european telecoms -- 1999 02 18

8/7/2019 European Telecoms -- 1999 02 18

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European Telecoms ReviewFebruary 1999

Dow Jones Stoxx Telecoms

200

250

300

350

400

450

500

550

17

-Feb

-98

17

-Apr

-98

17

-Jun

-98

17

-Aug

-98

17

-Oct

-98

17

-Dec

-98

17

-Feb

-99

DJ Stoxx Telecoms Relative to DJ Stoxx

Source: IMI, Reuters

The telecoms sector has outperformed the Dow Jones Stoxx

index by 3.7% over the past month.

We have changed our recommendation on Vodafone from

Hold to Buy and on Olivetti from Buy to Hold.

Data is expected to drive telecoms revenue growth, but the

local loop bottleneck is limiting the bandwidth available to

residential users.

Damien Chew, London, +44 171 454 4875

Stefanie Mollin, Milan, +39 02 7751 2253 18 February, 1999


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3

SUMMARY OF RECOMMENDATIONS

Telecom Italia HOLDPrice:

8.62

1999 YE Target:

7.49

Competition is increasing in the Italian market and Telecom Italia has toprepare for the fight ahead by cutting tariffs, reducing headcount andimproving service quality. In the next few months, we believe priceweakness could follow if market share losses are announced.

TIM BUY

Price: 5.46

1999 YE Target:

8.78

Pricing pressures should be offset by increasing usage, allowing TimsARPU to stabilise in 1999 (reversing the average 14% p.a. decline from1996-1998). Tim is trading at a discount to its peers on P/E and P/CEmultiples, as well as a discount to its sum-of-the-parts value.

Olivetti HOLD

Price: 2.98

1999 YE Target: 2.92

The recent strong share price performance caused us to downgrade ourrecommendation on Olivetti from Buy to Hold on 1 February.Continued buying by the Bell holding company should support the shareprice in the short-term.

Swisscom BUY

Price: SFr 553.0

1999 YE Target: SFr 600

After a 10.8% fall in the share price this past month, Swisscomsvaluation multiples are looking more realistic. This year, the market isexpected to focus on the impact of increased competition onSwisscoms business. With efficiency gains continuing to come

through, we believe the company is still attractive due to its defensivenature and as a hedge against the Euro.

Orange BUY

Price: 874p

1999 YE Target: 1,000p

Superior network quality and a strong brand name should allow Orangeto continue winning market share. Due to subscriber acquisition costs,last years strong subscriber growth should hold back improvements inprofitability. Results next week should reveal by how much.

Vodafone BUY

Price: 1,120p

1999 YE Target: 1,400p

Following the announcement of the merger with AirTouch, we

upgraded our recommendation on Vodafone from Hold to Buy on20 January. We believe Vodafone AirTouchs strong European positionshould create a solid platform from which to exploit global mobileopportunities. A key issue which Vodfone needs to resolve is how toimprove AirTouchs US domestic position against strong competitorslike AT&T and Sprint who have coast-to-coast network coverage.


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4

CALENDAR OF EVENTS

February

19 Friday Mannesmann 1998 preliminary results

22 Monday Netcom ASA 1998 preliminary results

25 Thursday Colt 1998 full year results

25 Thursday Orange 1998 full year results

25 Thursday Telefonica 1998 full year results

26 Friday Tele Danmark 1998 full year results

March

17 Wednesday France Telecom 1998 full year results

17 Wednesday Nokia AGM

31 Wednesday Mannesmann 1998 full year results

End March Swisscom 1998 full year results

April

1 Thursday UK Mobile Q1 99 subscriber figures

14 Wednesday Mannesmann Release of 1998 annual report

15 Thursday Deutsche Telekom 1998 full year results

15 Thursday Mannesmann Analysts meeting

23 Friday Tele Danmark AGM

May

5 Wednesday CWC 1998/9 preliminary results

14 Friday France Telecom Q1 1999 revenues

20 Thursday France Telecom AGM

24 Monday Energis 1998/9 preliminary results

End May Swisscom Q1 1999 results

Source: Companies, Reuters


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5

DATA SERVICES - BREAKING THE LOCAL LOOP BOTTLENECK

The local loop bottleneck Using the traditional telephone network to make a normal phone callgenerally yields good results. Using the same 50-year old technology toaccess the Internet is often frustrating and, at the best of times, painfullyslow. The bottleneck holding up the flow of information from the WorldWide Web is the limited capacity of the twisted pair of copper wiresrunning from the local telephone exchange to our homes the localloop.

The mass-market for

high-speed data

We believe the commercial potential for high speed data services ishuge. In most developed countries, the amount of data traffic carried ontelecoms networks is likely to surpass the amount of voice traffic thisyear. While corporate users have access and choice in high bandwidt hdata services via direct fibre optic connections, the cost of this kind ofbroadband access is unattractive to residential users and smallbusinesses. The main driver of demand for high speed data connectionsamongst residential customers and SMEs has been the Internet. Withthe number of European households connected to the Internet expectedby the industry to more than triple by the year 2003, demand is set tocontinue increasing.

Figure 1: Internet Penetration of Western Europe (1998, 2005)

Swede

n UKFra

nce

German

ySpa

in Italy

Rest of

W.Eur

ope0%

10%

20%

30%

40%

50%

60%

1998 2005E

Source: Ovum

Alternative technologies The current, widely available digital alternative to existing analoguedata access is ISDN. Developed over 25 years ago, it is only around twotimes faster than the fastest analogue connection. The incumbentoperators, which dominate the local loop, are expected to vastlyimprove the capacity of their local loops by upgrading their existingcopper networks with xDSL technologies (UDSL, ADSL, VDSL). Theyare being spurred on by competition from alternative telecomscompanies. The largest threat comes from cable TV operators who areupgrading their networks to allow their customers using cable modemsto access the Internet more than 10 times faster than at present (see

Table 1).


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6

Table 1: Data Services - Local Loop TechnologiesDownstream

Speed1

UpstreamSpeed

2Shared withother users?

