being recorded, e.g. live television, whereby not everything is available initially for download, and reduces requirements on the user’s system, which needn’t have capacity to load more than a small amount of data at a time. This makes bandwidth requirements less intensive, although the same amount of data is transferred eventually; which can be important when a host is distributing the same content to a large number of users simultaneously. Streaming can also make piracy harder, as unless the user has some way of recording streaming content, they never obtain a full copy. Subscriber Line Charge (SLC) A fee charged to compensate the local telephone company for part of the cost of installation and maintenance of the local loop (i.e. wires and poles). The SLC is paid by subscribers monthly. Switch A computer that receives instructions from a caller via a telephone number, by which the call is then routed. The switch opens and closes circuits, or selects the path/circuits to be used for transmission. Deutsche Bank AG/London

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Symmetrical Digital Subscriber Line A DSL connection that provides equivalent upstream and downstream transmission rates.

T

T-Carrier System A digital transmission system that takes analog voice circuits and converts them to digital for transmission using time division multiplexing, the T-0 carrier system was designed to operate at different rates, known as T1 (1.544 Mbps, equivalent to 24 channels); T2 (6.312 Mbps, equivalent to 96 channels); T3 (44.736 Mbps, equivalent to 672 channels); and T4 (274.176 Mbps, equivalent to 4,032 channels). (Without compression, a 64 Kpbs channel carries a single voice conversation.) T1 A digital transmission line capable of up to 1.5 Mbps. T3 A digital transmission line capable of up to 45 Mbps. A T3 connection will allow fullscreen, full-motion video. TCP/IP-(Transmission Control Protocol and Internet Protocol) Refers to the collection of protocols that define the basic working of the internet. Telecommunications Act of 1996 (US) Landmark legislation aimed at deregulating the domestic telecommunications market. Amendment to the Telecommunications Act of 1934. The 1996 Act opened the way for long-distance companies to enter local markets and vice versa and removed cable-telecom cross-ownership restriction that set the stage for AT&T's entry into the cable business. Telecommunications & Internet Protocol Harmonization Over Network (TIPHON) A project within the European Telecommunications Standards Institute (ETSI) aimed at enabling systems level interoperability for Voice-Over IP technologies. ETSI has historically been focused primarily on H.323-based systems; however, the project recently has become interested in MGCP-based technologies, such as PacketCable NCS. Termination In telecoms, termination has a rather friendly meaning, concerning the final connection to the receiving party on a call. A termination fee typically is paid to the company providing this connection (i.e. that customer’s service provider). Tiered Programming Refers to different levels of programming for which customers are charged different fees. Time Division Multiplexing Technique where data from multiple channels may be allocated bandwidth on a single wire pair based on time slot assignment. Time Division Multiple Access (TDMA) Digital cellular technology that sends signals over a single channel. This medium could increase existing cellular/analog subscriber capacity by as much as three times. TDMA (ANSI-136) "TDMA" has been adopted as the new name for the "Digital AMPS" (DAMPS) mobile standard, now called ANSI-136, used in the Americas, Asia Pacific and other areas. TDMA services can be delivered in the 800 MHz and 1900 MHz frequency bands. Title II A section of the Telecommunications Acts of 1934 and 1996 that outlines obligations of "common carriers" such as telephone companies. The 1996 act adds "local competition provisions" for local and long-distance telephone companies. Title IV A section of the Telecommunications Acts of 1934 and 1996. The 1996 Act amends the definition of "cable service" to include interactive services.

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Top-100 Market Ranking of largest television broadcast areas by size of market; i.e., number of viewers and TV households. Used in FCC rulemaking and in selling of airtime to advertisers. Total Activity Report (TAR) A quarterly Nielsen report which lists all the television activity during a sweep including broadcast stations, basic cable, pay cable, and superstations. It shows household rating and share delivery by daypart in both the DMA (total market) and cable household universe for all program sources. Transponder The part of a satellite that receives signals and transmits communications signals back to earth. Trunk Cable The portion of the cable system architecture that transports the cable signal from the head-end to the neighbourhood node. Can be either coaxial or fibre Due to the long distances travelled, trunks generally consist of fibre optic cables in order to maintain the signal integrity. Trunks make up approximately 15% of a cable system's total footage. Twisted Pair Insulated pairs of copper wire twisted around each other in order to reduce cross talk or electromagnetic induction between pairs of wires. Used to connect telephone customers to the central office. Two-Way Capacity A cable television system with two-way capacity can conduct signals to the head-end as well as away from it. Two-way or bi-directional systems now carry data, they may eventually carry full audio and video television signals in either direction. Two-Way System The ability to receive TV programming through the broadband network and send information back through the same network. This capability is used by customers to order movies and music and to interact in other ways with the broadband network.

