Booz & Company

Beirut, 28 May 2009

Conference Presentation

Fulfilling Broadband Potential

Global Trends and Regional Challenges

Emerging trends are accelerating the deployment of broadband networks

1 Policymakers positioning Broadband networks as essential national

assets
2 Fixed and mobile telecom operators betting on Broadband as a key

growth enabler
3 Increasing dialogue between stakeholders to address the industry

tensions inhibiting broadband networks deployment

4 Governments investing to accelerate broadband deployment and

contribute to economic recovery

5 New business models emerging to improve investment efficiency

and accelerate service uptake

Booz & Company 28 May 2009

Policymakers are increasingly regarding Broadband networks as essential national assets

Policymakers on Broadband - Recent Announcements Just announced biggest ever investment in Australian broadband really exciting, infrastructure for the future

I believe that America should lead the world in broadband penetration

Barack Obama, USA President

Kevin Rudd, Australian PM

Universal Broadband Access is crucial for Britain's economy

Gordon Brown, UK PM

Next generation broadband will be a critical enabler to build new capabilities and transform our industries
Lee Hsien Loong, PM Singapore

Universal Broadband should be a basic right

Dr. Hessa Al-Jaber, SG ictQatar

key to the future is next generation broadband

Mohamed Al-Ghanim, DG UAE TRA

Booz & Company 28 May 2009

Broadband is expected to yield significant socio-economic benefits

1
National Broadband Networks Deployment Impact on GDP
(% increases within five years)

Socio-Economic Benefits
Garnter (USA) CEBR (Scotland) Government (Korea) Government (Australia) Criterion Study (US) Brooking Institute (US) EIU (NZ) 1.31% 2.50% 3.90%

Innovation Labor productivity National competitiveness

0.82%

Resources utilization
0.80%

Social inclusion
0.56% 0.35% 1.46%
Source: Company websites, Press clippings, Government sites, Booz & company analysis
Booz & Company 28 May 2009

Lifestyle

Operators are betting on Broadband as a key growth enabler

2
DIRECTIONAL

Impact of Broadband Uptake on Telcos

(2008) Revenue from Non-SMS Data 67% 63% IPTV Revenue as % of Broadband

29%

28%

52%

11%

11%

9%

20%

NTT

SK Tel

Three

Orange

Vodafone

PCCW

Freenet

Belgacom

KPN

Source: Booz & Company analysis

Booz & Company 28 May 2009

Yet deployment of next generation broadband networks is stalling

3
Broadband Household Penetration
92.9% 81.7% 78.1% 72.6% 67.9% 63.5% 60.9% 58.1% 44.4% (in Q4 2008)
Other Cable xDSL FTTx

26.3%

40.0% Korea

0.4% France

0.1% Qatar

0.3% Singapore

11.1% UAE

0.1% UK

3.1% USA

0.1% Germany

1.7% Italy

0.1% Saudi

Source:

WBIS, Booz & Company analysis

Booz & Company 28 May 2009

Investing in next generation national broadband networks is expected to significantly pressure operators financials
Next Generation Broadband Network CapEx / Fixed EBITDA
7.1 5.2

4.6

4.0 2.7

Note: Source:

Estimated EBITDA from fixed operations for 2008 Informa, Operators financial statements

Booz & Company 28 May 2009

Stakeholders are increasingly cooperating to address next generation broadband deployment inhibitors
Next Generation Broadband Deployment Inhibitors Lack of clarity on next generation broadband regulation model Regulators Existing regulatory tools not viable for next generation broadband Announcements around infrastructure separation Open access and net neutrality considerations

Mass deployment hindered by challenging financials Incumbents High risk investments due to regulatory uncertainty Rapid technology evolution and competition between technologies Differentiation based on services and applications rather than infrastructure OLOs Challenging business case for next generation broadband deployment in the absence of effective infrastructure sharing Rapid technology evolution
Booz & Company 28 May 2009

The economic downturn is accelerating governments investments in broadband networks 4

Government Investments in National Broadband Networks
Country Date Announced Target Speed Target Penetration Target Year Total Investment USD Bn 24,600 Investment Per Capita USD

