d1 - 19/01/2016 france telecom research & development san francisco the present document...

D1 - 03/05/23

confidential

France TelecomResearch & Development San Francisco

The present document contains information that remains the property of France Telecom. The recipient’s acceptance of this document implies his or her acknowledgement of the confidential nature of its contents and his or her obligation not to reproduce, transmit to a third party, disclose or use for commercial purposes any of its contents whatsoever without France Telecom’s prior writtenagreement.

US Telco PanoramaMark Plakias, France Telecom R&D San Francisco


Distribution of this document is subject to France Telecom’s authorization D2 - 03/05/23

Agenda

s Mergers Activity and Impactss Competition with Cables Telco Fiber Deployments Observations



MCI

Worldcom

AT&T

Sprint

NYNEX

Bell Atlantic

BellSouth

Ameritech

PacBell

SW Bell

US West

Verizon

SBC

Worldcom

GlobalCrossing

Qwest

GTE

Verizon

AT&T Wireless

BellAtlantic Mobility

BellSouthMobility

Airtouch(USW & PacBell)

Cellular One

McCawCellular

NYNEXCellular

Voicestream

Omni Comms

Nextel

SprintPCS

VerizonWireless

Cingular:SBC/BS

AT&T Wireless

SprintPCS

T-Mobile

Long Distance (LD)Local

Local & LDWireless

All of Above

VerizonWireless

Cingular w/ATTW(SBC/BS)

SprintPCSw/Nextel

T-Mobile

SBC

MCI

Sprint



US Telco Mergers: 4 Deals in 1 Year

Price of deal

# Customers /

# Employees

Acquirer + Acquired

RevsSprint merges

with Nextel (12/04)

$35 Bill ~42 Million95,000

$39 Billion($26 + $13)

SBC acquires AT&T (01/05)

$16 Bill ~ 60 Million210,000

$72 Billion($41* + $31)

Verizon acquires MCI (05/05)

$9 Bill ~ 50 M255,000

$87 Billion($71 + $16)

Cingular acquires AT&T Wireless

(05/04)

$41 Bill 41 Million70,000

$32 Billion($16 +16)*Excludes SBC share of Cingular revenues



Verizon (VZ) Leads in Market Cap

2004 Revs

Enterprise Value

Post-merger Revs

SprintSBC

VZ$-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

Billions USD

60/40 Split in Invested Capital favors Enterprise Market

Enterprise59%

Consumer41% Enterprise

Consumer

Even including AWS sale, we see US Mgmt investing 60% of $101 Billion M&A capital into Enterprise

2004 RevsEnterprise Value

Post-merger Revs

Sprint $ 26.0 $ 47.0 $ 39.0

SBC $ 41.1 $ 104.8 $ 72.0

VZ $ 73.2 $ 129.5 $ 87.0



SprintNextel will emerge as Pure-play Wireless Data leader….1Q '05 Data Revenue

$0

$200

$400

$600

0102030405060

4Q '04 ($M) $294.2 $152.2 $375.7 $338.0 $104.5 $398.7

1Q '05 ($M) $329.1 $198.1 $444.1 $399.3 $153.1 $482.2

Total Subs (M) 18.3 18.3 47.7 43.4 17.0 35.3

FON TMOB CING VZ NXTL FON/NXTL

1Q '05 Data ARPU

$0.00

$2.00

$4.00

$6.00

$8.00

4Q '04 $5.50 $3.63 $2.89 $2.91 $2.15 $3.90

1Q '05 $6.00 $4.10 $3.70 $3.26 $3.00 $4.55

FON TMOB CING VZ NXTL FON/NXTL

..but NXTL’s poor Data ARPU will drag the combined KPI down.



..some Transformational KPIsIP Centrex

Consumer VoIP

WiMAX test

Microsoft Products

AT&T Yes Yes Yes CSF, LCSBellSouth Yes No Yes IP TVLevel(3) No Wholesal

eNo None

MCI Yes No Yes LCSQwest Yes Yes No NoneSBC Yes No No IP TVSprint No Wholesal

eNot yet None

Verizon Yes Yes Yes IP TV*Unified communication product available



Summary of Merger outcomes

SBC/AT&T Verizon/MCI Sprint/Nextel

IT aligned on SOA Consumer BB Wireline Strong FMC visionMS Dependence



US Consumers believe Cable can add Voice, more than Telco can add TVs Cable has demonstrated

consumer will buy a voice product with confidence

QCox (12th largest US telco) rated “#1 Local Telco” by JD Powers customer satisfaction study

s Consumers have walked away from Telco for cheaper long-distance voice products

"Who is best suited to offer both voice and TV?"