U

Ultra-High Frequency (UHF) Referring to channels in the 470 MHz-806 MHz band. Unbundling The separation and discrete offering of components of the local telephone service. UNE (Unbundled Network Elements) The Telecommunications Act of 1996 requires that the ILECs unbundled network elements and make them available to competitors based on incremental cost. UNEs include local loops, switch ports, transport facilities, etc. UNE-P Unbundled Network Elements Platform-When UNEs are combined to provide a complete end-to-end circuit, you have UNE-P. The six elements that must be provided under UNE-P regulatory guidelines are: 1) loops; 2) network interface devices; 3) local circuit switching; 4) dedicated and shared transport; 5) signalling and call-related databases; and 6) operation support systems. Unified Messaging Software technology that allows carriers and Internet service providers to manage customer e-mails, SMS and fax messages from any phone, PC, or information device. Universal Licensing System (ULS) The new Wireless Telecommunications Bureau program under which electronic filing of license applications and reports of changes to licenses creates a database that can be accessed remotely for searches. Upstream Communications path in a cable network reserved for sending signals from the subscriber's home to the headend. In coax-based cable systems, the upstream channel occupies the 5 MHz to 42 MHz portion of the spectrum and is used principally for

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communication with set top converters. HFC networks have a more robust upstream capacity than traditional networks to support the increased upstream data flow required by digital cable, Internet access, and telephony. UTMS (Universal Mobil Telecommunications standardization for third-generation cellular systems.

V

System)

Europe's

approach

to

Value-added Reseller Distributors that provide other services such as systems integration, network management. Very High Data Rate DSL (VDSL) Modem for twisted pair access operating at data rates from 12.9 to 52.8 Mbps with corresponding maximum reach ranging from 4,500 feet to 1,000 feet of 24-gauge twisted pair. Very High Frequency (VHF) Refers to channels in the 54-88 MHz and 174-216MHz range. Very Small Aperture Terminal (VSAT) A satellite dish usually 4-6 feet in diameter used to receive high and low speed data transmissions. Video-on-Demand (VOD) A service that offers truly customizable viewing schedules for films and other programming by enabling subscribers to order films and other kinds of programming for home viewing. Although the service is not yet commercially available, several MSOs are currently conducting VOD trials. Video Telephony The ability to view real-time video communications on a two-way or multipoint basis. Also called videoconferencing. Virtual Private Network A network that is constructed by using public wires to connect nodes. For example, a number of systems enable creation of networks using the Internet as the medium for transporting data. These systems use encryption and other security mechanisms to ensure that only authorized users can access the network and that the data cannot be intercepted. Violence Chip (V-Chip) A microchip which will permit parental control over rated television programs. Voice Frequency In telephony, typically the range is from zero to four KiloHertz.

W

WAP (Wireless Access Protocol) A global, open standard for on-line service access from small-screen mobile phones. WAN (Wide Area Network) A circuit or network that connects sites that are at a considerable distance from each other. Wavelength See Frequency. WCDMA (Wideband CDMA) The air interface technology selected by the major Japanese mobile communications operators, and in January 1998 by ETSI, for wideband wireless access to support third generation services. This technology is optimized to allow very highspeed multimedia services such as full-motion video, Internet access and video-conferencing. Windows Media Audio (WMA) is a proprietary Microsoft audio codec, used by its Windows Media Player software. It offers superior compression and fidelity, compared with MP3, but now mainly competes with AAC. Similarly to iTunes users being committed to iTunes if they

