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N O V E M B E R 2 0 0 5

N O V E M B E R 2 0 0 5. T M T S E C T O R : " O N L Y T H E A G I L E W I L L S U R V I V E ". In need for radical change with convergence as a catalyst. S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L. Telecoms and Media: 5 years of negative shareholder returns….

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N O V E M B E R 2 0 0 5

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  1. NOVEMBER2005 TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" In need for radical change with convergence as a catalyst STRICTLYPRIVATEANDCONFIDENTIAL

  2. Telecoms and Media: 5 years of negative shareholder returns… Telecoms share price performance (rebased to 100) Media share price performance (rebased to 100) TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" Source: Datastream as of November 22, 2005, Bloomberg 1 Total shareholder return 1

  3. … despite significant operational and capital optimisation efforts… Telecoms and media market development (rebased to 100) 2001: Bubble burst 2002: Balance-sheet restructuring 2003: Focus on asset optimisation 2004:Shareholder returns Need for a new catalyst 1 2 3 • Balance sheet and liquidity issues • Rights issues across the sector • Selected asset sales • Refocus on cash-flow generating businesses • “Run for cash” – improve ROIC • Organic de-leveraging • Increasing earnings and cash flow profile • Focus on dividends and cash distribution • Initiation of share buy-back programs • Increasing focus on top-line growth 1 2 3 TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" Source: Datastream as of November 15, 2005 2

  4. … and a high growth environment which today has subsided New threats Telecom industry revenue growth New disruptive Technologies VOIP Internet Downloads Increasing competitive intensity Media industry revenue growth TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" MVNOs New players Piracy • E • E • E Source: DigiWorld, PricewaterhouseCoopers 3

  5. Voice: Home phone Video: Video rentals Theatre Pay TV The rapidly changing consumer market is increasingly driving the telecoms and media convergence Yesterday Today and Tomorrow Voice: • Wireless • WiFi • Wi-max • VoIP Video: • TVoDSL • Hybrid set-top box • Wireless video Data: • Cable/DSL • Internet portal • Wireless data Data: • Newspaper • Yellow pages • Email Changing consumptionpatterns are creating threats andopportunities TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" The composition of the consumer market is rapidly changing VoIP Local Wireless Wireless Local Wireless IPTV Long distance Longdistance Traditional Pager Wireless Broadband Dial-up • 1980 • 1995 • 2010 Slightly growing but increasingly fragmented market (access, distribution, content) 4

  6. Convergence of Network and IT infrastructure to move onto an all IP platform is imminent Reality Revenues at risk Mitigating the risk – Move to all IP Criteria for revenues at risk Next gen Networks IT infrastructure • PRICING OF SERVICES • Regulations on LLU • Regulations on MVNOs • Positioning of alternative carriers • COMPOSITION OF REVENUES THE PERFECT MITIGANT Adoption in next 12 months Application provider Integrated access and service provider Application provider Incumbents Another Access provider Access provider Outsourcing and IP transformation Voice over traditional  VoIP lines • Reduction in number of switches and simplifies network • Improvement in operational efficiency through sharp reduction in headcount and resultant opex savings • Reduction in capex by upto 10% through de-layering of network and corresponding increase in utilisation levels • Build up of additional IT services: • Networks: LAN, Firewalls, WAN • Applications: e-Commerce, interactive gaming, network based PVRs, VoD • Support: Authentication, storage, digital rights management • VoIP to lead to lower voice revenues • Voice to become an add-on service • Data and video over IP to drive revenues • Next gen networks to reduce costs through: • Seamless migration • Backward capability • Interoperability Drivers TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" • PC penetration • Internet penetration • Broadband penetration • PRICING • BUNDLING • Number portability • Contracts 1 SBC company data 5

  7. The new environment is creating new dynamics and will shape the new leaders • More risks • Disruption of existing comfort zone • Technological discontinuities • New invaders • More opportunities • Ability to reach adjacent markets (extended home) • Ability to leverage fundamental competitive advantages (brand, reach, scale, services, knowledge) • But only for agile players TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" Winners will be highly agile. Status quo is the highest risk path. Source: JPMorgan equity research note 6

  8. Over the next 3 to 5 years the European Telecom sector will be characterised by an exceptionally high level of FCF generation Cumulative excess cash at net debt/EBITDA of 2.25x (€bn)¹ Cumulative excess cash by operator at net debt/EBITDA of 2.25x (€bn)¹ 2008E — €bn 2010E — €bn … O2 O2 Source: JPMorgan equity research ¹Post dividends, capex Potential uses of excess cash TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" • Reduce leverage • Return cash to shareholders • Share repurchases • Dividend increase • Organic investment (Capex and Opex) • M&A Source: JPMorgan equity research 7

