Pro-competitive EU Framework delivered a success story: affordability, higher speeds, more investment

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Financial performance consistent: incumbents more profitable than entrants (Source: Webb Henderson & SPC Network)

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Deutsche Bank forecasts incumbents’ weighted average EBIT margins to be 14.6% and 16.8% in 2013 and 2014 respectively, whilst entrants’ EBIT margin will be 11.0% and 11.9% in the same period

Entrants have been investing more as percentage of sales in all of past five years. Incumbents have higher absolute investment due to larger size.

Telecoms shares are overall not underperforming (Source: Bloomberg & JP Morgan Cazenove)

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NGA investments are increasing and on par with US

54% NGA coverage according to DAE Scoreboard (up from 49%)

Comparable FTTC & FTTH coverage in EU & US (Source: FTTH Council & BCE by Telage)

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EU Households VDSL FTTH NGA %207,500,000 51,181,211 27,418,981 37.88%

24.7% 13.2%

US Households VDSL FTTH132,300,000 24,500,000 20,000,000 33.64%

18.5% 15.1%

100% NGA coverage is affordable (FTTC by Point Topic)

Urban 149 mn homes

71% population

EUR 8 bn

Semi-rural

31.4 mn homes

15% population

EUR 22 bn

Rural 29.3 mn homes

14% population

EUR 52 bn

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Fast & superfast BB take-up is low & stagnating

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Competition on NGA limited – hard-won liberalisation benefits at risk

Entrant share of incumbent NGA lines minimal even where regulation applies (where data available)

Compares with shares of 30%+ for copper lines

Fibre LLU

and fibre WBA

in % of SMP operator’s FTTH

lines

Copper SLU

and VDSL WBA

in % of SMP operator’s FTTN

lines

Copper LLU

and ADSL WBA

in % of SMP operator’s copper

lines

AT 0,0% 0,0% 20,0%

BE 0,0% 1,0% 4 4,9%

CH 0,0% 0,0% no data

DE 0,0% <5% 42,9%

DK no data no data 24,8%

ES 0,0% 0,0% 37,8%

FR 0,0% No FTTN/VDSL roll-out 54,6%

HU 0,0% no data 17,1%

IE 0,0% 0,0% 33,5%

IT 0,0% No FTTN/VDSL roll-out 45,7%

NL 5-10% 0-5% 26,8%

PL 0,0% no data 22,0%

PT 0,0% no data 21,4%

RO 0,0% 0,0% 0,1%

SE no data no data 33,6%

TR 0,0% no data no data

UK <1% no data 47,4%

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Affordability & speed are the most important factors when choosing a BB subscription

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Competition necessary to drive take-up of NGA networks (cf. historic development of DSL)

All major leading broadband countries including Germany, France, UK and Nordics have benefited from ‘unbundling’ of the copper network

Competition brought lower prices and new services (€30 triple play in France)

Retail DSL market

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2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

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LLU

Bitstream

France Telecom

2003 2004 2005

1st triple play offers: Free (LLU) & France Telecom

Triple play offer of Neuf Cegetel (LLU)

Triple play offer of Telecom Italia France (LLU)

2006

Retail DSL market

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2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

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LLU

Bitstream

France Telecom

2003 2004 2005

1st triple play offers: Free (LLU) & France Telecom

Triple play offer of Neuf Cegetel (LLU)

Triple play offer of Telecom Italia France (LLU)

2006

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High market shares and low customer satisfaction in business services

Results of end-user survey data (WIK – Jan 2013) 69% business users prefer to use a single supplier for all sites (within and cross country)

and services, but only 53% of those preferring a single supplier found this was normally a practical option

More than 50% of respondents cite problems sourcing fixed and mobile telephony or data from same supplier. More than 40% cite problems finding single supplier able to cover all sites or offer a consistent service across all relevant countries

In 46% cases, respondents claimed it was rare to have more than 1 or 2 suppliers able to make a suitable offer

Survey results consistent with 2009 end-user survey for European Regulators Group (ERG)

Retail business market shares >50% - higher for multi-site business Available market share data in retail business services (eg CMT 2011) show incumbents

retain >50% in most segments, with higher market shares for larger multi-site businesses

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Market shares for multi-site businessExample: Telefonica’s market share depending on number of sites and

customer bill

Customer Bill 1 site 2-5 sites 6-10 sites11 and more sites

Total

Less than 600 45-60% 45-60% 1-5% <1% 45-60%

From 600 to 1.500 45-60% >75% 5-15% <1% 45-60%

From 1.500 to 6.000 35-45% >75% 45-60% 5-15% 45-60%

From 6.000 – 12.000 15-25% >75% >75% 25-35% 45-60%

From 12.000 – 30.000 15-25% 60-75% >75% 45-60% 45-60%

From 30.000 to 100.000

5-15% 35-45% 60-75% 60-75% 45-60%

From 100.000 to 300.000

5-15% 15-25% 45-60% 60-75% 45-60%

More than 300.000 5-15% 15-25% 25-35% >75% 60-75%

Total 35-45% 60-75% 60-75% >75% 45-60%

Source: CMT (2011)

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