Path-to-a-Penny Wireless Telecom Strategy for Survival

1. Path-to-a-PennyWireless Telecom Strategy for Survival October 20, 2003 Dean Douglas IBM Vice President, Telecom Industry IBM Global Services

2. Agenda The Wireless Carrier’s Challenge Overview of the Path to a Penny

3. Management’s ability to create shareholder value is a function of two predominant variables • Ability to generate cash available to shareholders • Free cash flow • Superior investment returns • Degree of predictability of future cash generation • Low volatility of cash and accounting results • Visibility of business metrics • Resilience to market challenges and surprises

4. While operating in the midst of an inhospitable business environment • Subscriber growth rates are declining, while churn remains high • Voice revenues per minute continue to fall, while costs structures are stubborn • Revenues are calculated by the minute, while costs follow their own metrics • Networks are engineered and optimized for voice, while the market demands data applications and bandwidth • Service quality and new technologies require investment, while capital is scarce and expensive • New services must be offered ubiquitously, while revenues grow only one user at a time

5. 4Q 2002 Operating Statistics 2002 Sub Base ARPU ($) MonthlyChurn Life (Months) EBITDA LifetimeRev / Sub ($) LifetimeEBITDA / Sub ($) Revenues ($m) (#k) Margin Priceper MOU ($) 60 14,483 20,859 2,500 610 AWS 2.4% 42 24.4% 51 13,748 21,925 1,889 544 0.13 Cingular 2.7% 37 28.8% 69 8,213 10,619 3,286 1,334 0.12 Nextel 2.1% 48 40.6% 62 10,672 14,760 1,771 466 0.11 Sprint PCS 3.5% 29 26.3% 49 17,747 32,491 2,333 936 0.10 Verizon 2.1% 48 40.1% 50 4,908 9,916 1,429 130 0.14 T Mobile 3.5% 29 9.1% 0.07 Users pay for coverage, brand and service differentiation US Wireless Carriers -- Lifetime EBITDA 1,500 Nextel 1,200 Bubble Size is Relative to Total Revenue 900 AWE Verizon Lifetime EBITDA / Sub 600 Sprint PCS Cingular Relationship between scale and lifetime EBITDA for 5 of 6 national carriers 300 T Mobile - - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Subscriber Base Source: IBM Analysis, Merrill Lynch, Mar 2003, Deutsche Bank, Feb 2003

6. Agenda The Carrier’s Challenge Overview of the Path to a Penny

7. With a Path to a Penny strategy Carriers can achieve several key benefits • Accelerated Cost Reduction • Initial objective is to reduce absolute cost levels • Elimination of “Basis Risk” • Align cost with revenue methodologies, improving ability to manage overall business • Common denominator allows clearer decision criteria • Conversion of Fixed Costs to Variable • Reduce fixed cost components • Predictability of costs • Technology Migration • Manage convergence of data and voice applications and network infrastructure • Improved Operating and Financial Controls

8. Path to a Penny addresses the carriers’ fundamental challenges • Business environment presents significant challenges to the carriers’ business model • The wireless industry is a maturing market • New technologies provide competing access to data services • There is a pressing need to rationalize cost structure (costs and revenues are not aligned) • Point-specific operational improvements are delivering diminishing returns • Addressing carrier cost structure requires a strategic perspective • Considering the business as a coordinated aggregate, rather than distinct parts • Applying a wide array of solutions and capabilities in a new analytical framework • Ties high-level strategy to a tactical operational and delivery steps • Transforms the carrier business infrastructure

9. Reduction in Cost per MOU* (Status Quo vs. Path-to-a-Penny) 21.5 20 Status quo cost reduction trend line 16.3 15 11.9 9.8 10 8.5 7.9 7.9 7.8 7.8 7.7 Cost (In $0.01/MOU) 6 3 Path-to-a-Penny 1.0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Achieving a penny per minute of use requires changing the trajectory and speed of cost reductions, and alignment of revenue and cost metrics Carriers have to make potentially difficult decisions to change speed and trajectory: • Transform Network Operations • Outsource core network • Share core network • Eliminate roaming costs • Pursue New Vertical Integration/Re-Integration • Create technical cooperatives • Device manufacturers • Content providers/media • Rethink Customer Operations • Outsource customer care • Establish carrier supply consortia • Rely more on device manufacturers and channels In order to achieve change in trajectory and speed, carriers must address their cost structure at a strategic level rather than through incremental solutions * Source: US Wireless Industry, Deutsche Bank, Feb 2003 (US EBITDA)

10. Taking on Customers Providing Wireless Service Supporting & Retaining Customers New Product & Service Investments Marketing (Business & Consumer) Core RF Network Engineering Customer Care Core RF Network Engineering Cell-Site Ops and Maintenance Marketing & Sales Product Development Channel Management BSS/OSS Supply Chain NOCs and Traffic Mgmt. Interoperability Supply Chain BSS/OSS Roaming Management General & Administrative (Strategy, Business Development, Finance and Human Resource management) Path to a Penny takes a strategic and integrated view of the four primary functions of a wireless carrier Addressing the cost structure at a strategic level will transform the entire carrier business model

11. Success will depend on new technologies that provide the ability to put all of the pieces together • Management that can address complex solutions • Customer relationship management • New software platforms that operate in a passive mode • Financial resources • New management methodologies • Operations focus and corporate controls • Risk management practices • Solution customization

12. Taking on Customers Providing Wireless Service Supporting & Retaining Customers New Product & Service Investments Cable & Wireless British Telecom Cingular Wireless • Application development services • IGS systems consulting and server deployment • e-Learning to train sales consultants uniformly China Telecom Cable & Wireless • broadband content delivery platform • ITS design and deploy service testing capability Nokia Orange (Sweden) Cellway Komm. GmbH • BCS B2B on-line supplier network • Wireless content distribution solution • DB2 Intelligent Data Miner and Business Intelligence consulting on customer behavior, retention and sales Nextel Nextel Hutchison (Australia) T-Mobile (Germany) • SO managed operations of CRM and call centers • SO managed operations of CRM and call centers • BCS Strategy & Change for new market entry • Integrated wireless LAN/Public Network UAB Omnitel (Lith.) Telus • WebSphere wireless application development • IBM Global Financing low cost of ownership IBM and its partners are working with carriers around the world to provide solutions in these categories Bell Canada • on-Demand data storage and content management Cable & Wireless • BCS cross-functional info-sharing Vodafone • Enterprise storage server for customer data

13. Summary • Carriers face a real threat to their ability to compete and survive • Dramatic changes in strategy provide trajectories that change the landscape and market dynamics • Broad new initiatives that incorporate new software and technology are required to address this burgeoning need • Many carriers are transforming their businesses which places greater pressure on fast followers and laggards • Nothing that has taken place in the past should be viewed as a prologue to the way carriers need to manage today