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Telecom Market Overview

Telecom Market Overview. During the past couple of years the *** telecommunication market experienced noteworthy developments encompassing all its major segments. Fixed line telecommunication. Mobile telecommunication. Internet and data transmission.

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Telecom Market Overview

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  1. Telecom Market Overview

  2. During the past couple of years the *** telecommunication market experienced noteworthy developments encompassing all its major segments • Fixed line telecommunication • Mobile telecommunication • Internet and data transmission • Following the opening up of the fixed line market in January 2003, several new players have emerged, although Romtelecom‘s leading position is not yet threatended • Market liberalization translated into decreasing tariffs for international calls and long – distance calls, while the still low competition segment of local calls faced tariff upsurge • Several potential sizeable players are expected to enter the market within the next year, i.e. POSTelecom, SNR increasing the competition throughout the fixed telephony market • Mobile telephony has been at the forefront of telecom market‘s development • As the mobile telecom market is nearing its maturity phase (with slower client base growth and declining ARPU levels) competition is getting tougher between the 4 existent mobile operators • Voice transmission services still dominate the market, although there is as clear trend towards bundled product packages wih increase value added • 2005 will likely mark the entrance of 3G technology in the market • The last period saw a clear consolidation trend following a significant M&A wave which is yet to have ended • Reflecting the changes in customers‘ needs the complexity of data transmission services has increased spanning different technological solutions • Mobile operators also target this segment by providing data transmission services and Internet access over mobile phones via 2.75 G or 2.5 G technologies Source: ***Strategy Consultants estimates and analysis

  3. The *** telecom market has steadily increased over the last five years with mobile telephony playing the leading role • Breakdown of *** telecom market by segments, 2003 [%] • Evolution of the *** telecom market1) [EUR m] • CAGR = 8.5% • Internet and other data transmission services • Mobile telephony • Fixed telephony • Note: 1) Including fixed telephony services, mobile telephony services, Internet, data transmission and leased lines; excluding internal telecom services on own infrastructure of Teletrans and Telecomunicatii CFR Source: ***Strategy Consultants estimates and analysis

  4. The fixed telecommunication infrastructure has developed constantly over the last years • Development of the number of fixed telephone lines [m] and penetration rate [%], 2000 – 2004 • CAGR = 3.3% • Note: E = Estimate Source: MCTI, ANRC, OTE, ITU, ***analysis

  5. After a significant drop in 2003 the fixed telephony market is expected to slightly grow in 2004 mainly due to increased consumption • Evolution of fixed telephony market1) , 2000 – 2004 [EUR m] • Comments • The 2003 drop of the market was mainly due to lower tariffs in real terms as compared to 2002, as well as shrinking interconnection and fixed – to – mobile tariffs • Moreover new players emerging after the opening up of the fixed line market led to decreases in tariffs for international calls and subsequently long – distance calls • In spite of the 2004 soar in tariffs for local calls, Romtelecom is likely to decrease these tariffs once competition makes way in the local calls segment as well • 921 • 903 • 868 • 860 • 825 • Notes: 1) Including international private leased circuits • E = Estimate Source: ANRC, ***estimates and analysis

  6. Following the 2003 market liberalization the *** fixed telephony landscape has started to change with the arrival of Romtelecom’s first competitors (1) • New entrants in the fixed line telecom market • Integrated communications services supplier, being one of the largest CaTV operators and Internet service providers while as of the end of 2003 it launched fixed telephony services as well under the brand Telefix • At the end of 2003 it had a portfolio of 670,000 CaTV subscribers and 12,000 corporate clients for broadband Internet services, whereas it aims at reaching a 40,000 subscriber base for telephony services by the end of 2004 • Employs VoIP technology for fixed telephony services • Provides four types of telephony subscriptions and is the first operator to introduce the regional tariff • Offers discounts for bundled product packages i.e. CaTV, Internet, data and voice • Astral • Provides fixed telephony services in Oradea based on DECT (Digital Enhanced Cordless Technology), a TDM (Time Division Multiplexing) based technology • The technology implies the creation of a radio cell network covering a certain area, so that in fact it is a limited mobile telephony services • The telephony services also provide limited mobility, enabling customers to use the handsets outside of the home or office within the city area • Plans on extending the fixed telephony services to other 19 sizeable cities, next one on the list being Timisoara • The connections between local networks will be secured through renting carrier capacities – an agreement has already been signed with Telecomunicatii CFR • Atlas Telecom