Maximumdistance

Comments

Analogue Up to 56.6 kb/s Up to 36.6 kb/s No Unlimited Cheap but slowISDN 128 kb/s 128 kb/s No Unlimited Proven technology,

equipment widely available,limited bandwidth

Broadband wireless(LMDS

3)

Up to 30 Mb/s Up to 3 Mb/s Yes 3-5 km;requires lineof sight

Not reliant on existinginfrastructure, requires lineof sight; high end-userequipment cost

Digital SatelliteService

Up to 40 Mb/s Nil No Unlimited;requires lineof sight to thesky

Wide geographical reach,distance independent; needsterrestrial return path

Digital Power Line Up to 10 Mb/s

average of 1 Mb/sper user

Up to 10 Mb/s

average of 1Mb/s per user

Yes 300m Sends signals over existing

electricity cables into thehome; relatively unproventechnology

Cable modems Up to 30 Mb/s,average of 500 kb/s- 1 Mb/s per user

Up to 10 Mb/s,average of 300 500 kb/s peruser

Yes Unlimited Proven technology, aimedmainly at consumers

UDSL (ADSL Lite)

Universal DigitalSubscriber Line

Up to 1.5 Mb/s Up to 512 kb/s No 5.5 km ITU standard, should befinalised by June 99. Easierto install than ADSL - novoice/data splitter required

ADSL

Asymmetric DigitalSubscriber Line

1.5-8 Mb/s (distancedependent)

Up to 1 Mb/s No 5.5 km Fast, Requires voice/datasplitter

VDSL

Very High-speedDigital SubscriberLine

Up to 52 Mb/s(distancedependent)

Up to 1.6 Mb/s No 300m - 1.6km

Fast; No set standards yet,still under development

Source: IMI, various publications; Note: (1) Downstream = user receiving data, (2) Upstream = user sending data; (3)

LMDS = Local to Multi-point Distribution Services

In the UK, cable companies Telewest, NTL and Cable & WirelessCommunications are expected to launch high speed Internet accessservices later this year. The number of digital set-top boxes containingcable modems in the UK will reach 290,000 by the end of next year,increasing to one million by the end of 2002, according to Datamonitor.BTs ADSL trials currently running in London are due to end in March

and we expect a commercial rollout to follow.

United Pan Europe Communications (UPC), the Dutch company which just completed its IPO earlier this month, looks set to compete inEurope where most cable operators are owned by the incumbenttelecoms operators.

Equipment manufacturers are also gearing up for this next phase ofinvestment. Earlier this week Nokia announced a US$ 125m deal to buyUS-based Diamond Lane Communications Corp., which specialises inxDSL equipment.


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7

Mobile data A viable

alternative to the fixed

network?

Mobile operators are already taking market share in voice traffic awayfrom the fixed networks. With improved data capabilities, mobile

networks might get a decent share of data traffic as well. Within 12-18months, mobile operators should be able to offer GPRS data services atISDN-type speeds (see Figure 2). GPRS is a form of packet switcheddata, which makes interfacing it with Internet Protocol standards veryeasy. Within two years, mobile networks should be able to offer speedsclose to 400 kbit/s, and with the flexibility of mobility as well. Fixednetwork operators should be wary.

Figure 2: Evolution of Data over GSM

1994 1999 2000 2001 2002 2003

GSM9.6 kb/s

SMS160 characters

GPRS115 kb/s

HSCD57.6 kb/s

EDGE384 kb/s

UMTS2 Mb/s

Transm

issio

nS

pee

d

Source: IMI

A flurry of wireless

Internet, data deals

In recent weeks, there have been a host of deals in the wireless dataarena, signalling the rapid convergence of data and voice services inwireless communications:

BT and Microsoft: to develop wireless Internet and data servicesoutside North America. Microsoft already has a deal withQualcomm in North America.

Motorola and US computer-networking giant Cisco Systems: toinvest US$ 1bn to develop wireless Internet standards. On Monday,

Omnitel and Cisco said they had also agreed to develop an Internetwireless service together.

US wireless operator Nextel, software companies Netscape andUnwired Planet: to offer Internet access and data services toNextels customers.

Qualcomm and US West: to test high speed internet access viacellular networks.


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8

Regulation is just a step

behind

The potential for data is huge, but there is regulatory risk. As operatorsare weighing up their options for broadband access, so are the

regulators. In 1999, EU telecommunications law is to be reviewed.Local loop unbundling is likely to high on the agenda. OFTEL, the UKregulator, has already launched a consultation process on competitiveaccess to high bandwidth services.

We believe there are two main possible regulatory alternatives:

Forcing the incumbents to unbundle the local loop and allow theircompetitors direct access to the copper infrastructure would be oneapproach. New entrants could then install their own xDSL modems(or similar equipment) at the local exchange to offer their customersstandard telephony and high bandwidth data services.

Indirect access is the other major alternative. There are severalpossible variations but essentially the incumbent would run the highbandwidth infrastructure and charge new entrants a usage relatedfee. This would allow the incumbent to continue to provide standardtelephony services.

The regulator has to be careful to balance the benefits of competitionwhile maintaining an incentive for operators to invest in newinfrastructure. Last month, the US regulator, the FCC, declined to allowInternet service providers, like America OnLine, open access to thebroadband infrastructure of cable companies. This removed the cloud ofuncertainty hanging over AT&Ts takeover of cable company TCI, and

gives cable companies the incentive to invest in their networks.


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9

SECTOR ROUND-UP

Telecom Italia Telecom Italia proposed to cut fixed-mobile charges by an average10%. The Italian regulator is likely to rule on the proposal by 1 March.

Tim Although Wind announced a 15% average tariff cut against Tim andOmnitel, we confirm our expectations of only an average 9% decline inoutgoing average revenue per minute for Tim.

Olivetti Infostrada customer figures reached 1.1m at the end of January,revealing stronger than expected growth. This pace of growth is likelyto be unsustainable as Wind is planning to enter the market on 1 March.Infostradas usage per customer (7.1 minutes per day) is still below ourestimate of 10.8 million minutes per day for the full-year 1999.

British Telecom BTs 3Q 1998/99 results exceeded market expectations. Profitabilitywas driven by higher traffic volumes in its core business, mainlycoming from Internet and fixed-to-mobile calls. Earlier, BT announceda 5bn investment in its UK data network and a deal with Microsoft todevelop mobile data and Internet services. To top it all, the EuropeanCommission said that the companys joint venture with AT&T is likelyto be cleared.

Vodafone After starting 1999 with an aggressive takeover bid, Vodafones mergerwith AirTouch was confirmed, creating the worlds largest mobileoperator by market capitalisation. AirTouchs 4Q 1998 profits rose 34%and the US domestic business performance was better than expected.

Orange Orange topped an independent UK moble network performance surveycommissioned by OFTEL, the UK regulator.

Swisscom Swisscom announced 1999 interconnection rates for its competitors26% lower than the initial June 1998 charges, broadly in line withexpectations. The company has also announced a usage-related discountscheme for residential users called Joker.

Deutsche Telekom The German regulator announced that Deutsche Telekom could chargeits competitors DM 25.4 a month to use its local phone connections.Germany is the first country in Europe to allow local loop unbundling(see page 8).

France Telecom 1998 revenues were up 5.2%, disappointing the market. Revenue

growth was driven primarily by the mobile business, which sawcustomers increase by 82% last year and revenue increase by 44%.

Telefonica Telefonica is expected to post a strong rise in 1999 profits, 15.3%(consensus estimates) despite an expected decline of c. 30% in theprofits of Telefonicas international arms, TISA.

