1. www.idate.org Is Europe ready for a telecom rebound? Didier Pouillot Head of industrial department analysis, IDATE Jean-Charles Doineau Head of equipment division, IDATE

2. www.idate.org Network Equipment and handsets market division 2  Service provider markets Network equipment markets

3. www.idate.org Network Equipment and handsets market division 3 Telecom service markets: A rapid growth over recent years As a result of the explosion of mobile services (half of growth in telecom services in 2000 and 2001 derived from cellular services)… … and sector developments in emerging countries (e.g. China) Source: IDATE

4. www.idate.org Network Equipment and handsets market division 4 Telecom service markets: But slowdown in the short term Mobile sector has become mature in its traditional segment (voice) and is waiting for new growth drivers (mobile data applications)… High speed revenues should represent only 6 to 8% of total telecom revenues in 2006 Effect of political crises in some areas (Latin America) Source: IDATE

5. www.idate.org Network Equipment and handsets market division 5 Telecom service operators: Strong revenue growth over recent years More than 10% of annual growth on average between 1998 and 2001 for the world market leaders (around 14% for the European top 6) Mainly due to the development of mobile activities (more or less 30% of European telcos revenues in 2001) and international operations (up to 40% of consolidated revenues for Telefonica or France Telecom) Source: IDATE

6. www.idate.org Network Equipment and handsets market division 6 Telecom service operators: But decline in profits EBIT suffered from lower margins, due to competition (decrease in tariffs, loss of market shares)… … while net earnings reflected the huge sums telcos were obliged to carry owing to the depreciation in their financial assets … Profit ratio (net earnings/revenues) Source: IDATE

7. www.idate.org Network Equipment and handsets market division 7 Telecom service operators: And a very high level of debt Most operators are today faced with the necessity of reducing debt, through: The sale of non-core assets (and sometimes core assets !) The reduction of capital expenditure Negociations to find new sources of funding Source: IDATE

8. www.idate.org Network Equipment and handsets market division 8 Telecom service markets: Looking for new revenues (1) Mobile data revenues could grow threefold between 2001 and 2007 and account for 30% of mobile revenues at the end of the period Revenues generated by mobile data services, in Western Europe (2000–2007) Source: IDATE

9. www.idate.org Network Equipment and handsets market division 9 Telecom service markets: Looking for new revenues (2) Over a third of European households will have a broadband Internet connection by 2007 Revenues generated by the broadband access market in Western Europe (2001–2007) Source: IDATE

10. www.idate.org Network Equipment and handsets market division 10 Service provider markets  Network equipment markets

11. www.idate.org Network Equipment and handsets market division 11 Network equipment markets: An historical market trend Historical 16-17% average CAPEX/sales ratio Source: IDATE

12. www.idate.org Network Equipment and handsets market division 12 In the mobile infrastructure field, the development of 2G technologies has been progressive during the 90’s, and reached its peak in Europe during the period 1995 - 1999. In the WAN transmission market, 1996-2000 experienced strong technological improvements (2,5 & 10 Gbps DWDM), as well as numerous new network developments (up to 42 at its peak in 1999) In the access field, 1996-1999 was dominated by the end of the digitalisation process of the US networks, and by the beginning of studies on DSL deployment afterwards. In the LAN market, 1996-1999 was marked by the appearance of the « networked-company », model that now reaches more than 60% of companies in developed countries. Network equipment markets: An historical market trend dominated by strong technical drivers

13. www.idate.org Network Equipment and handsets market division 13 Network equipment markets: An historical market trend A >10% reversal in 2001-2002! Source: IDATE

14. www.idate.org Network Equipment and handsets market division 14 In the mobile infrastructure field, the GPRS (Europe), CDMA2000 1X (North America, Korea, China) and UMTS markets decreased by 4%. On the 2G front, 2001 was marked not only by a reversal of the GSM trend in Europe but also by significant expansions in APAC and China. In the WAN transmission market, 2001 was marked by a significant shrinking of the market (19%) mainly due to long-distance carriers’ financial difficulties, In the access field, as a result of CLECs significant financial difficulties in the DSL, cable and WLL sectors, the investments in broadband infrastructures were reduced or completely frozen. In the LAN market, growth remained steady given the economic slowdown observed in 2001. Network equipment markets: An historical market trend and an historical downturn!

15. www.idate.org Network Equipment and handsets market division 15 Network equipment markets: A new network business model emerging NEP N.O. Vertical model: up to 1996 Horizontal model: 1996 -2001 EMS C.M. NEP 1NEP 2 Incumb.Alternate Collaborative network model: 2002 -2003 C.M. Fix NEP Mob NEP Fix. N.O.Mob. N.O. Engineering ISV

16. www.idate.org Network Equipment and handsets market division 16 Network equipment markets: Limited perspectives of recovery in the short-term Source: IDATE

17. www.idate.org Network Equipment and handsets market division 17 Network equipment markets: What will be the evolution of CAPEX/sales ratio towards 2006? No objective signs of recovery before 2004! Source: IDATE

18. www.idate.org Network Equipment and handsets market division 18 What if we assume that the majority of network operators will delay their UMTS network rollout plans, following Telefonica, Orange and Sonera's recent announcements? Network equipment markets: Impact of UMTS roll-out Source: IDATE