1. IBV Institute for Business Value Rob van den Dam , Global Telecommunications Sector Leader IBV

2. The IBM Institute for Business Value createsfact based thought leadership and tools that help clients realize business value Future Agendas Value Realization Studies 3 to 10 year industry outlookwith action oriented next steps In-depth assessment of todayscritical issues, opportunities, etc CXO Surveys Chief Officiers studies CEO,CIO, CFO, CHRO, etc. 3. Agenda

A decade of structural change in telecoms

Scenario Planning for 2015

4 contrasting scenarios

Scenario outcomes

Critical success attributes

4. Telcos revenue is no longer growing in any significant way in most mature markets Telecom Services Revenue Growth 2005 - 2009 Source : IDATE, in "World Telecom Service Market", 2008 Edition - January2009, revision in July 2009;IBM Institutefor Business Value (IBV) Analysis EU27: -2.1% overall(-3.2% fixed / -1.1% mobile) Japan: -2.8% overall(-2.2% fixed / -1.1% mobile) US: +0.7% overall (-1.6% fixed / +3.3% mobile) S.Korea: +1.9% overall (-0.7% fixed / +3,5% mobile) Fixed and mobile market revenue growth in 2009 Revenue g rowth rates fell under 2 digits almost everywhere 5. The sectors annual growth worldwide (+2%) is now being sustained almost singlehandedly by emerging countries and BRIC

Regional consolidation:

100 telcos in Europe

versus

AT&T and Verizon in US

The growing role of the

emerging markets

• The emergence of new giants: China Mobile, Bharti, Vimpelcom, Etisalat, ...

• ...and they know how to make profit with ARPU < USD 5

Source: IDATE, IBM Institute for Business Value (IBV) Toward a new hierarchy 2005 2010 Mobile markets increasingly being driven by emerging countries Top 10 mobile markets worldwide (M subs) USA; 207 USA; 208 China; 770 China; 375 India; 75 Russia; 126 India; 376 Russia; 215 Japan; 123 Japan; 90 Brasil; 143 Brasil; 86 Italy; 83 Italy; 71 Germany; 87 Germany; 79 France; 46 UK; 76 Mexico; 65 UK; 68 6. While overall communication have increased, much of the growth has been over-the-top with share of traditional unchanged Notes: (1) An SMS/MMS or e-mail is considered as a 30 second call.FRANCE TOTAL COMMUNICATIONS MARKET (billions of call minutes and equivalents ) Stable use of traditional communications services Increased share of communication services by Internet Communication services providersSource: Idate: Telcos views of Openess, Digiworld Summit 2009 Source: Ronald Montagne Telcos views of openness, IDATE, October 2009 0 200 400 600 1000 1200 800 7. Telecom revenues do not track the increases in network traffic anymore Traffic Telecom Revenue Voice Dominant Data Dominant Source: Nokia-Siemens; IBM Institute for Business Value (IBV) Analysis Time Traffic Volume /Revenue Network Cost (future technologies) Network Cost (existing technologies) Value OpportunityEcosystem Revenue 8. After a decade of massive change what is the future of telecom? Determining TrendsUnderlying trends in the evolution of the communications industry for which there is very high degree of certainty and consensus Provide backdrop for the future of telecommunications in 2015CRITICAL VARIABLES 2 Likely but uncertain trends with potentially high impact and multiple outcomesSCENARIO SYNOPSIS & OUTCOME 3 1 REALIZATION PATH 4 Major economic, competitive and technological events that trigger each scenario QUANTITATIVE MODELING5 Telecom industry revenue and profitability outlook for each scenario by region and access (fixed/mobile) for 2015 Revenues Free Cash Flow (EBITDA - Capex) 9. Telco 2015 five telling years, four future scenarios Scenario EnvisioningPrimary Research Consumer Survey (9 countries) Telco Provider Interviews (60) Macro Economic Trends Industry Data/ Analysis (IDATE) Secondary Research Industry Trends Forces Shaping Telecom Uncertainties Scenarios & Outcomes Implications Challenges & Trends SURVIVOR CONSOLI-DATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR Telco 2015 Strategic Imperatives

Critical attributes for success

Potential capability gaps by Operator

Scenario-specific recommendations

Cross-scenario recommendations

IBM Institute for Business Value Analysis Scenario Revenues and Profitability Revenues Free Cash Flow (EBITDA - Capex) 1,541 CEO interviews from Global CEO Study; ~80 fromCSPs 10. There are a number of Forces shaping the future of telecommunications into 2015 Source: IBM Institute for Business Value (IBV) Analysis ACCESS BUSINESS MODEL INDUSTRY STRUCTURE USAGE/ SERVICES

