1. DSL Deployment and Economics ITU/BDT Arab Regional Workshop on “DSL Technologies and Services” Cairo - Egypt, 4-6 March 2003 ITU/BDT Arab Regional Workshop on “DSL Technologies and Services” Cairo - Egypt, 4-6 March 2003

2. Maximise your revenue – Control your cost

3. All rights reserved © 2002, Alcatel Build Profitable DSL Networks Cash Flow  Ensure a sound business model  Sell the infrastructure over and over Revenues  Differentiate services/margins  Keep focus: one step at a time Cost  Leverage investments: Universal DSLAM  Get provisioning/operations right Residential  Get the volume  Speed the activation  Helpdesk process  Make sure you will upsell CapEx  Stable footprint  “Blade” upgrades  Network convergence OpEx  Simple for volume  User provisioning  Targeted experts Business  Start with new services  Let others help you sell  Move legacy and bundle

4. All rights reserved © 2002, Alcatel DSL Revenue Streams > Three revenue streams in DSL deployment High speed Internet access (limited by # of on-line households) Business access (SOHO/SME) Residential multimedia (gaming/video/entertainment) TIME Business Access High Speed Internet access $ Residential Multimedia today Infrastructure Investment Leveraging Existing Infrastructure

5. All rights reserved © 2002, Alcatel Benchmarks of Prices for Low-end Residential ADSL and Broadband Penetration > Very different level of low-end ADSL prices Korea : USD 25 /month US : USD 39 /month France : USD 42 /month > Broadband Penetration rate appears to be correlated to initial pricing level low ARPU drives BB penetration the BB access consumer is price sensitive Source : France Telecom, Hanaro, Verizon, SBC 0 5 10 15 20 25 30 35 40 45 FranceUSKorea ARPU (USD/mth) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Correlation between ARPU & BB Penetration ARPU BB Penetration

6. All rights reserved © 2002, Alcatel Price sensitivity wrt. Penetration rates and margin on basic access package > Calculations for Access Charges per month and DSL penetration are based on the historical data of different European countries i.e applied access charge and achieved penetration > Calculations for gross margin are based on average European business case > This scenario is also sensitive to GDP per captia, >15,000€

7. All rights reserved © 2002, Alcatel NPV calculation based on 40 € monthly access fee > Access revenue charge of 40 € per month has a gross margin of more than 35% A penetration rates of more than 20% is achievable with 40 € services packages

8. All rights reserved © 2002, Alcatel Specifics for successful DSL deployment  Go for Market Leadership  Market : leader and follower, usually 65/35% (f.i. Korea)  Once leader, always leader (cfr Mobile)  Be commercially aggressive  More Revenues  Higher cash flow within 3 years  Avoid loss of voice revenues (customer churn ~ 70 %)  Utilisation Rate should be around >60 %  < 40 % u.r. reflects in higher Capital Expenditure (CAPEX)  > 80 % u.r. reflects in higher Operational Expenditure (OPEX) and reflects in higher Activation Time (Loss of Mkt Share)  Order Success Rate should be higher than 70 %  Activation time should be around 3 days  Example Korea Telecom, Bell Canada, Belgacom  Self Installation >80%

9. All rights reserved © 2002, Alcatel Commercial and Operational Learning Curve 100 prospects 12 12 customers - 45% NO COVERAGE - 15% SALES INEFFICIENCY - 28 % OPERATIONAL ISSUES

10. Business Models

11. All rights reserved © 2002, Alcatel High Speed Internet Access Wholesale versus Retail Service providers Access providers End users ASAM Mini-RAM... ADSL-NT... Service management Service Gateway ATM or FR pipes IP-tunnels Wholesale (Revenue Split) Retail (Revenue Split) Global package fee to ISP Access fee to AP Global package fee to AP (incl. Internet Access)

12. All rights reserved © 2002, Alcatel Wholesale Residential DSL to other ISPs ? > Potential benefits Linear growth continues Reduced sales and marketing costs Reduced helpdesk and truck roll-out costs > Different models possible > Role of ISP ISP sells service to end user Marketing First line helpdesk, portal services, email hosting, National and International bandwidth ?