  9. The rationale for further de-leveraging, higher levels of organic investment and higher dividends is limited The European Telco sector is under-levered and is likely to remain so… … given decreasing capital requirements to finance organic growth… Net debt/EBITDA 2008E Capex as % of sales—EU telco EU average 0.6x TI 2.5 1.6 FT 1.4 BT 1.4 KPN 1.4 DT 0.9 Cosmote Source: JPMorgan equity research 0.9 VOD Increasing sensitivity of organic-only strategies by shareholders TEF 0.7 TA 0.6 … and already higher-than-average cash being returned to shareholders PT 0.5 TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" Bouygues 0.5 Average sector dividend yields TS 0.3 Utilities Market EU Telco TNOR 0.2 TEM 0.2 OTE (0.2) SCOM (0.3) O2 (0.7) BCOM (1.1) Source: JPMorgan equity research Source: JPMorgan equity research and Datastream as of October 26, 2005 8

  10. Private equity: A market-driven economic regulator Contributions to the economy Investment patterns • The private equity industry is increasingly becoming an economic regulator • Insulate out-of-favour industries from stock market volatility • Restructure operations out of the public sight • It is estimated that private equity backed companies generate total sales of €273bn and contribute around €34bn in taxes in the UK • 170 UK-based private equity firms have invested, since 1983, over €91bn in around 26,000 companies worldwide • 2000 • 2004 Private equity’s presence is increasing as % of M&A activity Funding patterns TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" Others 20% Banks 21% Government agencies 6% Pension finds 19% Private individuals 8% Insurance companies 12% Fund of finds 14% • 2004: €28.5bn Source: BCVA, ECVA/ Thomson Venture Economics, PricewaterhouseCoopers, IFSL, Schroder Investment Management, Broker reports 9

  11. Current available sector firepower could act as a catalyst for further M&A consolidation … Cumulative excess cash (€bn)1 Private equity Total available firepower • 15% of investments in communications sector= c. €60bn • >€230bn over next 3 years + = Source: JPMorgan equity research 1 Post dividends, at a Net Debt/EBITDA of 2.25x Expected drivers of M&A • Need for scale on certain segments of the industry • Need to consolidate operations to drive market/pricing to stability • Migrate across the value chain and gain access to the final customer • Acquire technological/marketing skill-set • Rebalance and optimise capital structure • Gain full control of controlled assets (minority buyouts) • Capitalise on regulatory hedge opportunities TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" Source: JPMorgan equity research note 10

  12. Technology is driving increasing waves of convergence and M&A Enablingtechnology 1st wave 2nd wave Today Fixed-line DT /T-Online FT/Wanadoo TI/TIMedia Broadband Voice/data FT/Orange TI/TIM Triple play convergence Manu-facturer Network & system management Operators Content ownership? Distribution platform? Technology Ownership? Internet Network equipment + + + Telecommunication equipment Private networks Wireless Wireless access Public networks • Belgacom/ football rights • H3G/ football rights • France Telecom/Canal plus • Telecom Italia/Mediaset alliance • Disney/ Living Mobile • Disney/ Minds Eye • Universal Music/Vodafone alliance • Swisscom/ Antenna Hungaria • BT/ Infonet • France Telecom/ Arte France & Telerama alliance • Ebay/ Skype • Microsoft/ Teleo • Microsoft/ Mediastreams.com • Elion/ Microlink • British Telecom/ Sky Net Systems • Alcatel/ Maplecroft alliance • Cesky Telecom/ Microsoft alliance Content • Sport • Movies • Games • Music • News • E-learning • Classified Communication devices Telecoms and media: Consumer standpoint TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" TV Broadcasting DTT Computer/peripherals Services • e-learning • e-commerce • Search • Dating • Messaging • Community Software 11

  13. In the last 6 months we have seen increasing signs of convergence-driven M&A activity / (Sweden) / / TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" / / Note: JPMorgan deals 12

  14. Recent M&A activity is more focused strategically v. the 2000 era Deal type1 • Number of deals TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" 1 • 2 Source: Broker reports 1 Global; 2 Until July 2005 13

  15. The sector is providing considerable opportunities for agile operators • Organic growth based on innovation and customer relationship • Redefine market based on customer needs rather than product offering Revitalise management and Board skill set • Inorganic growth through bolt-on and transformative transactions TMTSECTOR:"ONLYTHEAGILEWILLSURVIVE" • Promote financially sound shareholder focused business cases, for organic and inorganic strategy • Continued focus on cost and cash-flow optimisation 14

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