GCC Telecom Sector Change Leads to Opportunities Arab Telecom & Internet Forum, Qatar – June 2004

Evolution of the Sector Decades (1960s – 2000) of Monopolistic Control Low Mobile Penetration Rates 13% for GCC in 2000, compared to 41% for peers. High Cost of Service (ARPUs) GCC blended monthly ARPU in excess of $90 relative to $15 for peers. Noncompetitive Customer Service Example: Lack of flexible payment plans such as prepaid. 2

Evolution of the Sector Factors Leading to Change (2000 – Present) Need for More Private Sector Investments Governments recognizing they can no longer be everything to everyone. WTO-driven Global Trends Worldwide norms of regulated competition were emerging (in developed and emerging markets alike) as the most viable model in the industry. 3

Evolution of the Sector Change in Varying Degrees in Various Countries Regulatory Environment Saudi Arabia, Bahrain, Oman and the UAE have established independent regulatory authorities, followed by duopolies. Kuwait has yet to establish a regulator despite 4 years of competition. Qatar is still preserving self-regulation. Competition and Related Preparations Kuwait and Bahrain already have duopolies on the mobile side. Saudi Arabia and Oman at late stages of awarding second mobile licenses. UAE recently announced plans to introduce competition. Qatar yet to announce deregulation plans. 4

Evolution of the Sector Change Led to Improved Mobile Penetration Rates: Although firmly on the rise for the past few years, region-wide penetration rates relative to peer averages are still low. Source: Company Annual Reports, ITU & EMC. 5

Evolution of the Sector Change Led to 2003 Figures Improved Mobile Penetration Rates: The region, however, is not a monolith. Wide disparities still exist: UAE and Kuwait : High. Bahrain and Qatar: Moderate. Saudi Arabia and Oman: Low. Source: Company Annual Reports. 6

Evolution of the Sector Change Led to Lower Cost of Service: ARPUs have come down markedly over the past few years. But they are still more than 700% above peer levels. Source: Company Annual Reports & GIC Estimates. 7

Evolution of the Sector Change Led to Improved Customer Service Abundance of flexible payment plans, online or phone-based service, etc. Accelerated Technology Advancements Operators move to tap more revenue sources. Already, the UAE and Bahrain have 3G service, while most other countries are at 2.5G. 8

The Future – Expected Developments Eight New Entrants Expected in the Next 6 Years: Type Country Launch Date Mobile Operator Oman 2005 Saudi Arabia UAE 2006 Qatar MVNO 2007 Fixed Line Operator 2009 Bahrain N/A Source: Telecom Regulators, Press Releases & GIC Estimates. 9

The Future – Expected Developments Regulatory Convergence All regional markets are expected to eventually emerge with independent regulators and liberalized tariff structures. Continued Increase in Penetration Rates Although limited by the unique demographics of the region (young populations and large percentage of ex-pat low-wage laborers), penetration rates are expected to move towards peer levels of 74%. Declining Cost of Service (ARPUs) Driven by more competition and market share focus from operators. 10

The Future – Opportunities Portfolio Investments in Current Operators Strengths High future growth rates. Strong cash generation ability. Under leveraged – low risk. Weaknesses Regulatory ambiguities. Limited experience in competitive environment. Under leveraged – high cost of capital. 11

The Future – Opportunities Portfolio Investments in Current Operators Valuation Example #1: Saudi Telecom Company (STC) $mln Except Ratios 2003a 2004f 2005f 2006f 2007f 2008f Revenue 7,277 8,143 8,466 8,633 8,191 7,836 EBITDA 3,470 3,926 4,200 4,037 3,590 3,422 Net Profit 2,273 2,700 3,025 2,836 2,337 2,160 CAPEX/Sales 15% 10% 30% 22% 11% P/E(x) 17.2 14.5 13.0 13.8 16.8 18.1 EV/EBITDA (x) 10.6 9.3 8.7 9.1 10.2 10.7 Current Price: SAR 490.00 Fair Value*: SAR 503.67 a: Actual. f: Forecast. * Based on weighted average of DCF-based and peer-multiple-based valuations. Source: GIC Estimates & STC Financials. 12

The Future – Opportunities Portfolio Investments in Current Operators Valuation Example #2: Qatar Telecom (Qtel) $mln Except Ratios 2003a 2004f 2005f 2006f 2007f 2008f Revenue 557 625 667 670 657 648 EBITDA 362 398 420 383 378 385 Net Profit 316 344 268 270 266 271 CAPEX/Sales 20% 45% 16% 15% 13% P/E(x) 14.3 13.2 16.9 16.7 17.0 EV/EBITDA (x) 11.7 10.7 10.1 11.1 11.2 11.0 Current Price: QR 164.80 Fair Value*: QR 170.00 a: Actual. f: Forecast. * Based on weighted average of DCF-based and peer-multiple-based valuations. Source: GIC Estimates & Qtel Financials. 13

The Future – Opportunities Corporate Finance For both new entrants and expansions of existing operators. Technical/Strategic Advisory As operators face competition, implement technology and adapt to change. Regulatory Advisory For governments and compliance/legal departments of operators. Equipment Manufacturers As infrastructure upgrades become necessary to accommodate change. Content/Application Development Given the region’s unique culture and language. 14

Conclusion Higher Private Sector Investments For both local and international players, leading to a more efficient economic environment. Portfolio Investments to International Investors Driven by operators positioning themselves to raise capital more easily. New Employment Opportunities High quality jobs due to need to develop necessary skills. Income for Governments Through royalties, fees and savings on infrastructure investment requirements. 15

Better customer variety, choice and satisfaction Conclusion The GCC telecom sector is poised to emerge from this period of change as one of the more advanced telecom sectors in the world, from the perspectives of: Widespread Use Advanced Technology Lower Prices and, most importantly, Better customer variety, choice and satisfaction 16