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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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
Fair Value*: SAR
a: Actual. f: Forecast. * Based on weighted average of DCF-based and peer-multiple-based valuations.
Source: GIC Estimates & STC Financials. 12

13. 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
Fair Value*: QR
a: Actual. f: Forecast. * Based on weighted average of DCF-based and peer-multiple-based valuations.
Source: GIC Estimates & Qtel Financials. 13

14. 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

15. 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

16. 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