SVP ADVISORS

Company Presentation

July 2010

RETHINKING│ COMMUNICATIONS

Contents

2

1. About SVP Advisors

2. Our experience – selected case studies

3. Contact details

3

SVP Advisors is an international

management consulting firm for the

communications industries specializing in

business strategy and regulation

Established by seasoned professionals in

2006, we have earned over time a solid

reputation within the broad

communications sector thanks to our

quantitative and practical approach in

consulting assignments

Our work combines various disciplines such

as economics, econometrics, finance,

accounting, marketing, engineering, and

computer science

Company Profile

4

Areas of Expertise

• Regulatory strategy

• Market & competition analysis

• Policy setting

• Commercial strategy

• Pricing and tariffs design

• Transaction support

• Product definition

• Business planning

• Business Development

• Costing systems• Pricing models• Margin squeeze

test

Regulation Business strategy

New ventures

and Products

Modelling

5

International Experience

SVP Advisors assignments (12 Countries)

Previous Team experience (24 Countries)

6

We work with some of the world’s largest

and well-respected institutions and

operators, and we are often invited to

present at international conferences and

workshops addressing the latest st topics

in the communications sector

Our client base includes:

Regulators (AGCOM, CMT, CITC,

COFETEL, EETT, NITA, OCECPR, TRA

UAE)

Telecom Operators (Telecom Italia,

Telefónica, Turkcell)

Financial Institutions (Banco

Santander, Citibank, Inter-American

Development Bank)

Int’l Organizations (EU Commission)

Clients

Client Distribution

6%

24%

24%

47%

Telecom Operators

Financial Institutions

Regulators

Int’l Organizations

7

People

Over 10 years experience in

strategy advice and operations

in the communications sector

Lead several TMT strategy

consulting assignments for int’l

clients. Former Head of

Residential Unit at On

Telecoms, a leading Greek

3Play Operator, responsible of

Products, Sales Strategy,

Content, MarkComms &Pricing

Areas of expertise: broadband,

MVNO, IPTV, business

planning, commercial strategy,

market analysis

Dimitri KallinisPartnerBusiness Strategy Expert

Julio VillalobosPartnerTechnology & Regulatory Expert

Over 10 years experience in

strategy advice and operations

in the communications sector

Extensive track-record of

costing, regulatory and

strategy consulting projects for

fixed and mobile operators in

several EU and Middle East

Countries. Former Team Leader

of Technology Strategy at

Telefónica Spain

Areas of expertise: ADSL, fixed

& mobile networks, techno-

economic modelling,

regulatory strategy, regulatory

accounting

Over 10 years experience in

strategy advice and financing

in the communications sector

Telecoms financing expert,

participated in >10 large M&A

transactions and in >20

syndicated loan transactions

over the last few years. Has

actively participated in

innovative ventures through an

investment fund

Areas of expertise: new

technology & media ventures,

start-ups, innovation, financial

transactions

Francisco VelázquezPartnerNew Ventures & Financing Expert

Over 10 years experience in

regulation and policy in

network industries

Extensive in the field

experience in telecoms

regulation. Regular speaker at

TMT conferences and media

events. Former Senior

Economist at OFCOM (Swiss

NRA) and Chairman in the IRG

Regulatory Accounting Group

Areas of expertise: regulatory

policy, regulatory accounting

and costing, competition

analysis

Marco GattiDirectorRegulatory Expert

Contents

8

1. About SVP Advisors

2. Our experience – selected case studies

3. Contact details

Margin Squeeze test for bundled products

9

On behalf of the EETT, the Greek NRA, we carried out a competition analysis of bundled offers including access, narrowband and broadband services, on the basis of:

– An imputation test, to verify whether the incumbent’s tariffs constitute ‘predatory pricing’

– A price squeeze test, to establish whether the combination of wholesale and retail tariffs in a market produce an anticompetitive situation, such as ‘margin squeeze’, preventing efficient alternative operators from competing profitably

To support our analysis, we developed an integrated model which provided the necessary data inputs and parameters required to evaluate possible combinations of multi-play offers

The price squeeze model produces results based on a number of wholesale services, such as bitstream, colocation, shared and full LLU, and interconnection