Korea

2009

1 Gbps

100%

2012

502

New Zealand Australia Singapore Malaysia Greece Japan

2009 2009 2008 2008 2008 2007

100 Mbps 100 Mbps 100 Mbps 100 Mbps 100 Mbps 100 Mbps

75% 98% 90% 100% 50% 100%

na 2017 2012 2018 2017 2010

1,500 30,000 600 714 2,820 13,600

219 1,448 148 28 264 106

Booz & Company 28 May 2009

Government investments has been effective in accelerating next generation broadband uptake in leading markets
Next Generation Broadband Penetration vs. Government Investment
Next Generation Broadband Penetration Korea High Japan and Korea Japan Sweden UAE China Medium Nordic Countries USA Italy Netherlands USA and Western Europe Low Low Medium Government Investment High 4.9% 3.1% 1.7% 1.5% 12.0% 11.1% 30.1%

Next Generation Broadband Household Penetration - 2008

40.0%

France 0.4% Singapore 0.3% Australia 0.1% Switzerland 0.1% Spain 0.1%

Source:

Booz & Company analysis

Booz & Company 28 May 2009

To overcome regulatory and business pressures, new business models are emerging
Passive Network Provider Active Network Provider Service Providers Existing Players Australia is investing USD 30 Bn. In a new network company offering active services Sweden has several municipal passive networks which lease to service providers

Australia

New Network Entity

Sweden

Municipal Networks

Service Providers

Singapore

Opennet

Nucleus

RSPs

Singapore implemented three tiered separation model to facilitate its NBN deployment Telecom New Zealand spun off its network business into a new unit in 2008, BTs Openreach provides active services to all retail service providers in UK Telecom Italia has setup a separate business unit which will lease passive services

New Zealand

Chorus (TNZs network unit)

Service Providers

UK

Openreach

Service Providers

Italy

Telecom Italia Business Unit

Service Providers

Source: Booz & Company analysis

Booz & Company 28 May 2009

Voluntary Separation
10

In the Arab world, broadband is growing at unprecedented rates

Total ADSL Lines for Arab Countries (1) (in 000s)(2005-2009) Number of Arab Countries Offering Different ADSL Speeds
128Kbps 256Kbps +65%

4,036

10 15 17 17 13 7 6 2 2

2,776

512Kbps 1Mbps

1,943 1,063 548

2Mbps 4Mbps 8Mbps 16Mbps

2005

2006

2007

2008

2009E

20Mbps

1) Sum of ADSL lines in Egypt, Jordan, KSA, Kuwait and Oman 2) Sum of ADSL lines in Denmark, Netherlands, Norway, Sweden and Belgium Source: AAG, Merrill Lynch, Booz & Company analysis
Booz & Company 28 May 2009

11

A clear gap remains to be bridged in terms of penetration

Broadband Penetration in Selected European Countries vs. Arab Countries Ratio of ADSL Lines to Total Mainlines - 2008
64% 61%

73%

European Countries Average = 56% 45% 37% 36% 26% 24% 17%

Arab Countries Average = 21%

Netherlands Norway

Denmark

Sweden

Belgium

UAE

Jordan

KSA

Morocco

Source: Merrill Lynch, AAG, Booz & Company Analysis

Booz & Company 28 May 2009

12

Similarly, broadband prices remain significantly high in the region

Monthly Broadband Price (1) for 1 Mbps Connection (2008) (in USD)
Netherlands Norway Denmark UK Austria Egypt Jordan UAE Saudi Kuwait European Average = 15
1) Monthly price for renting a 1 Mbps connection in the country Source: Informa, OECD, Booz & Company analysis
Booz & Company 28 May 2009

11 15 16 16 17 23 47 72 94 128
Arab Countries Average = 73

13

Fulfilling Broadband potential in the region requires policy makers, regulators, and operators to answer a set of questions
What type of broadband do we need in the region? How fast should next generation broadband networks be built? What policies are needed to accelerate broadband deployment and incentivize investments? Should governments consider investing in national broadband networks? How could regulators preserve effective competition in broadband markets? What business models would facilitate next generation broadband networks build-up? To what extent are competing operators ready for substantial infrastructure sharing deals? What can be done to develop the demand size: human capital, applications and content?

Booz & Company 28 May 2009

14