Equipment

manufacturers

Nokias 1998 results revealed a net profit increase of 72% to 584m,driven mainly by mobile phone and equipment sales. Ericsson unveiledthe worlds slimmest phone at its results meeting, with profits falling3%, less than expected, to

535m. Alcatel showed it was stillstruggling with 1998 second half profits increasing 7.7%, but before a 390m charge to cut costs. According to Dataquest, worldwide sales ofcellular phones rose 51% to 163m units last year, with Nokias marketshare doubling to 23% to take top spot.


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SECTOR PERFORMANCE

Table 2: Leaders and LaggardsStock Closing Absolute Performance Rel to Local Market Relative to DJ Stoxx

(%) Price -1m -3m -12m -1m -3m -12m -1m -3m -12m

5 Strongest PerformersMobistar

76.9 39.7 90.8 - 37.8 68.1 - 39.0 73.0 -Panafon Dr 9,695.0 17.6 - - -1.2 - - 17.5 - -British Telecom 1,089.5p 16.8 32.7 84.7 13.2 20.7 75.4 18.2 22.9 63.0Colt Telecom 1,210.0p 13.1 69.9 336.6 9.6 54.6 314.8 14.5 57.4 285.3Energis 1,587.5p 12.6 82.5 334.3 9.2 66.0 312.6 14.0 69.0 283.3

5 Weakest PerformersKPN 44.70 -10.7 33.1 72.1 -8.2 29.4 66.1 -11.2 20.7 57.6Swisscom SFr 553.0 -10.8 15.6 - -9.2 10.9 - -11.2 6.2 -Tele Danmark DKr 800.0 -11.1 11.4 73.9 -8.1 11.7 98.8 -11.5 1.6 61.3

Netcom AB 'B' SKr 298.0 -12.4 -4.0 54.0 -13.5 -10.5 50.9 -10.8 -7.5 39.6STET Hellas ADS US$ 38.94 -14.7 29.8 - -13.3 20.8 - -15.1 17.4 -Source: IMI, Reuters; Note: Ranked by absolute performance over the past month. See Page 17 for complete performancetables.

Gainers British Telecoms share price jumped 10% on the day better thanexpected 3Q 1998/9 results were announced. The numbers show thatthe UK market is showing stronger than expected growth, pushing Coltand Energis higher. Mobistar was up after the company said mobile usein Belgium was growing faster than expected.

Losers KPN lost ground after the Dutch regulator said recent proposed pricecuts were not enough. Swisscom and Tele Danmark shares wereamongst the worst hit by profit taking as investors evaluatedcompetitive pressures in the sector.

Table 3: Trend ReversalsStock Closing Absolute Performance Rel to Local Market Relative to DJ Stoxx

(%) Price -1m -3m -12m -1m -3m -12m -1m -3m -12m

Recent OutperformersPortugal Telecom 44.80 9.3 16.5 -5.3 11.0 13.9 -12.1 8.7 5.6 -13.3Siemens 59.7 6.9 1.8 -0.2 8.8 -1.6 -4.8 6.3 -7.6 -8.6

Recent UnderperformersTelefonica

39.90 -0.3 9.9 46.0 -3.2 0.4 21.5 -0.8 -0.3 33.6C&W Comms. 717.0p -1.0 42.5 116.0 -4.1 29.7 105.1 0.2 32.0 90.6Cable & Wireless 861.0p -1.5 23.7 34.5 -4.5 12.5 27.8 -0.3 14.6 18.7TIM (Ord)

5.46 -6.0 1.1 22.8 -5.7 -7.7 6.2 -6.5 -8.3 12.4Europolitan SKr 840.0 -4.8 18.6 119.9 -6.0 10.6 115.5 -3.0 14.4 99.3Olivetti (Ord) 2.98 -7.8 38.4 220.8 -7.5 26.4 177.5 -8.3 25.5 193.7Tele Danmark DKr 800.0 -11.1 11.4 73.9 -8.1 11.7 98.8 -11.5 1.6 61.3Telecel 170.1 -9.5 9.6 38.9 -8.1 7.2 29.0 -10.0 -0.6 27.2KPN 44.70 -10.7 33.1 72.1 -8.2 29.4 66.1 -11.2 20.7 57.6Orange 874.0p -5.4 46.2 155.6 -8.3 33.0 142.8 -4.2 35.4 125.5Netcom AB 'B' SKr 298.0 -12.4 -4.0 54.0 -13.5 -10.5 50.9 -10.8 -7.5 39.6Source: IMI, Reuters; Note: Companies for which performance relative to the local market over the past month has changed

direction relative to its twelve month performance relative to the local market. Ranked by relative performance over the past

month. See Page 17 for complete performance tables

Sub-sector performance The incumbents gained 5.4%, with British Telecom, Deutsche Telekomand Telecom Italia performing the best. With the exception of Colt and

Energis, it was quiet amongst the new entrants and mobile operators asthe market reassessed the telecoms sectors position after strong gains atthe beginning of the year (see Table 4).


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Table 4: Contribution to Sector PortfolioStock Price Market Value Abs Perf (

) Contribution to Perf of

17 Feb 99 Current Weight -1m YTD Sector Subsector

( bn) (%) (%) (%) -1m YTD -1m YTD

Incumbents

British Telecom 1,089.5p 102.45 11.2 18.8 24.0 143.1 93.5 246.0 152.7

Deutsche Telekom 36.20 99.31 10.8 11.1 29.0 72.7 129.4 107.2 225.0

France Telecom 75.8 77.67 8.5 1.7 12.0 -15.5 -12.0 -60.2 -48.7

KPN

44.70 21.45 2.3 -10.7 4.8 -37.4 -19.6 -82.5 -45.7

OTE Dr 7,900.0 12.40 1.3 -0.5 8.4 -5.6 -6.5 -15.9 -16.8

Portugal Telecom 44.80 8.52 0.9 9.3 14.7 4.8 0.9 6.4 -0.9

Sonera 16.13 11.65 1.3 0.8 6.6 -3.5 -8.3 -11.4 -20.3

Swisscom SFr 553.0 25.47 2.8 -10.7 -3.0 -44.4 -47.5 -98.1 -102.4

Tele Danmark DKr 800.0 11.65 1.3 -11.1 -6.2 -20.9 -26.7 -46.1 -56.7

Telecom Italia (Ord) 8.62 45.32 4.9 9.0 18.7 24.3 21.2 31.2 27.6

Telecom Italia (Sav) 5.55 12.02 1.3 -4.0 3.7 -10.4 -12.5 -25.2 -28.7

Telefonica 39.90 41.71 4.5 -0.3 5.2 -17.9 -36.1 -51.4 -85.0

Subsector Total 469.61 51.1 5.4 15.3 89.3 75.9 0.0 0.0Other Fixed/Integrated

Cable & Wireless 861.0p 30.15 3.3 0.3 20.0 -11.0 17.7 -36.8 -4.1

C&W Comms. 717.0p 15.54 1.7 0.7 34.6 -4.8 26.4 -13.9 116.2

Colt Telecom 1,210.0p 10.43 1.1 15.1 39.1 11.3 20.8 83.5 99.2

Energis 1,587.5p 3.46 0.4 14.6 21.6 3.6 2.5 26.7 2.7

Equant

65.9 13.02 1.4 -3.1 11.1 -9.8 -3.1 -48.1 -75.3

Mannesmann

113.3 44.17 4.8 2.5 14.8 -5.0 5.2 16.2 -147.5

Mobilcom 376.0 5.24 0.6 6.2 38.8 1.4 10.4 14.6 49.1

Netcom AB 'B' SKr 298.0 2.87 0.3 -10.3 -3.6 -4.8 -5.6 -27.7 -50.0

Netcom AB 'A' SKr 290.0 0.59 0.1 -11.7 -4.7 -1.1 -1.2 -6.4 -10.9

Olivetti (Ord)