Margins of a typical double-play offer considering economies of scale and

technology choice

Note: chart has been altered for confidentiality reasons

EETT (Greece), 2008

-5%

0%

5%

10%

15%

20%

25%

OLO Small size

OLO Medium size

OLO Large size

Incumbent size

Using Bitstream Using LLU

Accounting Separation System for a Mobile Operator

General overview of the Mobile Accounting Separation System

Mobile operator (CEE), 2009

10

For a large mobile operator we developed an Accounting Separation System aimed at fulfilling its regulatory and operational needs

The accounting separation system supports the mobile operator in:– Carrying out profitability analysis,

wholesale costing and commercial pricing strategy

– Proving full compliance with regulatory obligations

– Being proactive in its regulatory and competitive environment

– Countering complaints of anticompetitive behavior on the basis of enhanced information availability

As market matures, this tool will also support the mobile operator to focus on cost efficiencies, enhanced targeting and product innovation, while considering MTRs impact, network upgrades, wholesale strategy and regular reporting to management

FIXED ASSET REGISTER

P&L STATEMENT

BALANCE SHEET

COST ALLOCATION PROCESS

REVENUE ALLOCATION PROCESS(DIRECT TO SERVICES)

ACCOUNTING SEPARATION

REPORTS-Internal

reporting- Regulatory

reporting

SPLIT BY CHANNEL SPLIT BY SEGMENT

SPLIT BY TARIFF

STAGE 6.3 - CORPGeneral corporate

costs

STAGE 3.2 – RETRetail activities

Primary activities (customer related)Support activities

COGSTaxes & Fees

STAGE 4.2 – RETRetail functions

Sales - AcquisitionCollectionsFront-EndRev Stim-RetentionProduct ManagementBack Offi ce

COGSTaxes & Fees

STAGE 2.3 – RESTCorporate Costs by

Department

Allocation to business units by type of costs

Allocation of common and joint costs to activities and network elements

Allocation of support activities to functional

blocks

Allocation to internal services

Allocation to services with transfer charges and

routing factors

STAGE 2.1 – NWNW business unit

Capital related costs by AssetOperating network costsCosts by DepartmentOther External Costs

STAGE 5.1 – NWInternal NW servicesStatements at wholesale markets

OriginationTerminationRoamingOther

Internal retail services

STAGE 6.2 – RETRetail servicesStatements atretail markets

Voice & Video callsMessagingDataRoaming INRoaming OUTOther

STAGE 1

Stage 1.1 FARFixed Assets

Stage 1.2 P&LOrganization costs

PersonnelG&A

COGSInterconnectionRoamingHandsetsSIM cards

Other expensesSales & MarketingOther costs of sales (e.g. NW operating costs)

External expensesPowerTaxes

Non-attributable to telecoms activity

Stage 1.3 BSWorking capital

STAGE 2.2 – RETRetail business unit

Costs by DepartmentRetail costs by natureNon-op. Assets

COGSTaxes & Fees

STAGE 3.1 – NWNW elements

Primary plantSupport equipment

STAGE 4.1 – NWNW Functional Blocks

Radio LinkBackhaulCoreBackboneIXDB & Platforms

STAGE 6.1 - NWWH servicesStatements WHproduct 3rd parties

Voice & Video callsMessagingDataRoaming INRoaming OUTOther

STAGE 5.2 – RETInternal retail services

Service-specificService Group-specificAcquisition-drivenCustomer-drivenRevenue-drivenChurn-drivenGeneral & other

TC – TRANSFER CHARGESRF – ROUTING FACTORS

RF

DW TRAFFI C DATA

OPERATI NGVARI ABLES

NW ROUTI NGFACTORS

DW SUBSCRI BER

DATA

Audit of the Regulatory Accounts of a Mobile Operator

11

On behalf of AGCOM, the Italian NRA, we audited the regulatory accounts of mobile operator H3G Italia, prepared under both the FDC HCA and FDC CCA methodologies

We followed a phased approach that comprised of the following activities:– Review of the methodology followed in

the preparation of regulatory accounts– Reconciliation of financial and other

relevant data (e.g. traffic volumes)– Review of the re-valuation of assets at

current costs– Review of the allocation of costs to

activities, cost centres and services

The main outcome of our work has been the identification of necessary and/or suggested amendments to the operator’s costing systems, and the quantification of the impact of such changes on the cost of regulated services (i.e. wholesale termination)

AGCOM has used the results of his audit in the price cap mechanism applying to H3G’s wholesale mobile termination rates