51%

21%

19%8%

CableTelcoISPUtility

$0

$5,000

$10,000

$15,000

$20,000

$25,000

1999 2000 2001 2002 2003 2004

$ Mill

AT&T Consumer revenues: 64% decline ‘97 to ‘04



Cable Quadruple Play goes IMS by YE 2005



Taxes and surcharges (including a USF charge of 2.45% which may change monthly, cost-recovery fees of $0.65, and other surcharges that vary by market), not included. Surcharges are not taxes or government-required charges. Nationwide network reaches over 250 million people. Coverage not available everywhere. Subject to credit. Terms and conditions apply. Two-year Sprint PCS Advantage Agreement required. Phones subject to availability. Limited time offer. Other restrictions apply. Call for details. Offers only available at participating Time Warner Cable locations in the Kansas City Metropolitan Area. Phone Savings: Instant savings for each phone requires purchase and activation of a new line of service with Sprint PCS Vision. Sprint PCS Fair & Flexible Plan: Option 1: Includes minimum 300 monthly Anytime Minutes adjustable in 100- minute increments for $5.00, with $0.10 per minute for usage above 500 minutes. Option 2: Includes minimum 700 monthly Anytime Minutes adjustable in 100- minute increments for $5.00 for up to 1200 minutes; adjustable in 200- minute increments for $5.00 from 1201 - 2000 minutes, with $0.05 per minute for usage above 2000 minutes. Sprint PCS Fair & Flexible Plan for Families: Includes minimum 800 monthly shared Anytime Minutes adjustable in 100 minute increments for $5.00, with $0.05 per minute for usage above 2100 minutes. All Service Plans: A nonrefundable $36 phone activation fee and $150 early termination fee apply. A deposit may be required. Night & Weekend Minutes are Mon. - Thurs. 9pm - 7am and Fri. 9pm - Mon. 7am. Domestic roaming calls are charged $0.50 per minute and, if applicable, an additional $0.25 per minute for long distance. Calls are rounded up to the next whole minute. Free unlimited Time Warner Cable Digital Phone to Sprint PCS Phone calling: For calls placed directly between your Sprint PCS Phone provisioned on a service plan through Time Warner Cable and your Time Warner Cable home digital phone. Unlimited calling is not available while roaming, or when calls are made through indirect methods. Additional restrictions apply. Sprint and the diamond logo are trademarks of Sprint Communications Company L.P. Digital Phone does not include back-up power and, as in the case with an electric-powered home cordless phone, should there be a power outage, Digital Phone will not be available. Other restrictions may apply. Available in Digital Phone serviceable areas only. Additional charges apply for taxes, fees, Directory Assistance, Operator Services and calls to International locations (excluding Canada). Digital Phone service is $44.95 per month for customers who subscribe to Time Warner Cable High Speed Internet or Cable TV service. Digital Phone service is only $49.95 per month for customers who subscribe to no Time Warner Cable services.

Complexity is a 4-way street



Cable/Wireless VoIP vs 3rd Party

WiFi phones for 3rd Party VoIP (Skype, Vonage) a threat to Cable’s FMC future?



SprintNextel: The Wirefree Carrier -- Retail, MVNO, and Sports-savvy

QSprint Selling off Local fixed-line divisionQSprint MVNO Adds growing at 48% Y2YQNextel successful with Boom MVNO

Nextel/NASCAR deal 5-year contract, and now…$600 Mill 5-yr exclusive on wireless video for NFL football

“The Third Screen”



2006 will see Other MVNOs beside Cable…

s $440 Million joint venture between SK Telecom and Earthlink for 3G multimedia servicesQUses Sprint 3G EVDO network as MVNO

s ESPN, Disney



Telco must respond with Fibers Reason #1: Basic voice circuits declining

QFTTx may help protect high margin ‘voice homes’s Reason #2: More Video $$$ than Data $$

QVideo market 2X HSD ($63Bn vs $29Bn ’08)s Reason #3: Can’t catch Cable Data with

CopperQTelco can cut prices, raise service, but cable raising speeds and maintaining prices $10+ over telco

s To beat cable US Telco must build out FTTX facilities to deliver competitive data and video servicesQFTTH – Fiber to the HomeQFTTN – Fiber to the Node



Verizon FiOS is FTTP (to the home)s Rolling out in most lucrative markets

QHi-speed DSL tiered offers, 5, 15, 30 Mbss Video in selected markets in 2005s Analog ‘out-of-band’ video (not IP TV)

QBasic CPE resembles Cable Motorola STBQFiber video architecture looks similar to MSO’sQCoax, RJ11 and RJ45 out of ONT

Advanced Fiber Comm’s Optical Network Terminal shownIn photo of actual installation

5 Mps Down 2 Mps Up $34.95

15 Mps Down

2 Mps Up $44.95

30 Mps Down

5 Mps Up $179.95

?



The Human Investment: Verizon Places its bets on People, Processess Investment in People = Time to Invoice

Q3-5,000 installers will be hired–Hourly Range: $11.59 - $23.16

Q1,000 Contractors in California aloneQFiber Solutions Call Center will be 300 seats

s Investment in Processes = Lower Churn?QDifferentiating on service: installers configure home networks and all necessary PC softwareQDedicated Call Center for Bundled customersQDedicated Help desk for FiOS customer



SBC laying ASDSL-2, Switched IP Video s Switched BB Video model vs Broadcast

QUp to 4 selectable streams from DSLAM to homeQChannel change latency higher than cable



SBC’s FTTX business model: not just video!

-$500

$0

$500

$1,000

$1,500

$2,000

$2,500

2006 2007 2008 2009 2010 2011 2012

Incremental EBITDA Forecast

OpEx

HSD

Video

• Winning back 50% of the High-speed Data (HSD) market + Opex justifies buildout• Pre-wire on new builds for FTTH deliver significant Opex reductions

• Working on customer-maintained ONT



Observationss Fixed-line: Duopoly with multimedia multi-

service value propositionQBoth Telco and Cable need wireless more than wireless needs themQDeployment strategy: Go for less Churn, or Less Opex?

s Enterprise: Pure-play enterprise carriers absorbed into incumbents

s Consumer: Early Screen-based convergence hits broadband subscribers first

s Content-centric 3G MVNO may be driver for FMC as streaming content over broadband goes mobile

D21 - 03/05/23

confidential


The present document contains information that remains the property of France Telecom. The recipient’s acceptance of this document implies his or her acknowledgement of the confidential nature of its contents and his or her obligation not to reproduce, transmit to a third party, disclose or use for commercial purposes any of its contents whatsoever without France Telecom’s prior writtenagreement.

Q&RMerci pour votre attention

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