2.98 8.06 0.9 -7.8 0.1 -10.9 -11.9 -60.5 -114.5

Olivetti (Sav) 2.68 0.21 0.0 -10.1 -2.8 -0.4 -0.4 -2.0 -3.5

Olivetti (Pref) 2.99 0.05 0.0 -8.6 2.6 -0.1 -0.1 -0.4 -0.6

Telewest 266.0p 8.28 0.9 12.6 58.0 7.2 25.3 54.7 139.1Subsector Total 142.06 15.5 2.0 20.3 -24.3 86.1 0.0 0.0

Mobile

Europolitan SKr 840.0 3.85 0.4 -2.5 12.8 -2.6 -0.3 -9.8 11.9Mobistar

76.9 4.76 0.5 39.7 78.7 13.4 18.9 96.6 137.3Netcom ASA NOK 235.0 1.28 0.1 4.2 22.1 0.1 1.0 2.9 10.8

Orange 874.0p 15.23 1.7 -3.7 28.9 -12.6 19.7 -53.0 179.9Panafon Dr 9,695.0 7.73 0.8 18.1 32.1 10.4 11.8 82.3 102.9Securicor 596.3p 5.22 0.6 5.5 21.9 1.0 3.9 16.8 43.3STET Hellas ADS US$ 38.94 2.39 0.3 -14.7 19.4 -5.6 1.3 -31.7 16.6Telecel

170.1 3.66 0.4 -9.5 -2.3 -5.8 -6.5 -30.6 -28.1TIM (Ord)

5.46 36.24 3.9 -6.0 -13.4 -40.3 -122.8 -192.7 -652.2

TIM (Sav) 3.31 5.18 0.6 -13.0 -17.4 -10.8 -21.1 -60.1 -116.0Vodafone 1,120.0p 50.47 5.5 6.7 18.2 15.8 21.6 200.3 317.7Millicom US$ 29.88 1.22 0.1 -18.4 -15.0 -3.6 -4.5 -21.1 -24.1

Subsector Total 137.24 14.9 0.9 8.0 -40.6 -77.0 0.0 0.0

Equipment

Alcatel 93.4 18.55 2.0 -10.2 -10.5 -31.2 -54.3 -152.5 -233.0

Ericsson 'B' SKr 206.0 41.33 4.5 10.4 14.0 27.7 1.5 179.9 115.5

Ericsson 'A' SKr 214.5 3.95 0.4 9.5 9.3 2.3 -1.7 15.4 1.6

Nokia 'A'

116.5 56.55 6.2 -1.1 11.7 -29.3 -10.2 -113.4 94.2

Nokia 'K'

116.8 14.03 1.5 0.0 12.0 -5.6 -2.1 -19.0 25.4

Siemens 59.7 34.93 3.8 6.9 8.4 11.7 -18.2 89.6 -3.7

Subsector Total 169.34 18.4 2.3 8.6 -24.3 -85.0 0.0 0.0

Sector Total 918.26 100.0 3.6 13.6 0.0 0.0 0.0 0.0

Source: IMI, Reuters; Note: Contribution to performance is in basis points. Portfolio weighting shown is based on current

market capitalisation. Calculation assumes shares currently in issue were in issue throughout the period.


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VALUATION MULTIPLES

Table 5: Ranked Valuation Multiples1999E P/E 1999E P/CE 1999E Dividend Yield (%)

1 OTE 15.7 1 Telefonica 6.7 1 OTE 3.19

2 Portugal Telecom 17.5 2 Portugal Telecom 7.5 2 Portugal Telecom 2.83

3 Swisscom 21.7 3 Telecom Italia 7.8 3 Tele Danmark 2.50

4 Telecom Italia 22.2 4 Deutsche Telekom 8.6 4 KPN 2.37

5 KPN 24.2 5 KPN 9.1 5 Swisscom 2.23

6 Cable & Wireless 24.7 6 Tele Danmark 9.6 6 TIM 2.19

7 Tele Danmark 24.8 7 OTE 10.2 7 British Telecom 2.11

8 Telefonica 26.3 8 France Telecom 10.7 8 Deutsche Telekom 1.69

9 Netcom ASA 26.6 9 Swisscom 11.5 9 Telecel 1.62

10 TIM 28.4 10 C&W Comms 12.2 10 Telecom Italia 1.46

11 British Telecom 29.0 11 Olivetti 12.6 11 France Telecom 1.42

12 Telecel 30.4 12 British Telecom 13.0 12 Telefonica 1.23

13 France Telecom 30.7 13 Netcom ASA 16.1 13 Europolitan 1.12

14 Europolitan 31.9 14 Telecel 16.2 14 Mobilcom 0.85

15 Netcom AB 32.7 15 TIM 18.7 15 Vodafone 0.80

16 Sonera 35.4 16 Mannesmann 19.8 16 Netcom AB 0.67

17 Olivetti 35.4 17 Netcom AB 20.7 17 Mannesmann 0.59

18 Deutsche Telekom 42.1 18 Europolitan 24.7 18 Securicor 0.36

19 Securicor 44.3 19 Securicor 24.8 19 C&W Comms 0.06

20 C&W Comms 46.2 20 Orange 25.7 20 Olivetti 0.02

21 Vodafone 52.7 21 Vodafone 32.2 21 Colt Telecom 0.00

22 Mannesmann 54.0 22 Mobilcom 80.0 22 Energis 0.00

23 Mobilcom 56.7 23 Energis 87.9 23 Mobistar 0.00

24 Netcom ASA 0.00

25 Orange 0.00

26 Telewest 0.00

Average 32.8 Average 21.1 Average 1.13

1999 E EV/EBITDA 199 8E EV/EB ITDA/CAGR 1998 -00 1 998E PE/CAGR 1998 -00

1 Telecom Italia 6.5 1 Olivetti 0.67 1 Netcom ASA 0.70

2 Swisscom 9.5 2 Telecom Italia 0.72 2 Netcom AB 0.99

3 British Telecom 10.2 3 Orange 0.76 3 Portugal Telecom 1.17

4 TIM 16.7 4 TIM 0.98 4 Europolitan 1.30

5 Olivetti 19.7 5 Vodafone 1.15 5 Securicor 1.66

6 Vodafone 21.9 6 British Telecom 1.22 6 TIM 1.75

7 Orange 28.9 7 Swisscom 1.93 7 Telefonica 1.84

8 Telecel 1.88

9 Swisscom 1.90

10 Tele Danmark 2.06

11 Telecom Italia 2.2412 Sonera 2.35

13 British Telecom 2.71

14 Vodafone 3.02

15 France Telecom 3.07

16 Mannesmann 3.10

17 Deutsche Telekom 3.10

18 Olivetti 3.58

19 KPN 6.08

Average 16.2 Average 1.06 Average 2.34

Source: IMI, Reuters, The Estimate Directory, IBES; Note: Companies have been omitted from IMI rankings where data is

unavailable or not meaningful. See Page 18 for complete valuation tables.