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let it encode into AAC; Windows Media Player users may become committed if they let it encode into WMA, as some software, such as iTunes, won’t play WMA. Wired City The concept of television and other communications data, educational material, instructional television and information retrieval service that wired services can provide. Broadcast services must, of necessity, be limited by scarce spectrum space; wired services have theoretically unlimited channel capacity. Wireless Application Protocol (WAP) An evolving worldwide standard for providing Internet communications optimized for mobile phones, pagers, digital assistants, and other wireless terminals. WAP primarily facilitates text or tabular data, but it can support monochrome bitmap graphics. WAP Forum was established in 1997 by Nokia, Ericsson, Motorola, and Phone.com Wireless Cable Uses microwaves frequencies to transmit programming to a small antenna at a subscriber's home. WML (Wireless Markup Language) The markup language used in the Wireless Application Protocol (WAP).

X

Deutsche Bank AG/London

xDSL A generic term for the suite of DSL services, where the "x" can be replaced with any of a number of letters, including "A," "H," "M," "RA,""S," and "V." See also Asymmetrical DSL, High Bit Rate DSL, Moderate Speed DSL, Rate Adaptive DSL, Symmetric DSL, and Very High Data Rate DSL.

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European Telecoms Research Team Guy Peddy

Matthew Bloxham

Germany, Iberia, Greece, Wireline Thematics

France, Benelux, UK, Wireline Thematics

Telephone: +44 20 754 58490 Fax: +44 113 336 1299 E-mail: [email protected]

Telephone: +44 20 754 58163 Fax: +44 20 754 51788 E-mail: [email protected]

Winchester House 1 Great Winchester Street London EC2N 2DB ENGLAND

Winchester House 1 Great Winchester Street London EC2N 2DB ENGLAND

Vivek Khanna

Carola Bardelli

Nordic, Austria, Eurasia, Switzerland

Italy

Telephone: +44 20 754 72905 Fax: +44 20 754 51788 E-mail: [email protected]

Telephone: +39 02 8637 9708 Fax: +39 02 8637 9786 E-mail: [email protected]

Winchester House 1 Great Winchester Street London EC2N 2DB ENGLAND

Via Santa Margherita 4 Milan 20121 ITALY

Gareth Jenkins Vodafone, Telecom Equipment, Wireless Thematics Telephone: +44 20 754 75849 Fax: +44 20 754 73085 E-mail: [email protected] Winchester House 1 Great Winchester Street London EC2N 2DB ENGLAND

Alexei Yakovitsky

Krzysztof Kaczmarczyk

Pontus Gronlund

Russian Telecoms

Central and Eastern European Telecoms

Finnish Telecoms

Telephone: +7 501 9673727 Fax: +7 501 7253770 E-mail: [email protected]

Telephone: +48 22 579 8732 Fax: +48 22 579 8701 E-mail: [email protected]

Telephone: +358 9 2525 2552 Fax: +358 9 2525 2585 E-mail: [email protected]

10 Povarskaya Street 121069 Moscow RUSSIA

Al. Armii Ludowej 26 Focus Building Warsaw 00-609 POLAND

Kaivokatu 10 A PO Box 650 Helsinki FIN - 00100 FINLAND

Audrey Wiggin

Jonathan Smith

Telecom Specialist Sales

Telecom Specialist Sales

Telephone: +44 20 754 50707 Fax: +44 20 754 51788 E-mail: [email protected]om

Telephone: +44 20 754 74383 Fax: +44 20 754 51788 E-mail: [email protected]

Winchester House 1 Great Winchester Street London EC2N 2DB ENGLAND

Winchester House 1 Great Winchester Street London EC2N 2DB

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ENGLAND

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Appendix 1 Important Disclosures Additional information available upon request For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com.

Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Guy Peddy/Matthew Bloxham/Gareth Jenkins/Vivek Khanna/Carola Bardelli/Pontus Grönlund/Divij Ruparelia

Equity rating key Buy: Expected total return (including dividends) of 10% or more over a 12-month period. Hold: Expected total return (including dividends) between 10% and 10% over a 12-month period. Sell: Expected total return (including dividends) of -10% or worse over a 12-month period. Notes: 1. Published research ratings may occasionally fall outside these definitions, in which case additional disclosure will be included in published research and on our disclosure website (http://gm.db.com); 2. Newly issued research recommendations and target prices always supersede previously published research.