Schematic overview of H3G’s Regulatory Cost Accounting System

AGCOM (Italy), 2010

Allocation Stage I

Allocation Stage I I I

Services Cost Centres

Allocation Stage I I

Activities Inputs

Cost Accounts Activities Cost Centres

AGCOM Results Table 1

Internal Management

System

FAR

Traffi c Volumes

Revenues

AGCOM Results Table 2

Input Allocation Model Stages Output

LEGEND

Audit of the Regulatory Accounts of a Fixed Incumbent Operator

12

On behalf of the CMT, the Spanish NRA, we reviewed the cost accounts of the fixed-line incumbent Telefónica

Our work comprised the following activities:– Reconciliation of costs and revenues with

the financial accounts– Review of the allocation of costs to

services– Review of the re-valuation of assets at

current costs

Additionally, we evaluated the adequacy of modifications introduced in the system due to the evolution of the company’s operations and the ameliorate proposals made by the NRA

The results of the audit were used by the NRA in setting regulated tariffs and monitoring relevant markets to ensure fair competition

We have carried out this project for the CMT during 4 subsequent years, from 2007 to 2010

Evolution of current costs by regulated activity segment

CMT (Spain), 2007-2010

Telecommunications Policy in a LATAM Country

13

On behalf of Cofetel, the Mexican Regulator, we carried out a study of the telecoms sector and identified areas where public intervention would be required

After establishing the market boundaries for the services considered, we assessed:– the benefits and costs of several

alternative technological options– the role of public communications in low

income & rural areas

The study provided recommendations based on the market situation and international best practice and covering:– The role of competition in the market– Fixed to mobile substitution– The social role of the Internet– The benefits and costs of several

alternative technological options

Our recommendations covered several policy areas, including regulation, social telephony & internet access programs, spectrum management and education

0%

20%

40%

60%

80%

100%

CDMA 450 Copper wire GSM 800 UMTS 100 WiMAX ADSL

% Po

pula

tion

cov

erag

e

Market efficiency frontier Market sustainability frontier Current coverage

Fixed telephony Mobile telephony Broadband

Market efficiency gaps with different technologies

Cofetel (Mexico), 2007

Note: chart has been altered for confidentiality reasons

Review of Universal Service Policies in the EU

14

We assisted Telecom Italia in examining potential implications of the EC’s review of Universal Service Obligations (USO) and defining the incumbent’s position in the process. Our investigation focused on:– the potential inclusion of broadband and

mobile services within the scope of USO– how the USO should be funded– the relevance of the formal separation of

access and service layers

Based on extensive research, we examined the implications of technological and market developments in the universal service framework, including the expansion of mobile telephony, the move towards Next Generation Networks, increasing competition levels, and the potentially diminishing importance of public telephony

Disparities among EU countries were also investigated to understand the limitations that such disparities impose on the search for a unified USO regulatory framework at European level

Conditions justifying public intervention for provision of telecoms services

Telecom Italia (Italy), 2008

Retail-Minus methodology based on a DCF model

EETT (Greece), 2007

15

We assisted the EETT, the Greek NRA, in the establishment of wholesale broadband access tariffs on retail-minus basis

We first examined which framework best corresponds to the market and operator conditions in the relevant country, considering previous international experiences and country-specific market data. A methodology was devised for the calculation of the retail-minus factor, as well as rules for the assessment of retail offers and the review of wholesale tariffs

We then supported our client in carrying out a public consultation to ensure an adequate reflection of the different operator views and market realities.

A Discount Cash Flow model was developed in order to replicate the revenues and costs of a generic alternative operator. The results of the model were used to establish new wholesale tariffs.

Retail-Minus calculation model

Due Diligence Process for a Mobile Operator

16

On behalf of the Inter-American Development Bank, a major US lending bank, we reviewed the business plan of a leading mobile operator in Latin America

The transaction was a refinancing syndicated facility of US$600 million co-financed by several commercial banks from LATAM, US and Europe

We provided a market and technical due diligence report, including revenue, capex and opex analyses, as well as payback analysis and sensitivity analysis

Our work included on-site visits to perform management interviews, on the ground market analysis as well as network and operational facilities’ monitoring.