13/22

Price Price Rel to Volume (m)

(LHS) Local Bencmark (RHS) Source: IMI, Reuters, The Estimate Directory, IBES

13

EUROPEAN TELECOMS SELECTED COMPANIES

IncumbentsBritish TelecomUK 1,089.5p

Mkt. Cap:

102,373m

Year Net Adj Net P/ Div EV/ EV/

End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales

Mar m p p p

1997 2,077 33.2 68.9 55.4 32.8 15.8 5.1% 12.9 4.8

1998 1,706 35.2 72.5 19.1 31.0 15.0 1.8% 11.8 4.6

1999E 2,875 32.9 74.8 20.5 33.1 14.6 1.9% 11.1 4.3

2000E 2,451 37.6 83.6 23.0 29.0 13.0 2.1% 10.2 4.0

2001E 2,727 41.4 92.2 25.4 26.3 11.8 2.3% 9.4 3.7

Source: IMI estimates

Performance (%) 1wk 1m 3m 6m 12m YTD

Absolute 20.0 16.8 32.7 33.0 84.7 20.3

Rel. to FTSE All Share 14.9 13.2 20.7 22.5 75.4 15.6Rel. to DJ Stoxx (

) 18.8 18.2 22.9 30.0 63.0 22.0

Deutsche TelekomGermany

36.20

Mkt. Cap:

105,478m



Dec m

1996 - - - - - - - - -

1997 - 0.7 4.4 0.6 49.6 8.3 1.7% - 4.2

1998E - 0.8 4.1 0.6 44.1 8.9 1.7% - 4.1

1999E - 0.9 4.2 0.6 42.1 8.6 1.7% - 4.1

2000E - 1.1 4.2 0.7 33.8 8.5 2.0% - 3.9

Source: Consensus estimatesPerformance (%) 1wk 1m 3m 6m 12m YTD

Absolute 4.6 11.1 51.3 41.6 97.3 29.0

Rel. to Dax Composite 4.0 13.0 46.1 56.6 88.1 31.6

Rel. to DJ Stoxx (

) 2.3 10.5 37.2 40.1 80.6 26.9

France TelecomFrance

75.8

Mkt. Cap:

79,664m



Dec m

1996 - - - - - - - - -

1997 - 2.3 6.3 1.0 33.4 12.0 1.3% - 4.0

1998E - 2.3 6.7 1.0 33.5 11.4 1.3% - 3.91999E - 2.5 7.1 1.1 30.7 10.7 1.4% - 3.6

2000E - 2.8 7.5 1.2 27.3 10.2 1.6% - 3.4

Source: Consensus estimates


Absolute -0.9 1.7 23.4 12.5 69.6 12.0

Rel. to SBF250 -0.7 3.1 12.7 13.5 42.1 10.8

Rel. to DJ Stoxx (

) -3.1 1.2 11.9 11.3 55.2 10.2

0

200

400

600

800

1,000

1,200

17/02/98

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35

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14

Swisscom BUYSwitzerland SFr 553.0

Mkt. Cap: 25,460m 1999 YE Target: SFr 600.0Year Net Adj Net P/ Div EV/ EV/


Dec SFr m SFr SFr SFr

1996 1,830 - - - - - - 10.8 4.8

1997 -415 -6.3 46.2 19.4 -87.9 12.0 3.5% 22.3 4.7

1998E 1,595 24.3 47.9 10.9 22.7 11.5 2.0% 10.1 4.5

1999E 1,871 25.4 48.3 12.3 21.7 11.5 2.2% 9.5 4.4

2000E 2,244 30.5 53.3 14.9 18.1 10.4 2.7% 9.2 4.2



Absolute -1.4 -10.8 15.6 - - -3.8

Rel. to SPI -3.4 -9.2 10.9 - - -2.8

Rel. to DJ Stoxx (

) -3.7 -11.2 6.2 - - -4.6

Telecom Italia (Ord) HOLDItaly

8.62

Mkt. Cap:

57,274m 1999 YE Target:

7.49



Dec m

1996 1,345 0.2 0.9 0.1 44.3 9.1 1.0% 8.6 4.2

1997 1,347 0.2 1.0 0.1 40.2 8.5 1.2% 7.9 3.8

1998E 2,383 0.4 1.1 0.1 24.3 8.0 1.5% 7.2 3.6

1999E 2,604 0.4 1.1 0.1 22.2 7.8 1.5% 6.5 3.4

2000E 2,980 0.4 1.2 0.1 19.8 7.4 1.6% 6.0 3.2



Absolute 7.1 9.0 30.9 12.3 31.6 18.7

Rel. to BCI 3.9 9.3 19.6 14.5 13.8 22.6Rel. to DJ Stoxx (

) 4.6 8.4 18.7 11.1 20.5 16.8

TelefonicaSpain

39.90

Mkt. Cap:

41,188m



Dec m

1996 - - - - - - - - -

1997 - 1.1 5.4 0.6 35.0 7.4 1.4% - 3.8

1998E - 1.3 5.7 0.6 30.7 7.0 1.5% - 3.3

1999E - 1.5 6.0 0.5 26.3 6.7 1.2% - 3.0

2000E - 1.8 6.1 0.5 22.5 6.6 1.2% - 2.9



Absolute 0.5 -0.3 9.9 -4.4 46.0 5.2

Rel. to Madrid General -0.9 -3.2 0.4 -4.5 21.5 4.9

Rel. to DJ Stoxx (

) -1.8 -0.8 -0.3 -5.4 33.6 3.5

0

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15

Other Fixed/Integrated

Cable & WirelessUK 861pMkt. Cap:

28,550m



Mar m p p p

1997 - - - - - - - - -

1998 - 57.0 87.0 12.3 15.1 9.9 1.4% - 3.2

1999E - 32.7 - - 26.3 - - - -

2000E - 34.9 - - 24.7 - - - -

2001E - - - - - - - - -



Absolute 11.0 -1.5 23.7 13.9 34.5 16.5

Rel. to FTSE All Share 6.4 -4.5 12.5 4.9 27.8 12.0

Rel. to DJ Stoxx (

) 9.9 -0.3 14.6 11.3 18.7 18.1

MannesmannGermany

113.3

Mkt. Cap:

45,612m



Dec m

1996 - - - - - - - - -

1997 - 1.33 3.84 0.51 85.2 29.5 0.5% - 2.3

1998E - 1.70 4.74 0.60 66.6 23.9 0.5% - 2.0

1999E - 2.10 5.73 0.67 54.0 19.8 0.6% - 1.9

2000E - 2.51 6.44 0.82 45.1 17.6 0.7% - 1.8



Absolute 3.9 2.5 30.8 30.4 115.5 14.8

Rel. to Dax Composite 3.3 4.3 26.3 44.2 105.5 17.1

Rel. to DJ Stoxx (

) 1.6 2.0 18.6 28.9 97.3 13.0

Olivetti (Ord) HOLDItaly

2.98

Mkt. Cap:

8,553m 1999 YE Target:

2.92



Dec m

1996 -473 -0.1 -0.0 - -22.9 -86.2 - NM 6.8

1997 8 0.0 0.1 - NM 23.6 - NM 8.5

1998E 125 0.0 0.2 - 83.9 18.4 - 37.0 8.1

1999E 290 0.1 0.2 0.0 35.4 12.6 0.0% 19.7 5.3

2000E 186 0.1 0.2 0.0 55.1 12.5 0.9% 15.3 4.6



Absolute -4.5 -7.8 38.4 46.4 220.8 0.1

Rel. to BCI -7.4 -7.5 26.4 49.3 177.5 3.4

Rel. to DJ Stoxx (

) -6.7 -8.3 25.5 44.8 193.7 -1.6

0

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16

Mobile

Orange BUYUK 874p

Mkt. Cap:

14,813m 1999 YE Target: 1,000p



Dec m p p p

1996 -229 -20.8 -3.6 - -42.1 NM - -83.4 16.9

1997 -139 -11.5 10.2 - -75.9 85.5 - NM 11.5

1998E -109 -9.1 19.7 - -96.5 44.3 - 60.7 8.3

1999E -58 -4.8 34.0 - NM 25.7 - 28.9 6.4

2000E 1 0.1 41.7 - NM 21.0 - 18.7 5.4



Absolute 7.1 -5.4 46.2 20.6 155.6 25.1

Rel. to FTSE All Share 2.6 -8.3 33.0 11.0 142.8 20.3

Rel. to DJ Stoxx (

) 6.0 -4.2 35.4 17.8 125.5 26.8

TIM (Ord) BUYItaly

5.46

Mkt. Cap:

38,798m 1999 YE Target:

8.78



Dec m

1996 479 0.06 0.12 0.03 8 9.9 45.1 0.5% 53.0 9.4

1997 802 0.10 0.16 0.04 5 4.8 33.8 0.8% 27.8 7.3

1998E 1,265 0.15 0.23 0.07 35.5 23.6 1.3% 20.6 5.7

1999E 1,579 0.19 0.29 0.12 28.4 18.7 2.2% 16.7 4.6

2000E 1,826 0.22 0.32 0.14 24.5 16.8 2.6% 14.0 4.2


Performance (%) 1wk 1m 3m 6m 12m YTDAbsolute 2.1 -6.0 1.1 -12.2 22.8 -13.4

Rel. to BCI -0.9 -5.7 -7.7 -10.5 6.2 -10.5

Rel. to DJ Stoxx (

) -0.2 -6.5 -8.3 -13.2 12.4 -14.8

Vodafone BUYUK 1,120p

Mkt. Cap:

48,409m 1999 YE Target: 1,400p



Mar m p p p

1997 364 11.3 16.3 4.8 9 9.3 68.7 0.4% 49.4 18.4

1998 419 13.0 20.8 5.5 8 5.9 54.0 0.5% 37.1 13.0

1999E 596 17.7 28.2 7.7 63.5 3 9.6 0.7% 27.4 9.5

2000E 664 21.3 34.8 8.9 52.7 3 2.2 0.8% 21.9 7.82001E 811 25.8 41.9 11.4 43.3 26.7 1.0% 17.9 6.5



Absolute 5.3 4.8 33.7 43.1 108.3 14.8

Rel. to FTSE All Share 0.8 1.6 21.6 31.8 97.8 10.3

Rel. to DJ Stoxx (

) 4.2 6.1 23.8 39.9 83.8 16.3

0

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17/22


18/22


19/22

Company Rec. Price Mkt Cap Net Debt/ EV/ EV/ P/E Price / EV/ EV/ P/E P

17-Feb m Mkt Cap 1997 1998E 1999E 2000E EBITDA OpFCF CEPS EBITDA OpFCF

Incumbents

British Telecom 1,089.5p 102,373 3.2% 1.8% 1.9% 2.1% 2.3% 1.45 1.62 3.60 1.70 1.04 NM 2.08

Deutsche Telekom 36.20 105,478 36.4% 1.7% 1.7% 1.7% 2.0% - - - - - - -

France Telecom 75.8 79,664 19.3% 1.3% 1.3% 1.4% 1.6% - - - - - - -

KPN

44.70 20,207 10.0% 1.9% 2.3% 2.4% 2.8% - - - - - - - OTE Dr 7,900.0 13,225 -0.9% 2.8% 2.8% 3.2% - - - - - - - -

Portugal Telecom 44.80 8,531 11.1% 2.0% 2.4% 2.8% 3.2% - - - - - - -

Sonera 16.13 10,830 -0.4% - 0.6% - - - - - - - - -

Swisscom BUY SFr 553.0 25,460 15.9% 3.5% 2.0% 2.2% 2.7% 1.08 NM NM 2.07 2.36 1.26 1.68

Tele Danmark DKr 800.0 12,002 0.0% 2.3% 2.4% 2.5% 2.6% - - - - - - -

Telecom Italia HOLD 8.62 57,274 14.2% 1.2% 1.5% 1.5% 1.6% 0.92 0.90 2.08 1.71 0.74 0.81 2.19

Telefonica 39.90 41,188 30.3% 1.4% 1.5% 1.2% 1.2% - - - - - - -

Average 12.6% 2.0% 1.8% 2.1% 2.2% 1.15 1.26 2.84 1.83 1.38 1.03 1.98


Cable & Wireless 861p 28,550 15.7% 1.4% - - - - - - - - - -

C&W Comms 717p 15,353 23.4% - 0.0% 0.1% - - - NM - - - -

Colt Telecom 1,210p 9,249 -0.2% 0.0% 0.0% 0.0% - - - NM - - - NM

Energis 1,587.5p 3,455 3.1% 0.0% 0.0% 0.0% - - - - - - - NM

Equant 65.9 14,988 1.3% 0.0% - - - - - - - - - NM

Mannesmann 113.3 45,612 0.6% 0.5% 0.5% 0.6% 0.7% - - - - - - -

Netcom AB SKr 298.0 3,571 11.3% 0.0% 0.0% 0.7% 1.0% - - NM - - - - Olivetti HOLD 2.98 8,553 11.8% 0.0% 0.0% 0.0% 0.9% NM NM NM 1.57 0.92 NM 6.42