Deutsche Bank AG/London

Equity rating dispersion and banking relationships

400

50%

45%

300 200

31%

34%

5% 21%

100 0 Buy

Hold

Companies Covered

Sell

Cos. w/ Banking Relationship

European Universe

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Regulatory Disclosures SOLAR Disclosure For select companies, Deutsche Bank equity research analysts may identify shorter-term trade opportunities that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. This information is made available only to Deutsche Bank clients, who may access it through the SOLAR stock list, which can be found at http://gm.db.com

Disclosures required by United States laws and regulations See company-specific disclosures above for any of the following disclosures required for covered companies referred to in this report: acting as a financial advisor, manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/comanaged public offerings in prior periods; directorships; market making and/or specialist role.

The following are additional required disclosures: Ownership and Material Conflicts of Interest: DBSI prohibits its analysts, persons reporting to analysts and members of their households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of DBSI, which includes investment banking revenues. Analyst as Officer or Director: DBSI policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Distribution of ratings: See the distribution of ratings disclosure above. Price Chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the DBSI website at http://gm.db.com.

Additional disclosures required under the laws and regulations of jurisdictions other than the United States The following disclosures are those required by the jurisdiction indicated, in addition to those already made pursuant to United States laws and regulations. Analyst compensation: Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment banking revenues Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. EU: A general description of how Deutsche Bank AG identifies and manages conflicts of interest in Europe is contained in our public facing policy for managing conflicts of interest in connection with investment research. Germany: See company-specific disclosures above for (i) any net short position, (ii) any trading positions (iii) holdings of five percent or more of the share capital. In order to prevent or deal with conflicts of interests Deutsche Bank AG has implemented the necessary organisational procedures to comply with legal requirements and regulatory decrees. Adherence to these procedures is monitored by the Compliance-Department. Hong Kong: See http://gm.db.com for company-specific disclosures required under Hong Kong regulations in connection with this research report. Disclosure #5 includes an associate of the research analyst. Disclosure #6, satisfies the disclosure of financial interests for the purposes of paragraph 16.5(a) of the SFC's Code of Conduct (the "Code"). The 1% or more interests is calculated as of the previous month end. Disclosures #7 and #8 combined satisfy the SFC requirement under paragraph 16.5(d) of the Code to disclose an investment banking relationship. Japan: See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities Finance Company. Russia: The information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a licence in the Russian Federation. South Africa: Publisher: Deutsche Securities (Pty) Ltd, 3 Exchange Square, 87 Maude Street, Sandton, 2196, South Africa. Author: As referred to on the front cover. All rights reserved. When quoting, please cite Deutsche Securities Research as the source. Page 216

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Turkey: The information, interpretation and advice submitted herein are not in the context of an investment consultancy service. Investment consultancy services are provided by brokerage firms, portfolio management companies and banks that are not authorized to accept deposits through an investment consultancy agreement to be entered into such corporations and their clients. The interpretation and advices herein are submitted on the basis of personal opinion of the relevant interpreters and consultants. Such opinion may not fit your financial situation and your profit/risk preferences. Accordingly, investment decisions solely based on the information herein may not result in expected outcomes. United Kingdom: Persons who would be categorized as private customers in the United Kingdom, as such term is defined in the rules of the Financial Services Authority, should read this research in conjunction with prior Deutsche Bank AG research on the companies which are the subject of this research.

