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Telecom M arkets Trends

Telecom M arkets Trends. Raul Lucido vice president strategic marketing & Governmental & regulatory affairs. 1995-2000: Unprecedented growth. Internet access boom equals fixed line bonanza Corporate data needs skyrocket New revenue streams (US data) Hosting goes from zero to $2.5 billion

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Telecom M arkets Trends

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  1. Telecom Markets Trends Raul Lucidovice president strategic marketing & Governmental & regulatory affairs

  2. 1995-2000: Unprecedented growth • Internet access boom equals fixed line bonanza • Corporate data needs skyrocket • New revenue streams (US data) • Hosting goes from zero to $2.5 billion • eCommerce services reach $20 billion • Mobile services create a boom • Europe goes from 6% penetration to 54% • Japan goes from 7% to 50% • Hundreds of millions of handsets sold annually

  3. 1600 4.0% World telecoms revenue As % GDP 1400 3.5% Historical Forecast 1200 3.0% 1000 2.5% As % of GDP USD billion 800 2.0% 600 1.5% 400 1.0% 200 0.5% 0 0.0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 There is an irreversible long-term trend in demand for telecoms … Source: Analysys

  4. 100 000 000 000 000 1 000 000 000 000 10 000 000 000 100 000 000 1 000 000 10 000 100 1 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 … driven, in part, by technology … Cooper’s Law states that the number of conversations (voice and data) conducted over a given area, in all of the useful radio spectrum, has doubled every two and a half years for the last 105 years, ever since Marconi discovered radio in 1895 Source: ArrayComm, Martin Copper

  5. Structural demand for communications and IT Short-term demand Cost to users Cost of basic technologies … and leading to a revolution in the structure of the economy

  6. Global telecoms revenue (USD million) per km2 in 1998 Telecoms revenue is an accurate indicator of wealth Source: Analysys

  7. In a world where trade flows look like the Internet …

  8. Average cost per call minute for a six-line business (1990 EUR): 1991–2001 Average cost per call minute for an average residential user (1990 EUR): 1991–2001 CAGR reductions on call tariffs of 5–15% in the last ten years CAGR reductions on call tariffs of 3–13% in the last ten years Prices are expected to continue to decline to less than EUR0.05/min Source: Analysys Cutting the Cost

  9. 2000 4.0% 1800 3.5% 1600 3.0% 1400 2.5% 1200 1000 2.0% 1998 USD billion 800 1.5% 600 1.0% 400 0.5% 200 0 0.0% 1985 1990 1995 2000 World telecoms revenue As % GDP We know that demand grows steadily in the long run … Source: ITU/Analysys

  10. Deutsche Telekom NASDAQ OTE … so why have stock markets reacted like this? Source: BigCharts.com

  11. Telecoms job cuts 300 000 250 000 200 000 150 000 100 000 50 000 0 Telecoms Telecoms manufacturers operators Capacity is being reduced … Source: Telecoms job cuts, Financial Times, September 2001

  12. Over-investment Collapse in values Slow revenues Consolidation Demand and supply match Revenues increase Investment begins Today 3–4 years 6 months? About 1 year A year or so … and the change in business climate could last one year or more

  13. 2001: Operators feel the bust in debt . . . Debt levels of 5 European telcos (millions of Euros) Source: Company reports

  14. . . . and in share prices Share prices of 5 European telcos (US dollars) Source: Dow Jones, from ADRs listed on NYSE

  15. Nasdaq Telecommunications Index “Hype decisions” 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

  16. Main factors creating the hyper-growth and crisis Market Investments “Technology” Investments Good GDPdevelopment(US driver) Geographical expansion Digital Mobile The hyper-growthof the late 1990’s & 2000 New competitors Internet Spectrum LH Optics Now • Hyper-growth gone/Macroeconomic instability • Signs of subscriber growth maturity • Network spending exceeds demand in several areas • Increased competition & lower margins • Failure in new business models delaying new services • Financing constraints (debts, cash,…)

  17. Next likely Steps • Many more Operators/SP will go “bankruptcy”, Suppliers? • From Growth focused to Return focused to Profitable Growth focused • Define the core business and divest/close non-core assets • Retain and explore installed customer base • Fast consolidations to create necessary Returns • The “incumbent” telcos will dominate & drive consolidations Consolidation has started. We will see 3 (4) operators per market. The top 20 globally will have more than 80% of revenues. Restructuring Suppliers

  18. Main driving forces for the Future Telecom Market Regulation Customer Demands Technology/ Products • Consolidation & Convergence • Economy Development • New Technologies/Services • End-to-end Interoperability/Open standards • Business Models

  19. A new communications architecture Today Single-service networks Future Multi-services network (carrier class) Applications Content Service Networks &Application enablers Communication control Wireless Networks Wireline Networks New & Migrating end-to-end Protocols Data/IP Networks Cable TV Networks Connectivity Connectivity/ Backbone Network MGW MGW MGW MGW Access Networks

