The European way to think the Digital World Multiplay on Broadband IDATE International Conference Montpellier (France), 23 November 2005 Roland Montagne Head of Broadband Practice, IDATE

The European way to think the Digital World Is the broadband market still growing?

IDATE © Multiplay on Broadband 23 November 2005 Broadband: global overview  Over 180 Million broadband subscribers Worldwide in mid-2005 vs. 130 M in mid-2004  Forecasts indicate over 200 Million subscribers by the end of 2005 Growth of the world’s broadband subscriber base (in millions) Source: IDATE  Steady growth: 51.5 Million new broadband subscribers between mid-2005 and mid vs. 51 M for the same period one year earlier

IDATE © Multiplay on Broadband 23 November 2005 Broadband: regional analysis  At the start of 2005, European broadband subscribers outnumbered North American subscribers for the first time  Growth in North America down slightly in recent months Source: IDATE  Between mid-2004 and mid-2005, Europe reported more new broadband subscribers than Asia Pacific (20.6 M vs M)  But Asia Pacific remains the world’s largest broadband market, accounting for over 40% of the globe’s broadband subscribers Growth of the Broadband subscribers base, by geographic zone (in millions)

IDATE © Multiplay on Broadband 23 November 2005 Broadband penetration by country  In Europe, the Netherlands & Denmark are reporting penetration rates close to Korea’s (1) Number of broadband subscribers per 100 inhabitant Source: IDATE  South Korea remains the reference in terms of broadband penetration (25%)  Mid-2005, France reports a higher penetration rate than the US (14%) Growth of Broadband penetration by country (mid-2003 – mid-2005) (1)

IDATE © Multiplay on Broadband 23 November 2005 Broadband access technologies  Migration from dial-up to broadband stepped up in in 2005  In 2005 DSL remained the number one broadband access technology in Europe and Asia  Only exception: the USA where DSL is gaining ground but still behind broadband cable Percentage of broadband subscribers / dialup subscribers Source: IDATE

The European way to think the Digital World Broadband’s hot issues in 2005

IDATE © Multiplay on Broadband 23 November 2005 From Broadband to Very High-Speed  The bandwidth race likely to continue -Continuing fierce competition and roll-out of new technologies: ADSL2+, FTTN + VDSL2, FTTH/Ethernet, plus DOCSIS2 for cable modem -Several applications will drive demand for bandwidth: HDTV, multiple video channels, Home Gateways, videophony, video IM,…  In Korea and Japan migration to very high-speed is already a reality -Population density -Government support -Attractive prices  In the US, RBOCs are deploying FTTx architecture -FCC’s decision not to unbundle fibre -Competition with cable modem -Length of the local loop -1.6 M homes passed by FTTx in mid-2005 (chiefly SBC and Verizon)  In Europe, following the pioneers (Fastweb, B2) first deployments by local authorities and public utilities  Incumbents taking a keen interest in FTTx technologies  Recent major announcement by Deutsche Telekom (VDSL)

IDATE © Multiplay on Broadband 23 November 2005 Competition & Consolidation in Europe  Disparate situations around Europe -DSL dominates (little competition except Benelux, Austria, Portugal, the UK) -European incumbents’ market share varies a great deal -Consolidation underway, but mainly on a national scale  Unbundling now the primary means of development for alternative operators in Europe… from shared access to full unbundling in 2006  After a major drop over 2 years, broadband prices appear to be levelling off  Should LLU obligations be upheld for VDSL/FTTx platforms? DSL Market shares end 2004 Growth of Unbundled DSL Source: IDATE Source: IDATE for DG InfSo

IDATE © Multiplay on Broadband 23 November 2005 Ubiquitous Triple Play? And even Quadruple Play?  Triple play bundles are increasingly common around the globe... distinguishing oneself from the competition and moving beyond mere pipeline operator  Often initiated by new entrants (Fastweb, Softbank, Free), with a major contribution from VoIP in Japan,… significant impact on TV package distribution in France, stand-off with cable in the US and with DTH in the UK  Beyond common trends, it is interesting to note what distinguishes the offers: pricing, pick-up of existing satellite packages vs. packages created by telcos, HDTV, rights acquisition, VoD... How far will operators go?  Prominence of home networking offers, integrating Wi-Fi/Bluetooth interfaces in the routers, DECT and cellular telephony (Quadruple play), interconnection of TVs, cameras, music, hard drive... Value no longer resides in the abundance of content, but in user-friendliness and interoperability,  Devising the right positioning for triple play bundles, going head to head with internet heavyweights (compete or share with Google, Yahoo! Skype/eBay, MSN…)  Two major areas of uncertainty for telcos: 1) Percentage of broadband subscribers opting for Triple Play 2) increasing ARPU (from 30 EUR to 80 EUR) Source: IDATE Trends in the positioning of the various players in terms of the service offering

IDATE © Multiplay on Broadband 23 November 2005 Japan: Key points  16% broadband penetration rate at the end of June DSL comfortably in number one spot  ASDL services marketed in Japan offer bitrates of up to 50 Mbps, with sizeable decreases in tariffs, especially for such high speeds  8.3 million IP telephony users in March 2005 (+57% YoY), with a 64.8% market share for Softbank  Growth of FTTx subscribers higher than DSL growth since the start of 2005 (+ 100K/month)  With a base of 3.2 million subscribers in mid-2005, FTTH is the number two broadband access mode in Japan, and has overtaken cable  Regulation: both copper pair and fibre optic unbundling (up to the final active optical gear). NTT seeking changes to current regulations DSL market share (‘wholesale’) in Japan (June 2005) Source: IDATE Market share, by technology (June 2005) Growth of broadband subscribers

IDATE © Multiplay on Broadband 23 November 2005 Key questions HDTV, VOD... Changing relationship between access providers and broadcasters? Impact on ARPU? 123 Strategy/partnerships with Internet portals: Google, MSN, eBay/Skype... Very High-speed broadband (FTTx): For which applications? Who will invest and under what conditions ? Will telcos succeed in their bid to market & manage Digital Home Gateways: user-friendliness/interoperability/security issues ? 45 Impact of fixed-mobile convergence: 3G/WiFi today & WiMAX (802.16e) soon? Quadruple play?