13. All rights reserved © 2002, Alcatel Wholesale options applied by different service providers > Where is the handover point in the network ? ISP controls BRAS, and IP network behind it + internat.BW Access Provider controls BRAS, ISP IP network behind it + internat. BW Complete network controlled by Access Provider > Who does Billing and Customer Support ? ISP first line helpdesk and Billing ISP first line helpdesk, Access Provider Billing > Who does Marketing ? Only ISP does Marketing Both ISP and Access Provider do Marketing > Revenue sharing ? ISP gets 15% - 25% of total Revenue

14. Country Case – Alternative Strategy

15. All rights reserved © 2002, Alcatel Europe - Some facts > 2002 Population 3,931,000 No. of Households 1,201,000 GDP per capita €19,210 Country Telephone lines 1,717,000 – Residential lines 1,156,000 – Business lines 560,000 PC households 392,000 – PC penetration with respect to households 32.6% Source: Morgan Stanley Dean Witter

16. All rights reserved © 2002, Alcatel Current DSL target market > Current DSL subscribers (Business users): 30,000 Plan for end 2003: 70,000 > SMEs and LSEs addressable market Very small (0-9) 79,000 Small (10-49) 7,000 Medium (50-249) 1,000 LSEs (250+) 1,000 > DSL business value Average European example: business model for introducing business DSL in a medium-size country (+/-700,000 SMEs) – NPV of 106 M$; NPV including terminal value 424 M$ – ROI of 50% for retail; 30% for wholesale – Positive Cash flow after 1 year and Payback period of 1.3 years

17. All rights reserved © 2002, Alcatel Service Provider Strategy > Capture market share with high margin services SME and SoHO market – Alternative strategy: due to low PC penetration wrt HHs – NPV of business subscriber is 3-5 times higher then residential subscribers – Best practices of mass market are available now Drivers Beyond PC Penetration BB entertainment High Margin services HSI Business Mass Market Today By 2004 More than 20% penetration wrt HH

18. All rights reserved © 2002, Alcatel A simple marketing rule for new technologies closing the gap with VAS Early adopters SMEs Price >500 € Penetration Low end of MEs and SE Price >200 € SOHOs Price >100 € Price 40 € Residential HSI Increasing ARPU Multiple session Security Gaming… Increasing ARPU Fixed IP address Web hosting SLAs Security Multi-site connectivity Intranet/Extranet… Time Alternative Strategy Time Regular Strategy

19. All rights reserved © 2002, Alcatel High Speed Internet access market (Residential) Business Case Analysis > Three scenarios based on the DSL penetration rates with respect to number of households in Ireland are considered Total number of HH : 1,201,000 Year 1Year 2Year 3 High Case120,100 (10% HH)240,200 (20% HH)360,300 (30% HH) Base Case 80,067 (6.7% HH)160,166 (13% HH)240,200 (20% HH) Low Case 60,050 (5% HH)120,100 (10% HH)180,150 (15% HH)

20. All rights reserved © 2002, Alcatel Residential business case > Assumption Monthly access charge kept constant to 35 € Self Installation rate 60% Initial DSLAM utilization rate 40% Depreciation 3 years Recurring and Non Recurring OPEX (Average European) 2002-2004 (15% HH Penetration) 2002-2004 20% HH Penetration 2002-2004 30% (HH Penetration) NPV per subscriber: 7,48 Payback Period: 2,48 years NPV per subscriber: 42,77 Payback Period: 2,47 years NPV per subscriber: 44,01 Payback Period: 2,45 years Low CaseBase CaseHigh Case

21. All rights reserved © 2002, Alcatel Net Cash Flow and NPV based of high, base and low case scenarios

22. All rights reserved © 2002, Alcatel Payback period based on high, base and low case scenarios > Payback periods are in the same range but with more returns for base and high case (respectively)

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