  20. Seamless Interoperable Services - Key to Mass Services 1 B Mobile 1 B (400 M+ Internet) Fixed End-to-End • E-2-E Connectivity • E-2-E Call completion • E-2-E Applications

  21. Business Model Mobile Services - Retail logic Commission (for billing, customer care,…),Revenue sharing Easy to use, Simple pricing, Relevant Services Content Provider, Ads Operator/ Service Provider charges charges* Subscriber Best Practice; i-mode,…) *Entrance fee + Monthly fee + Volume based usage fee

  22. SMS Growth, January 2000 to December 2002E Billions/Month SMS was standardized in 1991/1992 Source; GSM Association Jan-00 Mar-00 Jun-00 Sept-00 Dec-00 Mar-01 Jun-01 Sept-01 Dec-01 Mar-02E Jun-02E Sept-02E Dec-02E

  23. Subscriptions (million) Aug 2002 Launch Nov 2000 May 2001 Sept 2001 Dec 2001 Development Sha-mail service, J-Phone ~47% of all subs Sources: Ovum and Reuters

  24. Broadband Access has now taken off • Stronger Operator Business Cases • Competitive Technologies Subscribers (Million) 1999 2000 2001 2002E 2003E xDSL 0.7 6.0 17.0 ~33.0 ~52.0 CATV 2.4 9.0 14.0 ~23.0 ~33.0 Ethernet ~1.0 2.0 ~4.0 ~7.0 Source; Dell Oro, etc.

  25. Growth of Wireline Broadband Access 12 10 Ethernet metroaccess 8 USD bill. Fiber Ethernet 6 4 DSL–Ethernet up–link 2 DSL–ATM up–link 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sources: EU commission, Jefferies & Company, Inc and ECTA, Pioneer Consulting 2001

  26. … Mobile Subscriptions Doubling to 1.8 Billion by 2007 Mobile Fixed (POTS/ISDN) Subscriptions (million) Fixed Broadband (Cable, xDSL, LMDS, Fibre) (Year -end)

  27. World-wide Operator Services Revenues - “demand” • GDP development/Asia • Broadband, Multi-Media, Mobile & Fixed • “Convergence” ? • GDP development • Mobile • Internet • GDP development • Deregulation • GDP development • Digitalization & SPC 70’s 80’s 90’s 2000

  28. Growth Opportunities • Subscriber Growth • Traffic/Usage Growth • New Communication Services (Voice, Messaging, Imaging/Video,…) • New Content & Applications

  29. Our Product Visions;We believe in a main Product Strategy that is based on the following; • Next Generation Networks that is based on an “end-to-end” carrier class “all IP solution” both mobile (3G) and fixed (Broadband) • Seamless migration between today’s networks and subscribers to Next Generation, driven primarily by the large operators • Next Generation “all IP” is based on a single network and multi-purpose terminals (or networks) for multiple services (Multi-Services) • Open defined standards and APIs, end-to-end

  30. Wireless Evolution Analog Digital Wideband 1G AMPS, NMT, TACS etc 2G GSM, PDCTDMA,CDMA 3G WCDMA, EDGE CDMA2000 Wide Area Network (~10km) Combined devices 4G Local Area Network (~50m) CT1 DECT, PHS WLAN Personal Area Network (~20m) “wire” Infra Red Bluetooth

  31. Ericsson Next Generation carrier class Broadband Multi-services Network Softswitch Control & Applications Telephony &IN (ENGINE/AXE) IP Multimedia (TSP) Backbone Network IP/MPLS/ATM/SDH/WDM MGW MGW MGW Copper Access Fixed Radio Access Fibre Access LMDS (+W-LAN & 3G) Fiber Ethernet Access Ethernet DSL Access(+ POTS/ISDN)

  32. Public Broadband access Backoffice systems Ethernet DSL Access Service Engine AAA Service Selection Copper Switched Ethernet Broadband access server Ethernet access IP network Fiber ATM DSLAM xDSL Access

  33. Broadband Access 2.5/3G Product portfoliostrategy – Invest in Next Generation 3-party applications Partners. Ericsson Mobility World Services Network/roll-out/ Integration, System Integration, Customer Management, Managed Services Applications Messaging, Browsing, Download, Streaming, Positioning, VPN Application enablers Softswitch (TeS/MSC, IP-MM), HSS EDGE NODE/BRAS ENGINE Integral (ATM/IP)/MGWEthernet Access/DSL LMDS/MINI-LINK BAS Packet core, Circuit core, WCDMA RAN/OSS, EDGE/GSM RAN, CDMA2000, MGW Control SDH opto/WDM/DXX, MINI-LINK, Juniper Backbone/Transport

  34. Convergence & Substitutions - Content migration BUSD m-commerce Substitutions from other value chains Public Services Positioning Advertisement Mobile office Media & Music Telecom services - GDP development - Business Productivity - Competition - New Services Gaming/Gambling 1000 Messaging Time 2000

  35. The New Market logic “The ability to learn faster than your competitors may be the only sustainable competitive advantage” Arie de Geus

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