  7. Following the 2003 market liberalization the *** fixed telephony landscape has started to change with the arrival of Romtelecom’s first competitors (2) • New entrants in the fixed line telecom market • The group undertakes CaTV, Internet, data and as of April 2004 telephony activities as well (under the brand rds.TEL) • At the end of 2003 it had a portfolio of 900,000 CaTV subscribers and 6,500 broadband Internet corporate customers while aiming to reach 57,000 fixed telephony customers in the short term • Currently the company provides telephony services to 9 cities using TDM technology • rds.TEL provides four subscription types • RDS/ RCS

  8. Romtelecom will also face tough competition in providing carrier services following the emergence of alternative infrastructure providers Back bone operators • Teletrans is a subsidiary of Transelectrica • By end 2005 the telecom infrastructure will consist of 4,500 km OPCW (optical ground wire) with some 3,800 already in place • Plans to attract one or several strategic investors to sustain future development Teletrans • 4,200 km optical fiber network in place providing access to 550 railway stations • Targets a final network length of 7,500 km • Plans to offer fixed line telephony services to end-users via phone booths within railway stations • International connectivity available through an agreement with Hungarian Matav telecom operator Tele- comunicatii CFR • High capacity radio SDH 662Mb/s network spanning over 2,500 km and connecting all major cities while being able to provide customers with audio, video, data and internet • Excellent international connectivity and WLL (wireless local loop) SNR • 3,000 km optical fiber network • International connectivity already available through Hungary RDS/RCS

  9. Due to the rapid development of the mobile communication in ***, the penetration rate will exceed 39% by the end of 2004 • Growth in the number of users1) [thou] and the penetration rate [%], 1998 – 2004 • CAGR = 54% • Note: 1) Total number of users was calculated based on operators’ data regarding mobile phone end – users, except for Zapp, which only • provided the number of clients and not the number of end – users; E = Estimate Source: ANRC, ***estimates and analysis

  10. The mobile telephony market has strongly increased in the last years and the trend is to continue in the future • Evolution of the mobile telephony market1), 2000 – 2004 [EUR m] • Comments • Bolstered by continuous upsurge of the customer base the value of the mobile telephony market grew steadily over the last five years • In 2003, the market average revenue per user (ARPU) has stabilized at approximately USD 165 – 170 similar to levels registered in 2002 • As the additional users usually have lower ARPU levels than the existing customers, the operators started to foster sales of non-voice services thus increasing the added value • CAGR = 17.5% • Note: 1) Including all services offered by mobile operators; E = Estimate Source: MCTI, ANRC, OTE, ITU, ***analysis

  11. The strong competition forced the introduction and development of the mobile communication services Technological development of the mobile networks in *** (1) Before 1997 Since 1997 Since 1999 Since 2000 Since 2000 Digital, circuit-switched Analog • GSM phase 1 • GSM phase 2 • GSMphase 2.5 • WAP • HSCSD Technology • NMT 450 • WML-based Internet access • Circuit data up to 56 kbps (channel bundling) • Digital voice • Enhanced coding • Half-rate coding • Circuit data up to 14,4 kbps • Unrestricted digital information (UDI) • Protocol V.42 bis • Cell broadcast • Circuit data up to 9,6 kbps • SMS • Digital voice transmission • Mobile analog voice transmission Description HSCSD: High Speed Circuit Switched Data Source: ***Strategy Consultants

  12. Digital networks based on comuted packagesarea necessity for future multimedia mobile applications Technological development of the mobile networks in *** (2) Since 2005 Since 2001 Since 2004 Digital, packet-switched • CDMA 20001X GSM phase 2.75 • EDGE GSM phase 3 • UMTS • CDMA 2000 1x EV-DO • GPRS • Packet-data up to 115 kbps (theoretically) • Packet-based WML-Internet access ("always on") • Packet-data up to 153 kbps (theoretically) • Packet-based Internet/ intranet access • Packet-data up to384 kbps • Cost – efficiency through economies of scale • CDMA 2000 1X EV-DO • UMTS • Packet-voice and data up to 2 Mbps • Efficient capacity use • Higher operational efficiency • Global roaming • 2 GHz band • Packet-voice and data up to 2.4 Mbps • Efficient capacity use • Higher operational efficiency EDGE: Enhanced Data rates for GSM Evolution, GPRS: General Packet Radio Services; CDMA: Code Division Multiple Access Source: ***Strategy Consultants

  13. *** registered one of the highest growth of the Internet penetration rate in the region in the last years Number of weekly Internet users (thou) • Comments • The Internet access and data transmission, including also the leased business lines market is estimated at approximately EUR 67 m in 2003 • The main growth driver will be the broadband connections as a larger number of companies are seeking for high quality and speed transmissions • There is a clear trend towards having Internet access, data transmission and other additional services, as well as telephony on the same infrastructure • +244% 1999 2000 2001 2002 2003 E Source: RNC, ISPs, ***Strategy Consultants estimates and analysis

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