Telewest 266p 7,746 26.1% 0.0% 0.0% 0.0% - - - - - - - -

Average 9.7% 0 .1% 0.1% 0.2% 0.9% - - - 1.57 0.92 - 6.42

Pure Mobile

Europolitan SKr 840.0 3,655 1.2% 0.5% 0.7% 1.1% 1.5% - - - - - - -

Mobistar 76.9 4,755 6.8% - 0.0% 0.0% 0.0% - - - - - - -

Netcom ASA NOK 235.0 1,330 17.8% 0.0% 0.0% 0.0% 0.0% - - - NM - - -

Orange BUY 874p 14,813 12.6% 0.0% 0.0% 0.0% 0.0% NM NM NM 1.93 1.05 NM NM

Panafon Dr 9,695.0 8,041 1 .8% - - - - - - - - - - -

STET Hellas US$ 38.94 2,923 6.3% - - - - - - NM - - - -

Telecel 170.1 3,913 1.7% 0.9% 1.2% 1.6% 2.1% - - - - - - -

TIM BUY 5.46 38,798 -0.9% 0.8% 1.3% 2.2% 2.6% 1.53 1.20 2.55 1.81 1.45 1.00 2.33

Vodafone BUY 1,120p 48,409 3.8% 0.5% 0.7% 0.8% 1.0% 1.55 2.74 3.71 2.37 1.08 1.77 2.51

Average 5.7% 0.5% 0.6% 0.8% 1.0% 1.54 1.97 3.13 2.04 1.20 1.38 2.42

Average - All Operators 9.6% 1.0% 1.0% 1.2% 1.6% 1.31 1.61 2.99 1.88 1.24 1.21 2.87

98x / CAGR 1998-200397x / CAGR 1997-2002

Dividend Yield

Source: IMI, Reuters, The Estimate Directory, IBES (see note on page 2)


20/22

GROWTH AND MARGINS

Company CAGR CAGR1997 1998E 1999E 2000E 1997-02 1997 1998E 1999E 2000E 1997-02 1997 1998E 1999E 2000E 1997 1998E 1999

Incumbents

British Telecom 4.7 6.7 6.8 6.9 6.8 5.9 -6.5 14.2 10.3 8.6 38.7 38.4 39.3 40.0 20.6 24.8 20

Deutsche Telekom - 2.3 0.1 4.2 - - 12.3 4.9 24.4 - - - - - 4.9 6.5 6France Telecom - 2.9 7.1 7.4 - - -0.4 9.3 12.6 - - - - - 9.5 9.2 9

KPN - 9.6 4.2 2.6 - - 20.3 -2.6 10.8 - - - - - 17.6 12.0 12

OTE - - - - - - 7.0 11.8 - - - - - - 22.9 -

Portugal Telecom - - - - - - 15.3 17.4 17.6 - - - - - 13.0 -

Sonera - - - - - - 26.1 20.4 15.9 - - - - - 22.9 -

Swisscom 3.3 4.0 3.0 2.8 2.9 NM NM 4.6 19.9 NM 20.9 44.2 45.7 46.3 -4.2 18.9 24

Tele Danmark - 15.5 6.9 5.6 - - 140.7 13.4 14.0 - - - - - 10.0 16.0 16

Telecom Italia 9.9 4.9 8.2 6.1 5.5 10.4 65.0 9.8 11.9 19.3 48.5 50.3 51.9 53.1 15.8 24.2 25

Telefonica - 13.6 9.4 4.4 - - 14.0 16.9 16.4 - - - - - 8.0 8.3 9

Average 6.0 7.4 5.7 5.0 5.1 8.1 29.4 10.9 15.4 13.9 36.0 44.3 45.6 46.5 12.8 15.0 15


Cable & Wireless - - - - - - -42.6 6.6 - - - - - - 31.2 -

C&W Comms - 14.9 14.2 - - - NM 33.0 - - - - - - -2.1 6.5 7

Colt Telecom - 140.5 82.4 - - - 56.0 39.1 - - - - - - -40.7 -31.2 -24

Energis - 63.8 43.6 - - - -56.5 -63.2 - - - - - - -36.9 -11.7 -2Equant - - - - - - -95.3 NM - - - - - - -4.1 -

Mannesmann - 14.2 6.2 6.5 - - 27.8 23.5 19.5 - - - - - 1.3 2.5 3

Netcom AB - 52.5 27.0 18.9 - - 236.4 93.2 38.9 - - - - - - 8.1 16

Olivetti -20.4 4.4 53.2 15.5 17.7 NM 952.7 137.1 -36 60.8 -0.7 22.0 26.9 30.1 0.8 14.5 19

Telewest - 42.0 52.1 - - - -45.0 -5.1 - - - - - - -80.1 -58.5 -37

Average -20.4 47.5 39.8 13.6 17.7 - 153.7 36.8 7.6 60.8 -0.7 22.0 26.9 30.1 -23.1 -10.0 -2

Mobile

Europolitan - 49.1 30.8 19.6 - - 113.5 43.3 27.3 - - - - - 17.0 30.0 34

Mobistar - - - - - - - -14.5 NM - - - - - -81.0 -

Netcom ASA - 17.9 16.8 14.6 - - NM 160.3 52.0 - - - - - -10.9 6.9 17

Orange 47.6 38.6 28.4 18.3 22.4 -44.6 -21.3 -46.7 NM NM 5.1 13.6 22.3 29.1 -15.2 -8.6 -3

Panafon - - - - - - - - - - - - - - 19.5 -

STET Hellas - - - - - - - - - - - - - - 6.2 -

Telecel - - - - - - 42.4 27.0 14.3 - - - - - 15.2 -

TIM 28.7 29.2 23.4 10.2 14.5 64.0 54.6 25.1 15.6 21.5 26.4 27.6 27.5 29.8 32.5 35.8 36

Vodafone 41.3 36.6 22.5 19.5 21.4 15.6 35.4 20.5 21.5 23.1 35.0 34.7 35.5 36.4 26.3 26.7 25

Average 39.2 34.3 24.4 16.4 19.4 11.7 44.9 30.7 26.2 22.3 22.2 25.3 28.4 31.7 1.1 18.1 22

Average - All Operators 16.4 28.2 22.3 10.2 13.0 10.3 72.5 23.7 17.1 26.7 24.8 33.0 35.6 37.8 -0.4 7.0 10

Pre-tax Profit MaRevenue Growth (%) Adj. EPS Growth (%) EBITDA Margin (%)

Source: IMI, Reuters, The Estimate Directory, IBES (see note on page 2)


21/22

WESTERN EUROPEAN CELLULAR SUBSCRIBERS

Country Pop Launch Pen Subscribers ('000s) Digital as Monthly Net Adds ('000s) Net Adds Digital as