PSTN decline accelerates

VOIP (incl. mobile VOIP) grow

Ubiquitous and seamless access

High digital content consumption

Multiple communication tools

Broadband pervasive as TV

Mobile broadband favors LTE

Ultra low-cost devices grow

One in three devices is smartphone, MID, or Netbook

Voice monetized as a feature of connectivity

Green Telecom revenues

3 rd party connectivity revenues

New infrastructure competition from government, municipality

Net Neutrality remains

Mobile and fixed termination converge

Pure plays disappear

11. Communications remain fragmented across multiple services from traditional telecom and over-the-top (OTT) providers Landline/ Fixed Voice Postal Service Email VOD Mobile email (on Smartphone) VOIP Voice Conferencing Video Calls Social Networking Mobile Voice Text/SMS Instant Messaging Under 25s Source: IBM Institute for Business Value Global Telecom Consumer Survey, 2009; N= 7722 Frequency of use Never Use Several Times a day Size of Bubble:% of respondents who use service every day MMS % of consumers expecting to increase/decrease use of service Communication usage and growth (Under 25s) 2009-2015 12. A new round of investment in FTTx, while the race for mobile broadband appears to have been decided in favour of LTE Source: If applicable, describe source origin

Which of the following access technologies are going to be critically important to the success of your business over the next 5 -10 years?

WiMAX only relevant if 3G/4G spectrum lacking Head of Product-IT Development, European CSP 2009 IBM Institute for Business Value Telecom Industry Survey N=61 Worlds top 8 FTTx operators LTE developments 13. Infrastructure sharing will become increasingly important as part of overall cost re-structuring Strategic cost structure priorities

(B) Which of the following changes to your cost structure will be critical to improve your competitiveness and agility over the next 5-10 years?

14. In addition to these trends there are a number of potentially high-impact variables that are, as yet, uncertain Access Business model Industrystructure and regulation Usage Source: IBM Institute for Business Value (IBV) Analysis Services Forces shaping the future

New Vericals: eHealth,

Smart Grids,

Premium connectivity

The Future of voice

OTT versus Network optimized content

Siloed versus unified communication

ServCo/NetCo versus Vertical

Integration Network sharing

versus Outsourcing

Regulation:ex anteversus

ex post , from asymetric

regulation to symetric regulation,

the future of Net neutrality,

Ultra-Fast Broadband

availability

Open Versus Closed

Devices.

User-funded versus third-party Funded

Pricing model: flate rate, tiered pricing

based on speed, bytes, quality, bundled

service,

M2M impact

15. These variables are gathered in tw major deimensions - addressable market growth and the competition/integration structure Vertical vs. Hori-zontal Integration Regulation Network sharing vs. Outsourcing Open vs. closed devices User vs. 3 rdParty / ad funded Addressable Market Growth Competition/ Integration Structure OTT vs. Network optimized content Silo vs. unified communications The Future of Voice Expansion into Adjacent Verticals Premium Connectivity Service Pricing Model M2M com-munications Ultra-fast Broad-band AvailabilityFuture Scenario C Scenario D Scenario B Scenario A Present 16. The interplay of these critical variables / uncertainties produces four distinct future industry scenarios SURVIVOR CONSOLIDATION Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer Few large players dominate Market MARKET SHAKEOUT Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Brand Brand Customer Customer Many players - Fragmented GENERATIVE BAZAAR Enabling the two-sided business Declining/ Stagnant Expanding Addressable Market Growth Concentrated / Vertical Fragmented /Horizontal Competition/Integration Structure CLASH OF GIANTS Telco OTT/ OEM Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer 17. .....with contrasting characteristics

Netco/Serco split with dominant Net-Coop and myriad of asset-light service providers

Open access provided by Net co-op through new funding models

Virtuous cycle of open innova-tion for apps, content & devices

Carrier cooperation and allianceslead to global consolidation

Face-off with either globalapplication and content provideror OEMs/NEPs

Mega carriers expand into selected vertical markets(e-health, grid)

Reduced spending by consumers

Revenue erosion/stagnation

Capex reduction

Triggers defensive consolidation

Carrier assets disaggregated financial re-engineering among service providers, NEPs, Device OEM, IT Providers, new investors

Lack of infrastructure investment triggers municipality involvement

Multiple brands compete for customer attention

SURVIVOR CONSOLIDATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR 18. Scenario outcomes for selected critical variables: Ultra broadband availability

Open access on a Net Co-op owned infrastructure

The Net Co-op will be owned by private & public players achieving high Ultra BB coverage

Operators infrastructure sharing to deploy NGA

Sharing can be based on commercial agreements or NRA driven

No more than 3-4 players in the market

Due to financial and regulatory constraints, Ultra BB are deployed in densely populated black areas only

New services cannot unfold their full potential

Government and municipalities step in to take UltraBB to grey areas

Access to municipal networks will be open

SURVIVOR CONSOLIDATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR 19. Scenario outcomes for selected critical variables: Open vs closed devices