Deutsche Bank AG/London

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Deutsche Bank AG/London European locations Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ

Deutsche-Bank AG, Seccursale de Paris 3, Avenue de Friedland 75008 Paris Cedex 8 France Tel: (33) 1 44 95 64 00 Fax: (33) 1 53 75 07 01 DB Corretora - Sociedade Corretora de Valores Mobiliários, SA Rua Castilho 20-5 125069 Lisbon Portugal Tel: (351) 21 311 1200 Fax: (351) 21 353 5241 Deutsche Bank AG, Helsinki Kaivokatu 10 A, P.O.Bvox 650 FIN-00101 Helsinki Finland

Deutsche Bank AG Equity Research Große Gallusstraße 10-14 60272 Frankfurt am Main Germany Tel: (49) 69 910 41339 Fax: (49) 69 910 34225/7 Deutsche Securities S.V.B, S.A. P0 de la Castellana, 42 7th Floor 28046 Madrid Spain Tel: (34) 91 782 8400 Fax: (34) 91 782 8465 Deutsche Bank AG Hohenstaufengasse 4 1010 Vienna Austria

Deutsche Bank Sim S.p.a Via Santa Margherita 4 20123 Milan Italy

Tel: (358) 9 25 25 25 0 Fax: (358) 9 25 25 25 85

Tel: (43) 1 5318 10 Fax: (43) 1 5318 1114

Tel: (7) 501 967 37 27 Fax: (7) 501 967 37 30

Deutsche Bank Securities Inc. 60 Wall Street New York, NY 10005 United States of America Tel: (1) 212 250 2500

Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kingdom Tel: (44) 20 7545 8000 Fax: (44) 20 7545 6155

Deutsche Bank AG Große Gallusstraße 10-14 60272 Frankfurt am Main Germany Tel: (49) 69 910 41339

Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2000 Australia Tel: (61) 2 8258 1234

Deutsche Bank AG Level 55 Cheung Kong Center 2 Queen’s Road Central Hong Kong Tel: (852) 2203 8888 Fax: (852) 2203 6921

Deutsche Securities Inc. Level 20, 2-11-1 Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo 100-6171 Japan Tel: (81) 3 5156 6701 Fax: (81) 3 5156 6700

Tel: (44) 20 7545 8000 Fax: (44) 20 7545 6155 Deutsche Bank AG Herengracht 450 1017 CA Amsterdam Netherlands Tel: (31) 20 555 4911 Fax: (31) 20 555 4428 Deutsche Bank AG Uraniastrasse 9 PO Box 7370 8023 Zürich Switzerland Tel: (41) 1 224 5000 Fax: (41) 1 227 3100

Tel: (39) 0 24 024 1 Fax: (39) 0 24 024 2636 Deutsche Bank AG Stureplan 4 A, Box 5781 S-114 87 Stockholm Sweden Tel: (46) 8 463 5500 Fax: (46) 8 463 5550 Deutsche UFG 10 Povarskaya Street 121069 Moscow Russia

International locations

Fax: (61) 2 8258 1400

Global Disclaimer The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively “Deutsche Bank”). The information herein is believed by Deutsche Bank to be reliable and has been obtained from public sources believed to be reliable. With the exception of information about Deutsche Bank, Deutsche Bank makes no representation as to the accuracy or completeness of such information. This published research report may be considered by Deutsche Bank when Deutsche Bank is deciding to buy or sell proprietary positions in the securities mentioned in this report. For select companies, Deutsche Bank equity research analysts may identify shorter-term opportunities that are consistent or inconsistent with Deutsche Bank's existing, longer-term Buy or Sell recommendations. This information is made available on the SOLAR stock list, which can be found at http://gm.db.com. Deutsche Bank may trade for its own account as a result of the short term trading suggestions of analysts and may also engage in securities transactions in a manner inconsistent with this research report and with respect to securities covered by this report, will sell to or buy from customers on a principal basis. Disclosures of conflicts of interest, if any, are discussed at the end of the text of this report or on the Deutsche Bank website at http://gm.db.com. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, except if research on the subject company is withdrawn. Prices and availability of financial instruments also are subject to change without notice. This report is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction or as an advertisement of any financial instruments. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. If a financial instrument is denominated in a currency other than an investor’s currency, a change in exchange rates may adversely affect the price or value of, or the income derived from, the financial instrument, and such investor effectively assumes currency risk. In addition, income from an investment may fluctuate and the price or value of financial instruments described in this report, either directly or indirectly, may rise or fall. Furthermore, past performance is not necessarily indicative of future results. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor’s home jurisdiction . In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10) Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Copyright © 2006 Deutsche Bank AG

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