Based on the main findings from our review we build a revised case with a different set of hypotheses and parameters

Illustrative example of the analysis carried out during the Due Diligence process

Inter-American Development Bank (Colombia), 2007

Argentina

Colombia

Chile

Ecuador

Peru

Venezuela

Brazil

Mexico

Argentina

ColombiaChile

Ecuador

Peru

Brazil

Mexico

Company A

Company B

0%

10%

20%

30%

40%

50%

60%

0% 20% 40% 60% 80%

EB

ITD

A m

arg

in

market share

Assessment of MVNO Business Models

17

We supported a European mobile operator in the development of its MVNO strategy

As part of our work, we developed a Tool for determining the economics of different MVNO business models to be potentially hosted in its mobile network

The modelling tasks were preceded by the definition of the business models, in terms of:– MVNO type (e.g. light)– Business proposition (e.g. discount)– Target market segment (e.g. youth)

For each business model, the Tool provided financial accounts (P&L, CF statement) and KPIs (subscribers, ARPU, MoU, etc…) over a 5-year period

The Tool was instrumental in assessing the viability of MVNO models in the current market situation, under different scenarios of market penetration and cost structure (including the wholesale cost for airtime)

Schematic Overview of the MVNO Tool

Mobile operator (EEC) 2010

Business Case for an Interactive Content Provider

18

We assisted an international betting company developing the Business Case for a “real” live interactive football betting application

We first assessed and provided inputs on the business model selected for the new application including:– service provision and access means – potential clients/partners– price and revenue sharing mechanisms

We then identified and analysed the national markets showing the greater potential for the application based on the degree of penetration of broadband services, the average spend in sports betting, and the features of multiservice platforms

Finally, we developed a Business Case based on the business model and target markets previously defined. The Business Case produced a full range of economics based on different scenarios of addressable market, service penetration, events covered, average usage and spent, as well as net revenue (fees) for the betting company

Overview of the key economics of the

Business Case – Base Scenario

Year 1 Year 2 Year 3

Addressable market (Units) 000 4,000.0 4,800.0 5,600.0

Active users 000 86.4 178.6 282.2

Penetration % 2.2% 3.7% 5.0%

Net ARPU (mth) € 4.7 4.6 4.4

Total net revenue € 000 4,915.0 7,282.6 12,048.6

Total recurring costs € 000 1,161.7 2,228.1 3,635.1

Total one-off costs € 000 798.1 1,040.0 1,388.4

Gross Margin € 000 2,955.2 4,014.5 7,025.0

Gross Margin % % 60% 55% 58%

Note: figures have been altered for confidentiality reasons

Content Provider (Western Europe), 2009

Bottom-Up model for determining the cost of postal services

19

On behalf of the OCECPR, the Cypriot NRA, we developed a Bottom Up Costing (BUC) model for determining the cost of Postal Services provided by Cyprus Post (CP)

The model covered all services and activities carried out by CP in the postal value chain: collection, sorting (inward and outward), transport and delivery

The model takes into account cost efficiencies achieved in certain processes, variations in costs due to different service parameters (e.g. items’ weight) and geographical specifics

The model provides the following outputs:– Unitary cost by service (e.g. bulk mail)– Cost by activity (e.g. delivery)– Cost by category (e.g. personnel)– Cost by resource employed

The results of the model were instrumental in the assessment of the pricing policy of CP, including the compliance with regulatory obligations and competition principles

Calculation flow of the BUC model

DEMAND

NETWORK DI MENSI ONI NG

OUTPUTSMAPPING

TO DRIVERS

MAPPING TO

ACTIVITIES

COSTINGAND

ALLOCATIONResources by activity

By resourceBy cost categoryBy activityBy service

By serviceBy geo-type

List of servicesList of geo-typesList of ext. Factors

List of service groupsList of driversList of activities

List of resourcesList of Routes

List of cost types

EXTERNAL FACTORS

By geo-type

PROCESSES

By service

1. INPUTS 3. DIMENSIONING 5. OUTPUTS2. ALLOCATION MATRIXES

4. COSTING (ALLOCATION TO

SERVICES)

UNIT COSTS

By resource

GEO-MODEL

By route

CHARTS

LRIC analysisGraphsKPIs

SCENARIO ANALYSIS

Sensitivity

OCECPR (Cyprus), 2010

Contents

20

1. About SVP Advisors

2. Our experience – selected case studies

3. Contact details

Contact details

Mr. Julio Villalobos – PartnerJulio.Villalobos@svpadvisors.com

Mr. Dimitri Kallinis – PartnerDimitri.Kallinis@svpadvisors.com

C/ Almagro 15, 5th floor28010, MadridSpain

Telephone number: +34 91 310 2895

Fax number: +34 91 141 28 11

Contact Persons

Company Details

2009 © SVP Advisors STRICTLY CONFIDENTIAL

THANK YOU