Largely open devices: users will choose devices that fits their needs best

Carriers & OEM might team up to provide optimised handsets for distinct services

Closed comms-centric devices in low-end segment

Strong competition for open devices in high-end segment

Strategic partnerships with OEMs

Cheap closed devices continue to dominate market

Handset subsiduation continues

Open devices prevail

Handset subsidies will disappear

SIM-only dominant model for carriers

SURVIVOR CONSOLIDATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR 20. Scenario outcomes for selected critical variables: Regulation

Open access is the norm

Evolution of Internet-style model with light-touch regulation for Telcos

Level playing field in services

Light-touch regulation on infrastructure to encourage infrastructure competition

No endorsement of strong net neutrality positions

As is, withy ongoing regulatory uncertainty

As a consequence NGA investment is stifled

Competition intensity is limited

Strong access obligations on infra and strong net neutrality stance undermine investment initiatives

Telcos focus more on whole-ale backbone business as well as ICT services

SURVIVOR CONSOLIDATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR 21. Communications-connectivity substitution will increase over the next 5 years regardless but dominates revenue mix in Generative Bazaar Advanced Markets 2015 Revenue Mix ScenariosEmerging Markets 2015 Revenue Mix Scenarios 2008 2015 Changes to Segment Revenue Mix by Scenario Communications : PSTN Voice, VoIP/ VoBB, Mobile Voice, SMS revenues Connectivity : Fixed Broadband, dial-up internet, legacy corporate data service, 3G/Mobile Broadband and Machine-to-Machine revenues Content : IPTV and Mobile Content (music, video, mobile TV, games, advertising) Source: IBM Institute for Business Value (IBV) and IDATE Consulting & Research Analysis 22. and represents the most optimistic outlook for telecoms, relative to the IMFs global GDP forecast for 2010 - 2014 Global GDP vs.. Telecom Services Growth Scenarios Source:International Monetary Fund (IMF), World Economic Outlook Database, October 2009;http://imf.org/external/pubs/ft/weo/2009/01/weodata/index.aspx , IBM Institute for Business Value (IBV) and IDATE Analysis, 2004 - 2009 growth forecasts are based on IDATE"World Telecom Service Market", 2008 Edition - January 2009, revision in July 2009. 2010 -2015 are IBM Telecom 2015 scenario forecastsGenerative Bazaar Clash of Giants Market Shakeout Survivor Consolidation 2009 2015 Telecom Growth Scenarios ( Global GDP Global Telecom 5.3% 3.3% 1.8% 0.2% 4.5% Growth 23. Telcos need common and scenario-specific attributes for success Leverage advanced customer and network analytics 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 SURVIVOR CONSOLIDATION MARKET SHAKEOUT CLASH OF GIANTS GENERATIVE BAZAAR Cost-effective ultra-fast broadband deployment strategyNetwork / customer insights to enhance experience & optimize costCulture of collaborationCost containment Common Critical Success Attributes Source: IBM Institute for Business Value (IBV) Increased share of high value customersAchieve Scale Secure significant share of ultra-fast broadband in densely populated areas Reduced cost-to-serve Contain voice ARPU erosion Clear & distinctive role(s) in disaggregated value chain Powerful brand / reputationViable premium connectivity propositions for 3 rdparty providers Agile, flexible and reconfigurable processes and infrastructure Ubiquitous and cost-effective broadband access Collaborative inter/intra-industry alliancesEfficient and competitive infrastructure Innovative and differentiated network-optimized experiences Enhanced service provider roles in vertical markets Achieve scale across regions and access (fixed, mobile, Internet)Third party applications / services innovationPervasive open network access infrastructure Structural separation of network and services operations Dynamic business design Agile, flexible and reconfigurable processes and infrastructure 24. A return to strong growth requires the industry to act collectively to create the necessary conditions for the emergence of more profitable scenarios

Overall, the financial model suggests Generative Bazaar is potentially the most profitable, with the highest revenue and growth prospects but is so the most challenging scenario

A return to strong growth requires the telecom industry to act collectively to create the conditions for the emergence of profitable scenarios, Clash of Giants / Generative Bazaar:

• Global industry collaboration on common capabilities ,enablers and platforms

• Enhancing the role of the service provider in adjacent vertical markets

• Pervasive and open access connectivity for any person, object and device

• Value propositions for third-party application providers

• Harnessing information and business insights new business models.

Summary and Conclusions 25. Key contacts Ekow Nelson Global Telecommunications Industry,IBM Corporation [email_address] Rob van den Dam Global Telecom Industry Lead ,IBM Institute for Business Value[email_address] Nick Gurney Global Telecom Industry Leader Global Business Services [email_address] www.ibm.com/iibv Thank you! http://www-935.ibm.com/services/us/gbs/bus/html/ibv-telco2015.html?cntxt=a1000065 http://www-935.ibm.com/services/us/gbs/bus/html/gbs-telcos-socialnetworking.html?cntxt=a1000065