1. An interactive analyst briefing with Nathan Budd, ICT Practice April, 2004 © 2003 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan. Fixed line SMS and the migration to multimedia messaging

2. Critical factors for the future of fixed-line messaging Conclusions Lessons from fixed-SMS and mobile-MMS: successes and failures The revenue potential Agenda Context Questions Introduction Introducing fixed-line messaging

3. © 2004 Frost & Sullivan. All rights reserved. 3 Introduction April 2003 report: “Fixed SMS - Deployment and Return”. April 2004 report: “Fixed-line SMS and the Migration to Multimedia Messaging” Working with the F-MMS Forum to enable the future of Fixed-Messaging. This includes a forthcoming discussion paper on the future of fixed MMS.

4. © 2004 Frost & Sullivan. All rights reserved. 4 Between 2000 and 2003, fixed minutes declined by 10.9 percent and fixed line revenues by 16.7 percent Fixed voice volumes and revenue growth rates, Europe 2000 - 2003

5. © 2004 Frost & Sullivan. All rights reserved. 5 Between 1999 and 2002 mobile voice minutes increased from 14 to almost 29 percent of total voice minutes Percent of voice revenues, Europe 1999 - 2003

6. © 2004 Frost & Sullivan. All rights reserved. 6 In 2003 mobile is estimated to make up over 62 percent of total voice revenues in the European market. Percent of voice revenues, Europe 1999 - 2003

7. © 2004 Frost & Sullivan. All rights reserved. 7 Fixed-line business continues to face challenges both from external factors and from internal pressures Fixed-line market challenges Mobile voice substitution WLR / CPS Price erosion from regulation and competition Metered access erodes voice revenue Fixed line Internal challenges Exposure to debt Extended ROI time-frames Weakening relationship with users Strategic concentration on other services

8. © 2004 Frost & Sullivan. All rights reserved. 8 Several options exist for operators to reverse this Fixed-line growth opportunities Extend voice revenues Extend data revenues Mobile emulation / functionality Enter mobile market (MVNO) ICT focus (home networking) Wireless LAN (hotspots) DECT terminals Fixed-line SMS services Voice mail Caller line identification Address-book functionality Fixed-line MMS services Fixed /mobile devices Price plans and bundles

9. © 2004 Frost & Sullivan. All rights reserved. 9 Successes in fixed line messaging There are now around 4 - 5 million active subscribers in the Western European market. Users are sending between 1 and 3 messages a month. Some operators have experienced heavy user groups sending 8 to 10 messages per month. In many cases, growth of 10 to 15 percent has been experienced month on month. There has been considerable development of premium rate, voting and application services. There is a range of SMS and MMS devices available in the market. Interoperability has been established between fixed and mobile operators.

10. © 2004 Frost & Sullivan. All rights reserved. 10 Demands of the service have, however, been overcome by barriers Handset adoption and distribution; Person to person mindset of the SMS service in user groups; and: Fierce mobile market place. Fixed-line SMS, may not become a killer application, but it demonstrates a strategic step in the right direction.

11. © 2004 Frost & Sullivan. All rights reserved. 11 Fixed SMS success was largely hindered, not necessarily by technology but by the go-to-market approach undertaken by operators Successes Technically the service works Cost is low Continuos use, demonstrates niche There is a market for voting and premium rate services Personalisation of the service Price transparency Failures Different protocols and different implementations. Interoperability Communication of the value Different communication by operators Complexity in subscribing Business models were optimistic

12. © 2004 Frost & Sullivan. All rights reserved. 12 Mobile MMS has been restrained by interoperability and a failure to understand user requirements Successes Availability of enabled handsets Time to market Communication of the concept of MMS Successful in pushing self-created content, by providing ideas and context Failures Lack of interoperability Wrongly assumed SMS users would migrate Service did not fulfil the expectations Communications failed to educate Self-created content was not backed with the other content services. A lack of consistency

13. © 2004 Frost & Sullivan. All rights reserved. 13 Critical success factors going forward in fixed-line messaging include: Defining and progressing user groups Branding and communication of the fixed messaging concept “Any to any” messaging and full interoperability Handset strategy and channel management Clear product, service & content development roadmap Definite pricing strategies Today we look in more detail at a three of these areas:

14. © 2004 Frost & Sullivan. All rights reserved. 14 Interoperability between fixed and mobile networks Co-operation with the mobile world Interoperability generates revenues Fixed “piggybacks” marketing Device penetration for the fixed service Fixed penetration drives mobile market. Competition with the mobile world Interoperability is not guaranteed Fixed price advantage could be matched Mobile to fixed message charges could be set higher Location billing Marketing the services alone would take larger resources and time

15. © 2004 Frost & Sullivan. All rights reserved. 15 User groups were defined for fixed MMS by the Forum in a Frost & Sullivan workshop Retired people Students Young professionals Kids Mature professionals SME Corporate SOHO Empty- nesters Young families Phones for the deaf What is essential is progressing these user groups and extending the service...

16. © 2004 Frost & Sullivan. All rights reserved. 16 Pricing tariffs and positioning The fixed environment must work closely with the mobile networks to extend interoperability to all numbers. Users have a perception that the fixed-line will offer a price advantage, so… We propose fixed-line messaging prices should fall just below average mobile tariffs. Also the market should use bundled packages and bulk-purchase discounts to encourage early adoption and also stimulate continuos frequency.

17. © 2004 Frost & Sullivan. All rights reserved. 17 European fixed SMS revenues, including premium rate and marketing services, (2003 - 2008) Revenue (Millions €) © 2004 Frost & Sullivan. All rights reserved.

18. 18 European fixed MMS revenues, including premium rate and marketing services, (2004 - 2009) Revenue (Millions €) © 2004 Frost & Sullivan. All rights reserved.

19. 19 Conclusions Lessons learnt reaffirm critical issues: Define segments. Develop value propositions. Structure robust service offerings, matching user requirements. Define roadmap to progress users. Critical to achieving “best case scenarios”: Penetration of an installed-based. Interoperability and relationship with the mobile environment. Got-to-market strategy and continuos investment. Long-term view.

20. © 2004 Frost & Sullivan. All rights reserved. 20 Ask on the telephone - press * 1 on your keypad Ask online - use the Q&A tab on the left of your screen  +44 (0)20 7343 8383  reports@frost.com  www.frost.com Thank you - Any Questions?