As at end Dec 98 (m) Date Analogue Digital Total % of Total Analogue Digital Total Past 6 mths % of Total

1 Austria 8.1 Nov-84 28.0% 200 2,071 2,271 91.2% -6.7 260.5 253.8 707.2 102.6%

2 Belgium 10.2 Apr-87 17.1% 8 1,740 1,748 99.5% -0.8 190.0 189.2 482.5 100.4%

3 Denmark 5.3 Jan-82 33.7% 185 1,605 1,790 89.7% -2.4 88.0 85.6 293.5 102.8%

4 Finland 5.2 Mar-82 57.8% 406 2,576 2,981 86.4% -11.2 125.0 113.8 517.0 109.8% 5 France 59.1 Nov-85 18.7% 47 11,024 11,071 99.6% -6.1 1,304.1 1,298.0 3,385.4 100.5%

6 Germany 82.1 Sep-85 17.0% 400 13,525 13,925 97.1% 35.0 862.0 897.0 3,325.0 96.1%

7 Greece 10.5 Jul-93 19.3% 2,037 2,037 100.0% 190.2 190.2 696.2 100.0%

8 Ireland 3.7 Dec-85 21.6% 185 609 794 76.7% -7.0 59.0 52.0 193.0 113.5%

9 Italy 57.5 Sep-85 35.6% 3,600 16,890 20,490 82.4% 60.0 1,280.0 1,340.0 5,050.0 95.5%

10 Netherlands 15.7 Jan-85 21.3% 90 3,257 3,347 97.3% -11.1 220.9 209.7 897.1 105.3%

11 Norway 4.4 Nov-81 47.7% 311 1,810 2,121 85.4% -8.4 74.9 66.5 275.7 112.7%

12 Portugal 9.9 Jan-89 29.9% 2 2,951 2,953 99.9% -0.2 180.6 180.4 950.5 100.1%

13 Spain 39.4 Jun-82 17.9% 893 6,158 7,051 87.3% -2.0 697.0 695.0 1,818.0 100.3%

14 Sweden 8.9 Aug-81 47.8% 575 3,683 4,258 86.5% -9.0 193.0 184.0 696.6 104.9%

15 Switzerland 7.1 Jan-85 22.5% 42 1,563 1,605 97.4% -7.0 35.0 28.0 297.5 125.0%

16 UK 59.2 Jan-85 22.0% 1,313 11,688 13,001 89.9% -37.0 1,658.0 1,621.0 3,403.0 102.3%

Total 386.4 Aug-81 23.7% 8,257 83,186 91,443 91.0% -14.0 7,418.2 7,404.3 22,988.2 100.2%

Subscribers and Penetration Subscriber Growth

57.8%47.8%

47.7%

35.6%

33.7%

29.9%

28.0%

22.5%

22.0%

21.6%

21.3%

19.3%

18.7%

17.9%17.1%

17.0%

0 5 10 15 20

Germany

Belgium

Spain

France

Greece

Netherlands

Ireland

UK

Switzerland

Austria

Portugal

Denmark

Italy

Norway

Sweden

Finland

Subscribers (millions)

Subs - end Jun 1998 Subs - end Dec 1998 X% - Penetration

0

10

20

30

40

50

60

70

80

90

100

Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec

Subscribers(millions)

Analogue GSM-900 GSM-

Source: IMI, Global Mobile, Mobile Communications


22/22

Banca DIntermediazione Mobiliare IMI Spa, co-ordinates the I nvestment Banking activities of the SANPAOLO - IMI Banking Groupthroughout Europe. Worldwide, these activities are conducted through the following companies:

BANCA

DINTERMEDIAZIONE

Corso Matteotti 620121 Milan

IMI BANK (LUX) SA 8 Avenue de la Libert1930 Luxembourg

MOBILIARE IMI SPA Italy Luxembourg

Tel: (39 02) 7751.1 Tel: (35-2) 4045751Fax: (39 02) 76019313 Fax: (35-2) 494198Dealing: (39 02) 77515600 Dealing: (35-2) 404575340

BANCA Wren House MABON SECURITIES CORP One Liberty Plaza

DINTERMEDIAZIONE 15 Carter Lane 165 Broadway, 31st Floor

MOBILIARE IMI SPA London EC4V 5EY New York NY 10006, USALONDON BRANCH

Tel: (44-171) 454 4800 Tel: (1-212) 346 5000Fax: (44-171) 894 4215 Fax: (1-212) 346 5074Dealing: (44-171) 894 4222 Dealing: (1-212) 346 5080

INTERNET: http://www.bimimi.it

Distributed by and approved by: Banca DIntermediazione Mobiliare IMI Spa London Branch, a member of the London Stock Exchangeand regulated by the Se curities and Futures Authority for the conduct of invesment business in the UK; Banca DIntermediazione Mobiliare IMISpa, an authorised bank, in Italy; IMI Bank (Lux) S.A., a member of the Luxembourg Stock Exchange, in the Benelux countries and MabonSecurities Corp., a member of the NYSE and N ASD in the USA. The information and opinions contained in this document are based on sourcesbelieved to be reliable and in good faith but no representation or warranty, express or implied, is made by any member of the SANPAOLO - IMIBanking Group as to their accuracy, completeness or correctness. All opinions expressed herein are subject to change without notice. Thisdocument is for information purposes only, descriptions of any company or companies or their securities mentioned herein are not intended tobe complete and this document is not, and should not be construed as, an offer to buy or sell any securities. Neither member companies ofSANPAOLO - IMI Banking Group nor any of their directors, representatives or employees accepts liability for any direct or consequential lossarising from use of this document. Member companies of t he SANPAOLO - IMI Banking Group, their directors and/or representatives and/or

employees and/or families may have a long or short position in any of the securities mentioned in this document at any time and may make apurchase and/or sale, or offer to make a purchase and/or sale, of any of the securities from time to time in the open market or otherwise, and mayalso have performed, are performing or seeking to perform investment services for companies mentioned herein and may also have acted uponresearch recommendations or other information before publication, in each case either as principals or as agents. This document is not fordistribution in the United Kingdom to persons who would be defined as private customers under the rules of the SFA. Furthermore, thisdocument may not be reproduced, distributed or published for any purpose. By accepting this document you agree to be bound by all of theforegoing provisions.

Italian Persons: This report is based upon information and data from sources that we believe reliable, but whose accuracy is not guaranteed. Itsmain goal is to offer accurate and up-to-date information: it is not intended, therefore, as an offer or a solicitation to buy or sell securities. BancaDIntermediazione Mobiliare IMI Spa, and others associated with it may have positions in, and may effect transactions in securities ofcompanies mentioned herein may also perform or seek to perform investment banking services for those companies.

US Persons: This report has been prepared for distribution by Mabon Securities Corp., New York, which accepts responsibility for its contents.Mabon Securities Corp should be contacted to initiate any transaction in any security discussed herein. Further information is available uponrequest.

european telecoms -- 1999 02 18

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